Exhibit 99.1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
AiXin Life International, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of AiXin Life International, Inc. (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows for the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for the years ended December 31, 2021 and 2020, in conformity with the U.S. generally accepted accounting principles in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Revenue Recognition – Identifying and evaluating the timing and amount of revenue recognition
Description of the Matter
As described in Note 2 of the consolidated financial statements, the Company provides advertising services to its customers, and revenue related to these services were recognized over the applicable service period. The Company also purchases products from the same customer. The principal considerations for our determination that performing procedures relating to revenue recognition, specifically the identification and evaluation of the timing and amount of revenue recognition, is a critical audit matter, involved judgment exercised by management in identifying and evaluating the timing and amount of advertising revenue recognition. Auditor judgement is involved in performing our audit procedures to evaluate whether the timing and amount of revenue recognition on advertising was appropriately stated.
How We Addressed the Matter in Our Audit
Our audit procedures over determining the time period over which the advertising revenue is recognized involved, among others, evaluation of management’s assessment in regard to the timing and amount of advertising revenue recognition. We selected customer agreements and performed the following procedures:
| ● | Obtained and read the customer agreements or contracts for each selected agreement. | |
| ● | Evaluated and tested management’s identification of significant terms for completeness, including the identification of performance obligations. | |
| ● | From the terms in the customer agreement, evaluated the appropriateness of management’s application of their accounting policies, in their determination of revenue recognition conclusions. |
For the payment made to customer, we evaluated the application of the Company’s accounting policies in the context of applicable accounting standards. In addition, we tested the mathematical accuracy of management’s calculations of revenue and the associated timing and amount of revenue recognized in the consolidated financial statements.
/s/ KCCW Accountancy Corp.
We have served as the Company’s auditor since 2019.
Diamond Bar, California
April 15, 2022, except for the effects of the restatement disclosed in Note 2, as to which the date is December 10, 2024
AIXIN LIFE INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(RESTATED)
| December 31 | December 31 | |||||||
| 2021 | 2020 | |||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Accounts receivable, net | ||||||||
| Accounts receivable, related party | ||||||||
| Other receivables and prepaid expenses | ||||||||
| Prepaid taxes | ||||||||
| Advances to suppliers | ||||||||
| Inventory, net | ||||||||
| Due from related parties | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Intangible asset, net | ||||||||
| Deferred tax asset | ||||||||
| Security deposit | ||||||||
| Operating lease right-of-use assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and stockholders’ equity | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Unearned revenue | ||||||||
| Taxes payable | ||||||||
| Accrued liabilities and other payables | ||||||||
| Loan from third parties | ||||||||
| Operating lease liabilities | ||||||||
| Due to related parties | ||||||||
| Total current liabilities | ||||||||
| Operating lease liabilities - non-current | ||||||||
| Total liabilities | ||||||||
| Stockholders’ equity | ||||||||
| Undesignated preferred stock, $ par value, shares authorized, issued and outstanding | ||||||||
| Common stock, par value $ per share, shares authorized; shares issued and outstanding as of December 31, 2021 and 2020 | ||||||||
| Additional paid in capital | ||||||||
| Statutory reserve | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive income | ||||||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
AIXIN LIFE INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(RESTATED)
| Years Ended December 31, | ||||||||
| 2021 | 2020 | |||||||
| Sales revenue: | ||||||||
| Products | $ | $ | ||||||
| Advertising | ||||||||
| Room revenues | ||||||||
| Food and beverage revenues | ||||||||
| Others | ||||||||
| Total revenue, net | ||||||||
| Operating costs and expenses | ||||||||
| Cost of goods sold | ||||||||
| Hotel operating costs | ||||||||
| Selling | ||||||||
| General and administrative | ||||||||
| Provision for bad debts | ||||||||
| Stock-based compensation | ||||||||
| Total operating costs and expenses | ||||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Non-operating income (expenses) | ||||||||
| Interest income | ||||||||
| Other income | ||||||||
| Other expenses | ( | ) | ( | ) | ||||
| Total non-operating income, net | ||||||||
| (Loss) income before income tax | ( | ) | ||||||
| Income tax expense | ||||||||
| Net (loss) income | ( | ) | ||||||
| Other comprehensive items | ||||||||
| Foreign currency translation gain | ||||||||
| Comprehensive (loss) income | $ | ( | ) | $ | ||||
| (Loss) income per share - basic and diluted | $ | ) | $ | |||||
| Weighted average shares outstanding - basic and diluted | ||||||||
AIXIN LIFE INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (RESTATED)
| Common Stock | Additional paid in | Statutory | Accumulated | Accumulated other comprehensive | ||||||||||||||||||||||||
| Shares | Amount | capital | reserves | deficit | income | Total | ||||||||||||||||||||||
| Balance at December 31, 2019 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||
| Cancellation of shares | ( | ) | ( | ) | ||||||||||||||||||||||||
| Return of prepayment for acquisition | - | |||||||||||||||||||||||||||
| Capital contribution | - | |||||||||||||||||||||||||||
| Statutory reserve | - | ( | ) | |||||||||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||||||||||
| Net income | - | |||||||||||||||||||||||||||
| Foreign currency translation | - | |||||||||||||||||||||||||||
| Balance at December 31, 2020 | ( | ) | ||||||||||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||||||||||
| Acquisition of subsidiaries | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Debt forgiven by major shareholder | - | |||||||||||||||||||||||||||
| Shareholder contribution | - | |||||||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Foreign currency translation | - | |||||||||||||||||||||||||||
| Balance at December 31, 2021 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||
AIXIN LIFE INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(RESTATED)
| For the Years Ended December 31 | ||||||||
| 2021 | 2020 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net (loss) income | $ | ( | ) | $ | ||||
| Adjustments required to reconcile net income to net cash (used in) provided by operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Provision for bad debt allowance | ||||||||
| Operating lease expense | ||||||||
| Stock based compensation | ||||||||
| Deferred tax | ( | ) | ||||||
| Changes in net assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Accounts receivable - related parties | ( | ) | ||||||
| Other receivables and prepaid expenses | ( | ) | ||||||
| Advances to suppliers | ( | ) | ||||||
| Inventory | ( | ) | ( | ) | ||||
| Accounts payable | ( | ) | ||||||
| Unearned revenue | ( | ) | ||||||
| Taxes payable | ( | ) | ||||||
| Payment of operating lease liabilities | ( | ) | ( | ) | ||||
| Accrued liabilities and other payables | ( | ) | ( | ) | ||||
| Net cash (used in) provided by operating activities | ( | ) | ||||||
| CASH FLOWS FROM INVESTING | ||||||||
| ACTIVITIES: Purchase of property and equipment | ( | ) | ( | ) | ||||
| Payment for (return of payment for) acquisition | ( | ) | ||||||
| Net cash (used in) provided by investing activities | ( | ) | ||||||
| CASH FLOWS FROM FINANCING | ||||||||
| ACTIVITIES: Proceeds from related parties | ||||||||
| Repayment of loan from third parties | ( | ) | ||||||
| Capital contribution | ||||||||
| Net cash provided by financing activities | ||||||||
| EFFECT OF EXCHANGE RATE CHANGE ON CASH AND CASH EQUIVALENTS AND RESTRICTED CASH | ||||||||
| NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH | ||||||||
| CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF YEAR | ||||||||
| CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, END OF YEAR | $ | $ | ||||||
| Supplemental Cash flow data: | ||||||||
| Income tax paid | $ | $ | ||||||
| Interest paid | $ | $ | ||||||
| Non-cash investing and financing activities: | ||||||||
| Capital contribution from forgiveness of related party loan | $ | $ | ||||||
AIXIN LIFE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED)
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
Aixin
Life International, Inc. (the “Company” or “Aixin Life” or “we”) was incorporated under the laws
of the State of Colorado on December 30, 1987 under the name Mercari Communications Group, Ltd (“Mercari”). On February 2,
2017, Mr. Quanzhong Lin (Mr. Lin) purchased shares of the Company’s common stock,
On December 12, 2017, the Company issued shares of common stock to Mr. Lin, the sole stockholder of AiXin (BVI) International Group Co., Ltd. a British Virgin Islands corporation (“AiXin BVI”), for his shares of AiXin BVI, pursuant to a Share Exchange Agreement.
As a result of the Share Exchange, AiXin BVI became the Company’s wholly-owned subsidiary, and the Company now owns all of the outstanding shares of HK AiXin International Group Co., Limited, a Hong Kong limited company (“AiXin HK”), which in turn owns all of the outstanding shares of Chengdu AiXinZhonghong Biological Technology Co., Ltd., a Chinese limited company (“AiXinZhonghong”), which markets and sells premium-quality nutritional products in China.
AiXin BVI was incorporated on September 21, 2017 as a holding company and AiXin HK was established in Hong Kong on February 25, 2016 as an intermediate holding company. AiXinZhonghong was established in the People’s Republic of China (“PRC”) on March 4, 2013, and on May 27, 2017, the local government of the PRC issued a certificate of approval regarding the foreign ownership of AiXinZhonghong by AiXin HK. Neither AiXin BVI nor AiXin HK had operations prior to December 12, 2017.
For accounting purposes, the acquisition of AiXin BVI was accounted for as a reverse acquisition and treated as a recapitalization of the Company effected by a share exchange, with AiXin BVI as the accounting acquirer. Since neither AiXin BVI nor AiXin HK had operations prior to December 12, 2017, the historical consolidated financial statements of AiXinZhonghong are now the historical consolidated financial statements of the Company. The assets and liabilities of AiXinZhonghong were brought forward at their book value and no goodwill was recognized.
Effective February 1, 2018, pursuant to Articles of Amendment to the Company’s Articles of Incorporation filed with the Secretary of State of Colorado, the Company changed its name to AiXin Life International., Inc (“Aixin Life”).
The Company, through its indirectly owned AiXinZhonghong subsidiary, mainly develops and distributes consumer products by offering a line of nutritional products. The Company sells the products through exhibition events, conferences, and person-to-person marketing. Beginning in 2019, the Company began to provide advertising services to clients who engaged the Company to help distribute their products. The Company’s business mainly focuses on a proactive approach to its customers such as hosting events for clients, which it believes is ideally suited to marketing its products because sales of nutrition products are strengthened by ongoing personal contact and support, coaching and education of its clients, as to the benefits of a healthy and active lifestyle.
On
May 25, 2021, AiXin HK entered into an Equity Transfer Agreement with Chengdu Aixin Shangyan Hotel Management Co., Ltd (“Aixin
Shangyan Hotel”), and its two shareholders Quanzhong Lin and Yirong Shen (“Transferor”). Pursuant to the agreement
(the “Hotel Purchase Agreement”), Aixin Life agreed to purchase
2021.
The acquisitions will be accounted for as acquisitions of entities under common control under ASC 805-50-15-6, and the assets and liabilities acquired will be measured and recorded at the carrying amount under ASC 805-50-30-5. The results of operations during the year ended December 31, 2021 were presented as through the acquisition of Aixin Shangyan Hotel and Aixintang Pharmacies has occurred at the beginning of the period. The consolidated financial statements and financial information presented for prior years have been retrospectively adjusted to reflect the acquisition under common control.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements are prepared in conformity with U.S. Generally Accepted Accounting Principles (“US GAAP”). The functional currency of AiXinZhonghong, Aixin Shangyan Hotel and Aixintang Pharmacies is Chinese Renminbi (“RMB”). The accompanying consolidated financial statements are translated from RMB and presented in U.S. dollars (“USD”).
The consolidated financial statements include the accounts of the Company and its current wholly owned subsidiaries, AiXin HK, AiXinZhonghong, Aixin Shangyan Hotel and Aixintang Pharmacies. Intercompany transactions and accounts were eliminated in consolidation.
Covid – 19
On March 11, 2020, the World Health Organization announced that infections caused by the corona virus disease of 2019 (“COVID-19”) had become pandemic. The Government of China has adopted various regulations and orders, including mandatory quarantines, limits on the number of people that may gather in one location, closing non-essential businesses and travel bans to limit the spread of the disease. Many of these measures have been relaxed due to the decrease in the prevalence of Covid-19 in China. However, since February 2022 to date, COVID-19 cases have increased again in many cities of China. There has been only a slight increase in the number of cases in Sichuan Province, the Province in which the Company is located, and the Company does not expect that the increase will impact the Company’s operations.
