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, 2020 (the "2020 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 2020 Form 10-K, that could cause actual results to differ materially from those anticipated in these forward-looking statements.





Overview


We market and sell consumer products in China by offering premium-quality nutritional products. We also provide advertising and marketing services to clients which engage us to distribute their products. We offer our nutritional products and those of our clients through our sales offices, exhibition events we organize and sponsor, and person-to-person marketing. Our marketing business mainly focuses on proactively approaching customers such as by hosting events for clients, which we believe is ideally suited to marketing our products and those of our clients for which we perform advertising services because sales of nutritional products 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.

In July we completed the acquisition of Aixin Shangyan Hotel. Shangyan Hotel Company owns and operates a hotel located in the Jinniu District, Chengdu City. The hotel covers more than 8,000 square meters and has a large restaurant that can accommodate 600 people, 6 luxury dining rooms, a 200 square meter music tea house, 13 private tea rooms, 108 guest rooms and other supporting facilities. completed. We acquired the hotel through an acquisition of the outstanding equity of Aixin Shangyan Hotel for a purchase price of RMB 7,598,887, or approximately $1.16 million ("Transfer Price"). The Transfer Price will be reduced by an amount equal to any amounts paid or distributed by the hotel to its shareholders after December 31, 2020 and will be increased by an amount equal to any amounts contributed to the hotel by its equity owners after December 31, 2020.

In September 2021, we completed the acquisitions of nine pharmacies located in Chengdu through the acquisition of the outstanding equity of the entities which owned the pharmacies for an aggregate purchase price of RMB 34,635,845, or approximately US$5.31 million ("Transfer Price"). The Transfer Price will be reduced by an amount equal to any amounts paid or distributed by any of the entities to its shareholders after December 31, 2020 and increased by an amount contributed to any of the entities by its shareholders after such date.

In March 2020, the World Health Organization announced that infections caused by the coronavirus disease of 2019 ("COVID-19") had become pandemic and national, provincial and local authorities, including those whose jurisdictions include Chengdu, where our offices, hotel and pharmacies are located, adopted various regulations and orders, including "shelter in place" rules, restrictions on travel, mandates on the number of people that may gather in one location and closing non-essential businesses. Many of these measures have been relaxed due to the decrease in the prevalence of Covid-19 in China. To date, the ongoing operations of our advertising and marketing business have not been materially adversely impacted by the measures taken to limit the spread of the disease in China. Our hotel and pharmacies, however, have experienced adverse impacts due to travel and work restrictions imposed on a temporary basis in Chengdu to limit the spread of COVID-19. The Company has implemented procedures to promote employee and customer safety. These measures will not significantly increase its operating costs. However, the Company cannot predict with certainty what measures may be taken by its suppliers and customers and the impact these measures may have on its financial results for the balance of 2021 and throughout 2022.

In addition to our ongoing operations, we seek to acquire interests in additional businesses through opportunities found by our management or presented by persons or firms which desire to take advantage of the perceived advantages of an Exchange Act registered corporation. We do not restrict our search to any specific business, industry, or geographical location and may participate in a business venture of virtually any kind or nature.

It is the goal of our management, in particular, our Chairman, Quanzhong Lin to grow our business and to modify its capital structure in order to qualify for a listing on NASDAQ or the NYSE-American exchange. As part of this effort, we will continue to seek to acquire more businesses and to modify our capital structure as necessary to meet the requirements of the exchange to which we apply for a listing. As part of this effort. on June 8, 2020, Mr. Lin transferred 35,049,685 shares of our common stock to our Company for cancellation.





