NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE30,
2018 AND 2017
(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 early 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 operations from June 1, 1990 to August 31, 2001 and was considered
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, and 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, 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, 65.01% of its outstanding
shares of common stock, 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. The 29,521,410 shares are still being transferred from China Concentric to Mr.
Lin.
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, 80.8% 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 AiXin Zhonghong Biological Technology Co., Ltd., a Chinese limited company
(“AiXin Zhonghong”), 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. AiXin Zhonghong was established in the 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 AiXin Zhonghong 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 CFS of AiXin Zhonghong are now the historical consolidated financial statements
(“CFS”) of the Company. The assets and liabilities of AiXin Zhonghong 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 AiXin Zhonghong subsidiary, mainly develops and distributes consumer products by
offering a line of nutritional products. The Company sells the products through exhibition events, conferences, as well as
person-to-person marketing. During 2018, the Company’s revenue was primarily generated from sales of products, which
include Oleesa Milk Powder, gland element, mattress, detergents and bear gall powders, and other nutritional supplements.
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 Aixinis 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 AiXin Zhonghong. Intercompany
transactions and accounts were eliminated in consolidation.
Going
Concern
The
Company incurred net losses of $777,469 and $650,059 for the six months ended June 30, 2018 and 2017, respectively.
The Company also had a stockholders’ deficit of $3.6 million as of June 30, 2018. 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 products supply, building a competitive and
efficient sales force, providing attractive sales incentive program, increasing marketing and promotion activities, and
minimize operating costs. The Company’s majority shareholder, Quanzhong Lin, plans to invest an additional RMB 10
million ($1,500,000) into the Company by the end of September 2018 to help the Company’s working capital needs. As of
September 7, 2018, the Company has received approximately RMB 1.8 million ($270,000). 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 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 three months ended
June 30, 2018 and 2017, bad debt expense was $3,927 and bad debt recovery was $17,674, respectively. During the six months ended
June 30, 2018 and 2017, bad debt expense was $8,914 and $10,025, respectively. As of June 30, 2018 and December 31, 2017 (audited),
the bad debt allowance was $32,667 and $24,524, 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 their inventories to market value, if lower. The Company recorded no inventory
impairment for the six months ended June 30, 2018 and 2017, respectively.
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 June 30, 2018 and December 31, 2017 (audited),
there was 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
June 30, 2018 and December 31, 2017 (audited), the Company did not take any uncertain positions that would necessitate
recording a tax related liability.
Revenue
Recognition
The
Company’s revenue recognition policies comply with FASB ASC Topic 605, “Revenue Recognition”. Sales are recognized
when a formal arrangement exists; the price is fixed or determinable; title has passed to the buyer, which generally is at the
time of delivery of the products or services; no other significant obligations of the Company exist and collectability is reasonably
assured. Payments received before all of the relevant criteria for revenue recognition are recorded as unearned revenue.
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 before May 2018, starting from May 1, 2018, it
becomes 16% as per tax regulation. 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 CFS. 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.
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. The amount for return of products was immaterial for the six months ended June 30, 2018 and 2017.
Cost
of Revenue
Cost
of revenue (“COR”) consists primarily of cost of purchasing inventory. Write-down of inventory to lower of cost or
market is also recorded in COR.
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:
|
|
●
|
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 FV measurement.
|
As
of June 30, 2018 and December 31, 2017 (audited), 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 income (loss) is comprised of net income
(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 loss for the first six month of 2018 and 2017
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 June 30, 2018 and 2017 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.
For
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 the BOD believes the two individuals did not perform the services as expected. The two individuals
and the Company have not yet reached any agreement regarding this matter.
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. The Company operates
exclusively in one business and industry segment: sale of health supplement products.
New
Accounting Pronouncements
In
May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers,
which supersedes the revenue recognition requirements in Accounting Standards Codification (“ASC”) 605 - Revenue
Recognition and most industry-specific guidance throughout the Codification. The standard requires that an entity recognizes
revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to
which the company expects to be entitled in exchange for those goods or services. In August 2015, the FASB approved a
one-year deferral of the effective date of the new revenue recognition standard. Public business entities, certain
not-for-profit entities, and certain employee benefit plans should apply the guidance in ASU 2014-09 to annual reporting
periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier
application is permitted only as of annual reporting periods beginning after December 31, 2016, including interim reporting
periods within that reporting period.
