NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1.
ORGANIZATION AND DESCRIPTION OF BUSINESS
Aixin
Life International, Inc. (the “Company”or “Aixin” or
“we”) was incorporated under the laws of the State of Colorado on December 30, 1987 under the name Mercari
Communications Group, Ltd (“Mercari”). From 1988 until 1990, Mercari provided educational products, counseling,
seminar programs, and publications such as newsletters to adults aged 30 to 50. Mercari registered its common stock with the
Securities and Exchange Commission (the “SEC”) under the Exchange Act in 1988. Mercari’s business failed in
1990. Mercari conducted no operating activities from June 1, 1990 to August 31, 2001 and was dormant.
During
2001, Mercari was reactivated. From November 30, 2001 to March 1, 2004, Mercari was in the development stage.
On
November 9, 2009, Mercari entered into a Stock Purchase Agreement (the “Stock Purchase Agreement”) with Algodon Wines
& Luxury Development Group, Inc. or “Algodon” (formerly Diversified Private Equity Corporation or “DPEC”),
a then privately-held Delaware corporation, Kanouff, LLC (“KLLC”) and Underwood Family Partners, Ltd. (the “Partnership”),
of which KLLC and the Partnership were the majority shareholders of the Company (the “Stock Purchase”). In connection
with the Stock Purchase, Algodon purchased and the Company sold, 43,822,001 shares of common stock for $43,822, or $0.001 per
share. In addition, Algodon purchased 200 shares of common stock from KLLC and 200 shares of common stock from the Partnership
for $180,000 payable to each selling shareholder. Immediately following the closing of the transactions contemplated by the Stock
Purchase Agreement, Algodon owned 43,822,401 shares of the Company’s common stock, or 96.5% of our outstanding shares.
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, Algodon sold 43,822,401 shares of the Company’s common stock, 96.5% of the Company’s outstanding
shares, to China Concentric, for $260,000, and assigned its right to the repayment of $150,087 of non-interest bearing advances
to the Company for working capital as the Company’s controlling stockholder, pursuant to a Stock Purchase Agreement dated
December 20, 2016, as amended. Prior to entering into the Stock Purchase Agreement with Algodon, neither China Concentric nor
any of its affiliates had any relationship to the Company, Algodon or any of their respective affiliates.
On
February 2, 2017, Mr. Quanzhong Lin purchased 29,521,410 shares of the Company’s common stock, 65.0% of its outstanding
shares from China Concentric for $300,000, pursuant to a Stock Purchase Agreement dated December 21, 2016, which resulted in a
change in control of our company.
On
December 12, 2017, the Company issued 227,352,604 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. Mr. Lin now owns 256,874,014 shares of the Company’s common stock, 86.2% of our outstanding shares.
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 Mercari 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 (“CFS”) of AiXinZhonghong are now the historical CFS 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.
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. During 2018, the Company’s revenue was primarily generated from sales of products, which
include cell food, goat milk power, clear lung Kangbao, light tea, bear gall powders, and other nutritional supplements.
During 2019, the Company’s revenue was primarily generated from sales of Huo’s oral solution, concentrated
drinks, goat milk power, and food washing serum. 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.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
accompanying CFS are prepared in conformity with U.S. Generally Accepted Accounting Principles (“US GAAP”). The
functional currency of Aixin is Chinese Renminbi (‘‘RMB’’). The accompanying CFS are translated from
RMB and presented in U.S. dollars (“USD”).
The
CFS includes the accounts of the Company and its current wholly owned subsidiaries, AiXin HK and AiXinZhonghong. 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, 2019.
The
balance sheets and certain comparative information as of December 31, 2018 are derived from the audited financial statements and
related notes for the year ended December 31, 2018 (“2018 Annual Financial Statements”), included in the Company’s
2018 Annual Report on Form 10-K. These unaudited interim financial statements should be read in conjunction with the 2018 Annual
Financial Statements.
Reclassifications
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.
