AIXIN
LIFE INTERNATIONAL, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
|
Three Months Ended March 31, 2019
|
|
|
|
|
As Previously Reported
|
|
|
As Restated
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(278,005
|
)
|
|
$
|
(311,350
|
)
|
|
Adjustments required to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
40,578
|
|
|
|
40,578
|
|
|
Provision for bad debts
|
|
|
14,510
|
|
|
|
14,510
|
|
|
Loss from disposal of building
|
|
|
-
|
|
|
|
33,345
|
|
|
Changes in net assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(26,105
|
)
|
|
|
(26,105
|
)
|
|
Other receivables and prepaid expenses
|
|
|
10,977
|
|
|
|
10,977
|
|
|
Advances to suppliers
|
|
|
667
|
|
|
|
667
|
|
|
Deferred commission
|
|
|
14,366
|
|
|
|
14,366
|
|
|
Deferred travel cost
|
|
|
9,446
|
|
|
|
9,446
|
|
|
Inventory
|
|
|
5,879
|
|
|
|
5,879
|
|
|
Unearned revenue
|
|
|
(89,498
|
)
|
|
|
(89,498
|
)
|
|
Taxes payable
|
|
|
(11,966
|
)
|
|
|
(11,966
|
)
|
|
Accrued liabilities and other payables
|
|
|
18,280
|
|
|
|
18,280
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) operating activities
|
|
|
(290,871
|
)
|
|
|
(290,871
|
)
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Capital contribution
|
|
|
313,966
|
|
|
|
313,966
|
|
|
Change in advance from shareholder
|
|
|
(30,276
|
)
|
|
|
(30,276
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
283,690
|
|
|
|
283,690
|
|
|
|
|
|
|
|
|
|
|
|
|
EFFECT OF EXCHANGE RATE CHANGE ON CASH
|
|
|
(861
|
)
|
|
|
(861
|
)
|
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH
|
|
|
(8,043
|
)
|
|
|
(8,043
|
)
|
|
|
|
|
|
|
|
|
|
|
|
CASH BEGINNING OF PERIOD
|
|
|
11,264
|
|
|
|
11,264
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH END OF PERIOD
|
|
$
|
3,221
|
|
|
$
|
3,221
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Cash flow data:
|
|
|
|
|
|
|
|
|
|
Income tax paid
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Interest paid
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of building offset against shareholder loans
|
|
$
|
-
|
|
|
$
|
1,340,862
|
|
|
Right of use asset and related liability
|
|
$
|
-
|
|
|
$
|
207,049
|
|
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. As of March 31, 2019 and
December 31, 2018, the bad debt allowance was $94,653 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 their inventories to market value, if lower. The Company recorded no inventory
impairment for the quarters ended March 31, 2019 and 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 March 31, 2019 and December 31, 2018 (audited),
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
March 31, 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 platform fees and related 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 services to customers in
return for expected consideration and includes the following elements:
|
|
●
|
executed
contract(s) with our customers that we believe is legally enforceable;
|
|
|
|
|
|
|
●
|
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;
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|
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|
|
|
|
●
|
allocation
the transaction price to each performance obligation; and
|
|
|
|
|
|
|
●
|
recognition
of revenue only when the Company satisfies each performance obligation.
|
These
five elements, as applied to each of the Company’s revenue category, 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.
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. 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.
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 March 31, 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 quarter 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 March 31, 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. 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 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 this standard did not have any
material impact on the Company’s CFS.
In
February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Topic 842). Topic 842 supersedes the lease requirements
in Accounting Standards Codification Topic 840, Leases. Under Topic 842, lessees are required to recognize assets and liabilities
on the balance sheet for most leases and provide enhanced disclosures. Leases will continue to be classified as either finance
or operating. The ASU is effective for reporting periods beginning after December 15, 2018, with early adoption permitted. The
Company adopted this ASU from January 1, 2019, and has recorded a right of use asset and related liability (See Note 9).
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 periods 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 March 31, 2019
and December 31, 2018, the Company had deferred commission of $333,216 and $338,509 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 a 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 March 31, 2019 and December 31, 2018, the Company had deferred travel
cost of $216,655 and $220,200, respectively.
5.
INVENTORY
Inventory
consisted of the following at March 31, 2019 and December 31, 2018:
|
|
|
March 31, 2019
|
|
|
December 31, 2018
|
|
|
Finished goods – health supplements
|
|
$
|
7,847
|
|
|
$
|
13,396
|
|
6.
PROPERTY AND EQUIPMENT, NET (RESTATED)
Property
and equipment consisted of the following at March 31, 2019 and December 31, 2018:
|
|
|
March 31, 2019
(Restated)
|
|
|
December 31, 2018
|
|
|
Office furniture
|
|
$
|
47,113
|
|
|
$
|
228,996
|
|
|
Building
|
|
|
-
|
|
|
|
1,510,312
|
|
|
Vehicle
|
|
|
218,731
|
|
|
|
212,972
|
|
|
Electronic equipment
|
|
|
14,438
|
|
|
|
14,058
|
|
|
Total
|
|
|
280,282
|
|
|
|
1,966,338
|
|
|
Less: Accumulated depreciation
|
|
|
(191,466
|
)
|
|
|
(501,923
|
)
|
|
Net
|
|
$
|
88,816
|
|
|
$
|
1,464,415
|
|
The building was sold in March 2019 (Notes
2 and 9). Depreciation for the quarters ended March
31, 2019 and 2018 was $40,578 and $43,048, respectively.