In
March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606), Principal versus Agent Considerations
(Reporting Revenue versus Net). In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606),
Identifying Performance Obligations and Licensing. In May 2016, the FASB issued ASU 2016-11, Revenue from Contracts with Customers
(Topic 606) and Derivatives and Hedging (Topic 815) - Rescission of SEC Guidance Because of ASU 2014-09 and 2014-16, and ASU 2016-12,
Revenue from Contracts with Customers (Topic 606) - Narrow Scope Improvements and Practical Expedients. These ASUs clarify the
implementation guidance on a few narrow areas and adds some practical expedients to the guidance Topic 606. The adoption of these
standards did not have any material impact on the Company’s CFS.
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.
In
August 2016, the FASB issued ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 clarifies
the presentation and classification of certain cash receipts and cash payments in the statement of cash flows. This ASU is effective
for public business entities for fiscal years, and interim periods within those years, beginning after December 15, 2017. Early
adoption is permitted. The adoption of this standard did not have any material impact on the Company’s CFS.
In
November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. The guidance requires that
a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described
as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash
equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total
amounts shown on the statement of cash flows. The standard is effective for fiscal years beginning after December 15, 2017, and
interim period within those fiscal years. Early adoption is permitted, including adoption in an interim period. The standard should
be applied using a retrospective transition method to each period presented. The adoption of this standard did not have any material
impact on the Company’s CFS.
3.
DEFERRED COMMISSION
The
Company paid commission to its salesmen based on cash collected from the sales. The Company calculated and paid commission based
on certain proportion of monthly cash receipts from sales; however, the customers sometimes delays taking delivery of the products
after payment is made to the Company, which is recorded as unearned revenue. Accordingly, the Company only recognizes current
commission cost as the related revenue is recognized. Commission expenses are recorded as selling expenses. As of June 30, 2018
and December 31, 2017 (audited), the Company had deferred commission of $397,808 and $422,594 respectively.
4.
DEFERRED TRAVEL COST
As
part of the Company’s sales incentive program, the Company occasionally provided free travel to its customers whose
prepayment to purchase the Company’s products reached to certain amount. There are different travel incentives offered
to its customers based on 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. As of June 30, 2018 and December 31, 2017
(audited), the Company had deferred travel cost of $257,157 and $277,261, respectively.
5.
INVENTORY
Inventory
consisted of the following at June 30, 2018 and December 31, 2017 (audited):
|
|
|
June
30, 2018
|
|
|
December
31, 2017
|
|
|
Finished
goods – health supplements
|
|
$
|
16,270
|
|
|
$
|
63,930
|
|
|
Less:
Inventory impairment allowance
|
|
|
-
|
|
|
|
(15,028
|
)
|
|
Total
|
|
$
|
16,270
|
|
|
$
|
48,902
|
|
6.
PROPERTY AND EQUIPMENT, NET
Property
and equipment consisted of the following at June 30, 2018 and December 31, 2017 (audited):
|
|
|
June
30, 2018
|
|
|
December 31, 2017
|
|
|
Office
furniture
|
|
$
|
238,370
|
|
|
$
|
242,613
|
|
|
Building
|
|
|
1,572,139
|
|
|
|
1,600,118
|
|
|
Vehicle
|
|
|
221,690
|
|
|
|
225,636
|
|
|
Electronic
equipment
|
|
|
15,147
|
|
|
|
14,041
|
|
|
Total
|
|
|
2,047,346
|
|
|
|
2,082,408
|
|
|
Less:
Accumulated depreciation
|
|
|
(439,734
|
)
|
|
|
(363,396
|
)
|
|
Net
|
|
$
|
1,607,612
|
|
|
$
|
1,719,012
|
|
Depreciation
for the three and six months ended June 30, 2018 and 2017 was $42,952 and $57,172, respectively, and $86,000 and $110,346, respectively.
