| Summary of Significant Accounting Policies | 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying consolidated financial statements
are prepared in conformity with U.S. Generally Accepted Accounting Principles (“US GAAP”). The functional currency
of AiXinZhonghong is Chinese Renminbi (‘‘RMB’’). The accompanying consolidated financial statements are
translated from RMB and presented in U.S. dollars (“USD”). The consolidated financial statements includes
the accounts of the Company and its current wholly owned subsidiaries, AiXin HK and AiXinZhonghong. Intercompany transactions and
accounts were eliminated in consolidation. Reclassification Certain prior period amounts have been reclassified
to conform to the current period presentation and had no effect on previously reported consolidated net income (loss) or accumulated
deficit. Going Concern The Company incurred net income of $1,894,485
and a net loss of $1,349,722 for the year ended December 31, 2019 and 2018, respectively, and had an accumulated deficit of $5,841,955
and $7,736,440 as of December 31, 2019 and 2018, respectively. These conditions raise a substantial doubt about the Company’s
ability to continue as a going concern. The Company plans to increase its income by improving communications with suppliers to
ensure a sufficient supply of quality products, building a competitive and efficient sales force, providing an attractive sales
incentive program, increasing marketing and promotion activities, and minimizing operating costs. In the third quarter of 2019,
the Company sold 10,000,000 shares of its common stock for gross proceeds of $1,000,000 in a private offering. Subsequent to the
close of third quarter, the Company sold 40,000,000 shares of its common stock for gross proceeds of $4,000,000 in a private offering.
The Company did not pay any commissions in connection with the sale of the shares. If necessary, the Company will seek to raise
additional capital through sales of its equity securities to solve its working capital needs. As of December 31, 2019, the Company
had received RMB 15.7 million (approximately $2.3 million) from Quanzhong Lin. The consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty. Use of Estimates In preparing consolidated 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 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. Change in Accounting Estimate Based on the recent results of an approval
of small business taxpayer status and in receipt of a certificate of no tax due from the local tax department in March 2020, the
Company determined that additionally accrued tax payables for value-added taxes, city construction tax and education tax (collectively
“Other Taxes”) for period from January 2014 to April 2016 based on the applicable tax rates for general business taxpayers
should be adjusted for a change in accounting estimate. During the period from January 2014 to April
2016, the Company determined that it did not meet requirements of a general business taxpayer other than the revenue amount level
for Other Taxes filing purpose, and therefore, the Company filed and paid Other Taxes in accordance with the applicable standards
for a small business taxpayer for the period. However, based on the principle of prudence, the Company accrued additional Other
Taxes payable using the applicable standards for general business taxpayer for the same period until the Company’s tax filing
status was settled and resolved. In March 2020, the local tax department approved
the Company’s small business taxpayer status for the period from January 2014 to April 2016, and provided a certificate of
no tax due to the Company. As a result, the Company reversed the previously accrued Other Taxes payable for the period and accounted
it as a change in accounting estimate. The effect of this change reduced tax payable by $1,168,377, increased non-operating income
by $1,168,377, and increased basic and diluted earnings per share by $0.004 as of and for the year ended December 31, 2019. Cash and Cash Equivalents For financial statement purposes, the Company
considers all highly liquid investments with an original maturity of three months or less to be cash and 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 year ended December 31, 2019 and 2018, bad debt expense was $48,876
and $57,137, respectively. As of December 31, 2019 and 2018, the bad debt allowance was $125,690 and $77,955, respectively. Inventory Inventory mainly consists of health supplement
products. Inventory is valued at the lower of average cost or market, cost being determined on a moving weighted average method
at the end of the month. Management compares the cost of inventories with the net realizable value and an allowance is made for
writing down inventories to market value, if lower. The Company recorded no inventory impairment for the years ended December 31,
2019 and 2018. In July 2015, the FASB issued Accounting Standards
Update (“ASU”) 2015-11, “Inventory (Topic 330) - Simplifying the Measurement of Inventory,” which requires
that inventory within the scope of the guidance be measured at the lower of cost and net realizable value. Net realizable value
is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal,
and transportation. Property and Equipment Property and equipment are stated at cost,
less accumulated depreciation, and impairment losses, if any. Major repairs and betterments that significantly extend original
useful lives or improve productivity are capitalized and depreciated over the period benefited. Maintenance and repairs are expensed
as incurred. When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are