Going
Concern
The
Company incurred net income of $81,634 and a net loss of $1,143,882 for the nine months ended September 30, 2019 and 2018,
respectively, and had an accumulated deficit of $7,654,806 and $7,736,440 as of September 30, 2019 and December 31, 2018,
respectively. These conditions raise a substantial doubt about the Company’s ability to continue as a going concern. The
Company plans to increase its income by improving communications with suppliers to ensure sufficient and quality product supply,
building a competitive and efficient sales force, providing an attractive sales incentive program, increasing marketing
and promotion activities, and minimizing operating costs. In the third quarter, the Company sold 10,000,000 shares of its
common stock for gross proceeds of $1,000,000 in a private offering. Subsequent to the close of third quarter, the Company sold
40,000,000 shares of its common stock for gross proceeds of $4,000,000 in a private offering. The Company did not pay any commissions
in connection with the sale of the shares. If necessary, the Company will seek to raise additional capital through sales of its
equity securities to solve its working capital needs. As of September 30, 2019, the Company received RMB 15.6 million (approximately
$2.2 million) from Quanzhong Lin. The CFS do not include any adjustments that might result from the outcome of this uncertainty.
Use
of Estimates
In
preparing CFS 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 CFS, 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 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. During the nine months ended
September 30, 2019 and 2018, bad debt expense was $82,611 and $15,601, respectively. As of September 30, 2019 and December 31,
2018, the bad debt allowance was $154,141 and $77,955, respectively.
Inventory
Inventory
mainly consists of health supplement products. Inventory is 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 nine months ended September 30, 2019and 2018, respectively.
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 5% salvage value and estimated
lives as follows:
|
Building
|
|
20 years
|
|
Office furniture
|
|
5 years
|
|
Electronic Equipment
|
|
3 years
|
|
Vehicles
|
|
5 years
|
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 of 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
(“FV”). FV 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, 2019 and December 31, 2018, there
were no significant impairments of its long-lived assets.
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 CFS 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, 2019 and December 31, 2018, the Company did not take any uncertain positions that would necessitate recording a
tax related liability.
Revenue
Recognition
ASU
No. 2014-09, Revenue from Contracts with Customers (“Topic 606”), became effective for the Company 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 sales are and have been primarily from the delivery of health supplements and the performance
of related advertising services, and the Company has no significant post-delivery obligations, this did not result in a material
recognition of revenue on our accompanying CFS 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 in a manner that reasonably reflects the delivery of its goods to customers in
return for expected consideration and includes the following elements:
|
|
●
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executed
contract(s) with our customers that we believe is legally enforceable;
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|
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●
|
identification
of performance obligation in the respective contract;
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|
|
|
|
|
●
|
determination
of the transaction price for each performance obligation in the respective contract;
|
|
|
|
|
|
|
●
|
allocation
the transaction price to each performance obligation; and
|
|
|
|
|
|
|
●
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recognition
of revenue only when the Company satisfies each performance obligation.
|
These
five elements, as applied to each of the Company’s revenue categories, is summarized below:
|
|
●
|
Revenue
from sale of goods is recognized when goods are shipped to the customer and no other obligation exits. 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 alternatives for the product return
option, the customers have options of asking an exchange of the products with same value.
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|
|
|
|
|
|
●
|
As
part of the Company’s sales incentive program, the Company occasionally provides free travel to its customers whose
prepayment to purchase the Company’s products reaches to certain amount. There are different travel incentives offered
to the customers based on amount received from each customer. The Company records the to-be-provided free travel cost when
cash is collected from customers as a debit deferred travel cost with corresponding credit to accrued travel cost. Once the
customer utilizes the travel incentive, the cost of travel is recorded as a reduction of sales.
|
Sales
revenue 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 17% of the gross sales price prior to May 1, 2018, 16% since May 1, 2018 and 13% since
April 1, 2019. This VAT may be offset by VAT paid by the Company on raw materials and other materials purchased in China. The
Company records VAT payable and VAT receivable net of payments in the financial statements. The VAT tax return is filed offsetting
the payables against the receivables. Sales and purchases are recorded net of VAT collected and paid as the Company acts as an
agent for the government.
During the three months ended September 30,
2019, the Company also generated revenue from advertising service. 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
service 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. The advertisement contracts designate
the Company to perform advertising service through exhibition events, conferences, and person-to-person marketing during
the contracted period, regardless of the number of such events held. As such, the Company evaluates that the performance
obligation is satisfied over time during the contracted period and revenue is recognized accordingly.
Cost
of Revenue
Cost
of revenue consists primarily of cost of inventory purchase. Reserve for inventory allowance due to lower of cost or market is
also recorded in cost of revenue.
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 500,000 ($72,500) per bank. The Company has not experienced any losses in such accounts
and believes they are not exposed to any risks on their cash in these bank accounts.
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 statements of cash flows will not necessarily agree with changes in the corresponding balances on the balance
sheets.
