ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Index to the Consolidated Financial Statements
Page
F-17
|
Report of Independent Registered Public Accounting Firm
|
|
|
F-18
|
Consolidated Balance Sheets as of March 31, 2017 and 2016.
|
|
|
F-20
|
Consolidated Statements of Operations and Comprehensive Income (Loss) for the Years Ended March 31, 2017 and 2016.
|
|
|
F-22
|
Consolidated Statement of Changes in Stockholders’ Equity for the Years Ended March 31, 2017 and 2016.
|
|
|
F-24
|
Consolidated Statements of Cash Flows for the Years Ended March 31, 2017 and 2016.
|
|
|
F-26 to F-46
|
Notes to Consolidated Financial Statements.
|
WINHA INTERNATIONAL GROUP LIMITED AND SUBSIDIARIES
ASSETS
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
-
|
|
|
$
|
21,548,630
|
|
Accounts receivable
|
|
|
-
|
|
|
|
1,417,860
|
|
Inventory
|
|
|
-
|
|
|
|
1,523,959
|
|
Advances to suppliers
|
|
|
-
|
|
|
|
151,230
|
|
Prepaid expenses
|
|
|
-
|
|
|
|
174,010
|
|
Deferred tax assets
|
|
|
-
|
|
|
|
32,810
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
-
|
|
|
|
24,848,499
|
|
|
|
|
|
|
|
|
|
|
Equity investment
|
|
|
13,042,386
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
-
|
|
|
|
1,847,977
|
|
|
|
|
|
|
|
|
|
|
Website - net
|
|
|
-
|
|
|
|
45,676
|
|
|
|
|
|
|
|
|
|
|
Deferred registration cost
|
|
|
-
|
|
|
|
212,312
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
13,042,386
|
|
|
$
|
26,954,464
|
|
See accompanying notes to the consolidated financial statements.
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
57,045
|
|
|
$
|
208,866
|
|
Convertible debt
|
|
|
-
|
|
|
|
5,435,466
|
|
Advances from customers
|
|
|
-
|
|
|
|
769,814
|
|
Taxes payable
|
|
|
-
|
|
|
|
1,683,909
|
|
Accrued expenses
|
|
|
30,000
|
|
|
|
246
,
387
|
|
Loan from stockholder
|
|
|
118,680
|
|
|
|
477,199
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
205,725
|
|
|
|
8,821,641
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingent liabilities
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value per share, 200,000,000 shares authorized; 49,989,500 shares issued and outstanding as of March 31, 2017 and 2016
|
|
|
49,990
|
|
|
|
49,990
|
|
Additional paid-in
capital
|
|
|
16,021,164
|
|
|
|
21,626,775
|
|
Statutory reserve
|
|
|
-
|
|
|
|
497,443
|
|
Retained earnings (deficit)
|
|
|
(3,235,951
|
)
|
|
|
(11,096
,
421
|
)
|
Other comprehensive income (loss)
|
|
|
1,458
|
|
|
|
(230,584
|
)
|
|
|
|
|
|
|
|
|
|
Sub total
|
|
|
12,836
,
661
|
|
|
|
10,847,203
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling interests
|
|
|
-
|
|
|
|
7,285,620
|
|
|
|
|
|
|
|
|
|
|
Total stockholders’ equity
|
|
|
12,836
,
661
|
|
|
|
18,132,823
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
$
|
13,042,386
|
|
|
$
|
26,954,464
|
|
See accompanying notes to the consolidated financial statements.
|
|
Year Ended
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
45,470,149
|
|
|
$
|
42,442,485
|
|
Cost of goods sold
|
|
|
24,529,336
|
|
|
|
19,992,753
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
20,940,813
|
|
|
|
22,449,732
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Selling and marketing
|
|
|
1,440,856
|
|
|
|
2,492,594
|
|
General and administrative
|
|
|
2,117,895
|
|
|
|
23,605,484
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
3,558,751
|
|
|
|
26,098,078
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
17,382,062
|
|
|
|
(3,648,346
|
)
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
Other income
|
|
|
5,212
|
|
|
|
25,256
|
|
Other (expenses)
|
|
|
(458,280
|
)
|
|
|
(99,755
|
)
|
Deconsolidation (loss)
|
|
|
(4,431,367
|
)
|
|
|
-
|
|
Investment (loss)
|
|
|
(103,635
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total other (expense)
|
|
|
(4
,
988,070
|
)
|
|
|
(74,499
|
)
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision for income taxes
|
|
|
12
,
393
,
992
|
|
|
|
(3,722,845
|
)
|
Provision for income taxes
|
|
|
4,477,314
|
|
|
|
4,542,327
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) before noncontrolling interests
|
|
|
7,916,678
|
|
|
|
(8,265,172
|
)
|
Noncontrolling interests
|
|
|
5,030,472
|
|
|
|
3,039,948
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common stockholders
|
|
$
|
2,886,206
|
|
|
$
|
(11,305,120
|
)
|
See accompanying notes to the consolidated financial statements.