removed from the respective accounts, and any gain or loss is included in operations. Depreciation of property and equipment is
provided using the straight-line method for substantially all assets with 5% salvage value and estimated lives as follows:
Building 20 years
Office furniture 5 years
Electronic Equipment 3 years
Vehicles 5 years Impairment of Long-Lived Assets Long-lived assets, which include property and
equipment and intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable, but at least annually. Recoverability of long-lived assets to be held
and used is measured by comparing of the carrying amount of an asset to the estimated undiscounted future cash flows expected to
be generated by it. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, an impairment charge
is recognized by the amount by which the carrying amount of the asset exceeds its fair value (“FV”). FV is generally
determined using the asset’s expected future discounted cash flows or market value, if readily determinable. Based on its
review, the Company believes that, as of December 31, 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 consolidated financial statements 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 December 31, 2019 and 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 customers that the Company believes 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 of the transaction price to each performance obligation; and
● recognition of revenue only when the Company satisfies each performance obligation. These five elements, as applied to each of
the Company’s revenue category, is summarized below:
● Revenue from sale of goods is recognized when goods are shipped to the customer and no other obligation exits. The Company does not provide unconditional return or other concessions to the customer. The Company’s sales policy allows for the return of unopened products for cash after deducting certain service and transaction fees. As an alternative to the product return option, the customers have options of asking for an exchange for products with the same value.
● As part of the Company’s sales incentive program, the Company occasionally provides free travel to its customers whose prepayments to purchase the Company’s products reaches a certain amount. There are different travel incentives offered to customers based on amount the 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 selling expenses and reduces deferred travel cost. 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. Advertising Revenue During the year ended December 31, 2019, the
Company provided advertising services to third-party customers. Advertising contracts are signed to establish the price and advertising
services to be provided. Pursuant to the advertising contracts, the Company provides advertising and marketing services to its
clients through exhibition events, conferences, and person-to-person marketing. The Company performs a credit assessment of the
customer to assess the collectability of the contract price prior to entering into contracts. Most of the advertisement contracts designated
that the Company to perform such advertising services to its clients through exhibition events, conferences, and person-to-person
marketing during the contracted period, regardless of the number of such events. As such, the Company determined that the performance
obligation is satisfied over time during the contracted period and revenue is recognized accordingly. Such advertising revenue
amounted to $1,461,232 for the year ended December 31, 2019. A smaller proportion of the Company’s
advertising revenue is generated from services to its clients through exhibition events, conferences, and person-to-person marketing,
and charges based on the number of promotional products sold. Such advertising revenue amounted to $53,260 for the year ended December
31, 2019. Cost of Goods Sold Cost of goods sold consists primarily of the
cost of inventory purchases. Reserve for inventory allowance due to lower of cost or market is also recorded in cost of goods sold. 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. Leases The Company adopted FASB Accounting Standards
Codification, Topic 842, Leases (“ASC 842”) using the modified retrospective approach, electing the practical expedient
that allows the Company not to restate its comparative periods prior to the adoption of the standard on January 1, 2019. As such,
the disclosures required under ASC 842 are not presented for periods before the date of adoption. For the comparative periods prior
to adoption, the Company presented the disclosures which were required under ASC 840. The Company applied the following practical expedients in the transition
to the new standard allowed under ASC 842:
Practical Expedient Description
Reassessment of expired or existing contracts The Company elected not to reassess, at the application date, whether any expired or existing contracts contained leases, the lease classification for any expired or existing leases, and the accounting for initial direct costs for any existing leases.
Use of hindsight The Company elected to use hindsight in determining the lease term (that is, when considering options to extend or terminate the lease and to purchase the underlying asset) and in assessing impairment of right-to-use assets.
Reassessment of existing or expired land easements The Company elected not to evaluate existing or expired land easements that were not previously accounted for as leases under ASC 840, as allowed under the transition practical expedient. Going forward, new or modified land easements will be evaluated under ASU No. 2016-02.
