UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark one)

 

[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2018

 

[  ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission file number 0-17284

 

 

AIXIN LIFE INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

 

Colorado		84-1085935
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

 

Hongxing International Business Building 2, 14^th FL, No. 69 Qingyun South Ave., Jinjiang District

Chengdu City, Sichuan Province, China

(Address of principal executive offices)

 

86-313-6732526

(Issuer’s telephone number)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X] No [  ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes [  ] No [X]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

 

Large accelerated filer	[  ]	Accelerated filer	[  ]
Non-accelerated filer	[  ]	(Do not check if a smaller reporting company) Smaller reporting company	[X]
		Emerging growth company	[X]

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) [  ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [  ] No [X]

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practical date: As of September 13, 2018, there were outstanding 317,988,089 shares of the registrant’s common stock.

 

 

 

AIXIN LIFE INTERNATIONAL, INC.

FORM 10-Q

June 30, 2018

INDEX

 

		Page
Special Note Regarding Forward Looking Statements		3
Part I – Financial Information
Item 1.	Condensed Financial Statements	4
	Condensed Balance Sheets	4
	Condensed Statements of Operations	5
	Condensed Statements of Cash Flows	6
	Notes to Condensed Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative And Qualitative Disclosures About Market Risk	23
Item 4.	Controls and Procedures	23
Part II – Other Information
Item 1.	Legal Proceedings	24
Item 1A.	Risk Factors	24
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	24
Item 3.	Defaults Upon Senior Securities	24
Item 4.	Mine Safety Disclosures	24
Item 5.	Other Information	24
Item 6.	Exhibits	25
	Signatures	26

 

 

SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS

 

This report contains forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “would” and similar expressions intended to identify forward-looking statements. Forward-looking statements reflect our current views with respect to future events and are based on assumptions and are subject to risks and uncertainties. Given these uncertainties, you should not place undue reliance on forward-looking statements. Forward-looking statements include, among other things, statements relating to:

 

	●	our goals and strategies;
	●	our future business development, financial condition and results of operations;
	●	our expectations regarding demand for, and market acceptance of, our products;
	●	our expectations regarding keeping and strengthening our relationships with merchants, manufacturers and end-users; and
	●	general economic and business conditions in the regions where we provide our services.

 

Also, forward-looking statements represent our estimates and assumptions only as of the date of this report. You should read this report and the documents that we reference and filed as exhibits to the report completely and with the understanding that our actual future results may be materially different from what we expect. Except as required by law, we assume no obligation to update any forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements, even if new information becomes available in the future.

 

Use of Certain Defined Terms

 

Except where the context otherwise requires and for the purposes of this report only:

 

the “Company,” “we,” “us,” and “our” refer, prior to December 12, 2017, the date of the reverse acquisition resulting from the share exchange transaction described in this report, to the registrant, Mercari Communications Group, Ltd., a shell company, and thereafter, to the business of (i) AiXin (BVI) International Group Co., Ltd. a British Virgin Islands corporation (“AiXin BVI”) recently organized for the sole purpose of acquiring all of the outstanding shares of HK AiXin International Group Co., Limited, a Hong Kong limited company (“AiXin HK”), formed for the sole purpose of acquiring all of the outstanding shares of Chengdu AiXin Zhonghong Biological Technology Co., Ltd., a Chinese limited company (“AiXin Zhonghong”), which markets and sells innovative, premium-quality nutritional products in China. Effective February 1, 2018, pursuant to Articles of Amendment to our Articles of Incorporation filed with the Secretary of State of Colorado, we changed our name to AiXin Life International., Inc. (“AiXin”).

 

“Exchange Act” refers to the Securities Exchange Act of 1934, as amended;

 

“Hong Kong” refers to the Hong Kong Special Administrative Region of the People’s Republic of China;

 

“PRC,” “China,” and “Chinese,” refer to the People’s Republic of China (excluding Hong Kong and Taiwan);

 

“Renminbi” and “RMB” refer to the legal currency of China;

 

“Securities Act” refers to the Securities Act of 1933, as amended; and

 

“US dollars,” “dollars” and “$” refer to the legal currency of the United States.

 

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

AIXIN LIFE INTERNATIONAL, INC.

