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, 2021 (the "2021 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 2021 Form 10-K, that could cause actual results to differ materially from those anticipated in these forward-looking statements. Overview We are focused on the consumer healthcare market inChina . We market and sell premium-quality healthcare, nutritional products and supplements. 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 pharmacies and sales offices, and through 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 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. InSeptember 2021 , we completed the acquisition of nine pharmacies located inChengdu by acquiring the entities which owned the pharmacies for an aggregate purchase price ofRMB 34,635,845 , or approximatelyUS$5.31 million . InJuly 2021 , we completed the acquisition ofAixin Shangyan Hotel .Shangyan Hotel Company owns and operates a hotel located in theJinniu 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. We acquired the hotel through an acquisition of the outstanding equity ofAixin Shangyan Hotel for a purchase price ofRMB 7,598,887 , or approximately$1.16 million .
In
Pursuant to the Transfer Agreement, we have agreed to purchase all of the outstanding equity of Yunnan Runcansheng from the Sellers forRMB 45,082,600 (approximatelyUSD$6.68 million ), subject to adjustment as provided in the Equity Transfer Agreement. Upon execution of the Transfer Agreement, we paid the Sellers a deposit of5,000,000 RMB which is refundable under certain conditions as provided in the Transfer Agreement. In addition to payment of the deposit, upon signing of the Transfer Agreement we deposited15,000,000 RMB (approximatelyUSD$2.3 million ) in a bank account controlled by us which is not to be used by us until completion of the registration of the transfer of the equity of Yunnan Runcansheng to us in accordance with applicable regulations or the termination of the Transfer Agreement by either us or the Sellers. Yunnan Runcangsheng. was established in April, 2020, and is headquartered in Luquan Yi and Miao Autonomous County, Kunming City,Yunnan Province . It 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. Yunnan 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 inChina evolve, work pressures increase and the ingestion of meats and other western style foods increases, Yunnan 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 Yunnan 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. 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 inChina , including those whose jurisdictions includeChengdu , 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 from time to time in various localities due to the decrease in the prevalence of COVID-19. However, beginning in the second half of 2021 and continuing to date, the number of COVID-19 cases has fluctuated and increased again in many cities ofChina , includingSichuan Province , where we are located. As a result, the authorities inChengdu from time to time have reinstituted short-term lockdowns and restrictions on travel and the number of people that could gather at any location. During the three and six months endedJune 30, 2022 , all of our operations were materially adversely impacted by the measures and restrictions taken to limit the spread of the disease inChina andSichuan Province . We implemented procedures to promote employee and customer safety. These measures will not significantly increase our operating costs. However, we cannot predict with certainty what measures may be taken by the authorities inChengdu , our suppliers and customers and the impact these measures may have on our financial results for 2022. Our acquisitions of pharmacies, the hotel and Yunnan Runcangsheng should serve to offset the impact which the restrictions imposed in response to COVID-19 have had on our traditional direct marketing business. Nevertheless, there is no assurance that the acquisitions of these businesses will enable us to return to profitable operations in the immediate future. 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,Mr. Lin transferred to our Company 35,049,685 shares of our common stock for cancellation. 26 Results of Operations