Separation of lease and non-lease components Lease agreements that contain both lease and non-lease components are generally accounted for separately.
Short-term lease recognition exemption The Company also elected the short-term lease recognition exemption and will not recognize ROU assets or lease liabilities for leases with a term less than 12 months. The new leasing standard requires recognition
of leases on the consolidated balance sheets as right-of-use (“ROU”) assets and lease liabilities. ROU assets represent
the Company’s right to use underlying assets for the lease terms and lease liabilities represent the Company’s obligation
to make lease payments arising from the leases. Operating lease ROU assets and operating lease liabilities are recognized based
on the present value and future minimum lease payments over the lease term at commencement date. The Company’s future minimum
based payments used to determine the Company’s lease liabilities mainly include minimum based rent payments. As most of the
Company’s leases do not provide an implicit rate, the Company uses its estimated incremental borrowing rate based on the
information available at commencement date in determining the present value of lease payments. The adoption of ASC 842 had no substantial
impact on the Company’s consolidated balance sheets. The most significant impact was the recognition of the operating lease
right-of-use assets and the liability for operating leases. Accordingly, adoption of this standard resulted in the recognition
of operating lease right-of-use assets of $42,835 and operating lease liabilities of $42,835 on the consolidated balance sheet
as of January 1, 2019. The adoption of ASC 842 did not result in a cumulative-effect adjustment to the opening balance of retained
earnings (accumulated deficit). In addition, the adoption of the standard did
not have a material impact on the Company’s results of operations or cash flows. Operating lease cost is recognized as a
single lease cost on a straight-line basis over the lease term and is recorded in selling, general and administrative expenses.
Variable lease payments for common area maintenance, property taxes and other operating expenses are recognized as expense in the
period when the changes in facts and circumstances on which the variable lease payments are based occur. 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 consolidated 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 December 31, 2019 and 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 year 2019 and 2018 consisted of net income (loss) and foreign currency translation adjustments. Earnings per Share Basic income (loss) per share is computed on
the basis of the weighted average number of common shares 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 December 31, 2019 and 2018, the Company
did not have any potentially dilutive instruments. Stock-Based Compensation The Company periodically grants stock options,
warrants and awards to employees and non-employees in non-capital raising transactions as compensation for services rendered. The
Company accounts for stock option, stock warrant and stock award 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, stock warrant and stock award 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. 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 employees and non-employees, option, warrant and award grants are immediately vested
and the total stock-based compensation charge is recorded in the period of the measurement date. During the year ended December 31, 2017, the
Company’s board of directors (“BOD”) authorized the issuance of 45,224,085 shares of common stock to three individuals
for services rendered to the Company. The stock-based compensation was valued at $3,617,927 based on the Company’s stock
price at the date of agreement and was vested immediately for services already rendered. On January 15, 2018, the Company’s
BOD determined it was not in the Company’s best interests to issue any shares to two of the three individuals because the
BOD believes the two individuals did not perform the services as expected, resulting in the cancellation of 30,149,390 common shares. 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 December 2019, the FASB issued ASU No. 2019-12,
Simplifying the Accounting for Income Taxes, as part of its initiative to reduce complexity in accounting standards. The amendments
in the ASU are effective for fiscal years beginning after December 15, 2020, including interim periods therein. Early adoption
of the standard is permitted, including adoption in interim or annual periods for which financial statements have not yet been
issued. The Company is currently evaluating the effect, if any, that the ASU will have on its consolidated financial statements. In August 2018, the FASB issued ASU 2018-13,
Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. The
ASU modifies the disclosure requirements in Topic 820, Fair Value Measurement, by removing certain disclosure requirements related
to the fair value hierarchy, modifying existing disclosure requirements related to measurement uncertainty and adding new disclosure
requirements, such as disclosing the changes in unrealized gains and losses for the period included in other comprehensive income
for recurring Level 3 fair value measurements held at the end of the reporting period and disclosing the range and weighted average
of significant unobservable inputs used to develop Level 3 fair value measurements. This ASU is effective for public companies
for annual reporting periods and interim periods within those annual periods beginning after December 15, 2019. The Company is
currently evaluating the effect, if any, that the ASU will have on its consolidated financial statements. 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 consolidated financial
statements. |