|
|
Year Ended
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Net income (loss) per common share, basic and diluted
|
|
$
|
0.0
6
|
|
|
$
|
(0.23
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding, basic and diluted
|
|
|
49,989,500
|
|
|
|
49,989,500
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
7,916,678
|
|
|
|
(8,265,172
|
)
|
Foreign currency translation adjustment
|
|
|
(1,497,395
|
)
|
|
|
(414,183
|
)
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
|
6
,
419
,
283
|
|
|
|
(8,679,355
|
)
|
Comprehensive income attributable to noncontrolling interests
|
|
|
4,429,826
|
|
|
|
2,873,992
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) attributable to common stockholders
|
|
$
|
1
,
989,457
|
|
|
$
|
(11,553,347
|
)
|
See accompanying notes to the consolidated financial statements.
See accompanying notes to the consolidated financial statements
|
|
Common
Stock
|
|
|
Additional
Paid-in
Capital
|
|
|
Retained
Earnings
(Deficit)
|
|
|
Other
Comprehensive Income
|
|
|
Statutory
Reserve
Fund
|
|
|
Non-
controlling
Interests
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2016
|
|
$
|
49,990
|
|
|
$
|
21,626,775
|
|
|
$
|
(11,096,421
|
)
|
|
$
|
(230,584
|
)
|
|
$
|
497,443
|
|
|
$
|
7,285,620
|
|
|
$
|
18,132,823
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
-
|
|
|
|
-
|
|
|
|
2,886,206
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,030,472
|
|
|
|
7,916,678
|
|
Appropriation of statutory reserve
|
|
|
-
|
|
|
|
-
|
|
|
|
(
329,937
|
)
|
|
|
-
|
|
|
|
329,937
|
|
|
|
-
|
|
|
|
-
|
|
Elimination due to deconsolidation
|
|
|
-
|
|
|
|
(5,605,611
|
)
|
|
|
5,304,201
|
|
|
|
1,128,79
0
|
|
|
|
(827,380
|
)
|
|
|
(11,715,445
|
)
|
|
|
(11,715,445
|
)
|
Other comprehensive (loss)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(
896
,
748
|
)
|
|
|
-
|
|
|
|
(600,647
|
)
|
|
|
(1,497,395
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2017
|
|
$
|
49,990
|
|
|
$
|
16,021,164
|
|
|
$
|
(3,235,951
|
)
|
|
$
|
1,458
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
12,836
,
661
|
|
See accompanying notes to the consolidated financial statements.
|
|
Years Ended
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
7,916,678
|
|
|
$
|
(8,265,172
|
)
|
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
Deconsolidation loss
|
|
|
4,431,367
|
|
|
|
-
|
|
Investment loss
|
|
|
103,635
|
|
|
|
-
|
|
Write off deferred registration costs
|
|
|
153,844
|
|
|
|
-
|
|
Write off website
|
|
|
34,140
|
|
|
|
-
|
|
Deferred taxes
|
|
|
30,835
|
|
|
|
(32,810
|
)
|
Depreciation and amortization
|
|
|
304,324
|
|
|
|
203,564
|
|
Stock
compensation
|
|
|
-
|
|
|
|
21,882,816
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
(Increase) in accounts receivable
|
|
|
(6,958,589
|
)
|
|
|
(171,660
|
)
|
Decrease in inventories
|
|
|
872,509
|
|
|
|
1,097,696
|
|
Decrease in advances to suppliers
|
|
|
55,523
|
|
|
|
72,799
|
|
(Increase) in prepaid expenses
|
|
|
(5,799,085
|
)
|
|
|
(28,486
|
)
|
(Decrease) in accounts payable
|
|
|
(3,374
|
)
|
|
|
(96,679
|
)
|
(Decrease) increase in advances from customers
|
|
|
(668,436
|
)
|
|
|
37,602
|
|
Increase in taxes payable
|
|
|
502,960
|
|
|
|
1,203,370
|
|
Increase in accrued expenses
|
|
|
88,226
|
|
|
|
180,360
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
1
,0
64
,
557
|
|
|
|
16,083,400
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Acquisition of subsidiary
|
|
|
-
|
|
|
|
(1,550
|
)
|
Payments for website expansion
|
|
|
-
|
|
|
|
(10,234
|
)
|
Purchase of investment
|
|
|
(720,800
|
)
|
|
|
-
|
|
Purchase of
fixed assets
|
|
|
(9,623,726
|
)
|
|
|
(1,705,551
|
)
|
Deconsolidation of cash
|
|
|
(13,258,063
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) investing activities
|
|
|
(23,602,589
|
)
|
|
|
(1,717,335
|
)
|
See accompanying notes to the consolidated financial statements.
