UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.20549
FORM
(Mark one)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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Securities Registered Pursuant to Section 12(g) of the Act:
| Title of Each Class | Trading Symbol(s) | Name of each Exchange on which Registered | ||
| OTCQB |
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.
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).
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☐
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 | ☐ | |
| ☒ | Smaller reporting company | |||
| Emerging growth company |
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) ☐
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AIXIN LIFE INTERNATIONAL, INC.
FORM 10-Q
June 30, 2023
INDEX
| Page | ||
| Special Note Regarding Forward Looking Statements | 3 | |
| Part I – Financial Information | 4 | |
| Item 1. | Consolidated Financial Statements | 4 |
| Consolidated Balance Sheets | 4 | |
| Consolidated Statements of Operations and Comprehensive Income (Loss) | 5 | |
| Consolidated Statements of Stockholders’ Equity | 6 | |
| Consolidated Statements of Cash Flows | 7 | |
| Notes to Consolidated Financial Statements | 8 | |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 26 |
| Item 4. | Controls and Procedures | 37 |
| Part II – Other Information | 38 | |
| Item 1A. | Risk Factors | 38 |
| Item 6. | Exhibits | 38 |
| Signatures | 39 | |
| 2 |
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 to AiXin Life International., Inc. (“AiXin”) and its subsidiaries.
“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.
| 3 |
PART I - FINANCIAL INFORMATION
AIXIN LIFE INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
| June 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Accounts receivable, including related parties, net | ||||||||
| Other receivables and prepaid expenses | ||||||||
| Advances to suppliers | ||||||||
| Inventory, net | ||||||||
| Due from related parties | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Long term prepaid expense | ||||||||
| Security deposit | ||||||||
| Operating lease right-of-use assets | ||||||||
| Goodwill, net | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and stockholders’ equity | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Accounts payable - related party | ||||||||
| Unearned revenue | ||||||||
| Taxes payable | ||||||||
| Accrued liabilities and other payables | ||||||||
| Government grant | ||||||||
| Loan from third parties | ||||||||
| Operating lease liabilities | ||||||||
| Due to related parties | ||||||||
| Total current liabilities | ||||||||
| Operating lease liabilities - non-current | ||||||||
| Total liabilities | ||||||||
| Stockholders’ deficit | ||||||||
| Undesignated preferred stock, $ par value, shares authorized, issued and outstanding | ||||||||
| Common stock, par value $ per share, shares authorized; shares issued and outstanding as of June 30, 2024 and December 31, 2023 | ||||||||
| Additional paid in capital | ||||||||
| Statutory reserve | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive income | ||||||||
| Total stockholders’ deficit | ( | ) | ( | ) | ||||
| Total liabilities and stockholders’ deficit | $ | $ | ||||||
The accompanying notes are an integral part of these financial statements
| 4 |
AIXIN LIFE INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(UNAUDITED)
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Sales revenue: | ||||||||||||||||
| Products | $ | $ | $ | $ | ||||||||||||
| Room revenues | ||||||||||||||||
| Food and beverage revenues | ||||||||||||||||
| Others | ||||||||||||||||
| Total revenue, net | ||||||||||||||||
| Operating costs and expenses | ||||||||||||||||
| Cost of goods sold | ||||||||||||||||
| Hotel operating costs | ||||||||||||||||
| Selling | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Provision for (reversal of) bad debts | ( | ) | ( | ) | ||||||||||||
| Stock-based compensation | ||||||||||||||||
| Total operating costs and expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Non-operating income (expenses) | ||||||||||||||||
| Interest income | ||||||||||||||||
| Other income | ||||||||||||||||
| Other expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total non-operating income, net | ||||||||||||||||
| Loss before income tax | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income tax expense | ||||||||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other comprehensive items | ||||||||||||||||
| Foreign currency translation gain | ||||||||||||||||
| Comprehensive loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Loss per share - basic and diluted | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
| Weighted average shares outstanding | ||||||||||||||||
The accompanying notes are an integral part of these financial statements
| 5 |
AIXIN LIFE INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
(UNAUDITED)
| Accumulated | ||||||||||||||||||||||||||||
| Additional | other | |||||||||||||||||||||||||||
| Common Stock | paid in | Statutory | Accumulated | comprehensive | ||||||||||||||||||||||||
| Shares | Amount | capital | reserves | deficit | income | Total | ||||||||||||||||||||||
| Balance at December 31, 2023 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Foreign currency translation | - | |||||||||||||||||||||||||||
| Balance at March 31, 2024 | ( | ) | ( | ) | ||||||||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Foreign currency translation | - | |||||||||||||||||||||||||||
| Balance at June 30, 2024 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||
| Balance at December 31, 2022 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||||||||||
| Disposal of subsidiary | - | |||||||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Foreign currency translation | - | |||||||||||||||||||||||||||
| Balance at March 31, 2023 | ( | ) | ( | ) | ||||||||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||||||||||
| Capital contribution | - | |||||||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Foreign currency translation | - | |||||||||||||||||||||||||||
| Balance at June 30, 2023 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||
The accompanying notes are an integral part of these financial statements
| 6 |
AIXIN LIFE INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| Six Months Ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments required to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Loss on disposal of fixed assets | ||||||||
| Provision for (reversal of) bad debts | ( | ) | ||||||
| Provision for inventory reserve | ||||||||
| Operating lease expense | ||||||||
| Stock-based compensation | ||||||||
| Government grant income | ( | ) | ||||||
| Deferred tax | ||||||||
| Changes in assets and liabilities: | ||||||||
| Accounts receivable | ||||||||
| Accounts receivable - related party | ( | ) | ||||||
| Other receivables and prepaid expenses | ( | ) | ( | ) | ||||
| Advances to suppliers, including related party | ||||||||
| Prepaid expense - related party | ( | ) | ||||||
| Inventory | ( | ) | ( | ) | ||||
| Security deposit | ||||||||
| Accounts payable | ||||||||
| Accounts payable - related party | ( | ) | ( | ) | ||||
| Unearned revenue | ( | ) | ||||||
| Taxes payable | ||||||||
| Payment of lease liability | ( | ) | ( | ) | ||||
| Accrued liabilities and other payables | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Cash disposed at disposal of subsidiary | ( | ) | ||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Cash received on disposal of fixed assets | ||||||||
| Purchase of intangible asset | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Net proceeds from related parties | ||||||||
| Proceeds from government grant | ||||||||
| Capital contribution | ||||||||
| Net cash provided by financing activities | ||||||||
| EFFECT OF EXCHANGE RATE CHANGE ON CASH AND CASH EQUIVALENTS AND RESTRICTED CASH | ( | ) | ( | ) | ||||
| NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH | ( | ) | ||||||
| CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD | ||||||||
| CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD | $ | $ | ||||||
| Supplemental Cash flow data: | ||||||||
| Income tax paid | $ | $ | ||||||
| Interest paid | $ | $ | ||||||
The accompanying notes are an integral part of these financial statements
| 7 |
AIXIN LIFE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
Aixin
Life International, Inc. (the “Company” or “Aixin Life” or “we”) was incorporated under the laws
of the State of Colorado on December 30, 1987. On February 2, 2017, Mr. Quanzhong Lin (Mr. Lin) purchased % of the Company’s
outstanding shares from China Concentric Capital Group for $
On
December 12, 2017, pursuant to a Share Exchange Agreement, in consideration for all of the outstanding shares of AiXin (BVI) International
Group Co., Ltd. a British Virgin Islands corporation (“AiXin BVI”), the Company issued to Mr. Lin, the sole stockholder of
AiXin BVI, shares of common stock then representing
As a result of the Share Exchange, AiXin BVI became the Company’s wholly-owned subsidiary, and the Company 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 AiXinZhonghong Biological Technology Co., Ltd., a Chinese limited company (“AiXinZhonghong”), 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. AiXinZhonghong was established in the People’s Republic of China (“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 AiXinZhonghong by AiXin HK. Neither AiXin BVI nor AiXin HK had operations prior to December 12, 2017.