Financial impacts related to COVID-19, including the Company’s actions and costs incurred in response to the pandemic, were not material to the Company’s financial position, results of operations or cash flows for the year ended December 31, 2021. The Company has implemented procedures to promote employee and customer safety. These measures will not significantly increase its operating costs. However, the Company cannot predict with certainty what measures may be taken by its suppliers and customers and the impact these measures may have on its future financial position, results of operations or cash flows.
Use of Estimates
In preparing consolidated financial statements in conformity with US GAAP, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the consolidated financial statements, as well as the reported amounts of revenues and expenses during the reporting period.
Significant estimates, required by management, include the recoverability of long-lived assets, allowance for doubtful accounts, and the reserve for obsolete and slow-moving inventories. Actual results could differ from those estimates.
Cash and Cash Equivalents
For financial statement purposes, the Company considers all highly liquid investments with an original maturity of three months or less to be cash and cash equivalents.
Restricted Cash
The restricted cash was for the temporary frozen of bank accounts held by Aixintang Pharmacy Co., Ltd. (“Aixintang Pharmacy”) and its branches by the court for a complaint against the Aixintang Pharmacy while Aixintang Pharmacy is the process of appeal (see Note 17 – litigation).
Accounts Receivable
The
Company’s policy is to maintain an allowance for potential credit losses on accounts receivable. Management reviews the composition
of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends
and changes in customer payment patterns to evaluate the adequacy of these reserves. As of December 31, 2021 and 2020, the bad debt allowance
was $
Inventories
Inventories mainly consists of health supplements, drugs, pharmaceutical and nutritional products, food and beverage, hotel supplies and consumables. Inventories are valued at the lower of average cost or market, cost being determined on a moving weighted average method at the end of the month. Management compares the cost of inventories with the net realizable value and an allowance is made for writing down inventories to market value, if lower. The Company recorded no inventory impairment for the years ended December 31, 2021 and 2020.
In July 2015, the FASB issued Accounting Standards Update (“ASU”) 2015-11, “Inventory (Topic 330) - Simplifying the Measurement of Inventory,” which requires that inventory within the scope of the guidance be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.
Property and Equipment
Property
and equipment are stated at cost, less accumulated depreciation, and impairment losses, if any. Major repairs and betterments that significantly
extend original useful lives or improve productivity are capitalized and depreciated over the period benefited. Maintenance and repairs
are expensed as incurred. When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation
are removed from the respective accounts, and any gain or loss is included in operations. Depreciation of property and equipment is provided
using the straight-line method for substantially all assets with
| Office furniture | ||
| Electronic equipment | ||
| Machinery | ||
| Leasehold improvements | ||
| Vehicles |
Impairment of Long-Lived Assets
Long-lived assets, which include property and equipment and intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, but at least annually.
Recoverability
of long-lived assets to be held and used is measured by comparing the carrying amount of an asset to the estimated undiscounted future
cash flows expected to be generated by it. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, an
impairment charge is recognized by the amount by which the carrying amount of the asset exceeds its fair value. Fair value is generally
determined using the asset’s expected future discounted cash flows or market value, if readily determinable. Based on its review,
the Company believes that, as of December 31, 2021 and 2020, there were
Income Taxes
Income taxes are accounted for using an asset and liability method. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates, applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
The Company follows Accounting Standards Codification (“ASC”) Topic 740, which prescribes a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740 also provides guidance on recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, accounting for income taxes in interim periods, and income tax disclosures.
Under ASC Topic 740, when tax returns are filed, it is likely that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the consolidated financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50% likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination. Interest associated with unrecognized tax benefits is classified as interest expense and penalties are classified in selling, general and administrative expenses in the statement of income.
At
December 31, 2021 and 2020, the Company did
Revenue Recognition
ASU No. 2014-09, Revenue from Contracts with Customers (“Topic 606”), became effective for the Company on January 1, 2018. The Company’s revenue recognition disclosure reflects its updated accounting policies that are affected by this new standard. The Company applied the “modified retrospective” transition method for open contracts for the implementation of Topic 606. As revenues are and have been primarily from the delivery of products and the performance of services, and the Company has no significant post-delivery obligations, this did not result in a material recognition of revenue on the Company’s accompanying consolidated financial statements for the cumulative impact of applying this new standard. The Company made no adjustments to its previously-reported total revenues, as those periods continue to be presented in accordance with its historical accounting practices under Topic 605, Revenue Recognition.
Revenue from sale of goods under Topic 606 is recognized in a manner that reasonably reflects the delivery of the Company’s products and services to customers in return for expected consideration and includes the following elements:
| ● | executed contract(s) with customers that the Company believes is legally enforceable; | |
| ● | identification of performance obligation in the respective contract; | |
| ● | determination of the transaction price for each performance obligation in the respective contract; | |
| ● | allocation of the transaction price to each performance obligation; and | |
| ● | recognition of revenue only when the Company satisfies each performance obligation. |
The Company’s revenue recognition policies for its various operating segments are as follows:
Advertising and Products
Advertising Revenue
Commencing in the third quarter of 2019, AiXin Zhonghong began to provide advertising services to its clients. Advertising contracts are signed to establish the price and advertising services to be provided. Pursuant to the advertising contracts, the Company provides advertising and marketing services to its clients through exhibition events, conferences, and person-to- person marketing. The Company performs a credit assessment of the customer to assess the collectability of the contract price prior to entering into contracts.
Most
of the advertisement contracts designated that the Company perform such advertising services for its clients through exhibition events,
conferences, and person-to-person marketing during the contracted period, regardless of the number of such events. As such, the Company
determined that the performance obligation is satisfied over time during the contracted period and revenue is recognized accordingly.
Such advertising revenue amounted to $
A
smaller proportion of the Company’s advertising revenue is generated from services to its clients through exhibition events, conferences,
and person-to-person marketing, and charges based on the number of promotional products sold. Such advertising revenue amounted to $
All
of the advertising revenue is subject to the PRC VAT of
Products Revenue
The Company’s revenue from sale of products is recognized when goods are delivered to the customer and no other obligation exists. The Company does not provide unconditional return or other concessions to the customer. The Company’s sales policy allows for the return of unopened products for cash after deducting certain service and transaction fees. As an alternative to the product return option, the customers have options of asking for an exchange for products with the same value.
Sales
revenue of AiXin Zhonghong represents the invoiced value of goods, net of value-added taxes (“VAT”). All of the Company’s
products sold in China are subject to the PRC VAT of
Hotel
Hotel
revenues are primarily derived from the rental of rooms, food and beverage sales and other ancillary goods and services, including but
not limited to souvenir, parking and conference reservation. Each of these products and services represents a distinct performance obligation
and, in exchange for these services, the Company receives fixed amounts based on published rates or negotiated contracts. Payment is
due in full at the time when the services are rendered or the goods are provided. Room rental revenue is recognized on a daily basis
when rooms are occupied. Food and beverage revenue and other goods and services revenue are recognized when they have been delivered
or rendered to the guests as the respective performance obligations are satisfied. All of the hotel’s goods sold in China are subject
to the PRC VAT of
Pharmacies
The
Company’s retail drugstores (Aixintang Pharmacies) recognize revenue at the time the customer takes possession of the merchandise.
For pharmacy sales, each prescription claim is its own arrangement with the customer and is a performance obligation. Aixintang Pharmacies
generally receives payments from customers as it satisfies its performance obligations. The Company records a receivable when it has
an unconditional right to receive payment and only the passage of time is required before payment is due. Sales revenue represents the
invoiced value of goods, net of VAT. All of Aixintang Pharmacies’ products sold in China are eligible for the PRC VAT of
Unearned Revenue
The Company’s unearned revenue primarily consists of advances received from customers for the rental of hotel rooms prior to the delivery of service. The room rental services are delivered (normally within one year) based upon contract terms and customer demand.
Concentration of Credit Risk
The operations of the Company are in the PRC. Accordingly, the Company’s business, financial condition, and results of operations may be influenced by the political, economic, and legal environments in the PRC, and by the general state of the PRC economy.
The
Company has cash on hand and demand deposits in accounts maintained with state-owned banks within the PRC. Cash in state-owned banks
is covered by insurance up to RMB
During the year ended December 31, 2021, the Company had two major customers that accounted for over 10% of its total revenue.
| Customer | Net sales for the year ended December 31, 2021 | % of total revenue | ||||||
| A* | $ | % | ||||||
| B | % | |||||||
During the year ended December 31, 2020, the Company had one major customer that accounted for over 10% of its total revenue.
| Customer | Net sales for the year ended December 31, 2020 | % of total revenue | ||||||
| A* | $ | % | ||||||
During the year ended December 31, 2021, the Company had one major supplier that accounted for over 10% of its total purchases.
| Supplier | Net purchases for the year ended December 31, 2021 |
% of total purchase | ||||||
| C | $ | % | ||||||
| F | % | |||||||
During the year ended December 31, 2020, the Company had one major supplies that accounted for over 10% of its total purchases.
| Supplier | Net purchase for the year ended December 31, 2020 |
% of total purchase | ||||||
| A* | $ | % | ||||||
| * |
Leases
The Company adopted FASB Accounting Standards Codification, Topic 842, Leases (“ASC 842”) using the modified retrospective approach, electing the practical expedient that allows the Company not to restate prior to the adoption of the standard on January 1, 2019.
The Company applied the following practical expedients in the transition to the new standard allowed under ASC 842:
| Practical Expedient | Description | |
| Reassessment of expired or existing contracts | The Company elected not to reassess, at the application date, whether any expired or existing contracts contained leases, the lease classification for any expired or existing leases, and the accounting for initial direct costs for any existing leases. | |
Use of hindsight |
The Company elected to use hindsight in determining the lease term (that is, when considering options to extend or terminate the lease and to purchase the underlying asset) and in assessing impairment of right-to-use assets. | |
Reassessment of existing or expired land easements |
The Company elected not to evaluate existing or expired land easements that were not previously accounted for as leases under ASC 840, as allowed under the transition practical expedient. Going forward, new or modified land easements will be evaluated under ASU No. 2016-02. | |
| Separation of lease and non-lease components | Lease agreements that contain both lease and non-lease components are generally accounted for separately. | |
| Short-term lease recognition exemption | The Company also elected the short-term lease recognition exemption and will not recognize ROU assets or lease liabilities for leases with a term less than 12 months. |
The Company determines if an arrangement is a lease at inception under FASB ASC Topic 842, Right of Use Assets (“ROU”) and lease liabilities are recognized at commencement date based on the present value of remaining lease payments over the lease term. For this purpose, the Company considers only payments that are fixed and determinable at the time of commencement. As most of its leases do not provide an implicit rate, it uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company’s incremental borrowing rate is a hypothetical rate based on its understanding of what its credit rating would be. The ROU assets include adjustments for prepayments and accrued lease payments. The ROU asset also includes any lease payments made prior to commencement and is recorded net of any lease incentives received. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that it will exercise such options.
ROU assets are reviewed for impairment when indicators of impairment are present. ROU assets from operating and finance leases are subject to the impairment guidance in ASC 360, Property, Plant, and Equipment, as ROU assets are long-lived nonfinancial assets.
ROU assets are tested for impairment individually or as part of an asset group if the cash flows related to the ROU asset are not independent from the cash flows of other assets and liabilities. An asset group is the unit of accounting for long-lived assets to be held and used, which represents the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. The Company recognized no impairment of ROU assets as of December 31, 2021 and 2020. Operating leases are included in operating lease ROU and operating lease liabilities (current and non-current), on the consolidated balance sheets.
Statement of Cash Flows
In accordance with ASC Topic 230, “Statement of Cash Flows,” cash flows from the Company’s operations are calculated based on the local currencies using the average translation rates. As a result, amounts related to assets and liabilities reported on the consolidated statements of cash flows will not necessarily agree with changes in the corresponding balances on the consolidated balance sheets.
Fair Value of Financial Instruments
The carrying amounts of certain of the Company’s financial instruments, including cash and equivalents, accrued liabilities and accounts payable, approximate their fair value due to their short maturities. FASB ASC Topic 825, “Financial Instruments,” requires disclosure of the fair value of financial instruments held by the Company. The carrying amounts reported in the consolidated balance sheets for current liabilities each qualify as financial instruments and are a reasonable estimate of their fair value because of the short period of time between the origination of such instruments and their expected realization and the current market rate of interest.