|
|
Years Ended
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
Proceeds from convertible debt
|
|
|
-
|
|
|
|
5,537,359
|
|
Repayment of redeemable convertible notes
|
|
|
(5,107,995
|
)
|
|
|
-
|
|
Advance proceeds for sale of subsidiary's stock
|
|
|
6,123,137
|
|
|
|
-
|
|
Additional capital contribution
|
|
|
-
|
|
|
|
816,001
|
|
Proceeds from stockholder loan-net
|
|
|
1,260,804
|
|
|
|
404,971
|
|
Deferred registration costs
|
|
|
-
|
|
|
|
(212,312
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
2,275,946
|
|
|
|
6,546,019
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
|
|
(1,286,544
|
)
|
|
|
(467,180
|
)
|
|
|
|
|
|
|
|
|
|
Net change in cash
|
|
|
(21,548,630
|
)
|
|
|
20,444,904
|
|
Cash, beginning of year
|
|
|
21,548,630
|
|
|
|
1,103,726
|
|
|
|
|
|
|
|
|
|
|
Cash, end of year
|
|
$
|
-
|
|
|
$
|
21,548,630
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
191,844
|
|
|
$
|
-
|
|
Cash paid for income taxes
|
|
$
|
3,911,672
|
|
|
$
|
3,568,799
|
|
Noncash financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment of accrued expenses and other payables by shareholder
in the form of a loan
|
|
$
|
363,115
|
|
|
$
|
41,328
|
|
|
|
|
|
|
|
|
|
|
Property, equipment, construction in process transferred from prepayment
|
|
$
|
1,051,888
|
|
|
$
|
-
|
|
See accompanying notes to the consolidated financial statements.
WINHA INTERNATIONAL GROUP LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2017 AND 2016 (IN U.S. $)
1.
ORGANIZATION AND BUSINESS
Winha International Group Limited (“Winha International”) was incorporated in Nevada on April 15, 2013. The subsidiaries of the Company and their principal activities are described as follows:
Winha International and its subsidiaries are collectively referred to as the “Company”. The Company retails local specialty products, including locally-produced food, beverages, and arts and crafts, from different regions across China through its subsidiaries. The Company will provide customers with access to a variety of local products that can typically only be found in local stores or markets in specific regions of China.
Initially, the Company operated its business through a variable interest entity, Zhongshan Winha Electronic Commerce Company Limited (“Zhongshan Winha”) which has two wholly owned limited liability subsidiaries, Zhongshan Supermarket Limited (“Zhongshan Supermarket”) and Zhongshan Winha Catering Management Co., Ltd. (“Winha Catering”), as well as three incorporated branches. The Company had the controlling interest in Zhongshan Winha via its wholly owned subsidiary Shenzhen Winha Information Technologies Company Ltd. (“Shenzhen Winha”) through a series of contractual arrangements. On November 27, 2015, the shareholders of Zhongshan Winha transferred their stock to Shenzhen Winha, upon the exercise of its option to purchase all of the registered equity. Zhongshan Winha is now a wholly owned subsidiary of Shenzhen Winha. The purchase price was $0.16.
In May 2015, C&V International Company Limited, a wholly owned subsidiary of Winha International, set up a wholly owned subsidiary, Australia Winha Commerce and Trade Limited (“Australian Winha”), which has been inactive since inception.
In March 2016, 29% of the outstanding shares of Australian Winha were transferred to the following individuals and entities, each of which has a direct or indirect relationship with the major shareholder and consultants of the Company.
|
|
Percentage
of Shares
|
|
|
|
|
|
Zhuowei Zhong
|
|
|
7
|
%
|
Beijing Ruihua Future Investment Management Co. Ltd.
|
|
|
5
|
%
|
Donghe Group Limited
|
|
|
5
|
%
|
Xinxi Zhong.
|
|
|
5
|
%
|
Zhifei Huang
|
|
|
4
|
%
|
Chun Yan Winne Lam
|
|
|
3
|
%
|
|
|
|
|
|
Total
|
|
|
29
|
%
|
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2017 AND 2016 (IN U.S. $)
1. ORGANIZATION AND BUSINESS (CONTINUED)
In addition, 11 individuals, who were suppliers to Zhongshan Winha, were each sold 1% of Australian Winha shares for $0.0001 per share.
The effect of these transactions was to reduce the interest of the Company in its Australian subsidiary by 40%. The Company used the Australian Winha offering price for its initial public offering in Australia to approximate the fair value of the 40% stock issued. The Company recognized stock compensation of $21,882,816 during the year ended March 31, 2016 in general and administrative expenses.
On January 4, 2017, the Company’s 60% owned subsidiary, Australian Winha, was admitted to the ASX Limited Exchange in Australia and there were 24,271,191 ordinary shares issued at an issue price of AUD$0.35 per share to yield net proceeds of AUD$8,494,917 (approximately USD$6,123,000). As a result of the offering, the Company’s 60% ownership of Australian Winha was diluted to 44.87%. Because the Company’s ownership of Australia Winha is less than 50%, the Company is required to deconsolidate Australia Winha and recognize its share of the earnings (loss) reported by Australian Winha on the equity basis of accounting (See notes 2 and 5).