CONSOLIDATED BALANCE SHEETS

 

		June 30, 2018				December 31, 2017
		(Unaudited)
ASSETS
CURRENT ASSETS
Cash & equivalents		$	3,592			$	37,630
Accounts receivable, net			15,210				32,362
Other receivables and prepaid expenses			26,838				22,023
Advances to suppliers			1,165				2,435
Deferred commission			397,808				422,594
Deferred travel cost			257,157				277,261
Inventory			16,270				48,902
Total current assets			718,040				843,207
NONCURRENT ASSETS
Property and equipment, net			1,607,612				1,719,012
Total non-current assets			1,607,612				1,719,012
TOTAL ASSETS		$	2,325,652			$	2,562,219
LIABILITIES AND STOCKHOLDERS’ (DEFICIT)
CURRENT LIABILITIES
Accounts payable		$	73,452			$	58,028
Unearned revenue			2,579,697				2,691,428
Taxes payable			1,281,468				1,290,550
Accrued liabilities and other payables			782,667				603,947
Advance from shareholder			1,236,428				988,380
TOTAL LIABILITIES			5,953,712				5,632,333
STOCKHOLDERS’ (DEFICIT)
Undesignated preferred stock, $0.001 par value, 20,000,000 shares authorized, none issued and outstanding			-				-
Common stock, par value $0.00001 per share, 950,000,000 shares authorized; 317,988,089 shares issued and outstanding			3,180				3,180
Paid in capital			3,514,769				3,371,857
Statutory reserve			11,721				11,721
(Accumulated deficit)			(7,164,187	)			(6,386,718	)
Accumulated other comprehensive income (loss)			6,457				(70,154	)
TOTAL STOCKHOLDERS’ (DEFICIT)			(3,628,060	)			(3,070,114	)
TOTAL LIABILITIES AND STOCKHOLDERS’ (DEFICIT)		$	2,325,652			$	2,562,219

 

The accompanying notes are an integral part of these consolidated financial statements

 

 

AIXIN LIFE INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

 

		Three Months Ended June 30,								Six Months Ended June 30,
		2018				2017				2018				2017
Net sales		$	40,613			$	93,809			$	145,161			$	524,885
Cost of Revenue			24,216				34,954				64,574				216,499
Gross profit			16,397				58,855				80,587				308,386
Operating expenses
Selling			126,262				173,236				255,056				428,320
General and administrative			245,384				301,532				593,336				515,008
Provision for bad debts			3,927				(17,674	)			8,914				10,025
Total operating expenses			375,573				457,094				857,306				953,353
Loss from operations			(359,176	)			(398,239	)			(776,719	)			(644,967	)
Non-operating income (expenses)
Financial expense			(220	)			(270	)			(470	)			(362	)
Other income			107				12,623				123				24,355
Other expense			(231	)			(14,673	)			(403	)			(28,311	)
Total non-operating expenses, net			(344	)			(2,320	)			(750	)			(4,318	)
Loss before income tax			(359,520	)			(400,559	)			(777,469	)			(649,285	)
Income tax expense			-				29				-				774
Net loss			(359,520	)			(400,588	)			(777,469	)			(650,059	)
Other comprehensive items
Foreign currency translation gain (loss)			179,855				(75,919	)			76,611				(89,170	)
Comprehensive loss		$	(179,665	)		$	(476,507	)		$	(700,858	)		$	(739,229	)
Loss per share - Basic and diluted		$	(0.001	)		$	(0.001	)		$	(0.002	)		$	(0.002	)
Weighted average shares outstanding			317,988,089				272,764,004				317,988,089				272,764,004

 

The accompanying notes are an integral part of these consolidated financial statements

 

 