7.
TAXES PAYABLES
Taxes
payable consisted of the following at June 30, 2018 and December 31, 2017 (audited):
|
|
|
June
30, 2018
|
|
|
December 31, 2017
|
|
|
Income
|
|
$
|
36,971
|
|
|
$
|
37,629
|
|
|
Value-added
|
|
|
1,135,424
|
|
|
|
1,149,055
|
|
|
City
construction
|
|
|
49,703
|
|
|
|
50,218
|
|
|
Education
|
|
|
35,513
|
|
|
|
35,882
|
|
|
Other
|
|
|
23,857
|
|
|
|
17,766
|
|
|
Taxes
payable
|
|
$
|
1,281,468
|
|
|
$
|
1,290,550
|
|
8.
ACCRUED LIABILITIES AND OTHER PAYABLES
Accrued
liabilities and other payables consisted of the following at June 30, 2018 and December 31, 2017 (audited):
|
|
|
June
30, 2018
|
|
|
December
31, 2017
|
|
|
Accrued
liability – travel cost (see Note 4)
|
|
$
|
87,310
|
|
|
|
88,864
|
|
|
Salary
payable
|
|
|
143,991
|
|
|
|
97,393
|
|
|
Other
payables
|
|
|
551,366
|
|
|
|
417,690
|
|
|
Total
|
|
$
|
782,667
|
|
|
$
|
603,947
|
|
Other
payable mainly consisted of payables for employees’ social insurance and disabled employment security fund of
$267,362 and commission payable of $109,116 at June 30, 2018; and payables of employees’ social insurance and disabled
employment security fund of $242,075 and commission payable of $103,736 at December 31, 2017, respectively.
9.
RELATED PARTY TRANSACTIONS
Advance
from a Shareholder
At
June 30, 2018 and December 31, 2017 (audited), the Company had advance from a major shareholder of $1,236,428 and $988,380, respectively.
The advance was payable on demand, and bore no interest.
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
rent of RMB 5,000 ($721), payable quarterly. The future annual minimum lease payment at June 30, 2018 is $8,652 for the year ending
June 30, 2019 and $7,931 for year ending June 30, 2020.
10.
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 net income from its operations in the PRC for the six months ended June
30, 2018 and 2017, and has recorded income tax provision for the periods.
China
has a uniform tax rate of 25% for all enterprises (including foreign-invested enterprises). However, the Company enjoys 10% preferential
income tax rate for taxable income of RMB 0.5 million ($72,000) or less with a ‘Small Business’ status.
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 six months ended June 30, 2018 and 2017, 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.
11.
LOSS PER SHARE
The
following table sets forth the computation of basic loss per share of common stock for the respective periods ended:
|
|
|
Three
Months Ended
June
30,
|
|
|
Six
Months Ended
June
30,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic loss
per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss used in computing basic loss per share
|
|
$
|
(359,520
|
)
|
|
$
|
(400,588
|
)
|
|
$
|
(777,469
|
)
|
|
$
|
(650,059
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding
|
|
|
317,988,089
|
|
|
|
272,764,004
|
|
|
|
317,988,089
|
|
|
|
317,988,089
|
|
|
Basic
loss per share
|
|
$
|
(0.001
|
)
|
|
$
|
(0.001
|
)
|
|
$
|
(0.002
|
)
|
|
$
|
(0.002
|
)
|
12.
SHAREHOLDERS’ 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 June 30, 2018 and December 31, 2017 (audited), the Company had
317,988,089 shares issued and outstanding. Upon the Aixin reverse acquisition, the number of issued and outstanding shares
was retroactively adjusted to reflect the recapitalization.
13.
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 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 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 six months ended June 30,
2018 and 2017.
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.
14.
OPERATING RISKS
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, from time to time, is involved in litigation incidental to the conduct of its business including claims related to
merchandise sold, and wage and hour, and other employment related claims with current and former employees.
The
Company believes that currently pending litigation will not have a material adverse effect on its consolidated financial position,
results of operations or cash flows.