Fair
Value (“FV”) of Financial Instruments
Certain
of the Company’s financial instruments, including cash and equivalents, accrued liabilities and accounts payable, carrying
amounts approximate their FV due to their short maturities. FASB ASC Topic 825, “Financial Instruments,” requires
disclosure of the FV of financial instruments held by the Company. The carrying amounts reported in the balance sheets for current
liabilities each qualify as financial instruments and are a reasonable estimate of their FV 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 FV, and establishes a three-level valuation hierarchy
for disclosures of FV measurement that enhances disclosure requirements for FV measures. The three levels are defined as follow:
|
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●
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Level
1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
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●
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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.
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|
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●
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Level
3 inputs to the valuation methodology are unobservable and significant to the FV measurement.
|
As
of September 30, 2019 and December 31, 2018, the Company did not identify any assets and liabilities that are required to be presented
on the balance sheet at FV.
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 first nine months of 2019 and 2018 consisted
of net loss and foreign currency translation adjustments.
Earnings
per Share
Basic
loss per share is computed on the basis of the weighted average number of common stock 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, 2019 and 2018 and for the periods then ended, the Company did not have any potentially dilutive instruments.
Stock-Based
Compensation
The
Company periodically grants stock options and warrants to employees and non-employees in non-capital raising transactions as compensation
for services rendered. The Company accounts for stock option and stock warrant 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 and stock warrant 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.
Non-employee 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 non-employee, option or warrant grants are immediately
vested and the total stock-based compensation charge is recorded in the period of the measurement date.
During
the year ended December 31, 2017, the Company’s board of directors (“BOD”) authorized the issuance of 45,224,085
shares of common stock to three individuals for services rendered to the Company. The stock-based compensation was valued at $3,617,927
based on the Company’s stock price at the date of agreement and was vested immediately for services already rendered. On
January 15, 2018, the Company’s BOD determined it was not in the Company’s best interests to issue any shares to two
of the three individuals because BOD believes the two individuals did not perform the services as expected.
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.
Management
determined the Company’s operations constitute a single reportable segment in accordance with ASC 280.
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, 2019. Early application is 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 CFS.
3.
ADVANCES TO SUPPLIERS
Advances
to suppliers include a prepayment of $411,683 to one supplier for products expected to be delivered subsequent to September 30,
2019.
4.
DEFERRED COMMISSION
The
Company pays commissions to its salesmen based on cash collected from the sales. The Company calculated and paid commissions
based on certain proportion of monthly cash receipts from sales; however, the customers sometimes delay taking delivery of
the products after payment is made to the Company, which is recorded as unearned revenue. Accordingly, the Company only recognizes
commission expenses as the related revenue is recognized. Commission expenses are recorded as selling expenses. During the nine
months ended September 30, 2019, the Company returned advances received from its customers (see Note 11). As such, the related
deferred commission was expensed in full amount as no future related revenue would be recognized. As of September 30, 2019
and December 31, 2018, the Company had deferred commission of $0 and $338,509 respectively.
5.
DEFERRED TRAVEL COST
As
part of the Company’s sales incentive program, the Company occasionally provided free travel to its customers whose payments
to purchase the Company’s products reached a certain amount. There are different travel incentives offered to its customers
based on the amount received from each customer. The Company recorded the to-be-provided free travel cost when cash is
collected from customers as deferred travel cost with corresponding account of accrued travel cost, and recorded as net of sales
once the prepayment from customers was recognized as revenue. During the nine months ended September 30, 2019, the Company returned
advances received from its customers (see Note 11). As such, the related deferred travel cost was expensed in full amount as no
future related revenue would be recognized. As of September 30, 2019 and December 31, 2018, the Company had deferred travel
cost of $0 and $220,200, respectively.
6.
INVENTORY
Inventory
consisted of the following at September 30, 2019 and December 31, 2018:
|
|
|
September 30, 2019
|
|
|
December 31, 2018
|
|
|
Finished goods – health supplements
|
|
$
|
20,784
|
|
|
$
|
13,396
|
|
7.
PROPERTY AND EQUIPMENT, NET
Property
and equipment consisted of the following at September
30, 2019 and December 31, 2018 (audited):
|
|
|
September 30, 2019
|
|
|
December 31, 2018
|
|
|
Office furniture
|
|
$
|
43,643
|
|
|
$
|
228,996
|
|
|
Building
|
|
|
-
|
|
|
|
1,510,312
|
|
|
Vehicle
|
|
|
261,363
|
|
|
|
212,972
|
|
|
Electronic equipment
|
|
|
14,157
|
|
|
|
14,058
|
|
|
Total
|
|
|
319,163
|
|
|
|
1,966,338
|
|
|
Less: Accumulated depreciation
|
|
|
(204,975
|
)
|
|
|
(501,923
|
)
|
|
Property and equipment, net
|
|
$
|
114,188
|
|
|
$
|
1,464,415
|
|
Depreciation
for the nine months ended September 30,
2019 and 2018 was $66,433 and $126,231, respectively. Depreciation for the three months ended September 30,
2019 and 2018 was $12,807 and $40,231, respectively.