Three Months ended
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,
2022 2021
$ % of Revenue $ % of Revenue
Revenue $ 420,887 100 % $ 852,768 100 %
Operating costs and expenses 1,160,125 276 % 384,264 45 %
Income (loss) from
operations (739,238 ) (176 )% 468,504 55 %
Non-operating income
(expenses), net 11,442 3 % (3,767 ) (0.4 )%
Income (loss) before income
tax (727,796 ) (173 )% 464,737 55 %
Income tax expense 473 0.1 % 218,052 26 %
Net income (loss) $ (728,269 ) (173 )% $ 246,685 29 %
The following table shows our operations by business segment for the three
Months ended
For the Three Months Ended June 30,
2022 2021
Net revenue
Advertising and products $ 16,591 $ 852,768
Pharmacies 194,045 -
Hotel 210,251 -
Total revenues, net $ 420,887 $ 852,768
Operating costs and expenses
Advertising and products
Cost of goods sold $ 3,735 $ 25,021
Operating expenses 362,219 359,243
Pharmacies
Cost of goods sold 150,263 -
Operating expenses 153,842 -
Hotel
Hotel operating costs 418,100 -
Operating expenses 71,966 -
Total operating costs and expenses $ 1,160,125 $ 384,264
Income (loss) from operations
Advertising and products $ (349,363 ) $ 468,504
Pharmacies (110,060 ) -
Hotel (279,815 ) -
Income (loss) from operations $ (739,238 ) $ 468,504
Revenue
Revenue was$420,887 in the three months endingJune 30, 2022 , compared to$852,768 in the same period of 2021, a decrease of$431,881 or 51%. The decrease in revenue was mainly due to decreases in direct sales of our nutritional products and advertising revenues as due to COVID-19 restrictions, we were not able to host the types of events at which we market nutritional products, partly offset by revenues from our pharmacies and hotel which we did not own in the second quarter of 2021. For three months ended ofJune 30, 2022 , we had$0 advertising revenue and$210,636 product revenues (of which$16,591 were from direct sales and$194,045 represented sales at our pharmacies), and hotel revenue of$210,251 . For three months endedJune 30, 2021 , we had$802,817 of advertising revenue and$49,951 of product revenue from our direct sales activities and no revenues from our pharmacies and hotel as the acquisitions were not completed until the third quarter of 2021. 27 Operation Costs and Expenses Cost of Goods Sold Cost of goods sold was$153,998 for the three months endedJune 30, 2022 , compared to$25,021 for the three months endedJune 30, 2021 , an increase of$128,977 or 515%. The increase in our cost of goods sold is attributable to pharmacy product sales partly offset by decreased direct product sales. The cost of goods sold for our direct product sales as a percentage of sales was 27% in 2022, compared to 50% for 2021. The cost of goods sold for products sold through our pharmacies as a percentage of pharmacy product sales was 77% in 2022, and no comparable costs were incurred in the three months endedJune 30, 2021 as the acquisition was completed in the third quarter of 2021.Hotel Operating Costs Hotel operating costs were$418,100 for the three months endedJune 30, 2022 . There were no comparable costs in the three months endedJune 30, 2021 as the acquisition was completed in the third quarter of 2021. Operating Expenses
Operating costs and expenses were$588,027 for the three months endedJune 30, 2022 , compared to$359,243 for the same period of 2021, an increase of$228,784 or 64%. The increase in operating expenses was mainly due to the inclusion of the operating expenses of our pharmacies and hotel.
Income (loss) from Operations
Loss from operations was$739,238 in the three months endedJune 30, 2022 , compared to income of$468,504 in the same period of 2021, a decrease of$1,207,742 or 258%. The decrease in our income from operations for 2022 was due to the loss incurred from our direct sales activities and the inclusion of the losses incurred by our pharmacies and hotel. All of our operations and in particular our direct marketing activities were materially adversely impacted by travel and work restrictions and limits on the number of people that might gather in one place, imposed on a temporary basis inChina andChengdu to limit the spread of COVID-19.