AIXIN LIFE INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

		Six Months Ended June 30,
		2018				2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss		$	(777,469	)		$	(650,059	)
Depreciation			86,000				110,346
Provision for bad debts			8,914				10,025
Impairment of inventory			(15,356	)			-
(Decrease) in assets
Accounts receivable			8,335				117,735
Other receivables and prepaid expenses			(5,407	)			(11,116	)
Advances to suppliers			1,276				80,279
Deferred commission			18,092				(62,054	)
Deferred travel cost			15,867				(109,706	)
Inventory			48,403				(24,621	)
Increase (decrease) in liabilities:
Accounts payable			17,097				79,974
Unearned revenue			(67,256	)			443,002
Taxes payable			14,024				12,366
Accrued liabilities and other payables			196,650				237,067
Net cash provided by (used in) operating activities			(450,830	)			233,238
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment			(1,405	)			(7,916	)
Net cash used in investing activities			(1,405	)			(7,916	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Shareholder capital contribution			146,047
Advance from (repayment to) shareholder			271,428				(135,785	)
Net cash provided by (used in) financing activities			417,475				(135,785	)
EFFECT OF EXCHANGE RATE CHANGE ON CASH & EQUIVALENTS			721				1,059
NET INCREASE (DECREASE) IN CASH & EQUIVALENTS			(34,038	)			90,596
CASH & EQUIVALENTS, BEGINNING OF PERIOD			37,630				29,668
CASH & EQUIVALENTS, END OF PERIOD		$	3,592			$	120,264
Supplemental Cash flow data:
Income tax paid		$	-			$	-
Interest paid		$	-			$	-

 

The accompanying notes are an integral part of these consolidated financial statements

 

 

AIXIN LIFE INTERNATIONAL, INC.

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. 

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

The following discussion of our financial condition and results of operations should be read in conjunction with the unaudited financial statements and the notes to those statements included elsewhere in this Form 10-Q and with the audited financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2018 (the “2018 Form 10-K”). This discussion contains forward-looking statements that involve risks and uncertainties. You should specifically consider the various risk factors identified in our 2018 Form 10-K, that could cause actual results to differ materially from those anticipated in these forward-looking statements.

 

Overview

 

On December 12, 2017, we entered into and closed a share exchange agreement, or the Share Exchange Agreement, with AiXin (BVI) International Group Co., Ltd. a British Virgin Islands corporation (“AiXin BVI”), and Quanzhong Lin, the owner of all of the outstanding shares of AiXin BVI, pursuant to which we acquired 100% of the outstanding capital stock of AiXin BVI 227,352,604 shares of our common stock (the “Share Exchange” or the “AiXin Acquisition”). After giving effect to the Share Exchange, we had outstanding 317,988,089 shares of common stock. 

 

As a result of the Share Exchange, AiXin BVI became our wholly-owned subsidiary, and we now own 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 Biotechnology Co., Ltd., a Chinese limited company (“AiXin Zhonghong”), which markets and sells premium-quality nutritional products in China.

 

For accounting purposes, the acquisition was accounted for as a reverse acquisition and has been treated as a recapitalization of Mercari Communications Group, Ltd. 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 financial statements of AiXin Zhonghong are now the historical financial statements of our filings. The assets and liabilities of AiXin Zhonghong were brought forward at their book value and no goodwill has been recognized

 

We, through our indirectly owned AiXin Zhonghong subsidiary, mainly market and sell innovative consumer products in China by offering premium-quality nutritional products. We sell the products through our sales offices, exhibition events we organize and sponsor, as well as person-to-person marketing. Our revenue was primarily generated from the sales of our Oleesa Milk Powder, CO Q10, gland element, mattress, detergents and bear gall powders, and other nutritional supplements. Our business mainly focuses on proactively approaching our customers such as hosting events for clients, which we believe is ideally suited to marketing our products because sales of nutrition products are strengthened by ongoing personal contact and support, coaching and education among the Company, our clients, and their clients towards a healthy and active lifestyle.

 

The chart below presents our corporate structure:  

 

AiXin Life International, Inc. (a Colorado corporation)
(formerly known as Mercari Communications Group, Ltd.)
100%
AiXin (BVI) International Group Co., Ltd (BVI)
100%
HK AiXin International Group Co., Limited (HK) (“AiXin HK”)
100%
Chengdu Aixin Zhonghong Biological Technology Co., Ltd (PRC) (“AiXin Zhonghong”)

 

 

From April 2017 to July 2017, the Chinese Government worked with the Industrial and Commercial Bureau, Food and Drug Administration, Quality and Technology Supervision Bureau and Policy Department to regulate the Healthy Products Industry and crackdown on false advertising, illegal marketing and the distribution of adulterated products. As a result of this initiative, our promotional and marketing activities decreased, which resulted in a significant decrease in our sales. During this period, authorities requested manufacturers to cease production of various products distributed by us pending the examination and inspection of raw material supplies, technological processes of production, product quality and environment conservation. Only those manufacturers that passed inspections were allowed to continue production and release products into the market. Consequently, our purchases decreased during this period in 2017 due to the limited number of available products.