Fair Value Measurements and Disclosures
ASC Topic 820, “Fair Value Measurements and Disclosures,” defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The three levels are defined as follow:
| ● | Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. | |
| ● | Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. | |
| ● | Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement. |
As of December 31, 2021 and 2020, the Company did not identify any assets and liabilities that are required to be presented on the balance sheet at fair value.
Foreign Currency Translation and Comprehensive Income (Loss)
The functional currency of the Company is RMB. For financial reporting purposes, RMB is translated into USD as the reporting currency. Assets and liabilities are translated at the exchange rate in effect at the balance sheet dates. Revenues and expenses are translated at the average rate of exchange prevailing during the reporting period.
Translation adjustments arising from the use of different exchange rates from period to period are included as a component of stockholders’ equity as “Accumulated other comprehensive income”. Gains and losses resulting from foreign currency transactions are included in income. There was no significant fluctuation in the exchange rate for the conversion of RMB to USD after the balance sheet date.
The Company uses FASB ASC Topic 220, “Comprehensive Income”. Comprehensive loss is comprised of net loss and all changes to the statements of stockholders’ equity, except those due to investments by stockholders, changes in paid-in capital and distributions to stockholders. Comprehensive income (loss) for the year ended December 31, 2021 and 2020 consisted of net income (loss) and foreign currency translation adjustments.
Basic income (loss) per share is computed on the basis of the weighted average number of common shares outstanding during the period.
Dilution is computed by applying the treasury stock method for options and warrants. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period.
As of December 31, 2021 and 2020, the Company did t have any potentially dilutive instruments.
Stock-Based Compensation
The Company periodically grants stock options, warrants and awards to employees and non-employees in non-capital raising transactions as compensation for services rendered. The Company accounts for stock option, stock warrant and stock award grants to employees based on the authoritative guidance provided by the FASB where the value of the award is measured on the date of grant and recognized over the vesting period. The Company accounts for stock option, stock warrant and stock award grants to non-employees in accordance with the authoritative guidance of the FASB where the value of the stock compensation is determined based upon the measurement date at either a) the date at which a performance commitment is reached, or b) at the date at which the necessary performance to earn the equity instruments is complete. Stock-based compensation charges generally are amortized over the vesting period on a straight-line basis. In certain circumstances where there are no future performance requirements by the employees and non-employees, option, warrant and award grants are immediately vested and the total stock-based compensation charge is recorded in the period of the measurement date.
Segment Reporting
ASC Topic 280, “Segment Reporting,” requires use of the “management approach” model for segment reporting. The management approach model is based on the way a company’s chief operating decision maker organizes segments within the Company for making operating decisions assessing performance and allocating resources. Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company.
The Company manages its business as three operating segments, advertising and products, pharmacies, and hotel, all of which are located in the PRC. All of its revenues are derived in the PRC. All long-lived assets are located in PRC.
The following table shows the Company’s operations by business segment for the year ended December 31, 2021 and 2020.
| 2021 | 2020 | |||||||
| Net revenue | ||||||||
| Advertising and products | $ | $ | ||||||
| Pharmacies | ||||||||
| Hotel | ||||||||
| Total revenues, net | $ | $ | ||||||
| Operating costs and expenses | ||||||||
| Advertising and products | ||||||||
| Cost of goods sold | $ | $ | ||||||
| Operating expenses | ||||||||
| Pharmacies | ||||||||
| Cost of goods sold | ||||||||
| Operating expenses | ||||||||
| Hotel | ||||||||
| Hotel operating costs | ||||||||
| Operating expenses | ||||||||
| Total operating costs and expenses | $ | $ | ||||||
| Income (loss) from operations | ||||||||
| Advertising and products | $ | $ | ||||||
| Pharmacies | ( | ) | ( | ) | ||||
| Hotel | ( | ) | ( | ) | ||||
| Income (loss) from operations | $ | ( | ) | $ | ( | ) | ||
| As of | As of | |||||||
| Segment assets | December 31, 2021 | December 31, 2020 | ||||||
| Advertising and products | $ | $ | ||||||
| Pharmacies | ||||||||
| Hotel | ||||||||
| Total assets | $ | $ | ||||||
Restatement of Previously Issued Financial Statements
The consolidated financial statements of the Company for the year ended December 31, 2021 have been restated in compliance with the Financial Accounting Standards Board (FASB) ASC 805-50-45 to present the results of operations for the year ended December 31, 2021 as through the acquisition of Aixin Shangyan Hotel and Aixintang Pharmacies has occurred at the beginning of the period. The comparative financial statements and financial information included in the consolidated financial statements as of and for the year ended December 31, 2021 presented for prior years have also been restated to reflect the retrospective adjustment for the acquisition under common control that financial data of previously separate entities are combined.
In addition, the Company corrected the financial statement presentation of the capital contribution from a major shareholder during the year ended December 31, 2021.
The Company included the following tables that present the effect of the adjustments discussed above on selected line items of our previously reported consolidated financial statements as of and for the years ended December 31, 2021 and 2020. Details of changes are presented in the following tables.
| As of and for the Year Ended December 31, 2021 | ||||||||||||
| Previously Reported | Adjustments | Restated | ||||||||||
| Consolidated Statements of Operations and Comprehensive Income (loss) | ||||||||||||
| Total Revenues, net | ||||||||||||
| Total operating costs and expenses | ||||||||||||
| (Loss) income from operations | ( | ) | ( | ) | ( | ) | ||||||
| Total non-operating income, net | ||||||||||||
| (Loss) income before income tax | ( | ) | ( | ) | ||||||||
| Net (loss) income | ( | ) | ( | ) | ( | ) | ||||||
| Comprehensive (loss) income | ( | ) | ( | ) | ( | ) | ||||||
As of and for the Year Ended December 31, 2021 | ||||||||||||
Previously Reported | Adjustments | Restated | ||||||||||
| Consolidated Statements of Stockholders’ Equity | ||||||||||||
| Accumulated deficit | ||||||||||||
| Acquisition of subsidiaries | ( | ) | ||||||||||
| Additional paid in capital | ||||||||||||
| Acquisition of subsidiaries | ( | ) | ( | ) | ( | ) | ||||||
| Debt forgiven by major shareholder | ( | ) | ||||||||||
| Shareholder contribution | ||||||||||||
| As of and for the Year Ended December 31, 2021 | ||||||||||||
Previously Reported | Adjustments | Restated | ||||||||||
| Consolidated Statements of Cash Flows | ||||||||||||
| Net cash (used in) provided by operating activities | ( | ) | ( | ) | ( | ) | ||||||
| Net cash (used in) provided by investing activities | ( | ) | ( | ) | ( | ) | ||||||
| Net cash provided by financing activities | ||||||||||||
| As of and for the Year Ended December 31, 2020 | ||||||||||||
Previously Reported | Adjustments | Restated | ||||||||||
| Consolidated Balance Sheets | ||||||||||||
| Total current assets | ||||||||||||
| Total assets | ||||||||||||
| Total current liabilities | ||||||||||||
| Total liabilities | ||||||||||||
| Total stockholders’ equity | ( | ) | ||||||||||
| Total liabilities and stockholders’ equity | ||||||||||||
| As of and for the Year Ended December 31, 2020 | ||||||||||||
Previously Reported | Adjustments | Restated | ||||||||||
| Consolidated Statements of Operations and Comprehensive Income (loss) | ||||||||||||
| Total Revenues, net | ||||||||||||
| Total operating costs and expenses | ||||||||||||
| (Loss) income from operations | ( | ) | ( | ) | ||||||||
| Total non-operating income, net | ||||||||||||
| (Loss) income before income tax | ( | ) | ||||||||||
| Net (loss) income | ( | ) | ||||||||||
| Comprehensive (loss) income | ( | ) | ||||||||||
| As of and for the Year Ended December 31, 2020 | ||||||||||||
| Previously Reported | Adjustments | Restated | ||||||||||
| Consolidated Statements of Stockholders’ Equity Additional paid in capital | ||||||||||||
| Return of prepayment for acquisition | ||||||||||||
| Capital contribution | ||||||||||||
| As of December 31, 2019 | ||||||||||||
| Previously Reported | Adjustments | Restated | ||||||||||
| Consolidated Statements of Stockholders’ Equity | ||||||||||||
| Additional paid in capital | ( | ) | ||||||||||
| As of and for the Year Ended December 31, 2020 | ||||||||||||
Previously Reported | Adjustments | Restated | ||||||||||
| Consolidated Statements of Cash Flows | ||||||||||||
| Net cash (used in) provided by operating activities | ( | ) | ||||||||||
| Net cash (used in) provided by investing activities | ( | ) | ||||||||||
| Net cash provided by financing activities | ||||||||||||
New Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326), which requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. Early application will be permitted for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company is currently evaluating the impact that the standard will have on its consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-04, Simplifying the Test for Goodwill Impairment. The guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its FV, not to exceed the carrying amount of goodwill. The guidance should be adopted on a prospective basis. As a smaller reporting company, the standard will be effective for the Company for interim and annual reporting periods beginning after December 15, 2022, with early adoption permitted. The Company is currently evaluating the impact of adopting this standard on the Company’s consolidated financial statements presentation or disclosures.
In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470- 20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity. This ASU (1) simplifies the accounting for convertible debt instruments and convertible preferred stock by removing the existing guidance in ASC 470-20, Debt: Debt with Conversion and Other Options, that requires entities to account for beneficial conversion features and cash conversion features in equity, separately from the host convertible debt or preferred stock; (2) revises the scope exception from derivative accounting in ASC 815-
40 for freestanding financial instruments and embedded features that are both indexed to the issuer’s own stock and classified in stockholders’ equity, by removing certain criteria required for equity classification; and (3) revises the guidance in ASC 260, Earnings Per Share, to require entities to calculate diluted earnings per share (EPS) for convertible instruments by using the if-converted method. In addition, entities must presume share settlement for purposes of calculating diluted EPS when an instrument may be settled in cash or shares. For SEC filers, excluding smaller reporting companies, ASU 2020-06 is effective for fiscal years beginning after December 15, 2021 including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. For all other entities, ASU 2020-06 is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Entities should adopt the guidance as of the beginning of the fiscal year of adoption and cannot adopt the guidance in an interim reporting period. The adoption of ASU 2020-06 is not expected to have any impact on the Company’s consolidated financial statements presentation or disclosures.
In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt — Modifications and Extinguishments (Subtopic 470-50), Compensation — Stock Compensation (Topic 718), and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (“ASU 2021-04”). ASU 2021-04 provides guidance as to how an issuer should account for a modification of the terms or conditions or an exchange of a freestanding equity-classified written call option (i.e., a warrant) that remains classified after modification or exchange as an exchange of the original instrument for a new instrument. An issuer should measure the effect of a modification or exchange as the difference between the fair value of the modified or exchanged warrant and the fair value of that warrant immediately before modification or exchange and then apply a recognition model that comprises four categories of transactions and the corresponding accounting treatment for each category (equity issuance, debt origination, debt modification, and modifications unrelated to equity issuance and debt origination or modification). ASU 2021-04 is effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. An entity should apply the guidance provided in ASU 2021-04 prospectively to modifications or exchanges occurring on or after the effective date. Early adoption is permitted for all entities, including adoption in an interim period. If an entity elects to early adopt ASU 2021-04 in an interim period, the guidance should be applied as of the beginning of the fiscal year that includes that interim period. The adoption of ASU 2021-04 is not expected to have any impact on the Company’s consolidated financial statements presentation or disclosures.
The Company’s management does not believe that any other recently issued, but not yet effective, authoritative guidance, if currently adopted, would have a material impact on the Company’s financial statement presentation or disclosures.