For accounting purposes, the acquisition of AiXin BVI was accounted for as a reverse acquisition and treated as a recapitalization of the Company 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 consolidated financial statements of AiXinZhonghong are now the historical consolidated financial statements of the Company. The assets and liabilities of AiXinZhonghong were brought forward at their book value and no goodwill was recognized.
Effective February 1, 2018, the Company changed its name to AiXin Life International, Inc. (“Aixin Life”).
The Company, through its indirectly owned subsidiary, AiXinZhonghong, develops and distributes consumer products by offering a line of nutritional products. The Company sells the products through exhibition events, conferences, and person-to-person marketing. 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.
On
May 25, 2021, AiXin HK entered into an Equity Transfer Agreement (the “Hotel Purchase Agreement”) with Chengdu Aixin Shangyan
Hotel Management Co., Ltd (“Aixin Shangyan Hotel”), and its two shareholders Quanzhong Lin and Yirong Shen (“Transferor”).
Pursuant to the Hotel Purchase Agreement, Aixin Life purchased
| 8 |
On
February 17, 2023, the Company effected a
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Consolidation
The accompanying consolidated financial statements are prepared in conformity with U.S. Generally Accepted Accounting Principles (“US GAAP”). The functional currency of AiXinZhonghong, Aixin Shangyan Hotel, Aixintang Pharmacies, and Runcangsheng is the Chinese Renminbi (“RMB”). The accompanying consolidated financial statements are translated from RMB and presented in U.S. dollars (“USD”).
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, AiXin HK, AiXinZhonghong, Aixin Shangyan Hotel, Aixintang Pharmacies, and Runcangsheng. Intercompany transactions and accounts were eliminated in consolidation. These unaudited interim financial statements should be read in conjunction with the annual consolidated financial statements and the accompanying notes contained in our Annual Report on Form 10-K for the year ended December 31, 2023.
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, 2024.
Going Concern
The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The realization of assets and the satisfaction of liabilities in the normal course of business are dependent on, among other things, the Company’s ability to operate profitably, to generate cash flows from operations, and to pursue financing arrangements to support its working capital requirements.
| 9 |
The
Company suffered net losses of $
Management believes that it has developed a liquidity plan, summarized below, that, if executed successfully, should provide sufficient liquidity to meet the Company’s obligations as they become due for a reasonable period of time, and allow the development of its core business. The plan includes:
● Gaining positive cash-inflow from operating activities through continuous cost reductions and the sales of higher margin products.
● Raising cash through loans from related parties and potential equity offerings.
While the Company’s management believes that the measures in its liquidity plan including those described above will be adequate to satisfy its liquidity requirements for the twelve months after the date that these financial statements are issued, there is no assurance that the liquidity plan will be successfully implemented. Failure to successfully implement the liquidity plan may have a material adverse effect on the Company’s business, results of operations and financial position, and may adversely affect its ability to continue as a going concern. These consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded assets or the amounts and classification of liabilities or any other adjustments that might be necessary should the Company be unable to continue as a going concern.
Global Uncertainties
The Company’s liquidity may be adversely impacted by various risks and uncertainties, including, but not limited to future and current impacts of global events such as a widespread health crisis, the continuation of the war in the Ukraine or the conflict in Palestine, the outbreak of another conflict or the expansion of the conflict in Palestine to other countries, the ongoing tensions between the United States and China, the Russian Federation and certain countries in the Middle East, increases in inflation, and other risks detailed in the Company’s Annual Report on Form 10-K or other reports filed with the Securities and Exchange Commission.
While the invasion of Ukraine, the conflict in Palestine and responses thereto have not interrupted the Company’s operations, these or future developments which disrupt the international financial markets could make it difficult to access debt and equity capital on attractive terms, if at all, and impact the Company’s ability to fund business activities, including proposed acquisitions.
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 consolidated 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.
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.
Restricted Cash
The restricted cash was cash maintained in temporarily frozen bank accounts held by Aixintang Pharmacy and its branches by the court for a judgement against Aixintang Pharmacy (see Note 17 – litigation).
| 10 |
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, 2024 and December 31, 2023, the bad
debt allowance was $
The following table summarizes the activity related to the Company’s accounts receivable allowance for doubtful accounts for the six months ended June 30, 2024 and 2023:
| For the six months ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| Beginning balance | $ | $ | ||||||
| Provision for bad debts | ||||||||
| Recoveries/Write offs | ( | ) | ||||||
| Effect of translation | ( | ) | ( | ) | ||||
| Ending balance | $ | $ | ||||||
Inventories
Inventories
mainly consist of health supplements, drugs, pharmaceutical and nutritional products, food and beverage, hotel supplies and consumables, and raw materials.
Inventories are 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 provisions for inventory reserve of $
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
| Office furniture | ||||
| Electronic equipment | ||||
| Machinery | ||||
| Leasehold improvements | ||||
| Vehicles |
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 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. Fair value 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, 2024 and December 31, 2023, there were no significant impairments of its long-lived assets.
| 11 |
Goodwill
The Company evaluates goodwill for impairment annually or more frequently when an event occurs or circumstances change that indicate the carrying value may not be recoverable. In testing goodwill for impairment, the Company may elect to utilize a qualitative assessment to evaluate whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the qualitative assessment indicates that goodwill impairment is more likely than not, the Company performs a two-step impairment test. The Company tests goodwill for impairment under the two-step impairment test by first comparing the book value of net assets to the fair value of the reporting units. If the fair value is determined to be less than the book value or qualitative factors indicate that it is more likely than not that goodwill is impaired, a second step is performed to compute the amount of impairment as the difference between the estimated fair value of goodwill and the carrying value. The Company estimates the fair value of the reporting units using discounted cash flows. Forecasts of future cash flows are based on our best estimate of future net sales and operating expenses, based primarily on expected category expansion, pricing, market segment share, and general economic conditions. The Company recorded goodwill in the amount of $ as of June 30, 2024 and December 31, 2023.
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 June 30, 2024 and December 31, 2023, the Company did not take any uncertain positions that would necessitate recording a tax related liability.
Revenue Recognition
Revenue from sale of goods under Topic 606 is recognized in a manner that reasonably reflects the delivery of the Company’s products and services to customers in return for expected consideration and includes the following elements:
| ● | 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; |
| 12 |
| ● | allocation of the transaction price to each performance obligation; and | |
| ● | recognition of revenue only when the Company satisfies each performance obligation. |
The Company’s revenue recognition policies for its various operating segments are as follows:
Direct Sales
The Company’s revenue from direct sales of products is recognized when goods are delivered to the customer and no other obligation exists. The Company does not provide unconditional return or other concessions to customers. 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, customers have the option of asking for an exchange for products with the same value.
Sales
revenue of AiXin Zhonghong 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
Hotel
Hotel
revenues are primarily derived from the rental of rooms, food and beverage sales and other ancillary goods and services, including but
not limited to souvenir, parking and conference reservation. Each of these products and services represents a distinct performance obligation
and, in exchange for these services, the Company receives fixed amounts based on published rates or negotiated contracts. Payment is
due in full at the time when the services are rendered or the goods are provided. Room rental revenue is recognized on a daily basis
when rooms are occupied. Food and beverage revenue and other goods and services revenue are recognized when they have been delivered
or rendered to the guests as the respective performance obligations are satisfied. All of the hotel’s goods sold in China are subject
to the PRC VAT of
Pharmacy
The
Company’s retail drugstores (Aixintang Pharmacies) recognize revenue at the time the customer takes possession of the merchandise.
For pharmacy sales, each prescription claim is its own arrangement with the customer and is a performance obligation. Aixintang Pharmacies
generally receives payments from customers as it satisfies its performance obligations. The Company records a receivable when it has
an unconditional right to receive payment and only the passage of time is required before payment is due. Sales revenue represents the
invoiced value of goods, net of VAT. Aixintang Pharmacies’ products sold in China are subject to the PRC VAT of
Manufacture and Sale
The
Company’s subsidiary Runcangsheng recognizes revenue at the time products are shipped as this satisfies its performance obligation.