 

Our sales decreased due to the government’s regulatory restrictions imposed upon the Health Products Industry. The government’s action was intended to eliminate businesses which were distributing adulterated products or making false marketing claims. We believe that the resulting decrease in our sales was temporary, and that as qualified manufacturers resume distribution of their products, our sales will recover. In addition, we will seek out other qualified sources of the products desired by our clients. We continue to work closely with our suppliers to make sure the products we offer meet governmental standards and are of high quality, and provide attractive and efficient marketing and promotional activities. We believe the demand for health products in China is increasing as a greater number of consumers become aware of the benefits of a healthy life style and can afford to purchase healthy products.

 

Results of Operations

 

The following table sets forth the results of our operations for the periods indicated as a percentage of net revenue, certain columns may not add due to rounding:

 

		Three Months Ended June 30,
		2018								2017
		$				% of Revenue				$				% of Revenue
Revenue		$	40,613				100	%		$	93,809				100	%
Cost of revenue			24,216				60	%			34,954				37	%
Gross profit			16,397				40	%			58,855				63	%
Operating expenses			375,573				925	%			457,094				487	%
Loss from operations			(359,176	)			(885	)%			(398,239	)			(424	)%
Non-operating income (expenses), net			(344	)			(0.8	)%			(2,320	)			(2.5	)%
Income tax expense			-				-	%			29				0.0	%
Net loss		$	(359,520	)			(886	)%		$	(400,588	)			(427	)%

 

		Six Months Ended June 30,
		2018								2017
		$				% of Revenue				$				% of Revenue
Revenue		$	145,161				100	%		$	524,885				100	%
Cost of revenue			64,574				44	%			216,499				41	%
Gross profit			80,587				56	%			308,386				59	%
Operating expenses			857,306				591	%			953,353				182	%
Loss from operations			(776,719	)			(535	)%			(644,967	)			(123	)%
Non-operating income (expenses), net			(750	)			(0.5	)%			(4,318	)			(0.8	)%
Income tax expense			-				-	%			774				0.1	%
Net loss		$	(777,469	)			(536	)%		$	(650,059	)			(124	)%

 

 

Revenue

 

Revenue for the quarter ended June 30, 2018, was $40,613, while revenue for the comparable period last year was $93,809, a decrease of $53,196 or 57%. Revenue for the six months ended June 30, 2018, was $145,161, while revenue for the comparable period last year was $524,885, a decrease of $379,724 or 72%. The decrease in sales was primarily because the market for health supplement products declined after a year in which the government attempted to crack down on fraudulent practices in the industry, reducing the demand for nutritional supplements generally. In addition, during this period of reduced demand, we have been focusing on adjusting the company's product structure, sales model, customer structure and infrastructure in order to build a solid foundation for future business development instead of performing large scale marketing.

 

Cost of Revenue

 

Cost of revenue (“COR”) was $24,216 and $64,574 in the quarter and six months ended June 30, 2018, compared to $34,954 and $216,499 in the comparable periods last year, a decrease of $10,738 or 31% and $151,925 or 70%, respectively. The decrease in our COR is attributable to the decrease in our revenue. The COR as a percentage of sales was 60% and 44% in the quarter and six months ended June 30, 2018, compared to 37% and 41% for the comparable periods last year. This increase in COR resulted from the introduction of new products in the second quarter of 2018.

 

Gross Profit

 

Gross profit was $16,397 and $80,587 in the quarter and six months ended June 30, 2018, compared to $58,855 and $308,386 in the comparable periods last year, a decrease of $42,458 or 72% and $227,799 or 74%, respectively. The decrease in our gross profit was mainly due to the decrease of revenue. Gross margin was 40% and 56% in the quarter and six months ended June 30, 2018, compared to 63% and 59% for the same periods last year as a result of the increase in the COR as a percentage of sales.