3. OTHER RECEIVABLES AND PREPAID EXPENSES
Other receivables and prepaid expenses consisted of the following at December 31, 2021 and 2020:
| December 31, 2021 | December 31, 2020 | |||||||
| Deposits | $ | $ | ||||||
| Prepaid expenses | ||||||||
| Employees’ social insurance | ||||||||
| Others | ||||||||
| Total | $ | $ |
4. ADVANCES TO SUPPLIERS
The
Company had advances to suppliers of $
5. INVENTORIES
Inventories consisted of the following at December 31, 2021 and 2020:
| December 31, 2021 | December 31, 2020 | |||||||
| Finished goods – health supplements | $ | $ | ||||||
| Drugs, pharmaceutical and nutritional products | ||||||||
| Food and beverage, hotel supplies and consumables | ||||||||
| Total | $ | $ | ||||||
6. PROPERTY AND EQUIPMENT, NET
Property and equipment consisted of the following at December 31, 2021 and 2020:
| December 31, 2021 | December 31, 2020 | |||||||
| Vehicles | $ | $ | ||||||
| Office furniture | ||||||||
| Electronic equipment | ||||||||
| Machinery | ||||||||
| Leasehold improvements | ||||||||
| Construction in progress | ||||||||
| Other | ||||||||
| Total | ||||||||
| Less: Accumulated depreciation | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
Depreciation
expense for the years ended December 31, 2021 and 2020 was $
7. INTANGIBLE ASSET, NET
Intangible asset consisted of the following at December 31, 2021 and 2020:
| December 31, 2021 | December 31, 2020 | |||||||
| Software | $ | $ | ||||||
| Less: Accumulated amortization | ( | ) | ( | ) | ||||
| Intangible asset, net | $ | $ |
Amortization
expense for the years ended December 31, 2021 and 2020 was $
8. TAXES PAYABLE
Taxes payable consisted of the following at December 31, 2021 and 2020:
| December 31, 2021 | December 31, 2020 | |||||||
| Value-added | $ | $ | ||||||
| Income | ||||||||
| City construction | ||||||||
| Education | ||||||||
| Other | ||||||||
| Taxes payable | $ | $ | ||||||
9. ACCRUED LIABILITIES AND OTHER PAYABLES
Accrued liabilities and other payables consisted of the following at December 31, 2021 and 2020:
| December 31, 2021 | December 31, 2020 | |||||||
| Accrued employees’ social insurance | $ | $ | ||||||
| Accrued payroll and commission | ||||||||
| Accrued rent expense | ||||||||
| Construction payable | ||||||||
| Accrued professional fees | ||||||||
| Deposit | ||||||||
| Other payables | ||||||||
| Total | $ | $ | ||||||
10. LOAN FROM THIRD PARTIES
As
of December 31, 2021 and 2020, the Company had advances from former shareholders and unrelated third parties of Aixin Shangyan Hotel
in an aggregate amount of $
11. LOAN TO THIRD PARTY
On
June 8, 2020, the Company entered into an unsecured loan agreement with a third party, pursuant to which the Company agreed to lend
RMB
12. LEASE
Concurrent
with the completion of the sale of its rights to a portion of a building completed in 2019, the Company entered into an agreement to
lease a portion of the building back from the buyer over a lease term of
The
Company also has operating leases for other sales locations under various operating lease arrangements. The leases have remaining lease
terms of approximately
Aixin
Shangyan Hotel leases its hotel premises under an operating lease arrangement. The lease has a remaining lease term of approximately
Aixintang
Pharmacies lease retail pharmacy stores under operating lease arrangements, with remaining lease terms of
Balance sheet information related to the Company’s leases is presented below:
| December 31, 2021 | December 31, 2020 | |||||||
| Operating Leases | ||||||||
| Operating lease right-of-use assets | $ | $ | ||||||
| Operating lease liabilities – current | $ | $ | ||||||
| Operating lease liability – non-current | ||||||||
| Total operating lease liabilities | $ | $ | ||||||
The following provides details of the Company’s lease expenses:
| Years Ended December 31, | ||||||||
| 2021 | 2020 | |||||||
| Operating lease expenses | $ | $ | ||||||
Other information related to leases is presented below:
| Years Ended December 31, | ||||||||
| 2021 | 2020 | |||||||
| Cash Paid For Amounts Included In Measurement of Liabilities: | ||||||||
| Operating cash flows from operating leases | $ | |||||||
| Weighted Average Remaining Lease Term: | ||||||||
| Operating leases | ||||||||
| Weighted Average Discount Rate: | ||||||||
| Operating leases | % | % | ||||||
Maturities of lease liabilities were as follows:
| For the year ending December 31: | ||||
| 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Total lease payments | ||||
| Less: imputed interest | ( | ) | ||
| Total lease liabilities | ||||
| Less: current portion | ( | ) | ||
| Lease liabilities – non-current portion | $ |
13. RELATED PARTY TRANSACTIONS
Accounts receivable – related party
As
of December 31, 2020, Aixin Shangyan Hotel had accounts receivable from an employee of AiXinZhonghong in the amount of $
Due from related parties
Due from related parties consisted of the following as of the periods indicated:
| December 31, 2021 | December 31, 2020 | |||||||
| Chengdu WenJiang Aixin Nanjiang Pharmacy Co., Ltd. | $ | $ | ||||||
| Sichuan Aixin Investment Co., Ltd | ||||||||
| Chengdu Lisheng Huiren Tang Pharmacy Co., Ltd. | ||||||||
| Total | $ | $ | ||||||
Due to related parties
Due to related parties consisted of the following as of the periods indicated:
| December 31, 2021 | December 31, 2020 | |||||||
| Quanzhong Lin | $ | $ | ||||||
| Yirong Shen | ||||||||
| Branch manager | ||||||||
| Chengdu Aixin E-Commerce Company Ltd. | ||||||||
| Chengdu Aixin International travel service Co, Ltd | ||||||||
| Aixin Life Beauty | ||||||||
| Total | $ | $ | ||||||
All the related party entities are controlled by Mr. Quanzhong Lin (the Chairman, President and major shareholder of Aixin Life). These advances to and from related parties were for working capital purpose, payable on demand, and bear no interest. Yirong Shen was a major shareholder of Aixin Shangyan Hotel prior to the closing of Hotel Purchase Agreement, and she serves as the supervisor of Aixin Shangyan Hotel.
Office lease from a Major Shareholder
In
May 2014, the Company entered a lease with its major shareholder for an office. The lease term was for
14. INCOME TAXES
The Company was incorporated in the United States of America (“USA”) and has operations in one tax jurisdiction, i.e. the PRC. The Company generated substantially all of its sales from its operations in the PRC for the years ended December 31, 2021 and 2020, and recorded an income tax provision for each of such periods.
China
has a tax rate of
The components of the provision for income taxes for the years ended December 31, 2021 and 2020 consisted of the following:
| For the Year Ended December 31, | ||||||||
| 2021 | 2020 | |||||||
| Current: | ||||||||
| China | $ | $ | ||||||
| Total current | ||||||||
| Deferred: | ||||||||
| China | ( | ) | ||||||
| Total deferred | ( | ) | ||||||
| Total income tax expense | $ | $ | ||||||
Deferred tax assets as of December 31, 2021 and 2020 consisted of the following:
December 31, 2021 | December 31, 2020 | |||||||
| Deferred tax assets: | ||||||||
| Accumulated amortization | $ | $ | ||||||
The following table reconciles the statutory rates to the Company’s effective tax rate for years ended December 31, 2021 and 2020:
| 2021 | 2020 | |||||||
| Statutory U.S. federal income tax rate | ( | )% | % | |||||
| Foreign tax rate differential | ( | )% | % | |||||
| Change in valuation allowances | % | % | ||||||
| Other (1) | % | ( | )% | |||||
| Effective combined tax rate | % | % | ||||||
| (1) |
As
of December 31, 2021, the Company had $
Uncertain Tax Positions
Interest
associated with unrecognized tax benefits are classified as income tax, and penalties are classified in selling, general and administrative
expenses in the statements of operations. For the years ended December 31, 2021 and 2020, the Company had
15. STOCKHOLDERS’ EQUITY
On
August 17, 2020, by unanimous written consent in lieu of a meeting, the Board adopted resolutions authorizing a
As of December 31, 2021 and 2020, the Company had common shares issued and outstanding.
In June 2020, shares owned by Quanzhong Lin (the Chairman, President and major shareholder of Aixin Life) were cancelled.
Stock Awards Issued for Services
On
October 22, 2019, the Company granted and issued shares to its employees and contractors under its 2019 Equity Incentive
Plan. The stock awards were valued at $
On
October 24, 2019, the Company granted and issued shares to its employees and contractors under its 2019 Equity Incentive
Plan. The stock awards were valued at $
The stock awards will vest over five () years from the grant date, and the grantee will forfeit a portion of the shares granted (“Shares Granted”) if the grantee is no longer employed by or contracted with the Company. Specifically,
For the years ended December 31, 2021 and 2020, stock-based compensation expenses were $. As of December 31, 2021, unrecognized compensation expenses related to these stock awards are $. These expenses are expected to be recognized over .
Forgiveness of shareholder’s loan
During
the year ended December 31, 2021, the Company’s major shareholder Mr. Lin forgave his loan to the Company for $
Shareholder contribution
During
the year ended December 31, 2020, a major shareholder of Aixintang Pharmacies made capital contribution to Aixintang Pharmacies in
the amount of $
During the year ended December 31, 2021, the Company’s major shareholder made capital contribution to the Company in the amount of $.
The Company recorded the shareholder contributions as additional paid-in capital.
Acquisition of Subsidiaries
As
of December 31, 2019, the Company had advances to Aixintang Pharmacies and Aixin Shangyan Hotel in the aggregate amount of $
As
of December 31, 2021, the Company completed the acquisitions of Aixin Shangyan Hotel and Aixintang Pharmacies (see Note 1). The acquisitions
were accounted for as acquisitions of entities under common control. In connection with the acquisitions, the Company made payments to
Mr. Lin in the aggregate amount of $
16. STATUTORY RESERVES
Pursuant to the PRC corporate law, the Company is now only required to maintain one statutory reserve by appropriating from its after-tax profit before declaration or payment of dividends. The statutory reserve represents restricted retained earnings.
Surplus reserve fund
The
Company is required to transfer
The
surplus reserve fund is non-distributable other than during liquidation and can be used to fund previous years’ losses, if any,
and may be utilized for business expansion or converted into share capital by issuing new shares to existing shareholders in proportion
to their shareholding or by increasing the par value of the shares currently held by them, provided that the remaining reserve balance
after such issue is not less than
Common welfare fund
Common
welfare fund is a voluntary fund to which the Company can elect to transfer
This fund can only be utilized on capital items for the collective benefit of the Company’s employees, such as construction of dormitories, cafeteria facilities, and other staff welfare facilities. This fund is non-distributable other than upon liquidation.
17. OPERATING CONTINGENCIES
The Company’s operations in the PRC are subject to specific considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environments and foreign currency exchange. The Company’s results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.
The Company’s sales, purchases and expenses are denominated in RMB and all of the Company’s assets and liabilities are also denominated in RMB. The RMB is not freely convertible into foreign currencies under the current law. In China, foreign exchange transactions are required by law to be transacted only by authorized financial institutions. Remittances in currencies other than RMB may require certain supporting documentation to affect the remittance.
Litigation
The Company is, from time to time, involved in litigation incidental to the conduct of its business regarding merchandise sold, employment matters, and litigation regarding intellectual property rights.
In
December 2020, Jian Yiao (the “Plaintiff”) filed a complaint against Chengdu Aixintang Pharmacy Co., Ltd. (“Aixintang
Pharmacy”, or the “Defendant”) in Zhangjiagang People’s Court in Jiangsu Province. The complaint alleges that
Jian Yiao is entitled to $
In February 2021, the judge in the Jiangsu Suzhou Intermediate People’s Court denied the Defendant’s motion and upheld the judgment from the first trial. In March 2021, Aixintang Pharmacy filed another motion to the Jiangsu High People’s Court on the basis that the Purchase Agreement was forged. In February 2022, Aixintang Pharmacy filed an appeal in Jiangsu High People’s Court against the judgment reached by Jiangsu Suzhou Intermediate People’s Court in February 2021. To date, this legal proceeding remains pending.
In November 2021, the Company and Mr. Quanzhong Lin agreed that Mr. Lin shall assume any losses arising from this legal proceeding. As such, the Company did not accrue contingent losses from this legal proceeding as of December 31,
2021.
The Company believes that current pending litigation will not have a material adverse effect on its consolidated financial position, results of operations or cash flows.
