AIXIN LIFE INTERNATIONAL, INC. 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 endedDecember 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 inChina 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 products and those of our clients through our sales offices, exhibition events we organize and sponsor, and person-to-person marketing. Our 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.
We do not independently test products to determine efficacy. Rather we rely upon information we uncover through inquiries in the community and a review of scientific and other literature.
InMarch 2020 , theWorld 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 includeChengdu , where our offices are located and our customers reside, 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. The global impact of the outbreak is continually evolving. The measures adopted by various governments and agencies, as well as the decision by many individuals and businesses to voluntarily shut down or self-quarantine, had and are expected to continue to have serious adverse impacts on domestic and foreign economies of uncertain severity and duration. AlthoughChina andChengdu have reopened their economies we cannot predict with any certainty the volume of revenue we will generate in 2021. In addition to our ongoing operations, we seek to acquire an interest 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.
In response to the current Covid-19 pandemic, we have implemented the following strategies to cope with the situation.
1. Importing products from the
product line.
2. Strengthening our on-line sales capability.
3. Increasing our efforts to find acquisition opportunities.
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.
Below is our corporate structure:
AiXin Life International, Inc. (aColorado corporation) 100%AiXin (BVI) International Group Co., Ltd (BVI) 100%
100%
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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 March 31,
2021 2020
$ % of Revenue $ % of Revenue
Revenue $ 698,158 100 % $ 611,163 100 %
Cost of goods sold 135,659 19 % 25,448 4 %
Gross profit 562,499 81 % 585,715 96 %
Operating expenses 340,329 49 % 337,481 55 %
Income from operations 222,170 32 % 248,234 41 %Non-operating income (expenses), net (468 ) - %
(17 ) - % Income tax expense - - % - - % Net income$ 221,702 32 %$ 248,217 41 % Revenue
Revenue was$698,158 in the first quarter of 2021, compared to$611,163 in the same period of 2020, an increase of$86,995 or 14%. The increase in revenue was primarily due to the increase in products sales which grew to$203,294 in the first quarter of 2021 compared to$61,234 in the same period of 2020 as a result of introducing a new product into the Company's product mix. A decrease in advertising revenue in the first quarter of 2021 partly offset the increase
in product revenues. Cost of Goods Sold Cost of goods sold was$135,659 in the first quarter of 2021, compared to$25,448 in the same period of 2020, an increase of$110,211 or 433%. The increase in our cost of goods sold is attributable to the increase in product sales. The cost of goods sold as a percentage of revenue was 19% in the first quarter of 2021, compared to 4% in the same period of 2020, The cost of goods sold as a percentage of product sales in the first quarter of 2021 was higher than that in the same period of 2020 due to the higher sales volume of lower margin products in 2021. The advertising and marketing services we provide do not require that we purchase products and thus have no cost of goods. Gross Profit Gross profit was$562,499 in the first quarter of 2021, compared to$585,715 in the same period of 2020, a decrease of$23,216 or 4%. The decrease in our gross profit was mainly due to the increase in cost of goods sold and a decrease in advertising revenue, partly offset by the higher revenue from product sales. Gross margin was 81% in the first quarter of 2021, compared to 96% in the same period of 2020 as a result of the shift from advertising revenues to product sales and more sales from certain lower margin products. Operating Expenses
Operating expenses were$340,329 and$337,481 for the first quarter of 2021 and 2020, respectively, relatively flat. Increases in general and administrative expenses were offset by the decrease in selling expense and provision for bad debt. 23 Net Income Our net income for the first quarter of 2021 was$221,702 compared to$248,217 in the same period of 2020, a decrease of$26,515 or 11%. The decrease in the first quarter of 2021 was mainly due to the lower gross profit explained above.
Liquidity and Capital Resources
During 2018, 2019 and 2020, we depended upon advances from our major shareholder and capital raised in private placements to support our operations. During the first quarter of 2021, we generated$141,844 from operations. As ofMarch 31, 2021 , cash and cash equivalents were$7,638,444 , compared to$7,676,689 as ofDecember 31, 2020 . AtMarch 31, 2021 , we had working capital of$7,078,648 compared to$6,753,486 atDecember 31, 2020 . The improvement in our working capital was mainly due to the positive cash flow generated from operations. The following is a summary of cash provided by or used in each of the indicated types of activities during the quarters endedMarch 31, 2021 and 2020, respectively. March 31, March 31, 2021 2020 Net cash provided by operating activities$ 141,844 $
382,068
Net cash provided by (used in) investing activities $ - $
-
Net cash used in financing activities$ (148,771 ) $ (367,748 )
Net cash provided by (used in) operating activities
For the quarter endedMarch 31, 2020 , net cash provided by operating activities was$141,844 . This was primarily due to our net income of$221,702 , adjusted by non-cash related expenses including depreciation of$7,225 and stock-based compensation of$92,885 , and then decreased by unfavorable changes in working capital of$179,968 . The unfavorable changes in working capital mainly resulted from an increase in inventory of$102,826 and a decrease in taxes payable of$73,290 . For the quarter endedMarch 31, 2020 , net cash provided by operating activities was$382,068 . This was primarily due to our net income of$248,217 , adjusted by non-cash related expenses including depreciation of$12,602 , provision for bad debt of$12,528 , stock-based compensation of$92,885 , and then increased by favorable changes in working capital of$15,836 . The favorable changes in working capital mainly resulted from an increase in unearned revenue of$26,656 , a decrease in inventory of$16,055 , and a decrease in other receivables and prepaid expenses of$9,270 , offset by a decrease in taxes payable of$37,812 .