 

Operating Expenses

 

Operating expenses were $375,573 and $857,306 for the quarter and six months ended June 30, 2018, compared to $457,094 and $953,353 for the comparable periods last year, a decrease of $81,521 or 18% and $96,047 or 10%. The decrease in operating expenses in the quarter was mainly due to a decrease in selling expense resulted from decreased sales and a decrease in general and administrative expenses resulting from various management initiatives. The decrease in operating expenses in the first half of 2018 was mainly due to a $173,264 decrease in selling expense, partly offset by a $78,328 increase in general and administrative expenses as a result of an increase in personnel salaries in the first quarter of 2018 in order to retain employees.

 

Net Loss

 

Our net loss for the quarter and six months ended June 30, 2018, was $359,520 and $777,469 compared to $400,588 and $650,059 for the comparable periods last year, a decrease in net loss of $41,068 or 10% and an increase in net loss of $127,410 or 20%. The decrease in net loss in the quarter was mainly due to the lower operating expenses. The increase in net loss in the first half of 2018 was mainly due to the lower gross profit.

 

Liquidity and Capital Resources

 

Currently, we are dependent upon advances from our major shareholder to continue our operations. As of June 30, 2018, cash and equivalents were $3,592, compared to $37,630 as of December 31, 2017. At June 30, 2018, we had a working capital deficit of $(5,235,672) compared to the $(4,789,126) deficit at December 31, 2017. The increase in the working capital deficit was mainly due to our continued losses.

 

  

The following is a summary of cash provided by or used in each of the indicated types of activities during the six months ended June 30, 2018 and 2017, respectively. 

 

		June 30, 2018				June 30, 2017
Net cash provided by (used in) operating activities		$	(450,830	)		$	233,238
Net cash used in investing activities		$	(1,405	)		$	(7,916	)
Net cash provided by (used in) financing activities		$	417,475			$	(135,785	)

 

Net cash used in operating activities

 

Net cash used in operating activities was $450,830 for the six months ended June 30, 2018, compared to $233,238 for the six months ended June 30, 2017. The increase in the amount of cash used in operating activities was mainly due to our higher net loss and a decrease in unearned revenue.

 

Net cash used in investing activities

 

Net cash used in investing activities was $1,405 for the six months ended June 30, 2018, compared to $7,916 for the six months ended June 30, 2017 for purchase of property and equipment.

 

Net cash provided by financing activities

 

Net cash provided by financing activities was $417,475 for the six months ended June 30, 2018, compared to cash used in financing activities of $135,785 in the six months ended June 30, 2017. The net cash provided by financing activities in the six months ended June 30, 2018 reflects advances from a major shareholder of the Company to pay the company’s working capital needs.

 

Impact of Inflation

 

The general annual inflation rate in China was 1.4% in 2017and 3.0% in 2016 according to the National Bureau of Statistics. Our results of operations may be affected by inflation, particularly rising prices for products and other operating costs.

 

Contractual Obligations

 

We have no long-term fixed contractual obligations or commitments.

 

Off-Balance Sheet Arrangements

 

We have not entered into any financial guarantees or other commitments to guarantee the obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as shareholder’s equity or that are not reflected in our combined financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an uncombined entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any uncombined entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us. 

 

Contingencies

 

The Company’s operations are conducted in the PRC and are subject to specific considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environments in China and foreign currency exchange. The Company’s results may be adversely affected by changes in PRC government 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 expense transactions in China are denominated in RMB and all of the Company’s assets and liabilities in China are also denominated in RMB. The RMB is not freely convertible into foreign currencies under the current PRC 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 in order to affect the remittance.

 

 

Significant Accounting Policies

 

While our significant accounting policies are more fully described in Note 2 to our financial statements, we believe the following accounting policies are the most critical to aid you in fully understanding and evaluating this management discussion and analysis.

 

Basis of Presentation

 

The accompanying financial statements are prepared in conformity with U.S. Generally Accepted Accounting Principles (“US GAAP”). The functional currency of Aixin is Chinese Renminbi (‘‘RMB’’). The accompanying financial statements are translated from RMB and presented in U.S. dollars (“USD”).

 

Going Concern

 

The Company incurred net losses of $359,520 and $777,469 for the quarter and six months ended June 30,2018, compared to $400,588 and $650,059 for the comparable periods last year, respectively. The Company also had a shareholders' deficit of $3,628,060 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 product supply, building a competitive and efficient sales force, providing attractive sales incentive programs, increasing marketing and promotion activities, and minimizing operating costs. The Company’s majority shareholder, Quanzhong Lin, plans to invest additional RMB 10 million 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 RMB 1.8 Million ($270,000). The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Use of Estimates

 

In preparing financial statements in conformity with US GAAP, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period.