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting and Presentation
The accompanying consolidated financial statements of the Company have been prepared on the accrual basis.
Until November 27, 2015, the consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries and its VIE for which it was deemed the primary beneficiary. On November 27, 2015, the VIE structure was terminated upon Shenzhen Winha exercising its option to purchase all of the registered equity of Zhongshan Winha. Shenzhen Winha became the sole owner of Zhongshan Winha. All significant inter-company accounts and transactions have been eliminated in consolidation.
All consolidated financial statements and notes to the consolidated financial statements are presented in United States dollars (“US Dollar” or “US$” or “$”). Most of the accompanying notes to these financial statements relate to the operations of Australia Winha and subsidiaries for the period through January 3, 2017, when the reduction of the Company’s interest in Australian Winha below 50% required the deconsolidation of Australian Winha from the Company’s financial statements.
WINHA INTERNATIONAL GROUP LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2017 AND 2016 (IN U.S. $)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Deconsolidation of Australian Winha and Equity Method on Investment
On January 4, 2017, the Company’s 60% owned subsidiary, Australian Winha issued 24,271,191 ordinary shares in connection with its public offering in Australia. After the offering, the Company’s 60% ownership of Australian Winha was diluted to 44.87%. In our financial statements, we consolidated Australian Winha until January 3, 2017. Since January 4, 2017, Winha International accounts for its investment in Australian Winha as an equity method investment.
Winha International recognized a $4,431,367 loss associated with the deconsolidation. As of January 3, 2017, Australian Winha represented total assets of $39,611,043 and total liabilities of $10,322,431. For the 2017 period prior to the deconsolidation, Australian Winha earned revenues $45,470,149, net income attributable to Winha International totaled $7,215,770, cash inflow from operating activities totaled $1,208,793, cash outflow from investing activities totaled $10,344,526, and cash inflow from financing activities totaled $2,275,946.
Foreign Currency Translation
Almost all Company assets and operations are located in the PRC. The functional currency for the majority of the Company’s operations is the Renminbi (“RMB”). For Winha International Investment Holdings Company, the functional currency for the majority of its operations is the Hong Kong Dollar (“HKD”). For Australian Winha, the functional currency is the Australian Dollar (“AUD”). The Company uses the United States Dollar (“US Dollar” or “US$” or “$”) for financial reporting purposes. The financial statements of the Company have been translated into US dollars in accordance with FASB ASC 830, “Foreign Currency Matters.”
All asset and liability accounts have been translated using the exchange rate in effect at the balance sheet date. Equity accounts have been translated at their historical exchange rates when the capital transactions occurred. Statements of operations, changes in stockholders’ equity and cash flow amounts have been translated using the average exchange rate for the periods presented. Adjustments resulting from the translation of the Company’s financial statements are recorded as other comprehensive income (loss).
The exchange rates used to translate amounts in RMB into US dollars for the purposes of preparing the financial statements are as follows:
WINHA INTERNATIONAL GROUP LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2017 AND 2016 (IN U.S. $)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Foreign Currency Translation (continued)
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|
March 31,
2017
|
|
|
March 31,
2016
|
|
Balance sheet items, except for stockholders’ equity, as of period end
|
|
|
N/A
|
|
|
$
|
0.1550
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
March 31,
2017
|
|
|
Year Ended
March 31,
2016
|
|
Amounts included in the statements of operations, statements of changes in stockholders’ equity and statements of cash flows
|
|
$
|
0.1486
|
|
|
$
|
0.1579
|
|
The exchange rates used to translate amounts in AUD into US dollars for the purposes of preparing the consolidated financial statements are as follows:
|
|
March 31,
2017
|
|
|
March 31,
2016
|
|
Balance sheet items, except for stockholders’ equity, as of period end
|
|
$
|
0.7644
|
|
|
$
|
0.7668
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
March 31,
2017
|
|
|
Year Ended
March 31,
2016
|
|
Amounts included in the statements of operations, statements of changes in stockholders’ equity and statements of cash flows
|
|
$
|
0.7532
|
|
|
$
|
0.7361
|
|
For the years ended March 31, 2017 and 2016, foreign currency translation adjustments of $(1,497,395) and $(414,183), respectively, have been reported as other comprehensive (loss). Pursuant to ASC 740-30-25-17, “Exceptions to Comprehensive Recognition of Deferred Income Taxes,” the Company does not recognize deferred U.S. taxes related to the undistributed earnings of its foreign subsidiaries and, accordingly, recognizes no income tax expense or benefit from foreign currency translation adjustments.