27







Results of Operations



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



                                              Three Months Ended September 30,
                                            2021                             2020
                                    $          % of Revenue           $         % of Revenue
Revenue                         $  812,910               100 %    $ 728,896               100 %
Operating costs and expenses       906,419               112 %      409,619                56 %
Income (loss) from operations      (93,509 )             (12 )%     319,277                44 %
Non-operating income, net           21,499                 3 %      323,373                44 %
Income tax expense                  74,094                 9 %        2,319                 - %
Net income (loss)               $ (146,104 )             (18 )%   $ 640,331                88 %




                                               Nine Months Ended September 30,
                                           2021                              2020
                                    $          % of Revenue           $          % of Revenue
Revenue                        $ 2,363,836               100 %   $ 1,774,139               100 %
Operating costs and expenses     1,766,671                75 %     1,122,248                63 %
Income from operations             597,165                25 %       651,891                37 %
Non-operating income
(expenses), net                     17,264                 1 %       554,885                31 %
Income tax expense                 292,146                12 %         2,319                 - %
Net income                     $   322,283                14 %   $ 1,204,457                68 %



The following table shows our operations by business segment for the three months ended September 30, 2021 and 2020:





                                        2021          2020
Net revenue
Advertising and products             $  509,861     $ 728,896
Pharmacies                              139,947             -
Hotel                                   163,102             -
Total revenues, net                  $  812,910     $ 728,896

Operating costs and expenses
Advertising and products
Cost of goods sold                   $   38,461     $  20,478
Operating expenses                      267,331       389,141
Pharmacies
Cost of goods sold                       92,477             -
Operating expenses                      124,138             -
Hotel
Hotel operating costs                   320,305             -
Operating expenses                       63,707             -

Total operating costs and expenses $ 906,419 $ 409,619



Income (loss) from operations
Advertising and products             $  204,069     $ 319,277
Pharmacies                              (76,668 )           -
Hotel                                  (220,910 )           -

Income (loss) from operations $ (93,509 ) $ 319,277






28






The following table shows our operations by business segment for the nine months ended September 30, 2021 and 2020.





                                        2021            2020
Net revenue
Advertising and products             $ 2,060,787     $ 1,774,139
Pharmacies                               139,947               -
Hotel                                    163,102               -
Total revenues, net                  $ 2,363,836     $ 1,774,139


Operating costs and expenses
Advertising and products
Cost of goods sold                   $   199,141     $    67,379
Operating expenses                       966,903       1,054,869
Pharmacies
Cost of goods sold                        92,477               -
Operating expenses                       124,138               -
Hotel
Hotel operating costs                    320,305               -
Operating expenses                        63,707               -

Total operating costs and expenses $ 1,766,671 $ 1,122,248



Income (loss) from operations
Advertising and products             $   894,743     $   651,891
Pharmacies                               (76,668 )             -
Hotel                                   (220,910 )             -
Income (loss) from operations        $   597,165     $   651,891




Revenue


Revenue was $812,910 in the three months ended September 30,2021, compared to $728,896 in the same period of 2020, an increase of $84,014 or 12%. Revenue was $2,363,836 in the nine months ending September 30 2021, compared to $1,774,139 in the same period of 2020, an increase of $589,697 or 33%. The increase in revenue was mainly due to increased advertising revenue, and revenue from our hotel and pharmacies. The results of the operations of the hotel and pharmacies are included in our financial results since the completion of the acquisitions from July to September, 2021, respectively. For the third quarter and nine months ended September 30, 2021, we had advertising and products revenue of $509,861 and $2,060,787 respectively, pharmacies revenue of $139,947 and $139,947, and hotel revenue of $163,102 and $163,102. For the third quarter and nine months ended September 30, 2020, we had $728,896 and $1,774,139 in advertising and products revenue and no revenues from the hotel and pharmacies as the acquisitions were not completed until 2021. The increase in advertising and products revenue reflects an increase in the number of advertising customers during 2021.





29






Operation Costs and Expenses





Cost of Goods Sold


Cost of goods sold was $130,938 and $291,618 in the three and nine months ended September 30, 2021, respectively, compared to $20,478 and $67,379 for the comparable periods of 2020, an increase of $110,460 or 539% for the three months ended September 30, 2021 compared with same period of 2020, and an increase of $224,239 or 333% for the nine months ended September 30, 2021 compared with same period of 2020. The increase in our cost of goods sold is attributable to the increase in product sales due to the acquisition of the pharmacies as well as an increase in cost of goods sold from our traditional products. The cost of goods sold for our nutritional products as a percentage of was 64% and 64% in the three and nine months ended September 30, 2021, respectively, compared to 37% and 40% for the three and nine months ended September 30, 2020, respectively. The cost of goods sold as a percentage of nutritional product sales was higher in the three and nine months ended September 30, 2021, compared with the same period of 2020 due to increased sales volume of lower profit margin products in 2021.