 

Significant estimates, required by management, include the recoverability of long-lived assets, allowance for doubtful accounts, and the reserve for obsolete and slow-moving inventories. Actual results could differ from those estimates.

 

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 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, the bad debt allowance was $32,667 and $24,524, respectively.

 

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 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.

 

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 2017 and 2016 consisted of net loss and foreign currency translation adjustments.

 

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.

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

As a smaller reporting company, the Company is not required to provide the information required by this Item.

 

Item 4. Controls and Procedures.

 

Disclosure Controls and Procedures

 

Disclosure Controls and Procedures

 

Management of AiXin Life International, Inc. is responsible for maintaining disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. In addition, the disclosure controls and procedures must ensure that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required financial and other required disclosures.

 

At June 30, 2018, an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13(a)-15(e) and 15(d)-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”)) was carried out under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer. Based on their evaluation of our disclosure controls and procedures, they concluded that at June 30, 2018, such disclosure controls and procedures were not effective. This was due to our limited resources, including the absence of a financial staff with accounting and financial expertise and deficiencies in the design or operation of our internal control over financial reporting that adversely affected our disclosure controls and that may be considered to be “material weaknesses.”

 

We plan to designate individuals responsible for identifying reportable developments and to implement procedures designed to remediate the material weakness by focusing additional attention and resources in our internal accounting functions. However, the material weakness will not be considered remediated until the applicable remedial controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.

 

Changes in Internal Control over Financial Reporting

 

There have not been any changes in our internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during our most recently completed fiscal quarter which is the subject of this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 

PART II – OTHER INFORMATION

 

Item 1. Legal Proceedings

 

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.

 

Item 1A. Risk Factors

 

Reference is made to the risks and uncertainties disclosed in Item 1A (“Risk Factors”) of our 2017 Form 10-K, which are incorporated by reference into this report. Prospective investors are encouraged to consider the risks described in the 2017 Form 10-K, Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in this report and other information publicly disclosed or contained in documents we file with the Securities and Exchange Commission before purchasing our securities.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

During the quarter ended June 30, 2018, we did not have any sales of equity securities in transactions that were not registered under the Securities Act of 1933, as amended, that have not been previously reported in a report filed pursuant to the Exchange Act.

 

Item 3. Defaults Upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosures

 

N/A.

 

Item 5. Other Information

 

 

Item 6. Exhibits

 

Exhibit No.		Description
2.1		Share Exchange Agreement, dated as of December 12, 2017, among the Company, AiXin BVI, AiXin HK, AiXin Zhonghong and the stockholders of Aixin Zhonghong (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on December 14, 2017).
3.1		Articles of Incorporation (incorporated by reference to the Company’s Annual Report on Form 10-KSB for the fiscal year ended May 31, 2006 as filed with the SEC on March 7, 2007).
3.2		Articles of Amendment to Articles of Incorporation (incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on June 3, 2008).
3.3		Articles of Amendment to Articles of Incorporation (incorporated by reference to Exhibit 3.3 the Company’s Quarterly Report on Form 10-Q for the quarterly period ended November 30, 2017 as filed with the SEC on January 16, 2018).
3.4		Bylaws of the Registrant (incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on June 3, 2008).
31.1		Certification of Chief Executive Officer pursuant to Rule 13a-14 or Rule 15d-14 of Securities Exchange Act of 1934.
31.2		Certification of Chief Financial Officer pursuant to Rule 13a-14 or Rule 15d-14 of Securities Exchange Act of 1934.
32.1		Certification of Chief Executive Officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).
32.2		Certification of Chief Financial Officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema
101.CAL		XBRL Taxonomy Extension Calculation
101.DEF		XBRL Taxonomy Extension Definition
101.LAB		XBRL Taxonomy Extension Label
101.PRE		XBRL Taxonomy Extension Presentation

 

 

SIGNATURES

 

Pursuant to the requirements of section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

	AIXIN LIFE INTERNATIONAL, INC.
Dated: September 17, 2018	By:	/s/ Quanzhong Lin
		Quanzhong Lin
		President and Chief Executive Officer
		(Principal Executive Officer)