Annual Report for Fiscal Year Ending DECEMBER 31, 2024 (Form 10-K)

Item 7

Management's Discussion And Analysis Of Financial Condition And Results Of Operations.

The following discussion should be read in conjunction with our consolidated audited financial statements and related notes thereto and other financial information appearing elsewhere in this report. In addition to historical information, the following discussion contains forward-looking statements. Where possible, we have tried to identify these forward-looking statements by using words such as "anticipate," "believe," "intends," or similar expressions. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot assure you that these expectations will prove to be correct. As a result of many factors, including those factors set forth in the "Risk Factors" section of this report, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in this report.

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.

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 a hotel located in the Jinniu District, Chengdu City, by acquiring the entity which operated the hotel. Effective March 31, 2024, we terminated our lease for this 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-level 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.

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.

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.

Weincurred a net loss of $2,768,341 and net cash outflow from operating activities of $1,628,834 for the year ended December 31, 2024, and has a working capital deficit of $6,021,163 as of December 31, 2024. These facts and conditions raise substantial doubt about ourability to continue as a going concern. From January 1, 2024 through December 31, 2024, ourcash and cash equivalents decreased from $443,758 to $62,310 mainly due to an increase in cash outflow from operating activities.

Webelieve that we havedeveloped a liquidity plan, summarized below, that, if executed successfully, should provide sufficient liquidity to meet ourobligations as they become due for a reasonable period of time, and allow the development of ourcore 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 ourmanagement believes that the measures in liquidity plan including those described above will be adequate to satisfy its liquidity requirements for the twelve months after the date of the financial statements contained in this Report 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 ourbusiness, results of operations and financial position, and may adversely affect ourability to continue as a going concern. The consolidated financial statements included in this Report 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.

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

Years ended December 31, 2024 and 2023

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

		Years Ended December 31,
		2024								2023
		$				% of Revenue				$				% of Revenue
Revenue		$	3,824,301				100	%		$	4,089,799				100	%
Operating costs and expenses			6,412,492				168	%			6,588,606				161	%
Loss from operations			(2,588,191	)			(68	)%			(2,498,807	)			(61	)%
Non-operating income (expense), net			(179,622	)			(4.7	)%			427,632				10	%
Loss before income tax			(2,767,813	)			(72	)%			(2,071,175	)			(51	)%
Income tax expense			528				-	%			19,519				0.5	%
Net loss		$	(2,768,341	)			(72	)%		$	(2,090,694	)			(51	)%

The following table shows the Company's operations by business segment for the years ended December 31, 2024 and 2023.

		For the Years Ended December 31,
		2024				2023
Net revenue
Direct Sales		$	504,097			$	1,159,134
Pharmacy			822,958				937,655
Hotel			585,634				1,194,829
Manufacture and sale			1,911,612				798,181
Total revenues, net		$	3,824,301			$	4,089,799
Operating costs and expenses
Direct Sales
Cost of sales		$	173,950			$	393,862
Operating expenses			1,815,052				1,790,747
Pharmacy
Cost of sales			262,276				531,890
Operating expenses			366,707				455,906
Hotel
Hotel operating costs			1,447,599				1,811,065
Operating expenses			272,153				192,963
Manufacture and sale
Cost of sales			1,331,138				688,198
Operating expenses			743,617				723,975
Total operating costs and expenses		$	6,412,492			$	6,588,606
Income (loss) from operations
Direct Sales		$	(1,484,905	)		$	(1,025,475	)
Pharmacy			193,975				(50,141	)
Hotel			(1,134,118	)			(809,199	)
Manufacture and sale			(163,144	)			(613,992	)
Loss from operations		$	(2,588,191	)		$	(2,498,807	)

Revenue

Revenue was $3,824,301 in the year ended December 31, 2024, compared to $4,089,799 in 2023, a decrease of $265,498 or 6%. The decrease in revenue was 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 year ended December 31, 2024, we had $3,238,668 in product revenues a year over year increase of $343,698 from 2023 in which product revenues were $2,894,970. Of our product revenues in 2024, $504,097 were from direct sales, a year over year decrease of $655,037 or 57% from 2023, $822,958 were from sales at our pharmacies, a year over year decrease of $114,697 or 12% from 2023, and $1,911,612 from sales by Runcangsheng, a year over year increase of $1,113,432 or 139% from 2023. In 2024, we had hotel revenue of $585,634, a year over year decrease of $609,195 or 51% from 2023.

Direct Sales

Our direct sales revenue as a percentage of our total revenue was 13% for 2024, compared to 28% for 2023. The decrease in direct sales 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.

Pharmacy

Our pharmacy revenue as a percentage of our total revenue was 22% for 2024, compared to 23% for 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 as a percentage of our total revenue was 15% for 2024, compared to 29% for 2023. The decrease in revenue was primarily due to the downtime as we relocating to our new hotel and the time needed to complete leasehold improvements before opening at our new location.