18. SUBSEQUENT EVENT
The Company follows the guidance in FASB ASC 855-10 for the disclosure of subsequent events. The Company evaluated subsequent events through the date the financial statements were issued and determined the Company has no material subsequent events.
| Consolidated Financial Statements for the three- and nine-month periods ended September 30, 2021 | |
| Consolidated Balance Sheets | |
| Consolidated Statements of Operations and Comprehensive Income (Loss) | |
| Consolidated Statements of Stockholders’ Equity (Deficit) | |
| Consolidated Statements of Cash Flows | |
| Notes to Consolidated Financial Statements |
AIXIN LIFE INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(RESTATED)
September 30, 2021 | December 31 2020 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Accounts receivable, related party | ||||||||
| Other receivables and prepaid expenses | ||||||||
| Prepaid taxes | ||||||||
| Advances to suppliers | ||||||||
| Inventory, net | ||||||||
| Due from related parties | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Intangible asset, net | ||||||||
| Security deposit | ||||||||
| Operating lease right-of-use assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and stockholders’ equity | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Unearned revenue | ||||||||
| Taxes payable | ||||||||
| Accrued liabilities and other payables | ||||||||
| Loan from third parties | ||||||||
| Operating lease liabilities | ||||||||
| Due to related parties | ||||||||
| Total current liabilities | ||||||||
| Operating lease liabilities - non-current | ||||||||
| Total liabilities | ||||||||
| Stockholders’ equity | ||||||||
| Undesignated preferred stock, $ par value, shares authorized, issued and outstanding | ||||||||
| Common stock, par value $ per share, shares authorized; shares issued and outstanding as of September 30, 2021 and December 31, 2020 | ||||||||
| Additional paid in capital | ||||||||
| Statutory reserve | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive income | ||||||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
AIXIN LIFE INTERNATIONAL, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME
(RESTATED)
| Three Months Ended September 30 | Nine Months Ended September 30 | |||||||||||||||
|
2021 |
2020 |
2021 |
2020 | |||||||||||||
| Sales revenue: | ||||||||||||||||
| Products | $ | $ | $ | $ | ||||||||||||
| Advertising | ||||||||||||||||
| Room revenues | ||||||||||||||||
| Food and beverage revenues | ||||||||||||||||
| Others | ||||||||||||||||
| Total revenue, net | ||||||||||||||||
| Operating costs and expenses | ||||||||||||||||
| Cost of goods sold | ||||||||||||||||
| Hotel operating costs | ||||||||||||||||
| Selling | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Provision(reversal) for bad debts | ( | ) | ||||||||||||||
| Stock-based compensation | ||||||||||||||||
| Total operating costs and expenses | ||||||||||||||||
| (Loss) income from operations | ( | ) | ( | ) | ( | ) | ||||||||||
| Non-operating income (expenses) | ||||||||||||||||
| Interest income | ||||||||||||||||
| Other income | ||||||||||||||||
| Other expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total non-operating income, net | ||||||||||||||||
| (Loss) income before income tax | ( | ) | ( | ) | ||||||||||||
| Income tax expense | ||||||||||||||||
| Net (loss) income | ( | ) | ( | ) | ||||||||||||
| Other comprehensive items | ||||||||||||||||
| Foreign currency translation gain | ||||||||||||||||
| Comprehensive (loss) income | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| (Loss) income per share - basic and diluted | $ | ) | $ | $ | ) | $ | ||||||||||
| Weighted average shares outstanding - basic and diluted | ||||||||||||||||
AIXIN LIFE INTERNATIONAL, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(RESTATED)
| Common Stock | Additional paid in | Statutory | Accumulated | Accumulated other comprehensive | ||||||||||||||||||||||||
| Shares | Amount | capital | reserves | deficit | income | Total | ||||||||||||||||||||||
| Balance at December 31, 2020 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Foreign currency translation | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance at March 31, 2021 | ( | ) | ||||||||||||||||||||||||||
| Acquisition of subsidiaries prepayment | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Foreign currency translation | - | |||||||||||||||||||||||||||
| Balance at June 30, 2021 | ( | ) | ( | ) | ||||||||||||||||||||||||
| Debt forgiven by major shareholder | - | |||||||||||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Foreign currency translation | - | |||||||||||||||||||||||||||
| Balance at September 30, 2021 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||
| Balance at December 31, 2019 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||||||||||
| Net loss | - | |||||||||||||||||||||||||||
| Foreign currency translation | - | |||||||||||||||||||||||||||
| Balance at March 31, 2020 | ( | ) | ( | ) | ||||||||||||||||||||||||
| Cancellation of shares | ( | ) | ( | ) | ||||||||||||||||||||||||
| Return of prepayment for acquisition | - | |||||||||||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||||||||||
| Net loss | - | |||||||||||||||||||||||||||
| Foreign currency translation | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance at June 30, 2020 | ( | ) | ||||||||||||||||||||||||||
| Capital contribution | - | |||||||||||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||||||||||
| Net loss | - | |||||||||||||||||||||||||||
| Foreign currency translation | - | |||||||||||||||||||||||||||
| Balance at September 30, 2020 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||
AIXIN LIFE INTERNATIONAL, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(RESTATED)
| For the Nine Months Ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net (loss) income | $ | ( | ) | $ | ||||
| Adjustments required to reconcile net income to net cash (used in) provided by operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Provision for bad debt allowance | ||||||||
| Operating lease expense | ||||||||
| Stock based compensation | ||||||||
| Changes in net assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Accounts receivable - related parties | ( | ) | ||||||
| Other receivables and prepaid expenses | ( | ) | ||||||
| Advances to suppliers | ( | ) | ( | ) | ||||
| Inventory | ( | ) | ( | ) | ||||
| Accounts payable | ||||||||
| Unearned revenue | ||||||||
| Taxes payable | ( | ) | ||||||
| Payment of operating lease liabilities | ( | ) | ( | ) | ||||
| Accrued liabilities and other payables | ( | ) | ||||||
| Net cash (used in) provided by operating activities | ( | ) | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Security deposits | ||||||||
| Payment for (return of payment for) acquisition | ( | ) | ||||||
| Net cash (used in) provided by investing activities | ( | ) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from related parties | ||||||||
| Repayment of loan from third parties | ( | ) | ||||||
| Net cash provided by financing activities | ||||||||
| EFFECT OF EXCHANGE RATE CHANGE ON CASH | ||||||||
| NET INCREASE (DECREASE) IN CASH & RESTRICTED CASH | ( | ) | ||||||
| CASH & RESTRICTED CASH, BEGINNING OF YEAR | ||||||||
| CASH & RESTRICTED CASH, END OF YEAR | $ | $ | ||||||
| Supplemental Cash flow data: | ||||||||
| Income tax paid | $ | $ | ||||||
| Interest paid | $ | $ | ||||||
| Non-cash investing and financing activities: | ||||||||
| Capital contribution from forgiveness of related party loan | $ | $ | ||||||
AIXIN LIFE INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(RESTATED)
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
Aixin Life International, Inc. (the “Company” or “Aixin Life” or “we”) was incorporated under the laws of the State of Colorado on December 30, 1987 under the name Mercari Communications Group, Ltd (“Mercari”). Mercari’s business failed in 1990. Mercari conducted no operating activities from June 1, 1990 to August 31, 2001 and was dormant.
During each year since Mercari was reactivated until 2017, the Company had no revenue and had losses approximately equal to the expenditures required to reactivate and comply with filing and reporting obligations. Expenditures were paid by Mercari from capital contributions and loans made by Mercari’s principal stockholders and entities controlled by Mercari’s directors.
On
January 20, 2017, Mercari’s principal stockholders, Algodon, sold shares of the Company’s common stock,
On
February 2, 2017, Mr. Quanzhong Lin purchased shares of the Company’s common stock,
On December 12, 2017, the Company issued shares of common stock to Mr. Lin, the sole stockholder of AiXin (BVI) International Group Co., Ltd. a British Virgin Islands corporation (“AiXin BVI”), for his shares of AiXin BVI, pursuant to a Share Exchange Agreement.
As a result of the Share Exchange, AiXin BVI became the Company’s wholly-owned subsidiary, and the Company now owns all of the outstanding shares of HK AiXin International Group Co., Limited, a Hong Kong limited company (“AiXin HK”), which in turn owns all of the outstanding shares of Chengdu AiXinZhonghong Biological Technology Co., Ltd., a Chinese limited company (“AiXinZhonghong”), which markets and sells premium-quality nutritional products in China.
AiXin BVI was incorporated on September 21, 2017 as a holding company and AiXin HK was established in Hong Kong on February 25, 2016 as an intermediate holding company. AiXinZhonghong was established in the People’s Republic of China (“PRC”) on March 4, 2013, and on May 27, 2017, the local government of the PRC issued a certificate of approval regarding the foreign ownership of AiXinZhonghong by AiXin HK. Neither AiXin BVI nor AiXin HK had operations prior to December 12, 2017.
For accounting purposes, the acquisition was accounted for as a reverse acquisition and treated as a recapitalization of the Company effected by a share exchange, with AiXin BVI as the accounting acquirer. Since neither AiXin BVI nor AiXin HK had operations prior to December 12, 2017, the historical consolidated financial statements of AiXinZhonghong are now the historical consolidated financial statements of the Company. The assets and liabilities of AiXinZhonghong were brought forward at their book value and no goodwill was recognized.
Effective February 1, 2018, pursuant to Articles of Amendment to the Company’s Articles of Incorporation filed with the Secretary of State of Colorado, the Company changed its name to AiXin Life International., Inc (“Aixin Life”).
The Company, through its indirectly owned AiXinZhonghong subsidiary, mainly develops and distributes consumer products by offering a line of nutritional products. The Company sells the products through exhibition events, conferences, and person-to-person marketing. Beginning in 2019, the Company began to provide advertising services to clients who engaged the Company to help distribute their products. The Company’s business mainly focuses on a proactive approach to its customers such as hosting events for clients, which it believes is ideally suited to marketing its products because sales of nutrition products are strengthened by ongoing personal contact and support, coaching and education of its clients, as to the benefits of a healthy and active lifestyle.
On
May 25, 2021, AiXin HK entered into an Equity Transfer Agreement with Chengdu Aixin Shangyan Hotel Management Co., Ltd (“Aixin
Shangyan Hotel”), and its two shareholders Quanzhong Lin and Yirong Shen (“Transferor”). Pursuant to the agreement
(the “Hotel Purchase Agreement”), Aixin Life agreed to purchase
2021.
The acquisitions will be accounted for as acquisitions of entities under common control under ASC 805-50-15-6, and the assets and liabilities acquired will be measured and recorded at the carrying amount under ASC 805-50-30-5. The results of operations during the periods ended September 30, 2021 were presented as through the acquisition of Aixin Shangyan Hotel and Aixintang Pharmacies has occurred at the beginning of the period. The consolidated financial statements and financial information presented for prior periods have been retrospectively adjusted to reflect the acquisition under common control.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements are prepared in conformity with U.S. Generally Accepted Accounting Principles (“US GAAP”). The functional currency of AiXinZhonghong, Aixin Shangyan Hotel and Aixintang Pharmacies is Chinese Renminbi (“RMB”). The accompanying consolidated financial statements are translated from RMB and presented in U.S. dollars (“USD”).
The consolidated financial statements include the accounts of the Company and its current wholly owned subsidiaries, AiXin HK, AiXinZhonghong, Aixin Shangyan Hotel and Aixintang Pharmacies. Intercompany transactions and accounts were eliminated in consolidation.
Unaudited Interim Financial Information
These unaudited interim financial statements have been prepared in accordance with GAAP for interim financial reporting and the rules and regulations of the Securities and Exchange Commission that permit reduced disclosure for interim periods. Therefore, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. In the opinion of management, all adjustments of a normal recurring nature necessary for a fair presentation of the financial position, results of operations and cash flows for the periods presented have been made. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the year ending December 31, 2021.
Reclassification
Certain prior period amounts have been reclassified to conform to the current period presentation and had no effect on previously reported consolidated net income (loss) or accumulated deficit.
Covid – 19
On March 11, 2020, the World Health Organization announced that infections caused by the corona virus disease of 2019 (“COVID-19”) had become pandemic. The Government of China has adopted various regulations and orders, including mandatory quarantines, limits on the number of people that may gather in one location, closing non-essential businesses and travel bans to limit the spread of the disease. Many of these measures have been relaxed due to the decrease in the prevalence of Covid-19 in China. To date, the ongoing operations of the Company have not been materially adversely effected by the measures taken to limit the spread of the disease in China.