Net cash provided by (used in) financing activities
For the quarter ended
For the quarter ended
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.
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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 inNorth America andWestern Europe . These include risks associated with, among others, the political, economic and legal environments inChina 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 inChina are denominated in RMB and all of the Company's assets and liabilities inChina are also denominated in RMB. The RMB is not freely convertible into foreign currencies under the current PRC law. InChina , foreign exchange transactions are required by law to be transacted only by authorized financial institutions. Remittances in currencies other than RMB may require certain supporting documentation in order to affect the remittance.
Significant Accounting Policies
While our significant accounting policies are more fully described in Note 2 to our financial statements, we believe the following accounting policies are the most critical to aid you in fully understanding and evaluating this management discussion and analysis. Basis of Presentation
The accompanying financial statements are prepared in conformity withU.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 inU.S. dollars ("USD"). Covid - 19
OnMarch 11, 2020 , theWorld Health Organization announced that infections caused by the coronavirus disease of 2019 ("COVID-19") had become pandemic. The Government ofChina has adopted various regulations and orders, including mandatory quarantines, limits on the number of people that may gather in one location, closing non-essential businesses and travel bans to limit the spread of the disease. Many of these measures have been relaxed due to the decrease in the prevalence of Covid-19 inChina . To date, our ongoing operations have not been materially adversely effected by the measures taken to limit the spread of the disease inChina , though such measures have impacted our product sales and our ability to timely complete our closing procedures and report our results of operations on a quarterly basis. The measures adopted by the national government ofChina and local agencies, as well as the decision by many individuals and businesses to voluntarily shut down or self-quarantine, have and are expected to continue to have serious adverse impacts on the economy ofChina . The likely overall economic impact of the COVID-19 pandemic will be highly negative to the world's economy. Financial impacts related to COVID-19, including actions taken by us and costs incurred in response to the pandemic, were not material to our financial position, results of operations or cash flows for year 2020, though they did adversely impact our product sales. We have implemented procedures to promote employee and customer safety. These measures will not significantly increase our operating costs. In addition, we cannot predict with certainty what measures may be taken by our suppliers and customers and the impact these measures may have on our 2021 financial position, results of operations or cash flows. 25
While we continue to operate substantially in the normal course, we cannot forecast with any certainty whether and to what degree the disruptions caused by the COVID-19 pandemic will increase, or the extent to which the disruption may materially impact our consolidated financial position, consolidated results of operations, and consolidated cash flows in fiscal 2021. 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 quarters ended inMarch 31, 2021 and 2020, bad debt expense was$0 and$12,528 , respectively. As ofMarch 31, 2021 , andDecember 31, 2020 , the bad debt allowance was$147,912 and$148,520 , respectively. Revenue Recognition ASU No. 2014-09, Revenue from Contracts with Customers ("Topic 606"), became effective for the CompanyJanuary 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 health supplements and the performance of related advertising 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 sales of goods and provision of services 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.
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These five elements, as applied to each of the Company's revenue categories, is summarized below:
? Revenue from sale of goods is recognized when goods are shipped to thecustomer and no other obligation exits. The Company does not provide
unconditional return or other concessions to the customer. The Company's
sales policy allows for the return of unopened products for cash after
deducting certain service and transaction fees. As an alternative to the
product return option, the customers have the option of asking for an
? exchange for products with the same value.
As part of the Company's sales incentive program, the Company occasionally
provides free travel to its customers whose prepayments to purchase the
Company's products reaches a certain amount. There are different travelincentives offered to customers based on the amount the received from each
customer. The Company records the to-be-provided free travel cost when
cash is collected from customers as a debit deferred travel cost withcorresponding credit to accrued travel cost. Once the customer utilizes
the travel incentive, the cost of travel is recorded as selling expenses
and reduces deferred travel cost.
Sales revenue represents the invoiced value of goods, net of value-added taxes
("VAT"). All of the Company's products sold in China are subject to the PRC VAT
of 17% of the gross sales price prior to May 1, 2018 , 16% since May 1, 2018 and
13% since April 1, 2019 . This VAT may be offset by VAT paid by the Company on
raw materials and other materials purchased in China . The Company records VAT
payable and VAT receivable net of payments in the financial statements. The VAT
tax return is filed offsetting the payables against the receivables. Sales and
purchases are recorded net of VAT collected and paid as the Company acts asan agent for the government.
Commencing in the third quarter of 2019, we generated revenue by providing advertising services. Advertising contracts are signed to establish the price and advertising services to be provided. Pursuant to the advertising contracts, we provide advertising and marketing services through exhibition events, conferences, and person-to-person marketing. We perform 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 to its clients through exhibition events, conferences, and person-to-person marketing during the contracted period, regardless of the number of such events. As such, we estimate that the performance obligation is satisfied over time during the contracted period and revenue is recognized accordingly
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 quarters endedMarch 31, 2021 and 2020 consisted of net loss and foreign currency translation adjustments. New Accounting Pronouncements InDecember 2019 , the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes, as part of its initiative to reduce complexity in accounting standards. The amendments in the ASU are effective for fiscal years beginning afterDecember 15, 2020 , including interim periods therein. Early adoption of the standard is permitted, including adoption in interim or annual periods for which financial statements have not yet been issued. The Company is currently evaluating the effect, if any, that the ASU will have on its consolidated financial statements. 27
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