The
Company sold property rights to a portion of a building for RMB 9,000,000 ($1,340,862) and incurred a loss of $32,945 in the first
quarter of 2019 and leased it back for two years beginning March 31, 2019. (See Note 10)
8.
TAXES PAYABLE
Taxes
payable consisted of the following at September 30,
2019 and December 31, 2018:
|
|
|
September 30, 2019
|
|
|
December 31, 2018
|
|
|
Income
|
|
$
|
30,564
|
|
|
$
|
35,517
|
|
|
Value-added
|
|
|
1,196,730
|
|
|
|
1,101,372
|
|
|
City construction
|
|
|
83,802
|
|
|
|
48,541
|
|
|
Education
|
|
|
59,905
|
|
|
|
34,683
|
|
|
Other
|
|
|
10,174
|
|
|
|
2,373
|
|
|
Taxes payable
|
|
$
|
1,381,175
|
|
|
$
|
1,222,486
|
|
9.
ACCRUED LIABILITIES AND OTHER PAYABLES
Accrued
liabilities and other payables consisted of the following at September
30, 2019 and December 31, 2018:
|
|
|
September 30, 2019
|
|
|
December 31, 2018
|
|
|
Accrued liability – travel cost (see Note 4)
|
|
$
|
-
|
|
|
$
|
6,156
|
|
|
Salary payable
|
|
|
81,087
|
|
|
|
162,030
|
|
|
Other payables
|
|
|
423,152
|
|
|
|
527,189
|
|
|
Total
|
|
$
|
504,239
|
|
|
$
|
695,375
|
|
Other
payables mainly consisted of payables for employees’ social insurance and disabled employment security fund of
$275,753, and payable of consulting fees of $58,162 at September 30, 2019; and payables of employees’ social insurance
and disabled employment security fund of $296,173 and commission payable of $103,978 at December 31, 2018.
10.
LEASE
On
September 12, 2018, the Company entered into a contract to sell its rights to a portion of a building (see Note 7), at which time
the Buyer paid RMB 100,000 ($14,898) to a shareholder of the Company as a down payment. The contract stipulated the remaining
RMB 8,900,000 ($1,325,964) should be paid by the Buyer on or before September 30, 2018 and before the Company would be required
to go to the relevant authority to effectuate the transfer of its property rights. The Buyer failed to make the payment on or
prior to September 30, 2018, a default under the contract which gave the Company the right to terminate the contract. In October
2018, the Buyer delivered to the shareholder an additional RMB 7 million ($1.0 million). On March 25, 2019, the parties entered
into a supplemental agreement which provided that the Company would transfer the property rights to Buyer if it agreed the Company
would get the benefit of the RMB 7,000,000 ($1,042,893) and otherwise pay the remaining balance of RMB 1,200,000 ($178,782) on
or prior to March 31, 2019. The RMB1,200,000 ($178,782) was paid directly to the shareholder on a timely basis and the Company
was given the benefit of the RMB 8,900,000 ($1,325,964) delivered to the Shareholder.
As
a result, $207,049 (RMB 1,389,731) was recorded as right of use assets and lease liability on March 31, 2019 when the lease commenced
based on a 4.75% discount factor. The net right of use asset was $143,791 as of September 30, 2019, net of accumulated amortization
of $52,982.
Maturities
of lease liabilities were as follows:
|
For the 12 months ending September 30,:
|
|
|
|
|
|
2020
|
|
$
|
101,279
|
|
|
2021
|
|
|
50,640
|
|
|
Total lease payments
|
|
|
151,919
|
|
|
Less imputed interest
|
|
|
(6,119
|
)
|
|
Total
|
|
|
145,800
|
|
|
Less current portion
|
|
|
(96,048
|
)
|
|
Lease liability – noncurrent portion
|
|
$
|
49,752
|
|
The
cost and accumulated depreciation of the building was $1,739,228 and $364,834, respectively. The Company recorded a loss on
sale of $32,945 during the quarter ended March 31, 2019. $1,340,862 of the proceeds from the sale was collected by the
principal shareholder which was offset against amounts due to the shareholder.