Although government regulations in China now allow convertibility of the RMB for current account transactions, significant restrictions still remain. Hence, such translations should not be construed as representations that the RMB could be converted into US dollars at that rate or any other rate.
WINHA INTERNATIONAL GROUP LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2017 AND 2016 (IN U.S. $)
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Foreign Currency Translation (continued)
The value of the RMB against the US dollar and other currencies may fluctuate and is affected by, among other things, changes in the PRC’s political and economic conditions. Any significant revaluation of the RMB may materially affect the Company’s financial condition in terms of US dollar reporting. The PRC has devalued the RMB by approximately 1% subsequent to March 31, 2017. Further devaluations could occur in the future.
Vulnerability Due to Operations in PRC
The Company’s operations may be adversely affected by significant political, economic and social uncertainties in the PRC. Although the PRC government has been pursuing economic reform policies for more than twenty years, no assurance can be given that the PRC government will continue to pursue such policies or that such policies may not be significantly altered, especially in the event of a change in leadership, social or political disruption or unforeseen circumstances affecting the PRC’s political, economic and social conditions. There is also no guarantee that the PRC government’s pursuit of economic reforms will be consistent, effective or continue.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
Prepaid Expenses
Prepaid expenses as of March 31, 2016 mainly represent the prepayments of approximately $174,000 for prepaid decoration expenses of the Company’s new stores.
Advances from Customers
Advances from customers represents prepaid cards purchased by customers at our retail locations. Advances from customers was $769,814 as of March 31, 2016. These cards are no longer being issued.
WINHA INTERNATIONAL GROUP LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2017 AND 2016 (IN U.S. $)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Write Off Deferred Registration Costs
The deferred registration costs are related to Australian Winha’s first IPO attempt. As the first attempt was denied by the ASX, all costs of $153,844 had been write off as of March 31, 2017 and included in other expenses.
Website Development Costs
The Company accounts for website development costs in accordance with ASC 350-50, “Accounting for Website Development Costs”, wherein website development costs are segregated into three activities:
1.
|
Initial stage (planning), whereby the related costs are expensed.
|
|
|
2.
|
Development stage (web application, infrastructure, graphics), whereby the related costs are capitalized and amortized once the website is ready for use. Costs for development content of the website may be expensed or capitalized depending on the circumstances of the expenditures.
|
|
|
3.
|
Operating stage, whereby the related costs are expensed as incurred. Upgrades are usually expensed, unless they add additional functionality.
|
The Company had a website and ongoing website development costs of $45,676 as of March 31, 2016. The Company wrote off the net book value of website and development costs of $34,140 due to the discontinuance of the website during the year ended March 31, 2017. Amortization expense was $2,360 and $790 for the years ended March 31, 2017 and 2016, respectively.
Revenue Recognition
The Company’s revenue recognition policies comply with FASB ASC 605 “Revenue Recognition.” The Company recognizes product revenue when the following fundamental criteria are met: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred, (iii) the price paid by the customer is fixed or determinable and (iv) collection of the resulting accounts receivable is reasonably assured. The Company recognizes revenue from the following channels:
WINHA INTERNATIONAL GROUP LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2017 AND 2016 (IN U.S. $)
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Revenue Recognition (continued)
a)
|
Retail stores - The Company recognizes sales revenue from its retail stores, net of sales taxes and estimated sales returns at the time it sells merchandise to the customer. Customer purchases of shopping cards are not recognized as revenue until the card is redeemed when the customer purchases merchandise by using the shopping card.
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|
|
|
When the current fiscal year began, the Company had operated seven retail stores. During the three months ended September 30, 2016, the Company assigned the operation of six of its retail stores in Sanshui, Shunde, Chancheng, Xiaolan, Dongguan and Guangzhou to six independent individuals. Revenues are derived from the sale of food products to these six stores and one store that the Company operates. The Company recognizes revenue for product sales upon transfer of title to the six stores. Purchase orders and/or contracts are generally used to determine the existence of an arrangement. Shipping documents and the completion of any store acceptance requirements, when applicable, are used to verify product delivery. The Company assesses whether a price is fixed or determinable based upon the payment terms associated with the transaction and whether the sales price is subject to refund or adjustment
|
|
|
|
During the year ended March 31, 2017, wholesale revenue of $4,965,320 was generated from these six stores.