Runcangsheng

Runcangsheng's revenue represented 50% of our revenues for 2024, compared to 20% for 2023. The increase in Runcangsheng's sales was mainly driven by the addition of new salespeople and increased marketing activities, including participation in more tradeshows, which raised our visibility and consequently boosted sales; and attendance by more vendors, including corporate and significant sole propriators at our shows, which expanded our customer base.

Operating Costs and Expenses

Cost of Sales

Cost of sales was $1,767,364 for the year ended December 31, 2024, compared to $1,613,950 for 2023, an increase of $153,414 or 10%. The increase in cost of sales was attributable to the increase in product revenues at Runcangsheng partly offset by decreased sales from our direct sales and pharmacy segments.

Direct sales

The cost of sales for our direct sales was $173,950 for 2024, compared with $393,862 for 2023, representing a decrease of $219,912 or 56%. The cost of sales for direct sales as a percentage of sales was 35% for the year ended December 31, 2024, compared to 34% for 2023. The decrease in cost of sales was primarily driven by the decrease of sales.

Pharmacy

The cost of sales at our pharmacies was $262,276 for 2024, compared with $531,890 for 2023, representing a decrease of $269,614 or 51%. The cost of sales at our pharmacies as a percentage of pharmacy product sales was 32% for the year ended December 31, 2024, compared to 57% for the same period of 2023. The decrease in cost of sales 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 sales for Runcangsheng was $1,331,138 for 2024, compared with $688,198 for 2023, representing an increase of $642,940 or 93%. The cost of sales as a percentage of sales by Runcangsheng was 70% for 2024, compared to 86% for 2023. The primary reason for the increase in cost of sales was the significant increase of sales.

Hotel Operating Costs

Hotel operating costs were $1,447,599 and $1,811,065 for 2024 and 2023, respectively, representing a decrease of $363,466 or 20%. For 2024, our hotel revenue significantly decreased compared to 2023. However, due to the fixed operating costs, our overall expenses did not decrease substantially.

Operating Expenses

Operating expenses were $3,197,529 for 2024, compared to $3,163,591 for 2023, an increase of $33,938 or 1%. The increase in operating expenses was mainly due to the increase in R&D expenses of $125,430, an increase in professional fees by $157,811, and an increase in employee welfare by $6,635, which were partly offset by decreased rent expense of $138,191, decreased vehicle expense of $94,735 and decreased business entertainment expense of $22,701.

Loss from Operations

Loss from operations was $2,588,191 in the year ended December 31, 2024, compared to $2,498,807 in 2023, an increase of $89,384 or 4%. The increase in our loss from operations for 2024 was due to the increased in our hotel segment of approximately $324,919 and the increased in the loss in our direct sales segment of $459,430, partially offset by a decreased loss at Runcangsheng and the generation of an operating profit in pharmacy segment.

Non-operating Income (Loss)

Non-operating loss was $179,622 for the year ended December 31, 2024, compared to non-operating income of $427,632 for 2023. In 2024, we had interest expense of $76,613 and other expenses of $103,009. In 2023, we had interest income of $838 and other income $438,348, partly offset by other expenses of $11,554. For 2023, other income mainly consisted of a government grant of $369,857.

Income Tax Expense

Income tax expense was $528 and $19,519 for the years ended December 31, 2024 and 2023, respectively, a year over year decrease of $18,991 or 97%.

Net Loss

Our net loss for the year ended December 31, 2024 was $2,768,341, compared to a net loss of $2,090,694 for 2023, an increase of $677,647 or 32%. The increase in our net loss was mainly due to decreased sales and decreased other income, and the increase in our net loss attributable to our hotel where the operating loss increased by $324,919 due to down time incurred by moving to a new location and additional costs and expenses incurred for hotel improvements and renovations before opening.

Liquidity, Capital Resources

During the year ended December 31, 2024, we used $1,628,834 in operations. As of December 31, 2024, cash and cash equivalents were $62,310, compared to $443,758 (excluding $23,208 of restricted cash) as of December 31, 2023. At December 31, 2024, we had a working capital deficit of $6,021,163.

The following is a summary of cash provided by or used in each of the indicated types of activities during the years ended December 31, 2024 and 2023, respectively.

		December 31, 2024				December 31, 2023
Net cash used in operating activities		$	(1,628,834	)		$	(1,392,259	)
Net cash used in investing activities		$	(195,235	)		$	(302,838	)
Net cash provided by financing activities		$	1,426,442			$	1,560,466

Net cash used in operating activities

For the year ended December 31, 2024, net cash used in operating activities was $1,628,834. This reflects our net loss of $2,768,341, adjusted by non-cash related expenses including depreciation and amortization expense of $321,282, a bad debt reversal of $22,415, an inventory impairment of $12,229, operating lease expenses of $542,675, a loss on disposal of fixed assets of $63,105, interest income of $24,867 and stock-based compensation of $301,127, and then decreased by a net change in working capital of $53,629. The cash outflow from changes in working capital items mainly resulted from an increase in accounts receivables from related parties of $431,703, an increase in inventory of $88,249, a decrease in unearned revenue of $40,971, and payments of lease liabilities of $403,837, partly offset by cash inflows from accounts receivable of $226,110, a reduction in from advances to suppliers of $112,748, a reduction in security deposits of $79,274, cash inflow from other receivables and prepaid expense of $38,729, increases in accrued liabilities and other payables of $28,304,an increase in taxes payable of $22,730, and an increase in accounts payable (including accounts payable to related parties) of $403,236.