Non-operating Income (Expenses)
Non-operating income was$11,442 for the three months endedJune 30, 2022 , compared to non-operating expenses of$3,767 for the three months endedJune 30, 2021 . For the three months endedJune 30, 2022 , we had interest income of$1,284 and other income of$10,221 , partly offset by other expenses of$63 . For the three months endedJune 30, 2021 , we had interest income of$1,271 and other income of$1 , partly offset by other expense$5,039 . Income tax expense Income tax expense was$473 and$218,052 for the three months endedJune 30, 2022 and 2021, respectively, a decrease of$217,579 or 100% for the three months endedJune 30, 2022 compared with the same period of 2021. Net Income (Loss) Our net loss for the three months endedJune 30, 2022 was$728,269 , compared to net income of$246,685 in the same period of 2021, a decrease of$974,954 or 395%. The decrease income in the three months endedJune 30, 2022 was mainly due to decreased sales and increased operating costs and expense as explained above. 28
Six Months ended
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,
2022 2021
$ % of Revenue $ % of Revenue
Revenue $ 839,565 100 % $ 1,550,926 100 %
Operating costs and expenses 2,350,957 280 % 860,252 55 %
Income (loss) from
operations (1,511,392 ) (180 )% 690,674 45 %
Non-operating income
(expenses), net 32,007 4 % (4,235 ) (0.3 )%
Income (loss) before income
tax (1,479,385 ) (176 )% 686,439 44 %
Income tax expense 965 - % 218,052 14 %
Net income (loss) $ (1,480,350 ) (176 )% $ 468,387 30 %
The following table shows our operations by business segment for the six months
ended
For the Six Months Ended June 30,
2022 2021
Net revenue
Advertising and products $ 32,689 $ 1,550,926
Pharmacies 352,939 -
Hotel 453,937 -
Total revenues, net $ 839,565 $ 1,550,926
Operating costs and expenses
Advertising and products
Cost of goods sold $ 8,418 $ 160,680
Operating expenses 660,261 699,572
Pharmacies
Cost of goods sold 270,104 -
Operating expenses 323,151 -
Hotel
Hotel operating costs 929,719 -
Operating expenses 159,304 -
Total operating costs and expenses $ 2,350,957 $ 860,252
(Loss) income from operations
Advertising and products $ (635,990 ) $ 690,674
Pharmacies (240,316 ) -
Hotel (635,086 ) -
(Loss) income from operations $ (1,511,392 ) $ 690,674
Revenue
Revenue was $839,565 in the six months ending June 30, 2022 , compared to
$1,550,926 in the same period of 2021, a decrease of $711,361 or 46%. The
decrease in revenue was mainly due to decreases in direct sales of our
nutritional products and advertising revenues as due to COVID-19 restrictions we
were not able to host the types of events at which we market nutritional
products, which were partly offset by revenues from our pharmacies and hotel
which we did not own in the first half year of 2021. For the six months ended of
June 30, 2022 , we had $0 advertising revenue and $385,628 product revenues (of
which $32,689 were from direct sales and $352,939 represented sales at our
pharmacies), and hotel revenue of $453,937 . For the six months ended June 30,
2021 , we had $1,297,681 of advertising revenue and $253,245 of product revenue
from our direct sales activities and no revenues from our pharmacies and hotel
as the acquisitions were not completed until the third quarter of 2021.
29
Operation Costs and Expenses
Cost of Goods Sold
Cost of goods sold was $278,522 for the six months ended June 30, 2022 , compared
to $160,680 for the six months ended June 30, 2021 , an increase of $117,842 or
73%. The increase in our cost of goods sold is attributable to pharmacy products
sales partly offset by decrease in direct product sales. The cost of goods sold
for our direct product sales as a percentage of sales was 26% in 2022, compared
to 63% for 2021. The cost of goods sold for products sold through our pharmacies
as a percentage of pharmacy product sales was 77% in 2022, and no comparable
costs were incurred in the six months ended June 30, 2021 as the acquisition was
completed in the third quarter of 2021.
Hotel Operating Costs Hotel operating costs were
Operating Expenses
Operating costs and expenses were$1,142,716 for the six months endedJune 30, 2022 , compared to$699,572 for the same period of 2021, an increase of$443,144 or 63%. The increase in operating expenses was mainly due to the inclusion of the operating expenses of our pharmacies and hotel.
Income (loss) from Operations
Loss from operations was$1,511,392 in the six months endedJune 30, 2022 , compared to income of$690,674 in the same period of 2021, a decrease of$2,202,066 or 319%. The decrease in our income from operations for 2022 was due to the loss incurred from our direct sales activities and the inclusion of the losses incurred by our pharmacies and hotel. All of our operations and in particular our direct marketing activities were materially adversely impacted by travel and work restrictions and limits on the number of people that might gather in one place imposed on a temporary basis inChina andChengdu to limit the spread of COVID-19.
Non-operating Income (Expense)
Non-operating income was$32,007 for the six months endedJune 30, 2022 , compared to non-operating expense of$4,235 for the six months endedJune 30, 2021 . For the six months endedJune 30, 2022 , we had interest income of$2,612 and other income of$29,655 , partly offset by other expenses of$260 . For the six months endedJune 30, 2021 , we had interest income of$2,489 and other income of$161 , partly offset by other expenses of$6,885 . Income tax expense
Income tax expense was$965 and$218,052 for the six months endedJune 30, 2022 and 2021, respectively, a decrease of$217,087 or 100% for the six months endedJune 30, 2022 compared with the same period of 2021. Net Income (Loss) Our net loss for the six months endedJune 30, 2022 was$1,480,350 , compared to net income of$468,387 in the same period of 2021, a decrease of$1,948,737 or 416%. The decrease in the six months endedJune 30, 2022 was mainly due to decreased sales and increased operating costs and expense as explained above.