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|
|
b)
|
Custom-made sales - The target customers are commercial customers who can order online or in the Company’s local stores and make full payment on site. All orders are forwarded to Zhongshan Winha immediately, which arranges the delivery. Revenue from the sale of products is recognized upon delivery to customers provided that there are no uncertainties regarding customer acceptance, there is persuasive evidence of an arrangement, and the sales price is fixed and determinable. Revenue generated from custom-made sales was $29,713,348 and $29,943,950, respectively, for years ended March 31, 2017 and 2016, respectively.
|
|
|
c)
|
Franchise and management fees
|
|
|
|
During the three months ended September 30, 2015, the Company commenced franchising the use of the Company’s trademark, name identification and other business resources. The franchisee is required to pay franchise fees and management fees to Zhongshan Winha. Franchise fee revenue from franchise sales is recognized only when all material services or conditions relating to the sale have been substantially performed or satisfied by the Company. The franchise and management fees recognized by the Company were $4,322,366 and $3,055,692 for the years ended
March 31, 2017 and 2016, respectively,
and are included in revenue.
|
WINHA INTERNATIONAL GROUP LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2017 AND 2016 (IN U.S. $)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue Recognition (continued)
Zhongshan Winha grants certain commercial customers limited rights to return products and provides price protection for inventories held by resellers at the time of published price reductions. Zhongshan Winha establishes an estimated allowance for future product returns based upon historical return experience when the related revenue is recorded and provides for appropriate price protection reserves when pricing adjustments are approved.
Zhongshan Winha’s return policy allows customers to return their merchandise in the original box and/or packaging within 7 days of purchase. The Company has not experienced material returns or price adjustments
Fair Value of Financial Instruments
FASB ASC 820, “Fair Value Measurement,” specifies a hierarchy of valuation techniques based upon whether the inputs to those valuation techniques reflect assumptions other market participants would use based upon market data obtained from independent sources (observable inputs). In accordance with ASC 820, the following summarizes the fair value hierarchy:
Level 1 Inputs
|
– Unadjusted quoted market prices for identical assets and liabilities in an active market that the Company has the ability to access.
|
|
|
Level 2 Inputs
|
– Inputs other than the quoted prices in active markets that are observable either directly or indirectly.
|
|
|
Level 3 Inputs
|
– Inputs based on prices or valuation techniques that are both unobservable and significant to the overall fair value measurements.
|
WINHA INTERNATIONAL GROUP LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2017 AND 2016 (IN U.S. $)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Fair Value of Financial Instruments (continued)
ASC 820 requires the use of observable market data, when available, in making fair value measurements. When inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs. As of March 31, 2017 and 2016, none of the Company’s assets and liabilities were required to be reported at fair value on a recurring basis. Carrying values of non-derivative financial instruments, including accounts payable, accrued expenses and loan from stockholder approximate their fair values due to the short term nature of these financial instruments. There were no changes in methods or assumptions during the periods presented.
Cash and Cash Equivalents
The Company considers all demand and time deposits and all highly liquid investments with an original maturity of three months or less to be cash equivalents.
Accounts Receivable
Accounts receivable is stated at cost, net of an allowance for doubtful accounts, if required. Receivables outstanding longer than the payment terms are considered past due. The Company maintains an allowance for doubtful accounts for estimated losses when necessary resulting from the failure of customers to make required payments. The Company reviews the accounts receivable on a periodic basis and makes allowances where there is doubt as to the collectability of individual balances.
In evaluating the collectability of individual receivable balances, the Company considers many factors, including the age of the balance, the customer’s payment history, its current credit-worthiness and current economic trends. The Company considers all accounts receivable at March 31, 2016 to be fully collectible and, therefore, did not provide an allowance for doubtful accounts. For the periods presented, the Company did not write off any accounts receivable as bad debts.
WINHA INTERNATIONAL GROUP LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2017 AND 2016 (IN U.S. $)
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Inventories
Inventories, comprised of merchandise and food products, are stated at the lower of cost or market. The value of inventory is determined using the weighted average cost method.
The Company estimates an inventory allowance for excess or unusable inventories. Inventory is reported net of such allowances, if any. There was no allowance for excess or unusable inventories as of March 31, 2016.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost, less accumulated depreciation. Cost includes the price paid to acquire the asset, and any expenditure that substantially increases the asset’s value or extends the useful life of an existing asset. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Major repairs and betterments that significantly extend original useful lives or improve productivity are capitalized and depreciated over the periods benefited. Maintenance and repairs are generally expensed as incurred.
During the three months ended September 30, 2016, the Company acquired various fruit orchards for $9,425,559. The fruit orchards grow 41 different kinds of fruits in various areas in China. The book value of the orchards includes costs related to saplings, fertilizer, pesticide, water, electricity, labor and land leasing. The planting costs are capitalized. In addition, the Company also capitalized $453,134 for ten greenhouses utilized in the process of growing vegetables.
The estimated useful lives for property, plant and equipment categories are as follows:
Furniture, fixtures and equipment
|
3 to 5 years
|
Leasehold improvements
|
Over the shorter of the remaining lease term or estimated useful life of the improvements.
|
Motor vehicles
|
5 years
|
Greenhouses
|
3 years
|
Fruit orchards
|
Not yet producing
|
WINHA INTERNATIONAL GROUP LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2017 AND 2016 (IN U.S. $)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Impairment of Long-Lived Assets
The Company follows FASB ASC 360, "Accounting for the Impairment and Disposal of Long-Lived Assets," which addresses the financial accounting and reporting for the recognition and measurement of impairment losses for long-lived assets. In accordance with ASC 360, long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company may recognize the impairment of long-lived assets in the event the net book value of such assets exceeds the future undiscounted cash flows attributable to those assets. The Company wrote off its website development costs of $34,140 during the three months ended September 30, 2016.