For the year ended December 31, 2023, net cash used in operating activities was $1,392,259. This reflects our net loss of $2,090,694, adjusted by non-cash related expenses including depreciation and amortization expense of $410,690, a change in deferred tax of $15,152, a bad debt reversal of $47,762, an inventory impairment of $7,770, operating lease expenses of $817,179, government grant income of $369,857 and stock-based compensation of $371,540, and then decreased by changes in working capital of $506,639. The cash outflow from changes in working capital mainly resulted from increases in other receivables and prepaid expense, including related party receivables of $11,649, in accounts payable from related party of $159,843, in accrued liabilities and other payables of $161,393, in taxes payable of $52,010 and payments of lease liabilities of $779,599, partly offset by cash inflows from accounts receivable, including from related parties in the amount of $477,951, cash inflows from advances to suppliers of $133,513, cash inflows from inventory of $36,240, cash inflows from accounts payable of $93,682, and cash inflow from unearned revenue of $37,275.

Net cash used in investing activities

For the years ended December 31, 2024 and 2023, net cash used in investing activities was $195,235 and $302,838, respectively. For 2024, net cash used in investing activities included $241,661 for the purchase of fixed assets, a $2,779 purchase of an intangible asset which was partly offset by cash received on disposal of fixed assets of $24,338 and repayment of loans to third party of $24,867. For 2023, net cash used in investing activities was $302,838 including $295,487 for the purchase of fixed assets, $4,032 for the purchase of intangible assets, and $3,319 cash disposed of upon the termination of a non-operating subsidiary.

Net cash provided by financing activities

For the years ended December 31, 2024 and 2023, net cash used in financing activities was $1,426,442 and $1,560,466, respectively. For the year ended December 31, 2024, net cash provided by financing activities was the result of proceeds from advances from related parties of $2,347,095, which was partly offset by repayments of loans due related parties of $753,991 and repayment of a government grant of $166,662. For the year ended December 31, 2023, net cash provided by financing activities were the result of capital contributions of $142,200, proceeds from a government grant of $369,857, and proceeds from advances from related parties of $1,048,409.

Runcangsheng generated a $1,542,516 loss for the year ended December 31, 2024. It is likely that Runcangsheng will require additional capital to achieve its short-term operational goals and long-range business plans. Further, we may need additional capital to maintain our other businesses. 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. In the past we have funded our operations through 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.

We are subject to all of the substantial risks inherent in the development of a new business enterprise within an extremely competitive industry. Due to the absence of a long-standing operating history and the emerging nature of the markets in which we compete, we anticipate operating losses until we can successfully implement our business strategy. Our revenue model is new and evolving, and we cannot be certain that it will be successful. The potential profitability of our business model is unproven. We may never achieve profitable operations. Our future operating results depend on many factors, including demand for our products, the level of competition, and the ability of our officers to manage our business and growth. As a result of the emerging nature of the market in which we compete, we may incur operating losses until such time as we can develop a substantial and stable revenue base. Additional development expenses may delay or negatively impact our ability to generate profits. Accordingly, we cannot assure you that our business model will be successful or that we can sustain revenue growth, achieve or sustain profitability, or continue as a going concern.

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 pandemics, the war in the Ukraine, the conflict in Palestine, shifts in international alliances and actions by certain governments, such as the imposition of tariffs, and the responses of other governments thereto, increases in inflation and other risks detailed herein.

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 leases that are disclosed in the notes to our consolidated financial statements.

Contingencies

Our 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 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.

Our sales, purchases and expense transactions in China are denominated in RMB and all of our 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.

Significant Accounting Policies

Our management's discussion and analysis of our financial condition and results of operations is 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 US GAAP. The functional currency of AiXinZhongHong, Aixin Shangyan Hotel, Aixintang Pharmacies, Runcangsheng and the entities owned by each of them is the 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

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 of December 31, 2024 and 2023, the bad debt allowance was $52,669 and $80,640, respectively.

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:

Direct Sales

Our revenue from direct 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.

Direct 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 13% of the gross sales price 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.

Pharmacy

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. The products sold in our pharmacies are subject to the VAT of 0%-13% as certain pharmacies qualify for small business exemption.

Runcangsheng

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 the 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 VAT. All of the Company's products sold in China are subject to the PRC VAT of 13% unless it is a qualified small business subject to 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.

Item 7A

Quantitative And Qualitative Disclosures About Market Risk.

This item does not apply to smaller reporting companies.