Hotel Operating Costs

Hotel Operating costs were $320,305 for the three and nine months ended September 30, 2021, compared to $0 for the comparable periods of 2020, an increase of $320,305, or 100%. The increase in hotel operating costs was primarily due to the inclusion of the hotel operating costs of Aixin Shangyan Hotel.





Operating Expenses



Operating expenses were $455,176 and $1,154,748 for the three and nine months ended September 30 2021, respectively, compared to $389,141 and $1,054,869 for the comparable periods of 2020, an increase of $66,305 or 17% for the three months ended September 30, 2021 compared with same period of 2020, and an increase of $99,879 or 9% for the nine months ended September 30, 2021 compared with same period of 2020. The increase in operating expenses for the three months ended September 30, 2021 was mainly due to the inclusion of the operating expenses of the hotel and pharmacies since the dates of their acquisitions and increased selling expense due to the acquisition of the hotel and pharmacies which was partly offset by decreased general and administrative expense due to the decrease in advertising revenue. The increase in operating expenses for the nine months ended September 30, 2021 was mainly due to the inclusion of the operating expenses of the hotel and pharmacies since the dates of their acquisitions and increased selling expenses and general and administrative expenses resulting from such acquisitions.

Income (loss) from Operations

Income (loss) from operations was $(93,509) and $319,277 in the three and nine months ended September 30 2021, respectively, compared to $597,165 and $651,891 in the same periods of 2020, a decrease of $412,786 or 129% for the three months ended September 30, 2021 compared with same period of 2020, and a decrease of $54,726 or 8% for the nine months ended September 30, 2021 compared with same period of 2020. The decrease in our income from operations for the three months ended September 30, 2021 was mainly due to decreased advertising revenue and increased operating costs and expenses compared with the same period of 2020. The decrease in our income from operations for the nine months ended September 30, 2021 was mainly due to the increased operating costs and expenses, partially offset by the increased revenue.





Non-operating Income


Non-operating income was $21,499 and $17,264 for the three and nine months ended September 30, 2021, respectively, compared to $323,373 and $554,885 for the comparable periods of 2020. For the three months ended September 30, 2021, we had interest income $599 and other income $22,067 and other expenses of $1,167. For the three months ended September 30, 2020, we had interest income $297,895 and other income $25,741. For the nine months ended September 30, 2021, we had interest income $3,088 and other income $22,228 and other expenses of $8,052. For the nine months ended September 30, 2020, we had interest income $529,551 and other income $25,783.





30







Income tax expense


Income tax expense were $74,094 and $292,146 for the three and nine months ended September 30, 2021, compared to $2,319 and $2,319 in the same periods of 2020, an increase of $289,827 or 12,498% for the nine months ending September 30, 2021; an increase of $71,775 or 3,095% for the three months ending September 30, 2021.





Net Income (Loss)



Our net income (loss) for the three and nine months ended September 30, 2021 was $(146,104) and $322,283 respectively, compared to net income $640,331 and $1,204,457 in the same periods of 2020, a decrease in net income of $786,435 or 123% for the three months ended September 30, 2021 compared with same period of 2020, and a decrease of $882,174 or 73% for the nine months ended September 30, 2021 compared with same period of 2020. The decrease in net income in the nine and three months ended September 30, 2021 was mainly due to an increase in our income tax expense primarily in the nine months ending September 30, 2021, and a decrease in interest income and increased operating expenses due to the acquisition of the hotel and pharmacies.