The Company records a receivable for its sales when it has an unconditional right to receive payment and only the passage of time is
required before payment is due. Sales revenue represents the invoiced value of goods, net of value-added taxes (“VAT”). All
of Runcangsheng’s products sold in China are subject to the PRC VAT of
Unearned Revenue
The Company’s unearned revenue primarily consists of advances received from customers for the purchase of products prior to the delivery of goods, and for the rental of hotel rooms prior to the delivery of service. The delivery of products and room rental services is based upon contract terms and customer demand, normally within one year.
| 13 |
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
The Company has not experienced any losses in such accounts and believes they are not exposed to any risks on its cash in these bank accounts.
During the three and six months ended June 30, 2024, the Company had one customer that accounted for
During
the three and six months ended June 30, 2023, the Company had no customer that accounted for over
During the three months ended June 30, 2024, the Company had two major suppliers that accounted for over 10% of its total purchases.
| Supplier | Net purchases for the three months ended June 30, 2024 | % of total purchase | ||||||
| A | $ | % | ||||||
| B* | % | |||||||
During the six months ended June 30, 2024, the Company had two major suppliers that accounted for over 10% of its total purchases.
| Supplier | Net purchases for the six months ended June 30, 2024 | % of total purchase | ||||||
| A | $ | % | ||||||
| B* | % | |||||||
During the three months ended June 30, 2023, the Company had one major supplier that accounted for over 10% of its total purchases.
| Supplier | Net purchases for the three months ended June 30, 2023 | % of total purchase | ||||||
| C | $ | % | ||||||
During the six months ended June 30, 2023, the Company had two major suppliers that accounted for over 10% of its total purchases.
| Supplier | Net purchases for the six months ended June 30, 2023 | % of total purchase | ||||||
| C | $ | % | ||||||
| D | % | |||||||
| * |
| 14 |
Leases
The Company determines if an arrangement is a lease at inception under FASB ASC Topic 842, Right of Use Assets (“ROU”) and lease liabilities are recognized at commencement date based on the present value of remaining lease payments over the lease term. For this purpose, the Company considers only payments that are fixed and determinable at the time of commencement. As most of its leases do not provide an implicit rate, it uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company’s incremental borrowing rate is a hypothetical rate based on its understanding of what its credit rating would be. ROU assets are adjusted for prepayments and accrued lease payments. ROU assets also reflect any lease payments made prior to commencement and are recorded net of any lease incentives received. The Company’s lease terms may include options to extend or terminate the lease and such options are considered when determining the value of an ROU asset when it is reasonably certain that the Company will exercise such options.
ROU assets are reviewed for impairment when indicators of impairment are present. ROU assets from operating and finance leases are subject to the impairment guidance in ASC 360, Property, Plant, and Equipment, as ROU assets are long-lived nonfinancial assets.
ROU assets are tested for impairment individually or as part of an asset group if the cash flows related to the ROU asset are not independent from the cash flows of other assets and liabilities. An asset group is the unit of accounting for long-lived assets to be held and used, which represents the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. The Company recognized no impairment of ROU assets as of June 30, 2024 and December 31, 2023. Operating leases are included in operating lease ROU and operating lease liabilities (current and non-current), on the consolidated balance sheets.
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 consolidated statements of cash flows will not necessarily agree with changes in the corresponding balances on the consolidated balance sheets.
Fair Value of Financial Instruments
The carrying amounts of certain of the Company’s financial instruments, including cash and cash equivalents, accrued liabilities and accounts payable, approximate their fair value due to their short maturities. FASB ASC Topic 825, “Financial Instruments,” requires disclosure of the fair value 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 fair value 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 fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value 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 fair value measurement. |
As of June 30, 2024 and December 31, 2023, the Company did not identify any assets and liabilities that are required to be presented on the balance sheet at fair value.
| 15 |
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 three and six months ended June 30, 2024 and 2023 consisted of net income (loss) and foreign currency translation adjustments.
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 June 30, 2024 and December 31, 2023, 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.
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.
The Company manages its business as four operating segments, direct sales, pharmacy, hotel, and manufacture and sales, all of which are located in the PRC. All of its revenues are derived in the PRC. All long-lived assets are located in PRC.
| 16 |
The following table shows the Company’s operations by business segment for the three months ended June 30, 2024 and 2023.
| For the Three Months Ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| Net revenue | ||||||||
| Direct sales | $ | $ | ||||||
| Pharmacy | ||||||||
| Hotel | ||||||||
| Manufacture and sale | ||||||||
| Total revenues, net | $ | $ | ||||||
| Operating costs and expenses | ||||||||
| Direct sales | ||||||||
| Cost of goods sold | $ | $ | ||||||
| Operating expenses | ||||||||
| Pharmacy | ||||||||
| Cost of goods sold | ||||||||
| Operating expenses | ||||||||
| Hotel | ||||||||
| Hotel operating costs | ||||||||
| Operating expenses | ||||||||
| Manufacture and sale | ||||||||
| Cost of goods sold | ||||||||
| Operating expenses | ||||||||
| Total operating costs and expenses | $ | $ | ||||||
| Income (loss) from operations | ||||||||
| Direct sales | $ | ( | ) | $ | ( | ) | ||
| Pharmacy | ||||||||
| Hotel | ( | ) | ( | ) | ||||
| Manufacture and sale | ( | ) | ||||||
| Loss from operations | $ | ( | ) | $ | ( | ) | ||
The following table shows the Company’s operations by business segment for the six months ended June 30, 2024 and 2023.
| For the Six Months Ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| Net revenue | ||||||||
| Direct sales | $ | $ | ||||||
| Pharmacy | ||||||||
| Hotel | ||||||||
| Manufacture and sale | ||||||||
| Total revenues, net | $ | $ | ||||||
| Operating costs and expenses | ||||||||
| Direct sales | ||||||||
| Cost of goods sold | $ | $ | ||||||
| Operating expenses | ||||||||
| Pharmacy | ||||||||
| Cost of goods sold | ||||||||
| Operating expenses | ||||||||
| Hotel | ||||||||
| Hotel operating costs | ||||||||
| Operating expenses | ||||||||
| Manufacture and sale | ||||||||
| Cost of goods sold | ||||||||
| Operating expenses | ||||||||
| Total operating costs and expenses | $ | $ | ||||||
| Income (loss) from operations | ||||||||
| Direct sales | $ | ( | ) | $ | ( | ) | ||
| Pharmacy | ( | ) | ||||||
| Hotel | ( | ) | ( | ) | ||||
| Manufacture and sale | ( | ) | ||||||
| Loss from operations | $ | ( | ) | $ | ( | ) | ||
| 17 |
| Segment assets | As of June 30, 2024 | As of December 31, 2023 | ||||||
| Direct sales | $ | $ | ||||||
| Pharmacy | ||||||||
| Hotel | ||||||||
| Manufacture and sale | ||||||||
| Total assets | $ | $ | ||||||
New Accounting Pronouncements
In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”). The amendments in ASU 2023-07 improve reportable segment disclosure requirements through enhanced disclosures about significant segment expenses that are regularly provided to the chief operating decision maker (CODM). In addition, the amendments enhance interim disclosure requirements, clarify circumstances in which an entity can disclose multiple segment measures of profit or loss, provide new segment disclosure requirements for entities with a single reportable segment, and contain other disclosure requirements. ASU 2023-07 will be effective for annual reporting periods beginning after December 15, 2023, and interim periods within annual reporting periods beginning after December 15, 2024. Early adoption is permitted. The adoption of ASU 2023-01 did not have a material impact on the Company’s consolidated financial statement presentation or disclosures.
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”), which requires disclosures of incremental income tax information within the rate reconciliation and expanded disclosures of income taxes paid, among other disclosure requirements. This ASU will be effective for annual reporting periods beginning after December 15, 2024. Early adoption is permitted. ASU 2023-09 will be applied on a prospective basis with the option to apply the standard retrospectively. The Company’s management does not believe that the adoption of ASU 2023-09 will have a material impact on the Company’s consolidated financial statement presentation or disclosures.