11.
UNEARNED REVENUE
As
of September 30, 2019 and December 31, 2018, the Company had unearned revenue of $356,248 and $2,187,267, respectively. The
reduction of unearned revenue during the nine months ended September 30, 2019 was due to return of advances previously
received from customers.
12.
RELATED PARTY TRANSACTIONS
Advances
to Related Parties for acquisition
As
of September 30, 2019, the Company had advances to multiple related parties in the aggregate amount of $3,951,215, including balances
of $680,873 to Aixin Pharmacy Co., Ltd, Xinjin Branch, $833,398 to Aixin Liucheng Pharmacy Co., Ltd, $639,163 to Aixin
Pharmacy Co., Ltd. Jianyang Store, $69,953 to Aixin Shangyan Hotel Management Co., Ltd., and $1,727,829 to Aixin Pharmacy Co.,
Ltd. All of those related parties are entities controlled by Mr. Quanzhong Lin. These advances were prepayments
for future acquisitions of these related parties.
Advance
to/from a Shareholder
At
September 30,
2019 and December 31, 2018, the Company had advances to a major shareholder of $378,124 and $-0-, respectively. As of September
30, 2019 and December 31, 2018, the Company had an advance from the same major shareholder
of $-0- and $1,166,198, respectively. The advance from the shareholder was payable on demand, and bore no interest and was satisfied
though the sale of the building described in Note 10 with the excess of the amount paid to the shareholder by the Buyer recognized
as an advance to shareholder.
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 three years until May 2017
with an option to renew. The monthly rent was RMB 5,000 ($721), the Company was required to prepay each year’s annual rent
at 15th of May of each year. The Company renewed the lease in May 2017 for another three years until May 28, 2020 with monthly
rents of RMB 5,000 ($721), payable quarterly. The future annual minimum lease payment at September 30, 2019 is $5,596 for the
year ending September 30, 2020.
13.
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 nine months ended September
30, 2019 and 2018, and recorded income tax provision for the periods.
China
has a tax rate of 25% for all enterprises (including foreign-invested enterprises). Taxable income for the nine months ended
September 30, 2019 was offset by net operating loss carried forward. As such, no provision for income tax was recorded.
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 nine months ended September 30, 2019 and 2018, the Company had no unrecognized
tax benefits and related interest and penalties expenses. Currently, the Company is not subject to examination by major tax jurisdictions.
14.
SHAREHOLDERS’ EQUITY (DEFICIT)
The
Company is authorized to issue 20,000,000 shares of blank check preferred stock at $0.001 par value and 950,000,000 shares
of common stock at $.00001 par value per share. At September 30, 2019 and December 31, 2018, the Company had 297,848,699 and
287,848,699 shares issued and outstanding.
On
August 7, 2019, the Company completed the sale of 10,000,000 shares of its common stock for gross proceeds of $1,000,000 in a
private offering, pursuant to which, 10,000,000 shares were issued on September 5, 2019.
On
October 9, 2019, the Company completed the sale of 40,000,000 shares of its common stock for gross proceeds of $4,000,000 in a
private offering. As of September 30, 2019, the Company received $4,000,000 as a result of this private offering and recorded
as stock subscription received in advance.
15.
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 10% of its net income, as determined under PRC accounting rules and regulations, to a statutory
surplus reserve fund until such reserve balance reaches 50% of the Company’s registered capital.
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 25% of the registered capital.
Common
welfare fund
Common
welfare fund is a voluntary fund that the Company can elect to transfer 5% to 10% of its net income, as determined under PRC
accounting rules and regulations, to this fund. The Company did not make any contribution to this fund during the nine months
ended September 30, 2019 and 2018.
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.
16.
OPERATING CONTINGENCIES
The
Company’s operations in the PRC are subject to specific considerations and significant risks not typically associated with
company 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 effect the remittance.
The
Company is, from time to time, involved in litigation incidental to the conduct of its business litigation regarding merchandise
sold, including product litigation with respect to various employment matters, including litigation with present and former employees,
wage and hour litigation and litigation regarding intellectual property rights.
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.
17.
SUBSEQUENT EVENT
Management
has evaluated subsequent events through the date which the financial statements were available to be issued. All subsequent events
requiring recognition as of September 30, 2019 have been incorporated into these financial statements and there are no subsequent
events that require disclosure in accordance with FASB ASC Topic 855, “Subsequent Events.”