Liquidity and Capital Resources

During 2020 and 2021, we depended upon advances from our major shareholder and capital raised in private placements to support our operations. During the nine months ended of September 30, 2021, we generated $546,069 from operations. As of September 30, 2021, cash and cash equivalents were $3,297,835, compared to $7,676,689 as of December 31, 2020. At September 30, 2021, we had working capital of $820,305 compared to $6,753,486 at December 31, 2020. The reduction in our cash from December 31, 2020 to September 30, 2021, was the result of the payments made to acquire Aixin Shangyan Hotel and Aixintang Pharmacies.

The following is a summary of cash provided by or used in each of the indicated types of activities during the nine months ended September 30, 2021 and 2020, respectively.





                                                       September 30, 2021       September 30, 2020
Net cash provided by operating activities             $            546,069     $          1,456,421

Net cash (used in) provided by investing activities $ (4,410,524 ) $ 4,033,470 Net cash (used in) provided by financing activities $

           (592,814 )   $          2,227,904




Net cash provided by operating activities

For the nine months ended September 30, 2021, net cash provided by operating activities was $546,069. This was primarily due to our net income of $322,283, adjusted by non-cash related expenses including depreciation of $21,910, provision for bad debt of $17,883 and stock-based compensation of $278,655, and then decreased by changes in working capital of $94,662. The cash outflow from changes in working capital mainly resulted from inventory purchases of $18,728, payments of advances to suppliers of $116,795, and payments of accrued liabilities $41,986, partly offset by cash inflow from other receivables and prepaid expenses, unearned revenue and an increase in taxes payable outstanding of $46,672.

For the nine months ended September 30, 2020, net cash provided by operating activities was $1,456,421. This was primarily due to our net income of $1,204,457, adjusted by non-cash related expenses including depreciation of $34,572, provision for bad debt of $13,451, and stock-based compensation of $278,655, and then decreased by changes in working capital of $74,714. The changes in working capital mainly resulted from a decrease in accrued liabilities and other payables of $99,549, an increase in inventory of $31,830, and a decrease in taxes payable of $24,966, partly offset by a decrease in advance to suppliers of $63,235 and a decrease in other receivables and prepaid expenses of $17,327.





31






Net cash (used in) provided by investing activities

For the nine months ended September 30, 2021, net cash used in investing activities was $4,410,524, mainly for the acquisition of a hotel and pharmacies from our major shareholder.

For the nine months ended September 30, 2020, net cash provided by investing activities was $4,033,470, which was mainly due to the return of a prepayment for the acquisitions of $4,035,615, partly offset by purchases of property and equipment of $2,145.

Net cash (used in) provided by financing activities

For the nine months ended September 30, 2021, net cash used in financing activities were changes in advances from related parties of $592,814.

For the nine months ended September 30, 2020, net cash provided by financing activities was an advance from our major shareholder of $2,227,904.





Impact of Inflation


Our results of operations may be affected by inflation, particularly rising prices for products and other operating costs if we cannot pass such increases along to our customers in the form of higher prices for our products and services. Generally, our inventory turns multiple times per year and we anticipate that we will be able to increase prices on products to reflect increases in the cost of inventory.





Contractual Obligations


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

Off-Balance Sheet Arrangements

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





Contingencies


The Company's operations are conducted in the PRC and are subject to specific considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environments in China and foreign currency exchange. The Company's results may be adversely affected by changes in PRC government policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad and rates and methods of taxation, among other things.

The Company's sales, purchases and expense transactions in China are denominated in RMB and all of the Company's assets and liabilities in China are also denominated in RMB. The RMB is not freely convertible into foreign currencies under the current PRC law. In China, foreign exchange transactions are required by law to be transacted only by authorized financial institutions. Remittances in currencies other than RMB may require certain supporting documentation in order to affect the remittance.





32






Significant Accounting Policies

Our management's discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which were prepared in accordance with accounting principles generally accepted in the United States of America ("US GAAP"). The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported net sales and expenses during the reporting periods. On an ongoing basis, we evaluate our estimates and assumptions. We base our estimates on historical experience and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

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





Basis of Presentation


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





Use of Estimates


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

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





Accounts Receivable


The Company maintains an allowance for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. During the nine months ended in September 30, 2021 and 2020, bad debt expense was $17,883 and $13,451, respectively. During the three months ended September 30, 2021 and 2020, bad debt expense (reversal) was $17,883 and $(75), respectively. As of September 30, 2021 and December 31, 2020, the bad debt allowance was $292,742 and $148,520, respectively.