The Company’s management does not believe that any other recently issued, but not yet effective, authoritative guidance, if currently adopted, would have a material impact on the Company’s financial statement presentation or disclosures.
3. OTHER RECEIVABLES AND PREPAID EXPENSES
Other receivables and prepaid expenses consisted of the following at June 30, 2024 and December 31, 2023:
| June 30, 2024 | December 31, 2023 | |||||||
| Deposits | $ | $ | ||||||
| Prepaid expenses, including related party (see Note 13) | ||||||||
| Employees’ social insurance | ||||||||
| Others | ||||||||
| Total | $ | $ | ||||||
4. ADVANCES TO SUPPLIERS
The
Company had advances to suppliers of $
| 18 |
5. INVENTORIES
Inventories consisted of the following at June 30, 2024 and December 31, 2023:
| June 30, 2024 | December 31, 2023 | |||||||
| Raw material | $ | $ | ||||||
| Drugs, pharmaceutical and nutritional products | ||||||||
| Food and beverage, hotel supplies and consumables | ||||||||
| Total | $ | $ | ||||||
| Less: reserve for inventory | ||||||||
| Total inventories, net | $ | $ | ||||||
6. PROPERTY AND EQUIPMENT, NET
Property and equipment consisted of the following at June 30, 2024 and December 31, 2023:
| June 30, 2024 | December 31, 2023 | |||||||
| Vehicles | $ | $ | ||||||
| Office furniture | ||||||||
| Electronic equipment | ||||||||
| Machinery | ||||||||
| Leasehold improvements | ||||||||
| Other | ||||||||
| Total | ||||||||
| Less: Accumulated depreciation | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
Depreciation
expense for the three months ended June 30, 2024 and 2023 was $
Depreciation
expense for the six months ended June 30, 2024 and 2023 was $
7. INTANGIBLE ASSETS, NET
Intangible asset consisted of the following at June 30, 2024 and December 31, 2023:
| June 30, 2024 | December 31, 2023 | |||||||
| Software | $ | $ | ||||||
| Less: Accumulated amortization | ( | ) | ( | ) | ||||
| Intangible asset, net | $ | $ | ||||||
Amortization
expense for the three months ended June 30, 2024 and 2023 was $
Amortization
expense for the six months ended June 30, 2024 and 2023 was $
8. TAXES PAYABLE
Taxes payable consisted of the following at June 30, 2024 and December 31, 2023:
| June 30, 2024 | December 31, 2023 | |||||||
| Value-added | $ | $ | ||||||
| Income | ||||||||
| City construction | ||||||||
| Education | ||||||||
| Other | ||||||||
| Taxes payable | $ | $ | ||||||
| 19 |
9. ACCRUED LIABILITIES AND OTHER PAYABLES
Accrued liabilities and other payables consisted of the following at June 30, 2024 and December 31, 2023:
| June 30, 2024 | December 31, 2023 | |||||||
| Accrued employees’ social insurance | $ | $ | ||||||
| Accrued payroll and commission | ||||||||
| Construction payable | ||||||||
| Payable for equipment purchase | ||||||||
| Accrued professional fees | ||||||||
| Deposit | ||||||||
| Other payables | ||||||||
| Total | $ | $ | ||||||
10. GOVERNMENT GRANT
On
December 1, 2021, The Company and Luquan Yizu Miaozu Autonomous County People’s Government (“the People’s Government”)
entered a cooperation agreement with a term of
11. LOAN FROM THIRD PARTIES
As
of June 30, 2024 and December 31, 2023, the Company had advances from unrelated third parties of Aixin Shangyan Hotel in an aggregate
amount $
12. LEASE
AiXinZhonghong
leases its office. The lease has a remaining lease term of approximately
Aixin
Shangyan Hotel leases its hotel premises under an operating lease arrangement. The leases have remaining lease terms of approximately
Aixintang
Pharmacies lease retail pharmacy stores under operating lease arrangements, with remaining lease terms of
Runcangsheng
leases its office under an operating lease arrangement. The lease was expired as of December 31, 2023. In January 2024, the lease was
renewed with an expiration date of
Balance sheet information related to the Company’s leases is presented below:
| June 30, 2024 | December 31, 2023 | |||||||
| Operating Leases | ||||||||
| Operating lease right-of-use assets | $ | $ | ||||||
| Operating lease liabilities – current | $ | $ | ||||||
| Operating lease liability – non-current | ||||||||
| Total operating lease liabilities | $ | $ | ||||||
| 20 |
The following provides details of the Company’s lease expenses:
| Three Months Ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| Operating lease expenses | $ | $ | ||||||
| Six Months Ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| Operating lease expenses | $ | $ | ||||||
Other information related to leases is presented below:
| Six Months Ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| Cash Paid for Amounts Included In Measurement of Liabilities: | ||||||||
| Operating cash flows from operating leases | $ | |||||||
| Weighted Average Remaining Lease Term: | ||||||||
| Operating leases | ||||||||
| Weighted Average Discount Rate: | ||||||||
| Operating leases | % | % | ||||||
Maturities of lease liabilities were as follows:
| For the year ending December 31: | ||||
| 2024 (excluding the six months ended June 30, 2024) | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Thereafter | ||||
| Total lease payments | ||||
| Less: imputed interest | ( | ) | ||
| Total lease liabilities | ||||
| Less: current portion | ( | ) | ||
| Lease liabilities – non-current portion | $ | |||
13. RELATED PARTY TRANSACTIONS
Accounts receivable – related party
Accounts receivable – related party consisted of the following as of the periods indicated:
| June 30, 2024 | December 31, 2023 | |||||||
| Chengdu WenJiang Aixin Nanjiang Pharmacy Co., Ltd. | $ | $ | ||||||
| Chengdu Lisheng Huiren Tang Pharmacy Co., Ltd. | ||||||||
| Chengdu Fuxiang Tang Pharmacy Co., Ltd. | ||||||||
| Chengdu Wenjiang district Heneng hupu Pharmacy Co., Ltd | ||||||||
| Sichuan Aixintang Xinfu Pharmacy Chain Co., Ltd | ||||||||
| Xiaoyan Zhou | ||||||||
| Chengdu Aixin International Travel Service Co., Ltd | ||||||||
| Total | $ | $ | ||||||
The related party entities listed above are controlled by Mr. Quanzhong Lin (the Chairman, CEO and major shareholder of Aixin Life). Xiaoyan Zhou is the wife of Huiliang Jiao, the Company’s Director.
| 21 |
Sales revenue – related party
Sales revenue – related party consisted of the following for the periods indicated:
| Three Months Ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| Chengdu Aixin International Travel Service Co., Ltd | $ | $ | ||||||
| Six Months Ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| Sichuan Aixintang Xinfu Pharmacy Chain Co., Ltd | $ | $ | ||||||
| Chengdu Aixin International Travel Service Co., Ltd | ||||||||
| Total | $ | $ | ||||||
The related party entities listed above are controlled by Mr. Quanzhong Lin (the Chairman, CEO and major shareholder of Aixin Life).
Purchase – related party
Purchase – related party consisted of the following for the periods indicated:
| Three Months Ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| Sichuan Aixintang Xinfu Pharmacy Chain Co., Ltd | $ | $ | ||||||
| Six Months Ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| Sichuan Aixintang Xinfu Pharmacy Chain Co., Ltd | $ | $ | ||||||
The related party entities listed above are controlled by Mr. Quanzhong Lin (the Chairman, CEO and major shareholder of Aixin Life).
Prepaid expense – related party
Prepaid expense – related party consisted of the following as of the periods indicated:
| June 30, 2024 | December 31, 2023 | |||||||
| Chengdu Aixin International Travel Service Co., Ltd | $ | $ | ||||||
The related party entity listed above is controlled by Mr. Quanzhong Lin (the Chairman, CEO and major shareholder of Aixin Life).
Accounts payable – related party
Accounts payable – related party consisted of the following as of the periods indicated:
| June 30, 2024 | December 31, 2023 | |||||||
| Sichuan Aixintang Xinfu Pharmacy Chain Co., Ltd. | $ | $ | ||||||
The related party entity listed above is controlled by Mr. Quanzhong Lin (the Chairman, CEO and major shareholder of Aixin Life).