Financial impacts related to COVID-19, including the Company’s actions and costs incurred in response to the pandemic, were not material to the Company’s financial position, results of operations or cash flows for the period ended September 30, 2021. The Company has implemented procedures to promote employee and customer safety. These measures will not significantly increase its operating costs. However, the Company cannot predict with certainty what measures may be taken by its suppliers and customers and the impact these measures may have on its 2021 financial position, results of operations
or cash flows.
Use of Estimates
In preparing consolidated financial statements in conformity with US GAAP, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the consolidated financial statements, as well as the reported amounts of revenues and expenses during the reporting period.
Significant estimates, required by management, include the recoverability of long-lived assets, allowance for doubtful accounts, and the reserve for obsolete and slow-moving inventories. Actual results could differ from those estimates.
Cash and Cash Equivalents
For financial statement purposes, the Company considers all highly liquid investments with an original maturity of three months or less to be cash and cash equivalents.
Accounts Receivable
The
Company’s policy is to maintain an allowance for potential credit losses on accounts receivable. Management reviews the composition
of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends
and changes in customer payment patterns to evaluate the adequacy of these reserves. As of September 30, 2021 and December 31, 2020,
the bad debt allowance was $
Inventories
Inventories mainly consists of health supplements, drugs, pharmaceutical and nutritional products, food and beverage, hotel supplies and consumables. Inventories are valued at the lower of average cost or market, cost being determined on a moving weighted average method at the end of the month. Management compares the cost of inventories with the net realizable value and an allowance is made for writing down inventories to market value, if lower. The Company recorded no inventory impairment for the three and nine months ended September 30, 2021 and 2020.
In July 2015, the FASB issued Accounting Standards Update (“ASU”) 2015-11, “Inventory (Topic 330) - Simplifying the Measurement of Inventory,” which requires that inventory within the scope of the guidance be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.
Property and Equipment
Property
and equipment are stated at cost, less accumulated depreciation, and impairment losses, if any. Major repairs and betterments that significantly
extend original useful lives or improve productivity are capitalized and depreciated over the period benefited. Maintenance and repairs
are expensed as incurred. When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation
are removed from the respective accounts, and any gain or loss is included in operations. Depreciation of property and equipment is provided
using the straight-line method for substantially all assets with
| Office furniture | ||
| Electronic equipment | ||
| Machinery | ||
| Leasehold improvements | ||
| Vehicles |
Impairment of Long-Lived Assets
Long-lived assets, which include property and equipment and intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, but at least annually.
Recoverability
of long-lived assets to be held and used is measured by comparing the carrying amount of an asset to the estimated undiscounted future
cash flows expected to be generated by it. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, an
impairment charge is recognized by the amount by which the carrying amount of the asset exceeds its fair value. Fair value is generally
determined using the asset’s expected future discounted cash flows or market value, if readily determinable. Based on its review,
the Company believes that, as of September 30, 2021 and December 31, 2020, there were
Income Taxes
Income taxes are accounted for using an asset and liability method. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates, applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
The Company follows Accounting Standards Codification (“ASC”) Topic 740, which prescribes a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740 also provides guidance on recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, accounting for income taxes in interim periods, and income tax disclosures.
Under ASC Topic 740, when tax returns are filed, it is likely that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the consolidated financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50% likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination. Interest associated with unrecognized tax benefits is classified as interest expense and penalties are classified in selling, general and administrative expenses in the statement of income.
At
September 30, 2021 and December 31, 2020, the Company did
Revenue Recognition
ASU No. 2014-09, Revenue from Contracts with Customers (“Topic 606”), became effective for the Company on January 1, 2018. The Company’s revenue recognition disclosure reflects its updated accounting policies that are affected by this new standard. The Company applied the “modified retrospective” transition method for open contracts for the implementation of Topic 606. As revenues are and have been primarily from the delivery of products and the performance of services, and the Company has no significant post-delivery obligations, this did not result in a material recognition of revenue on the Company’s accompanying consolidated financial statements for the cumulative impact of applying this new standard. The Company made no adjustments to its previously-reported total revenues, as those periods continue to be presented in accordance with its historical accounting practices under Topic 605, Revenue Recognition.
Revenue from sale of goods under Topic 606 is recognized in a manner that reasonably reflects the delivery of the Company’s products and services to customers in return for expected consideration and includes the following elements:
| ● | executed contract(s) with customers that the Company believes is legally enforceable; | |
| ● | identification of performance obligation in the respective contract; | |
| ● | determination of the transaction price for each performance obligation in the respective contract; | |
| ● | allocation of the transaction price to each performance obligation; and | |
| ● | recognition of revenue only when the Company satisfies each performance obligation. |
The Company’s revenue recognition policies for its various operating segments are as follows:
Advertising and Products
Advertising Revenue
Commencing in the third quarter of 2019, AiXin Zhonghong began to provide advertising services to its clients. Advertising contracts are signed to establish the price and advertising services to be provided. Pursuant to the advertising contracts, the Company provides advertising and marketing services to its clients through exhibition events, conferences, and person-to- person marketing. The Company performs a credit assessment of the customer to assess the collectability of the contract price prior to entering into contracts.
Most
of the advertisement contracts designated that the Company perform such advertising services for its clients through exhibition events,
conferences, and person-to-person marketing during the contracted period, regardless of the number of such events. As such, the Company
determined that the performance obligation is satisfied over time during the contracted period and revenue is recognized accordingly.
Such advertising revenue amounted to $
$
A
smaller proportion of the Company’s advertising revenue is generated from services to its clients through exhibition events, conferences,
and person-to-person marketing, and charges based on the number of promotional products sold. Such advertising revenue amounted to $
All
of the advertising revenue is subject to the PRC VAT of
Products Revenue
The Company’s revenue from sale of products is recognized when goods are delivered to the customer and no other obligation exists. The Company does not provide unconditional return or other concessions to the customer. The Company’s sales policy allows for the return of unopened products for cash after deducting certain service and transaction fees. As an alternative to the product return option, the customers have options of asking for an exchange for products with the same value.
Sales
revenue of AiXin Zhonghong represents the invoiced value of goods, net of value-added taxes (“VAT”). All of the Company’s
products sold in China are subject to the PRC VAT of
Hotel
Hotel
revenues are primarily derived from the rental of rooms, food and beverage sales and other ancillary goods and services, including but
not limited to souvenir, parking and conference reservation. Each of these products and services represents a distinct performance obligation
and, in exchange for these services, the Company receives fixed amounts based on published rates or negotiated contracts. Payment is
due in full at the time when the services are rendered or the goods are provided. Room rental revenue is recognized on a daily basis
when rooms are occupied. Food and beverage revenue and other goods and services revenue are recognized when they have been delivered
or rendered to the guests as the respective performance obligations are satisfied. All of the hotel’s goods sold in China are subject
to the PRC VAT of
Pharmacies
The
Company’s retail drugstores (Aixintang Pharmacies) recognize revenue at the time the customer takes possession of the merchandise.
For pharmacy sales, each prescription claim is its own arrangement with the customer and is a performance obligation. Aixintang Pharmacies
generally receives payments from customers as it satisfies its performance obligations. The Company records a receivable when it has
an unconditional right to receive payment and only the passage of time is required before payment is due. Sales revenue represents the
invoiced value of goods, net of VAT. All of Aixintang Pharmacies’ products sold in China are subject to the PRC VAT of
Concentration of Credit Risk
The operations of the Company are in the PRC. Accordingly, the Company’s business, financial condition, and results of operations may be influenced by the political, economic, and legal environments in the PRC, and by the general state of the PRC economy.
The
Company has cash on hand and demand deposits in accounts maintained with state-owned banks within the PRC. Cash in state-owned banks
is covered by insurance up to RMB
During the three months ended September 30, 2021, the Company had two major customers that accounted for over 10% of its total revenue.
| Net sales for the | ||||||||
| three months ended | ||||||||
| Customer | September 30, 2021 | % of total revenue | ||||||
| B | $ | % | ||||||
| A* | % | |||||||
During the nine months ended September 30, 2021, the Company had two major customers that accounted for over 10%
of its total revenue.
| Net sales for the | ||||||||
| nine months ended | ||||||||
| Customer | September 30, 2021 | % of total revenue | ||||||
| A* | $ | % | ||||||
| B | % | |||||||
During the three months ended September 30, 2020, the Company had one major customer that accounted for over 10% of its total revenue.
| Net sales for the | ||||||||
| three months ended | ||||||||
| Customer | September 30, 2020 | % of total revenue | ||||||
| A* | $ | % | ||||||
During the nine months ended September 30, 2020, the Company had one major customer that accounted for over 10% of its total revenue.
| Net sales for the | ||||||||
| nine months ended | ||||||||
| Customer | September 30, 2020 | % of total revenue | ||||||
| A* | $ | % | ||||||
During the three months ended September 30, 2021, the Company had one supplier that accounted for over 10% of its total purchases.
| Net purchases for the | ||||||||
| nine months ended | ||||||||
| Supplier | September 30, 2021 | % of total purchase | ||||||
| C | $ | % | ||||||
During the nine months ended September 30, 2021, the Company had two major suppliers that accounted for over 10% of its total purchases.
| Net purchases for the | ||||||||
| nine months ended | ||||||||
| Supplier | September 30, 2021 | % of total purchase | ||||||
| D | $ | % | ||||||
| E | % | |||||||
During the three months ended September 30, 2020, the Company had no major supplier that accounted for over 10% of its total purchases.
During the nine months ended September 30, 2020, the Company had no major supplier that accounted for over 10% of its total purchases.
| * |
Leases
The Company adopted FASB Accounting Standards Codification, Topic 842, Leases (“ASC 842”) using the modified retrospective approach, electing the practical expedient that allows the Company not to restate prior to the adoption of the standard on January 1, 2019.
The Company applied the following practical expedients in the transition to the new standard allowed under ASC 842:
| Practical Expedient | Description | |
| Reassessment of expired or existing contracts | The Company elected not to reassess, at the application date, whether any expired or existing contracts contained leases, the lease classification for any expired or existing leases, and the accounting for initial direct costs for any existing leases. | |
| Use of hindsight | The Company elected to use hindsight in determining the lease term (that is, when considering options to extend or terminate the lease and to purchase the underlying asset) and in assessing impairment of right-to-use assets. | |
Reassessment of existing or expired land easements |
The Company elected not to evaluate existing or expired land easements that were not previously accounted for as leases under ASC 840, as allowed under the transition practical expedient. Going forward, new or modified land easements will be evaluated under ASU No. 2016-02. | |
Separation of lease and non-lease components |
Lease agreements that contain both lease and non-lease components are generally accounted for separately. | |
Short-term lease recognition exemption |
The Company also elected the short-term lease recognition exemption and will not recognize ROU assets or lease liabilities for leases with a term less than 12 months. |
The Company determines if an arrangement is a lease at inception under FASB ASC Topic 842, Right of Use Assets (“ROU”) and lease liabilities are recognized at commencement date based on the present value of remaining lease payments over the lease term. For this purpose, the Company considers only payments that are fixed and determinable at the time of commencement. As most of its leases do not provide an implicit rate, it uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company’s incremental borrowing rate is a hypothetical rate based on its understanding of what its credit rating would be. The ROU assets include adjustments for prepayments and accrued lease payments. The ROU asset also includes any lease payments made prior to commencement and is recorded net of any lease incentives received. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that it will exercise such options.
ROU assets are reviewed for impairment when indicators of impairment are present. ROU assets from operating and finance leases are subject to the impairment guidance in ASC 360, Property, Plant, and Equipment, as ROU assets are long-lived nonfinancial assets.
ROU assets are tested for impairment individually or as part of an asset group if the cash flows related to the ROU asset are not independent from the cash flows of other assets and liabilities. An asset group is the unit of accounting for long-lived assets to be held and used, which represents the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. The Company recognized no impairment of ROU assets as of September 30, 2021 and December 31, 2020. Operating leases are included in operating lease ROU and operating lease liabilities (current and non-current), on the consolidated balance sheets.
Statement of Cash Flows
In accordance with ASC Topic 230, “Statement of Cash Flows,” cash flows from the Company’s operations are calculated based on the local currencies using the average translation rates. As a result, amounts related to assets and liabilities reported on the consolidated statements of cash flows will not necessarily agree with changes in the corresponding balances on the consolidated balance sheets.