Revenue Recognition



ASU No. 2014-09, Revenue from Contracts with Customers ("Topic 606"), became effective for the Company on January 1, 2018. The Company's revenue recognition disclosure reflects its updated accounting policies that are affected by this new standard. The Company applied the "modified retrospective" transition method for open contracts for the implementation of Topic 606. As revenues are and have been primarily from the delivery of products and the performance of services, and the Company has no significant post-delivery obligations, this did not result in a material recognition of revenue on the Company's accompanying consolidated financial statements for the cumulative impact of applying this new standard. The Company made no adjustments to its previously-reported total revenues, as those periods continue to be presented in accordance with its historical accounting practices under Topic 605, Revenue Recognition.

Revenue from sale of goods under Topic 606 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;




  ? allocation of the transaction price to each performance obligation; and




  ? recognition of revenue only when the Company satisfies each performance
    obligation.




33

The Company's revenue recognition policies for its various operating segments are as follows:





Advertising and Products



Advertising Revenue


Commencing in the third quarter of 2019, AiXin Zhonghong began to provide advertising services to its clients. Advertising contracts are signed to establish the price and advertising services to be provided. Pursuant to the advertising contracts, the Company provides advertising and marketing services to its clients through exhibition events, conferences, and person-to-person marketing. The Company performs a credit assessment of the customer to assess the collectability of the contract price prior to entering into contracts.

Most of the advertisement contracts designated that the Company perform such advertising services for its clients through exhibition events, conferences, and person-to-person marketing during the contracted period, regardless of the number of such events. As such, the Company determined that the performance obligation is satisfied over time during the contracted period and revenue is recognized accordingly. Such advertising revenue amounted to $445,215 and $673,978 for the three months ended September 30, 2021 and 2020, respectively. Such advertising revenue amounted to $1,742,896 and $1,597,330 for the nine months ended September 30, 2021 and 2020, respectively.

A smaller proportion of the Company's advertising revenue is generated from services to its clients through exhibition events, conferences, and person-to-person marketing, and charges based on the number of promotional products sold. Such advertising revenue amounted to $0 for the three months ended September 30, 2021 and 2020. Such advertising revenue amounted to $0 and $6,476 for the nine months ended September 30, 2021 and 2020, respectively.

All of the advertising revenue is subject to the PRC VAT of 6%. This VAT may be offset by VAT paid by the Company on raw materials and other materials purchased in China.





Products Revenue



The Company's revenue from sale 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 the customer. The Company's sales policy allows for the return of unopened products for cash after deducting certain service and transaction fees. As an alternative to the product return option, the customers have options of asking for an exchange for products with the same value.

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 17% of the gross sales price prior to May 1, 2018, 16% since May 1, 2018 and 13% since April 1, 2019. This VAT may be offset by VAT paid by the Company on raw materials and other materials purchased in China. The Company records VAT payable and VAT receivable net of payments in the financial statements. The VAT tax return is filed offsetting the payables against the receivables. Sales and purchases are recorded net of VAT collected and paid as the Company acts as an agent for the government.





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 6%. This VAT may be offset by VAT paid by the Company on raw materials and other materials purchased in China.





Pharmacies



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. All of Aixintang Pharmacies' products sold in China are subject to the PRC VAT of 0% as it qualifies for small businesses.





34






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.

We use FASB ASC Topic 220, "Comprehensive Income". Comprehensive income (loss) is comprised of net income (loss) and all changes to the statements of stockholders' equity, except those due to investments by stockholders, changes in paid-in capital and distributions to stockholders. Comprehensive loss for nine and three months ended September 30, 2021 and 2020 consisted of net loss and foreign currency translation adjustments.

© Edgar Online, source Glimpses