Due from related parties
Due from related parties consisted of the following as of the periods indicated:
| June 30, 2024 | December 31, 2023 | |||||||
| Chengdu WenJiang Aixin Nanjiang Pharmacy Co., Ltd. | $ | $ | ||||||
| Chengdu Fuxiang Tang Pharmacy Co., Ltd. | ||||||||
| Chengdu Zhiweibing Pharmacy Co., Ltd. | ||||||||
| Chengdu Wenjiang district Heneng hupu Pharmacy Co., Ltd | ||||||||
| Sichuan Aixin Investment Co. Ltd | ||||||||
| Sichuan Yunxi Tang Pharmacy Co., Ltd | ||||||||
| Chengdu Hesheng Yuan Pharmacy Co., Led | ||||||||
| Huiliang Jiao | ||||||||
| Chengdu Lisheng Huiren Tang Pharmacy Co., Ltd. | ||||||||
| Total | $ | $ | ||||||
| 22 |
Due to related parties
Due to related parties consisted of the following as of the periods indicated:
| June 30, 2024 | December 31, 2023 | |||||||
| Quanzhong Lin | $ | $ | ||||||
| Yirong Shen | ||||||||
| Xiaoyan Zhou | ||||||||
| Yunnan Shengcaofeng Biotechnology Co., Ltd | ||||||||
| Huiliang Jiao | ||||||||
| Chengdu Cigu Foshou Pharmacy | ||||||||
| Tianfeng Li | ||||||||
| Mianyang Aixin Cunshan Pharmacy Co. Ltd | ||||||||
| Sichuan Aixintang Xinfu Pharmacy Chain Co., Ltd | ||||||||
| Chengdu Aixin International travel service Co, Ltd | ||||||||
| Total | $ | $ | ||||||
The amounts due from related parties and due to related parties described above were for working capital purposes, payable on demand, and bear no interest. The related party entities listed above are controlled by Mr. Quanzhong Lin (the Chairman, CEO and major shareholder of Aixin Life), except for Yunnan Shengcaofeng Biotechnology Co., Ltd (“Shengcaofeng”), which is owned by Huiliang Jiao, the Company’s Director. Yirong Shen was a major shareholder of Aixin Shangyan Hotel prior to the closing of Hotel Purchase Agreement, and she serves as the supervisor of Aixin Shangyan Hotel. Mr. Huiliang Jiao is a Director of the Company. Xiaoyan Zhou is the wife of Huiliang Jiao. Tianfeng Li is the CFO of Aixin Life.
Office leases
In
May 2014, the Company entered a lease with its major shareholder for an office. The lease term was for
Runcangsheng
has an office lease with Xiaoyan Zhou, wife of Huiliang Jiao, the Company’s Director. The initial term was from March 2020 to
February 2023 with a monthly rent of RMB
14. INCOME TAXES
The Company was incorporated in the United States of America (“USA”) and has operations in one tax jurisdiction, i.e. the PRC. The Company generated substantially all of its sales from its operations in the PRC for the three and six months ended June 30, 2024 and 2023, and recorded an income tax provision for each of the periods.
China
has a tax rate of
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 three and six months ended June 30, 2024 and 2023, the Company had
| 23 |
15. STOCKHOLDERS’ EQUITY
The Company is authorized to issue shares of blank check preferred stock at $ par value per share and shares of common stock at $ par value per share.
Pursuant to resolutions adopted by the Board of Directors and the holders of a majority of the outstanding shares of common stock of AiXin Life International, Inc. on January 6, 2023, the Company filed an amendment to its Articles of Incorporation with respect to a proposed 1 for 2 “reverse” split of its common stock (the “Amendment”). Completion of the proposed reverse stock split was to be effected on a date determined by the Board of Directors only upon receipt of notice from the Financial Industry Regulatory Authority (“FINRA”) that it would process the proposed reverse stock split. The Company received notice from FINRA and its common stock began trading on a post-split basis on February 17, 2023.
As a result of the reverse split, every two shares of the Company’s issued and outstanding common stock were automatically combined and converted into one issued and outstanding share of common stock. The Company has approximately shares of outstanding common stock after giving effect to the reverse stock split and the elimination of fractional shares.
All share and earnings per share information has been retroactively adjusted to reflect the reverse stock split.
As of June 30, 2024 and December 31, 2023, the Company had common shares issued and outstanding, after reverse stock split adjustment.
Stock Awards Issued for Services
On
October 22, 2019, the Company granted and issued shares to its employees and contractors under its 2019 Equity Incentive
Plan. The stock awards were valued at $
On
October 24, 2019, the Company granted and issued shares to its employees and contractors under its 2019 Equity Incentive
Plan. The stock awards were valued at $
The stock awards will vest over five () years from the grant date, and the grantee will forfeit a portion of the shares granted (“Shares Granted”) if the grantee is no longer employed by or contracted with the Company. Specifically,
For the three months ended June 30, 2024 and 2023, stock-based compensation expenses were $ and $, respectively. For the six months ended June 30, 2024 and 2023, stock-based compensation expenses were $ and $, respectively. As of June 30, 2024, unrecognized compensation expenses related to these stock awards are $. These expenses are expected to be recognized over years.
Capital Contribution
During
the year ended December 31, 2023, the Company received capital contributions in the aggregate amount of $
16. 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
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
| 24 |
Common welfare fund
Common
welfare fund is a voluntary fund to which the Company can elect to transfer
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.
17. OPERATING CONTINGENCIES
The Company’s operations in the PRC 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 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 affect the remittance.
Litigation
The Company is, from time to time, involved in litigation incidental to the conduct of its business regarding merchandise sold, employment matters, and litigation regarding intellectual property rights.
In
October 2020, Jian Yiao (the “Plaintiff”) filed a complaint against Chengdu Aixintang Pharmacy Co., Ltd. (“Aixintang
Pharmacy”, or the “Defendant”) in Zhangjiagang People’s Court in Jiangsu Province. The complaint alleges that
Jian Yiao is entitled to $
In February 2021, the judge in the Jiangsu Suzhou Intermediate People’s Court denied the Defendant’s motion and upheld the judgment from the first trial. In March 2021, Aixintang Pharmacy filed another motion of re-trial to the Jiangsu High People’s Court on the basis that the Purchase Agreement was forged, the motion was accepted by Jiangsu High People’s Court in July 2021. In September 2022, the Court rejected the Defendant’s motion and upheld the judgment rendered in the second trial.
On August 30, 2024, Zhangjiagang People’s Court in Jiangsu Province issued a Notice of Case Closure, stating the Judgement for this case was fully executed and the plaintiff has received the full execution amount as of August 30, 2024.
In November 2021, the Company and Mr. Quanzhong Lin agreed that Mr. Lin shall assume any losses arising from this legal proceeding. As such, the Company did not accrue contingent losses from this legal proceeding as of June 30, 2024.
The Company believes that the litigation will not have a material adverse effect on its consolidated financial position, results of operations or cash flows.
18. SUBSEQUENT EVENT
The Company follows the guidance in FASB ASC 855-10 for the disclosure of subsequent events. The Company evaluated subsequent events through the date the financial statements were issued and determined the Company has no material subsequent events.
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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, 2023 (the “2023 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 2023 Form 10-K, that could cause actual results to differ materially from those anticipated in these forward-looking statements.
Overview
In December 2017, we completed a “reverse” acquisition whereby we acquired all of the outstanding shares of AiXin (BVI) International Group Co., Ltd. a British Virgin Islands corporation (“AiXin BVI”). As a result, AiXin BVI became our wholly-owned subsidiary, and through AiXin BVI 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 AiXinZhongHong Biological Technology Co., Ltd., a Chinese limited company (“AiXinZhongHong”), which began distributing nutritional products in 2013.
In September 2021, we completed the acquisition of nine pharmacies located in Chengdu by acquiring the entities which owned the pharmacies for an aggregate purchase price of RMB 34,635,845, or approximately US$5.31 million. We currently operate pharmacies at 26 locations, including 18 locations operated pursuant to a single chain license.