Fair Value of Financial Instruments
The carrying amounts of certain of the Company’s financial instruments, including cash and equivalents, accrued liabilities and accounts payable, approximate their fair value due to their short maturities. FASB ASC Topic 825, “Financial Instruments,” requires disclosure of the fair value of financial instruments held by the Company. The carrying amounts reported in the consolidated balance sheets for current liabilities each qualify as financial instruments and are a reasonable estimate of their fair value because of the short period of time between the origination of such instruments and their expected realization and the current market rate of interest.
Fair Value Measurements and Disclosures
ASC Topic 820, “Fair Value Measurements and Disclosures,” defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The three levels are defined as follow:
| ● | Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. | |
| ● | Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. | |
| ● | Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement. |
As of September 30, 2021 and December 31, 2020, the Company did not identify any assets and liabilities that are required to be presented on the balance sheet at fair value.
Foreign Currency Translation and Comprehensive Income (Loss)
The functional currency of the Company is RMB. For financial reporting purposes, RMB is translated into USD as the reporting currency. Assets and liabilities are translated at the exchange rate in effect at the balance sheet dates. Revenues and expenses are translated at the average rate of exchange prevailing during the reporting period.
Translation adjustments arising from the use of different exchange rates from period to period are included as a component of stockholders’ equity as “Accumulated other comprehensive income”. Gains and losses resulting from foreign currency transactions are included in income. There was no significant fluctuation in the exchange rate for the conversion of RMB to USD after the balance sheet date.
The Company uses FASB ASC Topic 220, “Comprehensive Income”. Comprehensive loss is comprised of net loss and all changes to the statements of stockholders’ equity, except those due to investments by stockholders, changes in paid-in capital and distributions to stockholders. Comprehensive income (loss) for the three and nine months ended September 30, 2021 and 2020 consisted of net income (loss) and foreign currency translation adjustments.
Basic income (loss) per share is computed on the basis of the weighted average number of common shares outstanding during the period.
Dilution is computed by applying the treasury stock method for options and warrants. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period.
As of September 30, 2021 and December 31, 2020, the Company did not have any potentially dilutive instruments.
Stock-Based Compensation
The Company periodically grants stock options, warrants and awards to employees and non-employees in non-capital raising transactions as compensation for services rendered. The Company accounts for stock option, stock warrant and stock award grants to employees based on the authoritative guidance provided by the FASB where the value of the award is measured on the date of grant and recognized over the vesting period. The Company accounts for stock option, stock warrant and stock award grants to non-employees in accordance with the authoritative guidance of the FASB where the value of the stock compensation is determined based upon the measurement date at either a) the date at which a performance commitment is reached, or b) at the date at which the necessary performance to earn the equity instruments is complete. Stock-based compensation charges generally are amortized over the vesting period on a straight-line basis. In certain circumstances where there are no future performance requirements by the employees and non-employees, option, warrant and award grants are immediately vested and the total stock-based compensation charge is recorded in the period of the measurement date.
Segment Reporting
ASC Topic 280, “Segment Reporting,” requires use of the “management approach” model for segment reporting. The management approach model is based on the way a company’s chief operating decision maker organizes segments within the Company for making operating decisions assessing performance and allocating resources. Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company.
The Company manages its business as three operating segments, advertising and products, pharmacies, and hotels, all of which are located in the PRC. All of its revenues are derived in the PRC. All long-lived assets are located in PRC.
The following table shows the Company’s operations by business segment for the three months ended September 30, 2021 and 2020:
| 2021 | 2020 | |||||||
| Net revenue | ||||||||
| Advertising and products | $ | $ | ||||||
| Hotel | ||||||||
| Total revenues, net | $ | $ | ||||||
| Operating costs and expenses | ||||||||
| Advertising and products | ||||||||
| Operating expenses | ||||||||
| Cost of goods sold | ||||||||
| Hotel | ||||||||
| Operating expenses | ||||||||
| Total operating costs and expenses | $ | $ | ||||||
| Income (loss) from operations | ||||||||
| Advertising and products | $ | $ | ||||||
| Pharmacies | ( | ) | ( | ) | ||||
| Hotel | ( | ) | ( | ) | ||||
| Income (loss) from operations | $ | ( | ) | $ | ||||
The following table shows the Company’s operations by business segment for the nine months ended September 30, 2021 and 2020.
| 2021 | 2020 | |||||||
| Net revenue | ||||||||
| Advertising and products | $ | $ | ||||||
| Pharmacies | ||||||||
| Hotel | ||||||||
| Total revenues, net | $ | $ | ||||||
| Operating costs and expenses | ||||||||
| Advertising and products | ||||||||
| Cost of goods sold | $ | $ | ||||||
| Operating expenses | ||||||||
| Pharmacies | ||||||||
| Cost of goods sold | ||||||||
| Operating expenses | ||||||||
| Hotel | ||||||||
| Hotel operating costs | ||||||||
| Operating expenses | ||||||||
| Total operating costs and expenses | $ | $ | ||||||
| Income (loss) from operations | ||||||||
| Advertising and products | $ | $ | ||||||
| Pharmacies | ( | ) | ( | ) | ||||
| Hotel | ( | ) | ( | ) | ||||
| Income (loss) from operations | $ | ( | ) | $ | ( | ) | ||
| As of | As of | |||||||
| Segment assets | September 30, 2021 | December 31, 2020 | ||||||
| Advertising and products | $ | $ | ||||||
| Pharmacies | ||||||||
| Hotel | ||||||||
| Total assets | $ | $ | ||||||
Restatement of Previously Issued Financial Statements
The consolidated financial statements of the Company for the three and nine months ended September 30, 2021 have been restated in compliance with the Financial Accounting Standards Board (FASB) ASC 805-50-45 to present the results of operations for the three and nine months ended September 30, 2021 as through the acquisition of Aixin Shangyan Hotel and Aixintang Pharmacies has occurred at the beginning of the period. The comparative financial statements and financial information included in the consolidated financial statements as of and for the periods ended September 30, 2021 presented for prior periods have also been restated to reflect the retrospective adjustment for the acquisition under common control that financial data of previously separate entities are combined.
The Company included the following tables that present the effect of the adjustments discussed above on selected line items of our previously reported consolidated financial statements as of and for the periods ended September 30, 2021 and 2020. Details of changes are presented in the following tables.
| For
the Three Months Ended September 30, 2021 | ||||||||||||
Previously Reported | Adjustments | Restated | ||||||||||
| Consolidated Statements of Operations and Comprehensive Income (loss) | ||||||||||||
| Total Revenues, net | ||||||||||||
| Total operating costs and expenses | ||||||||||||
| (Loss) income from operations | ( | ) | ( | ) | ( | ) | ||||||
| Total non-operating income, net | ||||||||||||
| (Loss) income before income tax | ( | ) | ( | ) | ( | ) | ||||||
| Net (loss) income | ( | ) | ( | ) | ( | ) | ||||||
| Comprehensive (loss) income | ( | ) | ( | ) | ( | ) | ||||||
| For
the Nine Months Ended September 30, 2021 | ||||||||||||
Previously Reported | Adjustments | Restated | ||||||||||
| Consolidated Statements of Operations and Comprehensive Income (loss) | ||||||||||||
| Total Revenues, net | ||||||||||||
| Total operating costs and expenses | ||||||||||||
| (Loss) income from operations | ( | ) | ( | ) | ||||||||
| Total non-operating income, net | ||||||||||||
| (Loss) income before income tax | ( | ) | ( | ) | ||||||||
| Net (loss) income | ( | ) | ( | ) | ||||||||
| Comprehensive (loss) income | ( | ) | ( | ) | ||||||||
| As
of and for the Nine Months Ended September 30, 2021 | ||||||||||||
Previously Reported | Adjustments | Restated | ||||||||||
| Consolidated Statements of Stockholders’ Equity Accumulated deficit | ||||||||||||
| Acquisition of subsidiaries | ( | ) | ||||||||||
| As
of and for the Nine Months Ended September 30, 2021 | ||||||||||||
Previously Reported | Adjustments | Restated | ||||||||||
| Consolidated Statements of Cash Flows | ||||||||||||
| Net cash (used in) provided by operating activities | ( | ) | ( | ) | ||||||||
| Net cash (used in) provided by investing activities | ( | ) | ( | ) | ( | ) | ||||||
| Net cash (used in) provided by financing activities | ( | ) | ||||||||||
| As
of and for the Year Ended December 31, 2020 | ||||||||||||
Previously Reported | Adjustments | Restated | ||||||||||
| Consolidated Balance Sheets | ||||||||||||
| Total current assets | ||||||||||||
| Total assets | ||||||||||||
| Total current liabilities | ||||||||||||
| Total liabilities | ||||||||||||
| Total stockholders’ equity | ( | ) | ||||||||||
| Total liabilities and stockholders’ equity | ||||||||||||
| For
the Three Months Ended September 30, 2020 | ||||||||||||
Previously Reported | Adjustments | Restated | ||||||||||
| Consolidated Statements of Operations and Comprehensive Income (loss) | ||||||||||||
| Total Revenues, net | ||||||||||||
| Total operating costs and expenses | ||||||||||||
| (Loss) income from operations | ( | ) | ||||||||||
| Total non-operating income, net | ||||||||||||
| (Loss) income before income tax | ( | ) | ||||||||||
| Net (loss) income | ( | ) | ||||||||||
| Comprehensive (loss) income | ( | ) | ||||||||||
For the Nine Months Ended September 30, 2020 | ||||||||||||
Previously Reported | Adjustments | Restated | ||||||||||
| Consolidated Statements of Operations and Comprehensive Income (loss) | ||||||||||||
| Total Revenues, net | ||||||||||||
| Total operating costs and expenses | ||||||||||||
| (Loss) income from operations | ( | ) | ( | ) | ||||||||
| Total non-operating income, net | ||||||||||||
| (Loss) income before income tax | ( | ) | ||||||||||
| Net (loss) income | ( | ) | ||||||||||
| Comprehensive (loss) income | ( | ) | ||||||||||
For the Nine Months Ended September 30, 2020 | ||||||||||||
Previously Reported | Adjustments | Restated | ||||||||||
| Consolidated Statements of Cash Flows | ||||||||||||
| Net cash (used in) provided by operating activities | ( | ) | ||||||||||
| Net cash (used in) provided by investing activities | ||||||||||||
| Net cash provided by financing activities | ||||||||||||
As of and for the Nine Months Ended September 30, 2020 | ||||||||||||
Previously Reported | Adjustments | Restated | ||||||||||
| Consolidated Statements of Stockholders’ Equity Additional paid in capital | ||||||||||||
| Return of prepayment for acquisition | ||||||||||||
| Capital contribution | ||||||||||||
As of December 31, 2019 | ||||||||||||
Previously Reported | Adjustments | Restated | ||||||||||
| Consolidated Statements of Stockholders’ Equity | ||||||||||||
| Additional paid in capital | ( | ) | ||||||||||
New Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326), which requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. Early application will be permitted for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company is currently evaluating the impact that the standard will have on its consolidated financial statements.
In August 2020, the FASB issued ASU 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”). ASU 2020-06 simplifies the accounting for convertible debt by eliminating the beneficial conversion and cash conversion accounting models. Upon adoption of ASU 2020-06, convertible debt, unless issued with a substantial premium or an embedded conversion feature that is not clearly and closely related to the host contract, will no longer be allocated between debt and equity components. This modification will reduce the issue discount and result in less non-cash interest expense in financial statements. ASU 2020-06 also updates the earnings per share calculation and requires entities to assume share settlement when the convertible debt can be settled in cash or shares. For contracts in an entity’s own equity, the type of contracts primarily affected by ASU 2020-06 are freestanding and embedded features that are accounted for as derivatives under the current guidance due to a failure to meet the settlement assessment by removing the requirements to (i) consider whether the contract would be settled in registered shares, (ii) consider whether collateral is required to be posted, and (iii) assess shareholder rights. ASU 2020-06 is effective for fiscal years beginning after December 15, 2023. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, and only if adopted as of the beginning of such fiscal year. The Company adopted ASU 2020-06 effective July 1, 2021. The adoption of ASU 2020-06 did not have any impact on the Company’s consolidated financial statements presentation or disclosures.