Liquidity and Capital Resources
During the six months ended ofJune 30, 2022 , we used$771,496 in operations. As ofJune 30, 2022 , cash and cash equivalents were$8,129,696 (excluding$61,588 of restricted cash), compared to$8,556,642 (excluding$44,211 of restricted cash) as ofDecember 31, 2021 . AtJune 30, 2022 , we had working capital of$3,602,854 compared to$4,753,390 atDecember 31, 2021 . 30
The following is a summary of cash provided by or used in each of the indicated
types of activities during the six Months ended
June 30, 2022 June 30, 2021
Net cash (used in) provided by operating activities $ (771,496 ) $439,801
Net cash (used in) provided by investing activities $ -$ (4,494,966 ) Net cash (used in) provided by financing activities$ 779,015 $
(444,754 )
Net cash provided by (used in) operating activities
For the six months endedJune 30, 2022 , net cash used in operating activities was$771,496 . This reflects our net loss of$1,480,350 , adjusted by non-cash related expenses including depreciation and amortization expense of$57,219 , the change in deferred tax of$965 , bad debt expense of$47,857 , operating lease expense of$449,445 and stock-based compensation of$185,770 , and then decreased by changes in working capital of$32,402 . The cash outflow from changes in working capital mainly resulted from an increase in accounts receivable of$65,284 , payments of lease liabilities of$418,711 , a change in inventory of$72,168 , unearned revenue of$10,099 and taxes payable of$7,034 , which was partly offset by cash inflow from accrued liability and other payables of$346,883 , other receivable and prepaid expense of$92,619 , accounts payable of$89,349 and advances to suppliers of$12,043 . For the six months endedJune 30, 2021 , net cash provided by operating activities was$439,801 . This was primarily due to our net income of$468,387 , adjusted by non-cash related expenses including depreciation of$10,870 , operating lease expense of$56,253 and stock-based compensation of$185,770 , and then decreased by changes in working capital of$281,479 . The cash outflow from changes in working capital mainly resulted from inventory purchase of$88,863 ; payment of advances to suppliers of$113,556 ; payment of lease liability of$56,253 and tax payments of$47,058 , which was partly offset by cash inflow from accrued liability and other payables of$22,326 and unearned revenue of$2,787 .
Net cash provided by (used in) investing activities
For the six months endedJune 30, 2022 and 2021, net cash used in investing activities was$0 and$4,494,966 , respectively. For the six months endedJune 30, 2021 , net cash used in investing activities was$4,494,966 , mainly for the prepayment for the acquisition of a hotel and pharmacies from our major shareholder.
Net cash provided by (used in) financing activities
For the six months ended
For the six months ended
Of the$8,129,696 in cash and cash equivalents on hand as ofJune 30, 2022 , we anticipate using approximately$7 million to complete the acquisition ofYunnan Runcangsheng. Should we continue to incur operating losses and incur negative cash flow after completing such acquisition, we may have to seek to raise capital. We may also have to raise additional financing as our working capital requirements are expected to increase in line with the growth of our business as a result of our acquisition of Yunnan Runcangsheng. In the past we have funded our operations through the proceeds from private placements of equity and advances from our principal shareholder. Should we require capital to fund our business, we intend to finance our business by raising additional capital or, when available, borrowing additional funds. Additional issuances of equity or convertible debt securities will result in dilution to our current shareholders and could cause the price of our common stock to decrease. Further, such securities might have rights, preferences or privileges senior to our common stock. Additional financing may not be available upon acceptable terms, or at all. If adequate funds are not available or are not available on acceptable terms, we may not be able to take advantage of prospective new business endeavors or opportunities, which could significantly and materially restrict our business operations. Our ability to obtain funds through the issuance of debt or equity is dependent upon the state of the financial markets at such time as we may seek to raise funds. The state of the capital market markets may be adversely impacted by various risks and uncertainties, including, but not limited to future and current impacts of global events such as COVID-19 and the war in theUkraine , increases in inflation and other risks detailed in our 2021 Annual Report on Form 10K. 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, we are not party to long term contracts and 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 other than our agreement to acquire Yunnan Runcangsheng.