Pursuant to an Equity Transfer Agreement (the “Transfer Agreement”), on September 30, 2022, we acquired all of the outstanding equity of Yunnan Runcangsheng Technology Co., Ltd (“Runcangsheng”) for RMB 31,557,820 (approximately USD$4.4 million), reduced by $116,802 the excess of the estimated net worth of Runcangsheng over its audited net worth as of December 31, 2021. In addition to transferring their respective equity interest in Runcangsheng, both Sellers agreed to forgive any loans due to them from Runcangsheng. Runcangsheng. was established in April 2020, and is headquartered in Luquan Yi and Miao Autonomous County, Kunming City, Yunnan Province.
Runcangsheng operates a 13,000 square meter production facility, which houses R&D centers, extraction facilities, preparation workshops and a warehouse. Runcangsheng has more than 30 sub brands and is focused on promoting a healthy lifestyle through the use of foods believed to promote well-being, health foods, modernized versions of traditional Chinese medical products and plant extracts. Runcangsheng cultivates many of the raw materials used in its products, compounds the materials into easy to transport and use pre-packaged foods and distributes the products at the wholesale level. As life-styles in China evolve, work pressures increase and the ingestion of meats and other western style foods increases, Runcangsheng seeks to design and market products intended to combat the increase in obesity, hypertension, insomnia and physical ailments associated with such changes. The acquisition of Runcangsheng will enable us to operate as a vertically integrated company, capable of formulating the kinds of health foods and other nutritional products and supplements suitable for our clients and marketing those products through our distribution channels.
In addition to our acquisitions in the health and nutritional sector, in July 2021, we completed the acquisition of Aixin Shangyan Hotel through which we owned and operated a hotel located in the Jinniu District, Chengdu City. Effective March 31, 2024, we terminated our lease for the Shangyan Hotel. In the termination agreement we and the landlord agreed to release each other from any claims and the landlord agreed to return the security deposit.
On February 6, 2024, we entered into a lease with respect to a hotel located in Bandzhuyuan Town, Xindu District, Chengdu City. The term of the lease commenced February 29, 2024 and expires April 15, 2034. The Lease grants us the right to occupy various areas within the hotel, covering approximately 18,000 square meters, including the first-floor lobby, external shops (subject to the rights of the current occupants), the second and third floors, portions of the fourth floor including the restaurant and tea shop, and the fifth through eighteenth floors comprised mainly of guest rooms, underground and ground parking lots, and all hotel facilities and equipment. References to hotel revenues and operating costs below are with respect to the hotel we previously occupied in the Jinniu District of Chengdu.
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We intend to look for additional opportunities to profit from the growing healthcare market in China. Though currently we are not party to any agreements, we will explore, among other opportunities, expanding our product line through internal research and acquiring complementary products from third parties, acquiring additional pharmacies and other retail outlets and operating nursing homes and possibly clinics which provide medical care to clients.
Our Business
We are focused on providing health and wellness products to the growing middle class in China. We currently develop, manufacture, market and sell premium-quality healthcare, nutritional products and wellness supplements, including herbs and greens, traditional Chinese remedies, functional products, such as weight management tools, probiotics, foods and drinks. We offer products manufactured by us and those purchased from third parties through a diversified, omni-channel business model which generates revenues through retail and wholesale product sales, through company-owned pharmacies, direct marketing and e-commerce. Our marketing approach emphasizes proactively approaching customers such as by hosting marketing events for clients, which we believe is ideally suited to marketing the products we offer because sales of healthcare, nutritional products and supplements are strengthened by ongoing personal contact and support, coaching and education among the Company and our clients towards how to achieve a healthy and active lifestyle.
We believe the competitive strengths that will enable us to grow in the health and wellness market include our ability to design and manufacture products that are responsive to consumers’ needs as the life style of China’s middle class evolves, our coordinated omni-channel distribution network where we enable consumers to obtain the information they need to improve their lifestyle on our website, at our pharmacies and through individual meetings with our team members.
Our ability to operate profitably and generate positive cash flow will be determined by our ability to attract a large and loyal customer base and provide the information and products they need cost effectively. Our revenue will largely be determined by our ability to achieve and maintain a strong brand name and company image, the volume of products we sell and the prices we can charge for such products, which will require that we compete effectively. Our costs will largely be determined by the cost of raw materials and acquired inventory, the labor used to design and manufacture products, and the costs incurred to deliver these products to the consumer.
We intend to build a reputation as a provider of premium health and wellness products that seeks to improve our customers health and well-being. Our objective is to offer a broad and deep mix of products for consumers interested in living well, whether they are looking to treat a health-related issue or simply maintain their overall wellness. Our premium, value-added offerings include both proprietary products developed and manufactured by us as well as products acquired from or sold on behalf of third parties. We believe our range of products and ability to develop new products, combined with the customer support and service we offer, differentiate us and allow us to effectively compete against food, drug and mass channel players, specialty stores, independent vitamin, supplement and natural food shops and online retailers. There is no assurance that we will achieve our business objectives.
Results of Operations
Three Months ended June 30, 2024 and 2023
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, | ||||||||||||||||
| 2024 | 2023 | |||||||||||||||
| $ | % of Revenue | $ | % of Revenue | |||||||||||||
| Revenue | $ | 1,332,650 | 100 | % | $ | 1,476,057 | 100 | % | ||||||||
| Operating costs and expenses | 1,601,475 | 120 | % | 1,580,825 | 107 | % | ||||||||||
| Loss from operations | (268,825 | ) | (20 | )% | (104,768 | ) | (7 | )% | ||||||||
| Non-operating income, net | 92,568 | 7 | % | 12,129 | 1 | % | ||||||||||
| Loss before income tax | (176,257 | ) | (13 | )% | (92,639 | ) | (7 | )% | ||||||||
| Income tax expense | 526 | - | % | 4,907 | - | % | ||||||||||
| Net loss | $ | (176,783 | ) | (13 | )% | $ | (97,546 | ) | (7 | )% | ||||||
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The following table shows our operations by business segment for the three months ended June 30, 2024 and 2023.
| For the Three Months Ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| Net revenue | ||||||||
| Direct sales | $ | 357,013 | $ | 692,709 | ||||
| Pharmacy | 256,713 | 305,186 | ||||||
| Hotel | 120,097 | 390,530 | ||||||
| Manufacture and sale | 598,827 | 87,632 | ||||||
| Total revenues, net | $ | 1,332,650 | $ | 1,476,057 | ||||
| Operating costs and expenses | ||||||||
| Direct Sales | ||||||||
| Cost of goods sold | $ | 27,033 | $ | 264,794 | ||||
| Operating expenses | 417,513 | 460,255 | ||||||
| Pharmacy | ||||||||
| Cost of goods sold | 71,919 | 181,875 | ||||||
| Operating expenses | 108,194 | 57,198 | ||||||
| Hotel | ||||||||
| Hotel operating costs | 364,110 | 462,780 | ||||||
| Operating expenses | 84,830 | 53,245 | ||||||
| Manufacture and sale | ||||||||
| Cost of goods sold | 381,137 | 4,531 | ||||||
| Operating expenses | 146,739 | 96,147 | ||||||
| Total operating costs and expenses | $ | 1,601,475 | $ | 1,580,825 | ||||
| Income (loss) from operations | ||||||||
| Direct Sales | $ | (87,533 | ) | $ | (32,340 | ) | ||
| Pharmacy | 76,600 | 66,113 | ||||||
| Hotel | (328,843 | ) | (125,495 | ) | ||||
| Manufacture and sale | 70,951 | (13,046 | ) | |||||
| Loss from operations | $ | (268,825 | ) | $ | (104,768 | ) | ||
Revenue
Revenue was $1,332,650 in the three months ending June 30, 2024, compared to $1,476,057 in the same period of 2023, a decrease of $143,407 or 10%. The decrease in revenue was mainly due to decreases in direct sales of our nutritional products, pharmacy sales, and a decrease in revenues from our hotel sector, which was partly offset by an increase in revenue by our manufacture and sale segment which we refer to as “Runcangsheng.” For the three months ended June 30, 2024, we had $1,212,553 in product revenues (of which $357,013 were from direct sales, $256,713 were from sales at our pharmacies and $598,827 from Runcangsheng) and hotel revenue of $120,097. For the three months ended June 30, 2023, we had $1,085,527 in product revenues (of which $692,709 were from direct sales, $305,186 were from sales at our pharmacies and $87,632 from Runcangsheng) and hotel revenue of $390,530.