Income Taxes
The Company accounts for income taxes in accordance with FASB ASC 740, "Income Taxes" ("ASC 740"), which requires the recognition of deferred income taxes for differences between the basis of assets and liabilities for financial statement and income tax purposes. Deferred tax assets and liabilities represent the future tax consequences for those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Deferred taxes are also recognized for operating losses that are available to offset future taxable income. A valuation allowance is established, when necessary, to reduce deferred tax assets to the amount expected to be realized. ASC 740 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements.
Under ASC 740, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position would be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. ASC 740 also provides guidance on the de-recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, and accounting for interest and penalties associated with these tax positions. As of March 31, 2017 and 2016, the Company did not record any liabilities for unrecognized income tax benefits. The earnings of equity investment will be indefinitely reinvested and, accordingly, no deferred taxes will be calculaated.
The income tax laws of various jurisdictions in which the Company and its subsidiaries operate are summarized as follows:
WINHA INTERNATIONAL GROUP LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2017 AND 2016 (IN U.S. $)
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Income Taxes (continued)
United States
The Company is subject to United States tax at graduated rates from 15% to 35%. No provision for income tax in the United States has been made as the Company had no U.S. taxable income for the years ended March 31, 2017 and 2016.
Anguilla
Sanmei International Investment Co, Ltd is incorporated in Anguilla and is governed by the income tax laws of Anguilla. According to current Anguilla income tax law, the applicable income tax rate for the Company is 0%.
Australia
Winha Commerce and Trade Limited is incorporated in Australia. Pursuant to the income tax laws of Australia, the Company is not subject to tax on non-Australian source income.
Cayman Islands
C&V International Holdings Company Limited is incorporated in Cayman Islands and is governed by the income tax laws of the Cayman Islands. According to current Cayman Islands income tax law, the applicable income tax rate for the Company is 0%.
Hong Kong
Winha International Investment Holdings Company Limited is incorporated in Hong Kong. Pursuant to the income tax laws of Hong Kong, the Company is not subject to tax on non-Hong Kong source income.
PRC
Shenzhen Winha, Zhongshan Winha Electronic Commerce Company Limited together with Zhongshan Winha Catering Management Company Limited and Zhongshan Supermarket Limited are subject to an Enterprise Income Tax at 25% and each files its own tax return.
WINHA INTERNATIONAL GROUP LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2017 AND 2016 (IN U.S. $)
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Net Income (Loss) Per Common Share
The Company computes net income (loss) per common share in accordance with FASB ASC 260, “Earnings Per Share” (“ASC 260”). Under the provisions of ASC 260, basic net income (loss) per common share is computed by dividing the net income (loss) by the weighted average number of shares of common stock outstanding during the period. Diluted income per common share is computed by dividing the net income by the weighted average number of shares of common stock outstanding plus the effect of any potential dilutive shares outstanding during the period. There were no dilutive shares outstanding during the years ended March 31, 2017 and 2016. Accordingly, the number of weighted average shares outstanding as well as the amount of net income per share are the same for basic and diluted per share calculations for the period reflected in the accompanying consolidated statement of income and other comprehensive income.
Statutory Reserve
The Company’s China-based subsidiaries and related entities are required to make appropriations of retained earnings for certain non-distributable reserve funds.
Pursuant to the China Foreign Investment Enterprises laws, the Company’s China-based subsidiaries, are required to make appropriations from their after-tax profit as determined under generally accepted accounting principles in the PRC (the “after-tax-profit under PRC GAAP”) to a general non-distributable reserve fund. Each year, at least 10% of each entities after-tax-profit under PRC GAAP is required to be set aside as a general reserve fund until the fund equals 50% of the registered capital of the applicable entity.
The statutory reserve fund is restricted as to use and can only be used to offset against losses, expansion of production and operations and increasing registered capital of the respective company. The fund is not allowed to be transferred to the Company in terms of cash dividends, loans or advances, nor is it allowed for distribution except under liquidation.
The required transfer to the statutory reserve fund was $329,937 and $245,390, respectively, for the years ended March 31, 2017 and 2016.
WINHA INTERNATIONAL GROUP LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2017 AND 2016 (IN U.S. $)
3. RECENTLY ISSUED ACCOUNTING STANDARDS
In February 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-05, Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets. This ASU requires all entities to derecognize a business or nonprofit activity in accordance with Topic 810, and also requires all entities derecognize an equity method investment in accordance with Topic 860. The amendments in this ASU eliminate the scope exceptions, and simplifies GAAP. This ASU is effective for fiscal years beginning after December 15, 2017, including interim reporting periods within that reporting period. Public entities may apply the guidance earlier but only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company is evaluating the impact of adopting this new accounting guidance on its consolidated financial statements.