31 Contingencies Our 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 rates. Our 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. In particular,China continues to maintain a zero COVID-19 policy which has caused government agencies from time to time to impose strict lockdowns and limits on the number of people that may gather in one place at any time. Certain of these measures have had a material adverse impact on our business and may continue to do so is they are imposed in the future. Our sales, purchases and expense transactions inChina are denominated in RMB and all of our 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
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 inthe 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 withU.S. Generally Accepted Accounting Principles ("US GAAP"). The functional currency of AiXinZhongHong,Aixin Shangyan Hotel and Aixintang Pharmacies is Chinese Renminbi ("RMB"). The accompanying financial statements are translated from RMB and presented inU.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 We 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 ofJune 30, 2022 andDecember 31, 2021 , the bad debt allowance was$249,711 and$213,787 , respectively. 32 Revenue Recognition ASU No. 2014-09, Revenue from Contracts with Customers ("Topic 606"), became effective for us onJanuary 1, 2018 . Our revenue recognition disclosure reflects updated accounting policies that are affected by this new standard. We 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 we have no significant post-delivery obligations, this did not result in a material recognition of revenue on the accompanying consolidated financial statements for the cumulative impact of applying this new standard. We made no adjustments to previously-reported total revenues, as those periods continue to be presented in accordance with our 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 our products and services to customers in return for expected consideration and includes the following elements:
? executed contract(s) with customers that we believe are 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 we satisfy each performance obligation.
Our revenue recognition policies for our operating segments are as follows:
Advertising and Products Advertising Revenue Commencing in the third quarter of 2019 we began to provide advertising services to our clients. Advertising contracts are signed to establish the price and advertising services to be provided. Pursuant to the advertising contracts, we provided advertising and marketing services to clients through exhibition events, conferences, and person-to-person marketing. We perform a credit assessment of each customer to assess the collectability of the contract price prior to entering into contracts. Most of the advertisement contracts designated that we perform advertising services for the client through exhibition events, conferences, and person-to-person marketing during the contracted period, regardless of the number of such events. As such, we determined that the performance obligation is satisfied over time during the contracted period and revenue is recognized accordingly. Such advertising revenue amounted to$0 and$802,817 for the three months endedJune 30, 2022 and 2021, respectively. Such advertising revenue amounted to$0 and$1,297,681 for the six months endedJune 30, 2022 and 2021, respectively.
A smaller proportion of our advertising revenue is generated from services to clients through exhibition events, conferences, and person-to-person marketing, and our compensation is based on the number of products sold. Such advertising revenue amounted to$0 and$0 for the three and six months endedJune 30, 2022 and 2021, respectively.
All of the advertising revenue is subject to the PRC VAT of 6%. This VAT may be
offset by VAT paid by us for raw materials and other materials purchased in
Products Revenue
Our revenue from sales of products is recognized when goods are delivered to the
customer and no other obligation exists. We do not provide unconditional return
or other concessions to customers. Our sales policy allows for the return of
unopened products for cash after deducting certain service and transaction fees.
As an alternative to returning a product, customers may request an exchange for
products with the same value.
33
Product sales revenue represents the invoiced value of goods, net of value-added
taxes ("VAT"). All of our 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 for raw materials and
other materials purchased in China . We record VAT payables and VAT receivables
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 we act as an agent for the government.
Pharmacies
Our retail drugstores 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. We
generally receive payment from pharmacy customers we satisfy our performance
obligations. We record a receivable when we have 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 the
products sold in our pharmacies are exempt from VAT as the pharmacies qualify
for a small business exemption.
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 reservations. Each of these products and
services represents a distinct performance obligation and, in exchange for these
services, we receive 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 on raw materials and other materials purchased in China .
Foreign Currency Translation and Comprehensive Income (Loss)
The functional currency of our business operations 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 the three and six months endedJune 30, 2022 and 2021 consisted of net loss and foreign currency translation adjustments.
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