| Summary of Significant Accounting Policies | 2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis
of Presentation The
accompanying Consolidated Financial Statements (CFS) are prepared in conformity with United States Generally Accepted
Accounting Principles (“US GAAP”). The functional currency of Aixin is Chinese Renminbi (‘‘RMB’’).
The accompanying CFS are translated from RMB and presented in U.S. dollars (“USD”). The
CFS includes the accounts of the Company and its current wholly owned subsidiaries, AiXin HK and AiXin Zhonghong. Intercompany
transactions and accounts were eliminated in consolidation. Unaudited
Interim Financial Information These
unaudited interim financial statements have been prepared in accordance with GAAP for interim financial reporting and the rules
and regulations of the Securities and Exchange Commission that permit reduced disclosure for interim periods. Therefore, certain
information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed
or omitted. In the opinion of management, all adjustments of a normal recurring nature necessary for a fair presentation of the
financial position, results of operations and cash flows for the periods presented have been made. The results of operations for
the interim periods presented are not necessarily indicative of the results to be expected for the year ending December 31,
2019. The balance sheets and certain
comparative information as of December 31, 2018 are derived from the audited financial statements and related notes for the year
ended December 31, 2018 (“2018 Annual Financial Statements”), included in the Company’s 2018 Annual Report on
Form 10-K. These unaudited interim financial statements should be read in conjunction with the 2018 Annual Financial Statements. Going
Concern The
Company incurred net losses of $675,601 and $777,469 for the six months ended June 30, 2019 and 2018, respectively. The Company
also had a stockholders’ deficit of approximately $2.6 million as of June 30, 2019. These conditions raise 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. Subsequent
to the close of the second quarter, the Company sold 10,000,000 shares of its common stock for gross proceeds of $1,000,000 in
a private offering. The Company did not pay any commissions in connection with the sale of the shares. If necessary,
the Company will seek to raise additional capital through sales of its equity securities to solve its working capital needs.
As of June 30, 2019, the Company received RMB 15.6 million (approximately $2.2 million) from Quanzhong Lin. The CFS do not include
any adjustments that might result from the outcome of this uncertainty. Use
of Estimates In
preparing CFS in conformity with US GAAP, management makes estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosures of contingent assets and liabilities at the dates of the CFS, as well as the reported amounts
of revenues and expenses during the reporting period. Significant
estimates, required by management, include the recoverability of long-lived assets, allowance for doubtful accounts, and the reserve
for obsolete and slow-moving inventories. Actual results could differ from those estimates. Cash
and 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 June 30, 2019 and December
31, 2018, the bad debt allowance was $93,049 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 inventory impairment
of $1,063 and $0 for the six months ended June 30, 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 ASU 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 June 30, 2019 and December 31, 2018,
there were no significant impairments of its long-lived assets. Income
Taxes Income
taxes are accounted for using an asset and liability method. Under this method, deferred income taxes are recognized for the tax
consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts
at each period end based on enacted tax laws and statutory tax rates, applicable to the periods in which the differences are expected
to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected
to be realized. The
Company follows Accounting Standards Codification (“ASC”) Topic 740, which prescribes a more-likely-than-not threshold
for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic
740 also provides guidance on recognition of income tax assets and liabilities, classification of current and deferred income
tax assets and liabilities, accounting for interest and penalties associated with tax positions, accounting for income taxes in
interim periods, and income tax disclosures. Under
ASC Topic 740, when tax returns are filed, it is likely that some positions taken would be sustained upon examination by the taxing
authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that
would be ultimately sustained. The benefit of a tax position is recognized in the CFS in the period during which, based on all
available evidence, management believes it is more likely than not that the position will be sustained upon examination, including
the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions.
Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that
is more than 50% likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated
with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax
benefits in the accompanying balance sheets along with any associated interest and penalties that would be payable to the taxing
authorities upon examination. Interest associated with unrecognized tax benefits is classified as interest expense and penalties
are classified in selling, general and administrative expenses in the statement of income. At
June 30, 2019 and December 31, 2018, the Company did not take any uncertain positions that would necessitate recording a tax related
liability. Revenue
Recognition ASU
No. 2014-09 Revenue from Contracts with Customers Topic 606. Topic 605, Revenue Recognition Revenue
from sale of goods under Topic 606
● executed
contract(s) with our customers that we believe is legally enforceable;
● identification
of performance obligation in the respective contract;
● determination
of the transaction price for each performance obligation in the respective contract;
● allocation
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 categories, is summarized below:
● Revenue
from sale of goods is recognized when goods are shipped to the customer and no other
obligation exits. The Company does not provide unconditional return or other concessions
to the customer. The Company’s sales policy allows for the return of unopened products
for cash after deducting certain service and transaction fees. As alternatives for the
product return option, the customers have options of asking an exchange of the products
with same value.
● As
part of the Company’s sales incentive program, the Company occasionally provides free travel to its customers whose
prepayment to purchase the Company’s products reaches to certain amount. There are different travel incentives offered
to the customers based on amount received from each customer. The Company records the to-be-provided free travel cost when
cash is collected from customers as a debit deferred travel cost with corresponding credit to accrued travel cost. Once the
customer utilizes the travel incentive, the cost of travel is recorded as a reduction of sales. Sales
revenue represents the invoiced value of goods, net of value-added taxes (“VAT”). All of the Company’s products
sold in China are subject to the PRC VAT of 17% of the gross sales price prior to May 1, 2018, 16% since May 1, 2018 and 13% since
April 1, 2019. This VAT may be offset by VAT paid by the Company on raw materials and other materials purchased in China. The
Company records VAT payable and VAT receivable net of payments in the financial statements. The VAT tax return is filed offsetting
the payables against the receivables. Sales and purchases are recorded net of VAT collected and paid as the Company acts as an
agent for the government. 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,” 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, 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 six months of 2019 and 2018 consisted of net loss and
foreign currency translation adjustments. Earnings
per Share Basic
loss per share is computed on the basis of the weighted average number of common stock outstanding during the period. Dilution
is computed by applying the treasury stock method for options and warrants. Under this method, options and warrants are assumed
to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used
to purchase common stock at the average market price during the period. As
of June 30, 2019 and 2018 and for the periods then ended, the Company did not have any potentially dilutive instruments. Stock-Based
Compensation The
Company periodically grants stock options and warrants to employees and non-employees in non-capital raising transactions as compensation
for services rendered. The Company accounts for stock option and stock warrant grants to employees based on the authoritative
guidance provided by the FASB where the value of the award is measured on the date of grant and recognized over the vesting period.
The Company accounts for stock option and stock warrant grants to non-employees in accordance with the authoritative guidance
of the FASB where the value of the stock compensation is determined based upon the measurement date at either a) the date at which
a performance commitment is reached, or b) at the date at which the necessary performance to earn the equity instruments is complete.
Non-employee stock-based compensation charges generally are amortized over the vesting period on a straight-line basis. In certain
circumstances where there are no future performance requirements by the non-employee, option or warrant grants are immediately
vested and the total stock-based compensation charge is recorded in the period of the measurement date. During
the year ended December 31, 2017, the Company’s board of directors (“BOD”) authorized the issuance of 45,224,085
shares of common stock to three individuals for services rendered 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
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. |