In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt — Modifications and Extinguishments (Subtopic 470-50), Compensation — Stock Compensation (Topic 718), and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (“ASU 2021-04”). ASU 2021-04 provides guidance as to how an issuer should account for a modification of the terms or conditions or an exchange of a freestanding equity-classified written call option (i.e., a warrant) that remains classified after modification or exchange as an exchange of the original instrument for a new instrument. An issuer should measure the effect of a modification or exchange as the difference between the fair value of the modified or exchanged warrant and the fair value of that warrant immediately before modification or exchange and then apply a recognition model that comprises four categories of transactions and the corresponding accounting treatment for each category (equity issuance, debt origination, debt modification, and modifications unrelated to equity issuance and debt origination or modification). ASU 2021-04 is effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. An entity should apply the guidance provided in ASU 2021-04 prospectively to modifications or exchanges occurring on or after the effective date. Early adoption is permitted for all entities, including adoption in an interim period. If an entity elects to early adopt ASU 2021-04 in an interim period, the guidance should be applied as of the beginning of the fiscal year that includes that interim period. The adoption of ASU 2021-04 is not expected to have any impact on the Company’s consolidated financial statements presentation or disclosures.
The Company’s management does not believe that any other recently issued, but not yet effective, authoritative guidance, if currently adopted, would have a material impact on the Company’s financial statement presentation or disclosures.
3. ADVANCES TO SUPPLIERS
The
Company had advances to suppliers of $
4. INVENTORIES
Inventories consisted of the following at September 30, 2021 and December 31, 2020:
September 30, 2021 | December 31, 2020 | |||||||
| Finished goods – health supplements | $ | $ | ||||||
| Drugs, pharmaceutical and nutritional products | ||||||||
| Food and beverage, hotel supplies and consumables | ||||||||
| Total | $ | $ | ||||||
5. PROPERTY AND EQUIPMENT, NET
Property and equipment consisted of the following at September 30, 2021 and December 31, 2020:
September 30, 2021 | December 31, 2020 | |||||||
| Vehicles | $ | |||||||
| Office furniture | ||||||||
| Electronic equipment | ||||||||
| Machinery | ||||||||
| Construction in progress | ||||||||
| Other | ||||||||
| Total | ||||||||
| Less: Accumulated depreciation | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | |||||||
Depreciation
expense for the three months ended September 30, 2021 and 2020 was $
6. INTANGIBLE ASSET, NET
Intangible asset consisted of the following at September 30, 2021 and December 31, 2020:
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Software | $ | $ | ||||||
| Less: Accumulated amortization | ( | ) | ( | ) | ||||
| Intangible asset, net | $ | $ | ||||||
Amortization
expense for the three months ended September 30, 2021 and 2020 was $
7. TAXES PAYABLE
Taxes payable consisted of the following at September 30, 2021 and December 31, 2020:
| September 30, 2021 | December 31, 2020 | |||||||
| Value-added | $ | $ | ||||||
| Income | ||||||||
| City construction | ||||||||
| Education | ||||||||
| Other | ||||||||
| Taxes payable | $ | $ | ||||||
8. ACCRUED LIABILITIES AND OTHER PAYABLES
Accrued liabilities and other payables consisted of the following at September 30, 2021 and December 31, 2020:
| September 30, 2021 | December 31, 2020 | |||||||
| Accrued employees’ social insurance | $ | $ | ||||||
| Accrued payroll and commission | ||||||||
| Accrued rent expense | ||||||||
| Construction payable | ||||||||
| Accrued professional fees | ||||||||
| Deposit | ||||||||
| Other payables | ||||||||
| Total | $ | $ | ||||||
9. LOAN FROM THIRD PARTIES
As
of September 30, 2021 and December 31, 2020, the Company had advances from former shareholders and unrelated third parties of Aixin Shangyan
Hotel in an aggregate amount of $
10. LEASE
On
September 12, 2018, the Company entered into a contract to sell its rights to a portion of a building with a buyer (the “Buyer”),
at which time the Buyer paid RMB ($)
to a shareholder of the Company as a down payment. The contract stipulated the remaining RMB
Concurrent
with the completion of this sale, the Company entered into an agreement to lease a portion of the building back from the Buyer over a
lease term of
The
Company also has operating leases for other sales locations under various operating lease arrangements. The leases have remaining lease
terms of approximately
Aixin
Shangyan Hotel leases its hotel premises under an operating lease arrangement. The lease has a remaining lease term of approximately
Aixintang
Pharmacies lease retail pharmacy stores under operating lease arrangements, typically with initial terms of
Balance sheet information related to the Company’s leases is presented below:
| September 30, 2021 | December 31, 2020 | |||||||
| Operating Leases | ||||||||
| Operating lease right-of-use assets | $ | $ | ||||||
| Operating lease liabilities – current | $ | $ | ||||||
| Operating lease liability – non-current | ||||||||
| Total operating lease liabilities | $ | $ | ||||||
The following provides details of the Company’s lease expenses:
| Three Months Ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| Operating lease expenses | $ | $ | ||||||
| Nine Months Ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| Operating lease expenses | $ | $ | ||||||
Other information related to leases is presented below:
| Nine Months Ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| Cash Paid For Amounts Included In Measurement of Liabilities: | ||||||||
| Operating cash flows from operating leases | $ | $ | ( | ) | ||||
| Weighted Average Remaining Lease Term: | ||||||||
| Operating leases | ||||||||
| Weighted Average Discount Rate: | ||||||||
| Operating leases | % | % | ||||||
Maturities of lease liabilities were as follows:
| For the year ending December 31: | ||||
| 2021 (excluding the nine months ended September 30, 2021) | $ | |||
| 2022 | ||||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| Thereafter | ||||
| Total lease payments | ||||
| Less: imputed interest | ( | ) | ||
| Total lease liabilities | ||||
| Less: current portion | ( | ) | ||
| Lease liabilities – non-current portion | $ |
11. RELATED PARTY TRANSACTIONS
Accounts receivable – related party
As
of December 31, 2020, Aixin Shangyan Hotel had accounts receivable from an employee of AiXinZhonghong in the amount of $
Due from related parties
Due from related parties consisted of the following as of the periods indicated:
| September
30, 2021 | December
31, 2020 | |||||||
| Chengdu WenJiang Aixin Nanjiang Pharmacy Co., Ltd. | $ | $ | ||||||
| Chengdu Lisheng Huiren Tang Pharmacy Co., Ltd. | ||||||||
| Total | $ | $ | ||||||
Due to related parties
Due to related parties consisted of the following as of the periods indicated:
September 30, 2021 | December 31, 2020 | |||||||
| Quanzhong Lin | $ | $ | ||||||
| Yirong Shen | ||||||||
| Chengdu Aixin E-Commerce Company Ltd. | ||||||||
| Chengdu Aixin International travel service Co, Ltd | ||||||||
| Branch manager | ||||||||
| Aixin Life Beauty | ||||||||
| Total | $ | $ | ||||||
All the related party entities are controlled by Mr. Quanzhong Lin (the Chairman, President and major shareholder of Aixin Life). These advances to and from related parties were for working capital purpose, payable on demand, and bear no interest. Yirong Shen was a major shareholder of Aixin Shangyan Hotel prior to the closing of Hotel Purchase Agreement, and she serves as the supervisor of Aixin Shangyan Hotel.
Office lease from a Major Shareholder
In
May 2014, the Company entered a lease with its major shareholder for office use; the lease term was
12. INCOME TAXES
The Company was incorporated in the United States of America (“USA”) and has operations in one tax jurisdiction, i.e. the PRC. The Company generated substantially all of its sales from its operations in the PRC for the three and nine months ended September 30, 2021 and 2020, and recorded an income tax provision for each of such periods.
China
has a tax rate of
Uncertain Tax Positions
Interest
associated with unrecognized tax benefits are classified as income tax, and penalties are classified in selling, general and
administrative expenses in the statements of operations. For the three and nine months ended September 30, 2021 and 2020,
the Company had
13. STOCKHOLDERS’ EQUITY
On
August 17, 2020, by unanimous written consent in lieu of a meeting, the Board adopted resolutions authorizing a
$ par value and to reduce the number of authorized common stock to shares at $ par value per share from shares. All share and earnings per share information has been retroactively adjusted to reflect the reverse stock split.
As of September 30, 2021 and December 31, 2020, the Company had common shares issued and outstanding. In June 2020, shares owned by Quanzhong Lin (the Chairman, President and major shareholder of Aixin Life)
were cancelled.
Stock Awards Issued for Services
On
October 22, 2019, the Company granted and issued shares to its employees and contractors under its 2019 Equity Incentive Plan.
The stock awards were valued at $
On
October 24, 2019, the Company granted and issued shares to its employees and contractors under its 2019 Equity Incentive Plan.
The stock awards were valued at $
The stock awards will vest over five () years from the grant date, and the grantee will forfeit a portion of the shares granted (“Shares Granted”) if the grantee is no longer employed by or contracted with the Company. Specifically,
For the three months ended September 30, 2021 and 2020, stock-based compensation expenses were $. For the nine months ended September 30, 2021 and 2020, stock-based compensation expenses were $. As of September 30, 2021, unrecognized compensation expenses related to these stock awards are $. These expenses are expected to be recognized over years.
Forgiveness of shareholder’s loan
As
of September 30, 2021, the Company’s major shareholder Mr. Lin forgave his loan to the Company for $
Acquisition of Subsidiaries
As
of December 31, 2019, the Company had advances to Aixintang Pharmacies and Aixin Shangyan Hotel in the aggregate amount of $
In
May and June 2021, the Company entered into Equity Transfer Agreements with Aixin Shangyan Hotel and Aixintang Pharmacies (see Note 1).
As of June 30, 2021, these two acquisitions have not been completed, and the Company made prepayment for the acquisitions to Mr. Lin
in the aggregate amount of $
As
of September 30, 2021, the Company completed the acquisition of Aixin Shangyan Hotel and Aixintang Pharmacies, and the acquisition was
accounted for as entities under common control. The difference between consideration given and net assets received was recognized in
equity, resulting in a decrease of additional paid-in capital of $
14. STATUTORY RESERVES
Pursuant to the PRC corporate law, the Company is now only required to maintain one statutory reserve by appropriating from its after-tax profit before declaration or payment of dividends. The statutory reserve represents restricted retained earnings.
Surplus reserve fund
The
Company is now required to transfer
The
surplus reserve fund is non-distributable other than during liquidation and can be used to fund previous years’ losses, if any,
and may be utilized for business expansion or converted into share capital by issuing new shares to existing shareholders in proportion
to their shareholding or by increasing the par value of the shares currently held by them, provided that the remaining reserve balance
after such issue is not less than
Common welfare fund
Common
welfare fund is a voluntary fund to which the Company can elect to transfer
This fund can only be utilized on capital items for the collective benefit of the Company’s employees, such as construction of dormitories, cafeteria facilities, and other staff welfare facilities. This fund is non-distributable other than upon liquidation.
15. OPERATING CONTINGENCIES
The Company’s operations in the PRC are subject to specific considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environments and foreign currency exchange. The Company’s results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.
The Company’s sales, purchases and expenses are denominated in RMB and all of the Company’s assets and liabilities are also denominated in RMB. The RMB is not freely convertible into foreign currencies under the current law. In China, foreign exchange transactions are required by law to be transacted only by authorized financial institutions. Remittances in currencies other than RMB may require certain supporting documentation to affect the remittance.
Litigation
The Company is, from time to time, involved in litigation incidental to the conduct of its business regarding merchandise sold, employment matters, and litigation regarding intellectual property rights.
In
December 2020, Jian Yiao (the “Plaintiff”) filed a complaint against Chengdu Aixintang Pharmacy Co., Ltd. (“Aixintang
Pharmacy”, or the “Defendant”) in Zhangjiagang People’s Court in Jiangsu Province. The complaint alleges that
Jian Yiao is entitled to $
In February 2021, the judge in the Jiangsu Suzhou Intermediate People’s Court denied the Defendant’s motion and upheld the judgment from the first trial. In March 2021, Aixintang Pharmacy filed another motion to the Jiangsu High People’s Court on the basis that the Purchase Agreement was forged. To date, this legal proceeding remains pending.
In November 2021, the Company and Mr. Quanzhong Lin agreed that Mr. Lin shall assume any losses arising from this legal proceeding. As such, the Company did not accrue contingent losses from this legal proceeding as of September 30,
2021.
The Company believes that current pending litigation will not have a material adverse effect on its consolidated financial position, results of operations or cash flows.
16. SUBSEQUENT EVENT
The Company follows the guidance in FASB ASC 855-10 for the disclosure of subsequent events. The Company evaluated subsequent events through the date the financial statements were issued and determined the Company has no material subsequent events.