Direct Sales
Our direct sales revenue was $357,013 for the three months ended June 30, 2024, compared with $692,709 in the same period of 2023, representing a decrease of $335,696 or 48%. Our direct sales revenue as a percentage of our total revenue was 27% for the three months ended June 30, 2024, compared to 47% for the same period of 2023. The decrease in revenue was mainly due to the overall economic downturn in China as marketing and promotion became more challenging compared to last year. Additionally, due to reduced quantities of certain popular products available from our suppliers resulting from increased raw material costs, we had to adjust our product mix.
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Pharmacy
Our pharmacy revenue was $256,713 for the three months ended June 30, 2024, compared with $305,186 in the same period of 2023, representing a decrease of $48,473 or 16%. Our pharmacy revenue as a percentage of our total revenue was 19% for the three months ended June 30, 2024, compared to 21% for the same period of 2023. The decrease in revenue was mainly due to the overall economic downturn in China and the inability of marketing and promotional activities for supplements and other health products to generate revenue comparable to those of prior years.
Hotel
Our hotel revenue was $120,097 for the three months ended June 30, 2024, compared with $390,530 for the same period of 2023, representing a decrease of $270,433 or 69%. Our hotel revenue as a percentage of our total revenue was 9% for the three months ended June 30, 2024, compared to 26% for the same period of 2023. The decrease in revenue was primarily due to the termination of the lease for our original hotel and the need to complete leasehold improvements before opening at our new location. In addition, due to reduced demand, we decreased our room rates.
Runcangsheng
Sales revenues generated from manufacture and sales by Runucangsheng were $598,827 for the three months ended June 30, 2024, compared with $87,632 for the same period of 2023, representing an increase of $511,195 or 583%. Runcangsheng’s revenue as a percentage of our total revenue was 45% for the three months ended June 30, 2024, compared to 6% for the same period of 2023. The increase in Runcangsheng’s revenue was mainly driven by participation in additional trade shows, which raised our visibility and consequently boosted sales; and attendance by more vendors, corporate and individual major customers to our internal shows, which expanded our sales channels.
Operating Costs and Expenses
Cost of Goods Sold
Cost of goods sold was $480,089 for the three months ended June 30, 2024, compared to $451,200 for the same period of 2023, an increase of $28,889 or 6%. The increase in cost of goods sold was attributable to the increase in Runcangsheng’s business, which was partly offset by decreased direct sales and pharmacy revenues.
Direct sales
The cost of goods sold for our direct sales was $27,033 for the three months ended June 30, 2024, compared with $264,794 for the same period of 2023, representing a decrease of $237,761 or 90%. The cost of goods sold for our direct sales as a percentage of direct sales revenue was 8% for the three months ended June 30, 2024, compared to 38% for the same period of 2023. The decrease in cost of goods sold was primarily driven by decreased sales and the elimination in 2024 of a commission program for our sales personnel.
Pharmacy
The cost of goods sold at our pharmacies was $71,919 for the three months ended June 30, 2024, compared with $181,875 for the same period of 2023, representing a decrease of $109,956 or 60%. The cost of goods sold at our pharmacies as a percentage of pharmacy product sales was 28% for the three months ended June 30, 2024, compared to 60% for the same period of 2023. The decrease in cost of goods sold was mainly due to our coordination of activities at our pharmacies, such as the implementation of bulk inventory purchasing which reduced our purchasing costs; and cost reduction measures undertaken in September 2023, including reviewing our list of vendors and replacing those vendors with higher cost products.
Runcangsheng
The cost of goods sold for Runcangsheng was $381,137 for the three months ended June 30, 2024, compared with $4,531 for the same period of 2023, representing an increase of $376,606 or 8,312%. The cost of goods sold as a percentage of sales by Runcangsheng was 64% for the three months ended June 30, 2024, compared to 5% for the same period of 2023. The primary reason for the increase in cost of goods sold was the significant increase of sales.
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Hotel Operating Costs
Hotel operating costs were $364,110 and $462,780 for the three months ended June 30, 2024 and 2023, respectively, representing a decrease of $98,670 or 21%. For the three months ended June 30, 2024, our hotel revenue significantly decreased compared to the same period in 2023 due to our inability to accommodate guests while making leasehold improvements to our new hotel. However, due to the fixed operating costs, our overall expenses did not decrease substantially.
Operating Expenses
Operating expenses were $757,276 for the three months ended June 30, 2024, compared to $666,845 for the same period of 2023, an increase of $90,431 or 14%. The increase in operating expenses was mainly due to the increase in operating expenses reported by our hotel, pharmacies and Runcangsheng sectors, which was partly offset by decreased operating expenses at our direct sales sector.
Loss from Operations
Loss from operations was $268,825 in the three months ended June 30, 2024, compared to $104,768 in the same period of 2023, an increase of $164,057 or 157%. The increase in our loss from operations for the second quarter of 2024 was primarily due to the increase in the loss in our hotel segment of approximately $203,348, partially offset by increased profits attribute in our pharmacy and Runcangsheng segments.
Non-operating Income
Non-operating income was $92,568 for the three months ended June 30, 2024, compared to $12,129 for the three months ended June 30, 2023. For the three months ended June 30, 2024, we had interest income of $197 and other income of $95,386 mainly government grant income of $86,209, partly offset by other expenses of $3,015. For the three months ended June 30, 2023, we had interest income of $268 and other income $14,241, partly offset by other expenses of $2,380.
Income Tax Expense
Income tax expense was $526 and $4,907 for the three months ended June 30, 2024 and 2023, respectively, a decrease of $4,381 or 89% for the three months ended June 30, 2024 compared with the same period of 2023.
Net Loss
Our net loss for the three months ended June 30, 2024 was $176,783, compared to a net loss of $97,546 for the same period of 2023, an increase of $79,237 or 81%. The increase in our net loss was mainly due to increased operating costs and expenses and decreased sales as explained above, particularly at our hotel where the operating loss increased by nearly $203,300.
Six Months ended June 30, 2024 and 2023
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:
| Six Months Ended June 30, | ||||||||||||||||
| 2024 | 2023 | |||||||||||||||
| $ | % of Revenue | $ | % of Revenue | |||||||||||||
| Revenue | $ | 2,184,209 | 100 | % | $ | 2,230,770 | 100 | % | ||||||||
| Operating costs and expenses | 3,074,280 | 141 | % | 2,887,508 | 129 | % | ||||||||||
| Loss from operations | (890,071 | ) | (41 | )% | (656,738 | ) | (29 | )% | ||||||||
| Non-operating income, net | 110,214 | 5 | % | 34,772 | 2 | % | ||||||||||
| Loss before income tax | (779,857 | ) | (36 | )% | (621,966 | ) | (28 | )% | ||||||||
| Income tax expense | 526 | - | % | 5,364 | - | % | ||||||||||
| Net loss | $ | (780,383 | ) | (36 | )% | $ | (627,330 | ) | (28 | )% | ||||||
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The following table shows the Company’s operations by business segment for the six months ended June 30, 2024 and 2023.