7.
TAXES PAYABLE
Taxes
payable consisted of the following at March 31, 2019 and December 31, 2018:
|
|
|
March 31, 2019
|
|
|
December 31, 2018
|
|
|
Income
|
|
$
|
36,477
|
|
|
$
|
35,517
|
|
|
Value-added
|
|
|
1,115,758
|
|
|
|
1,101,372
|
|
|
City construction
|
|
|
48,716
|
|
|
|
48,541
|
|
|
Education
|
|
|
34,808
|
|
|
|
34,683
|
|
|
Other
|
|
|
7,751
|
|
|
|
2,373
|
|
|
Taxes payable
|
|
$
|
1,243,510
|
|
|
$
|
1,222,486
|
|
8.
ACCRUED LIABILITIES AND OTHER PAYABLES
Accrued
liabilities and other payables consisted of the following at March 31, 2019 and December 31, 2018:
|
|
|
March 31, 2019
|
|
|
December 31, 2018
|
|
|
Accrued liability – travel cost (see Note 4)
|
|
$
|
6,323
|
|
|
|
6,156
|
|
|
Salary payable
|
|
|
142,524
|
|
|
|
162,030
|
|
|
Other payables
|
|
|
583,415
|
|
|
|
527,189
|
|
|
Total
|
|
$
|
732,262
|
|
|
$
|
695,375
|
|
Other
payables mainly consisted of payables for employees’ social insurance and disabled employment security fund of $328,030
and commission payable of $106,676 at March 31, 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, respectively.
9.
LEASE (RESTATED)
The
Company sold a building for RMB 9,000,000 ($1,340,862) in the first quarter of 2019 (Note 1, Restatement) and leased it
back for a two year term beginning on March 31, 2019. The lease calls for quarterly rent payments of RMB
180,978 ($26,963) payable at the beginning of each quarter.
As a result, $207,049 (RMB 1,389,731) was
recorded as right of use asset and lease liability on March 31, 2019 when the lease commenced based on a 4.75% discount
factor, which is the Company’s incremental borrowing rate. The net right of use asset was $207,049 as of March
31, 2019.
Maturities
of lease liabilities were as follows:
|
For the 12 months ending March 31,:
|
|
|
|
|
2020
|
|
$
|
107,852
|
|
|
2021
|
|
|
107,852
|
|
|
Total lease payments
|
|
|
215,704
|
|
|
Less imputed interest
|
|
|
(8,655
|
)
|
|
Total
|
|
|
207,049
|
|
|
Less Current Portion
|
|
|
(102,324
|
)
|
|
Long Term Portion
|
|
$
|
104,725
|
|
The
cost and accumulated depreciation of the building was $1,739,228 and $364,834, respectively. The Company recorded a loss on sale
of $33,345 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.
10.
RELATED PARTY TRANSACTIONS (RESTATED)
Advance
from a Shareholder (Restated)
At
March 31, 2019, and December 31, 2018 the Company had an advance from a shareholder of $-0- (restated) and $1,166,198, respectively.
As of March 31, 2019 and December 31, 2018, the Company had an advance to a major shareholder of $180,288 (restated)
and $-0-, respectively. The changes in the balances as of March 31, 2019, were a result of the sale of the building
(Notes 2 and 9). The advance from the shareholder 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
rents of RMB 5,000 ($721), payable quarterly. The future annual minimum lease payment at March 31, 2019 is $8,652 for the year
ending March 31, 2020, $1,442 for the year ending March 31, 2021.
11.
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 quarters ended March 31,
2019 and 2018, and has recorded income tax provision for the periods.
On
December 22, 2017, the President of the United States signed and enacted into law H.R. 1 (the “Tax Reform Law”). The
Tax Reform Law, effective for tax years beginning on or after January 1, 2018, except for certain provisions, resulted in significant
changes to existing United States tax law, including various provisions that are expected to impact the Company. The Tax Reform
Law reduced the federal corporate tax rate from 35% to 21% effective January 1, 2018.
China
has a tax rate of 25% for all enterprises (including foreign-invested enterprises).
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 quarters ended March 31, 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.
12.
LOSS PER SHARE (RESTATED)
The
following table sets forth the computation of basic and diluted loss per share of common stock for the respective periods ended:
|
|
|
Three Months Ended
March 31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
Basic loss per share:
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
Net loss used in computing basic loss per share
|
|
$
|
(311,350
|
)
|
|
$
|
(417,949
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
287,838,699
|
|
|
|
292,528,604
|
|
|
Basic loss per share
|
|
$
|
(0.001
|
)
|
|
$
|
(0.001
|
)
|
13.
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 March 31, 2019 and December 31, 2018 (audited), the Company had 287,838,699 shares
issued and outstanding after taking effect of the cancellation of 30,149,390 shares issued to two individuals for services rendered
but subsequently revoked by BOD when it determined it is not in the Company’s best interests to issue any shares to the
two individuals (see note 2). Upon the Aixin reverse acquisition, the number of issued and outstanding shares was retroactively
adjusted to reflect the recapitalization.
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 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 quarters ended March 31,
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.
15.
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 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.