| For the Six Months Ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| Net revenue | ||||||||
| Direct Sales | $ | 522,762 | $ | 855,969 | ||||
| Pharmacy | 497,831 | 528,702 | ||||||
| Hotel | 274,562 | 722,947 | ||||||
| Manufacture and sale | 889,054 | 123,152 | ||||||
| Total revenues, net | $ | 2,184,209 | $ | 2,230,770 | ||||
| Operating costs and expenses | ||||||||
Direct Sales | ||||||||
| Cost of goods sold | $ | 46,741 | $ | 299,528 | ||||
| Operating expenses | 789,569 | 828,044 | ||||||
| Pharmacy | ||||||||
| Cost of goods sold | 152,093 | 320,508 | ||||||
| Operating expenses | 219,064 | 246,194 | ||||||
| Hotel | ||||||||
| Hotel operating costs | 825,189 | 940,574 | ||||||
| Operating expenses | 156,707 | 44,360 | ||||||
| Manufacture and sale | ||||||||
| Cost of goods sold | 609,066 | 6,652 | ||||||
| Operating expenses | 275,851 | 201,648 | ||||||
| Total operating costs and expenses | $ | 3,074,280 | $ | 2,887,508 | ||||
| Income (loss) from operations | ||||||||
Direct Sales | $ | (313,548 | ) | $ | (271,603 | ) | ||
| Pharmacy | 126,674 | (38,000 | ) | |||||
| Hotel | (707,334 | ) | (261,987 | ) | ||||
| Manufacture and sale | 4,137 | (85,148 | ) | |||||
| Loss from operations | $ | (890,071 | ) | $ | (656,738 | ) | ||
Revenue
Revenue was $2,184,209 in the six months ending June 30, 2024, compared to $2,230,770 in the same period of 2023, a decrease of $46,561 or 2%. The decrease in revenue was mainly due to decreases in direct sales of our nutritional products and pharmacy sales, and a decrease in our hotel segment, which was partly offset by an increase in revenues from Runcangsheng. For the six months ended June 30, 2024, we had $1,909,647 in product revenues (of which $522,762 were from direct sales, $497,831 were from sales at our pharmacies and $889,054 from sales by Runcangsheng) and hotel revenue of $274,562. For the six months ended June 30, 2023, we had $1,507,823 in product revenues (of which $855,969 were from direct sales, $528,702 were from sales at our pharmacies and $123,152 from sales by Runcangsheng) and hotel revenue of $722,947.
Direct Sales
Our direct sales revenue was $522,762 for the six months ended June 30, 2024, compared with $855,969 in the same period of 2023, representing a decrease of $333,207 or 39%. Our direct sales revenue as a percentage of our total revenue was 24% for the six months ended June 30, 2024, compared to 38% for the same period of 2023. The decrease in revenue was mainly due to the economic downturn as marketing and promotional activities become more challenging compared to last year. Additionally, due to reduced supplies of certain popular products, we had to adjust our product mix in 2024.
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Pharmacy
Our pharmacy revenue was $497,831 for the six months ended June 30, 2024, compared with $528,702 in the same period of 2023, representing a decrease of $30,871 or 6%. Our pharmacy revenue as a percentage of our total revenue was 23% for the six months ended June 30, 2024, compared to 24% for the same period of 2023. The decrease in revenue was mainly due to the economic downturn as marketing and promotional activities did not generate anticipated revenues.
Hotel
Our hotel revenue was $274,562 for the six months ended June 30, 2024, compared with $722,947 for the same period of 2023, representing a decrease of $448,385 or 62%. Our hotel revenue as a percentage of our total revenue was 13% for the six months ended June 30, 2024, compared to 32% for the same period of 2023. The decrease in revenue was primarily due to the Company relocating its hotel and the need to complete leasehold improvements before opening at our new location. Additionally, due to a decrease in demand, we reduced our room rates.
Runcangsheng
Our manufacture and sales revenues at Runcangsheng were $889,054 for the six months ended June 30, 2024, compared with $123,152 for the same period of 2023, representing an increase of $765,902 or 622%. Runcangsheng’s revenue as a percentage of our total revenue was 41% for the six months ended June 30, 2024, compared to 6% for the same period of 2023. The increase in Runcangsheng’s sales was mainly driven by participation in more shows, which raised our visibility and consequently boosted sales; and attendance by more vendors, corporate and individual major customers to our internal shows, which expanded our sales channels, and the addition of new salespeople and increased consumer demand for Chinese herbal products during the Chinese New Year.
Operating Costs and Expenses
Cost of Goods Sold
Cost of goods sold was $807,900 for the six months ended June 30, 2024, compared to $626,688 for the same period of 2023, an increase of $181,212 or 29%. The increase in cost of goods sold was attributable to the increase in Runcangsheng’s business which was partly offset by decreased sales from our direct sales and pharmacy segments.
Direct sales
The cost of goods sold for our direct sales was $46,741 for the six months ended June 30, 2024, compared with $299,528 for the same period of 2023, representing a decrease of $252,787 or 84%. The cost of goods sold for our direct sales as a percentage of sales was 9% for the six months ended June 30, 2024, compared to 35% for the same period of 2023. The decrease in cost of goods sold was primarily driven by the decrease of sales and the elimination in 2024 of a commission program for our sales personnel.
Pharmacy
The cost of goods sold at our pharmacies was $152,093 for the six months ended June 30, 2024, compared with $320,508 for the same period of 2023, representing a decrease of $168,415 or 53%. The cost of goods sold at our pharmacies as a percentage of pharmacy product sales was 31% for the six months ended June 30, 2024, compared to 61% for the same period of 2023. The decrease in cost of goods sold was mainly due to our coordination of activities at our pharmacies, such as the implementation of bulk inventory purchasing which reduced our purchasing costs; and cost reduction measures undertaken in September 2023, including reviewing our list of vendors and replacing those vendors with higher cost products.
Runcangsheng
The cost of goods sold for Runcangsheng was $609,066 for the six months ended June 30, 2024, compared with $6,652 for the same period of 2023, representing an increase of $602,414 or 9,056%. The cost of goods sold as a percentage of sales by Runcangsheng was 69% for the six months ended June 30, 2024, compared to 5% for the same period of 2023. The primary reason for the increase in cost of goods sold was the significant increase of sales.
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Hotel Operating Costs
Hotel operating costs were $825,189 and $940,574 for the six months ended June 30, 2024 and 2023, respectively, representing a decrease of $115,385 or 12%. For the six months ended June 30, 2024, our hotel revenue significantly decreased compared to the same period in 2023. However, due to the fixed operating costs, our overall expenses did not decrease substantially.
Operating Expenses
Operating expenses were $1,441,191 for the six months ended June 30, 2024, compared to $1,320,246 for the same period of 2023, an increase of $120,945 or 9%. The increase in operating expenses was mainly due to the increase in operating expenses reported by our hotel and Runcangsheng segments, which was partly offset by decreased operating expenses at our pharmacy and direct sales segments.
Loss from Operations
Loss from operations was $890,071 in the six months ended June 30, 2024, compared to $656,738 in the same period of 2023, an increase of $233,333 or 36%. The increase in our loss from operations for the six months ended June 30, 2024 was primarily due to the increase in the loss in our hotel segment of approximately $445,347, partially offset by increased profits in our pharmacy and Runcangsheng segments.
Non-operating Income
Non-operating income was $110,214 for the six months ended June 30, 2024, compared to $34,772 for the six months ended June 30, 2023. For the six months ended June 30, 2024, we had interest income of $311 and other income of $114,188 mainly government grant income of $86,209, partly offset by other expenses of $4,285. For the six months ended June 30, 2023, we had interest income of $557 and other income of $39,102, partly offset by other expenses of $4,887.
Income Tax Expense
Income tax expense was $526 and $5,364 for the six months ended June 30, 2024 and 2023, respectively, a decrease of $4,838 or 90% for the six months ended June 30, 2024 compared with the same period of 2023.
Net Loss
Our net loss for the six months ended June 30, 2024 was $780,383, compared to a net loss of $627,330 for the same period of 2023, an increase of $153,053 or 24%. The increase in our net loss was mainly due to increased operating costs and expenses and decreased sales as explained above, particularly at our hotel where the operating loss increased by nearly $445,300 due to our inability to accommodate guests before opening our new hotel.
Liquidity and Capital Resources
During the six months ended June 30, 2024, we used $348,330 in operations. As of June 30, 2024, cash and cash equivalents were $614,699 (excluding $48,277 of restricted cash), compared to $443,758 (excluding $23,208 of restricted