In August 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This ASU addresses the classification of certain specific cash flow issues including debt prepayment or extinguishment costs, settlement of certain debt instruments, contingent consideration payments made after a business combination, proceeds from the settlement of certain insurance claims and distributions received from equity method investees. This ASU is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. An entity that elects early adoption must adopt all of the amendments in the same period. The Company is currently evaluating the effect this ASU will have on its consolidated statement of cash flows.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The new standard requires financial assets measured at amortized cost be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The standard will be effective for the Company beginning January 1, 2020, with early application permitted. The Company is evaluating the impact of adopting this new accounting guidance on its consolidated financial statements.
In May, 2016, the FASB issued ASU No. 2016-10, Revenue with Contracts with Customers: Narrow-scope Improvements and Practical Expedients, which is an amendment to ASU No. 2014-09 that clarifies the objective of the collectability criterion, to allow entities to exclude amounts collected from customers from all sales taxes from the transaction price, to specify the measurement date for noncash consideration is contract inception. Variable consideration guidance applies only to variability resulting from reasons other than the form of the consideration, and clarification on contract modifications at transition. The implementation guidelines follow ASU No. 2014-09.
WINHA INTERNATIONAL GROUP LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2017 AND 2016 (IN U.S. $)
3. RECENTLY ISSUED ACCOUNTING STANDARDS
(CONTINUED)
In April 2016, the FASB issued Accounting Standards Update No. 2016-12, Revenue from Contracts with Customers. In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). This guidance supersedes current guidance on revenue recognition in Topic 605, Revenue Recognition. In addition, there are disclosure requirements related to the nature, amount, timing, and uncertainty of revenue recognition. In August 2015, the FASB issued ASU No.2015-14 to defer the effective date of ASU No. 2014-09 for all entities by one year. For public business entities that follow U.S. GAAP, the deferral results in the new revenue standard being effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted for interim and annual periods beginning after December 15, 2016. The Company is currently evaluating the impact of adopting this standard on its consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which supersedes the existing guidance for lease accounting, Leases (Topic 840). ASU 2016-02 requires lessees to recognize leases on their balance sheets, and leaves lessor accounting largely unchanged. The amendments in this ASU are effective for the Company beginning April 1, 2020 and interim periods within that fiscal year. Early application is permitted for all entities. ASU 2016-02 requires a modified retrospective approach for all leases existing at, or entered into after, the date of initial application, with an option to elect to use certain transition relief. The Company is currently assessing the impact that the adoption of ASU 2016-02 will have on its consolidated financial statements.
4.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are summarized as follows:
|
|
March 31,
2017
|
|
|
March 31,
2016
|
|
|
|
|
|
|
|
|
Furniture, fixtures and equipment
|
|
$
|
-
|
|
|
$
|
1,131,124
|
|
Leasehold improvements
|
|
|
-
|
|
|
|
629,536
|
|
Motor vehicles
|
|
|
-
|
|
|
|
361,967
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
2,122,627
|
|
Less: accumulated depreciation
|
|
|
-
|
|
|
|
(274,650
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
-
|
|
|
$
|
1,847,977
|
|
For the years ended March 31, 2017 and 2016, depreciation and amortization expense was $301,964 and $202,604 , respectively.
WINHA INTERNATIONAL GROUP LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2017 AND 2016 (IN U.S. $)
5. EQUITY INVESTMENT
On January 4, 2017, the Company’s 60% owned subsidiary, Australian Winha issued 24,271,191 ordinary shares. After the offering, the Company’s 60% ownership of Australian Winha was reduced to 44.87%.
Under the equity method, the investment in Australian Winha was initially recognized at fair value of $13,141,799 and adjusted thereafter to recognize the Company’s share of the profit or loss and other comprehensive income (loss) of Australian Winha. For three months ended March 31, 2017, Australian Winha had revenues of $22,107,355, gross profit of $8,825,839, and a net loss of $230,969. The Company recognized investment loss of $103,635, and other comprehensive gain of $4,222. As of March 31, 2017, the long-term investment is $13,042,386.
On November 7, 2016, Australian Winha, entered into a series of contractual agreements (the “Acquisition Agreements”) with Flavours Fruit & Veg Pty Ltd (“Flavours”), an Australia company, World of Flavours Pty Ltd (“World”) and Select Providor Pty Ltd (“Select”) (collectively “Flavours Shareholders”), to acquire 49% shares of Flavours.
6. CONVERTIBLE NOTES
On September 1, 2015, Australia Winha borrowed $542,570 (AUD$750,000) in the form of a twelve month convertible promissory note with interest at 6% per annum. The note was convertible into 750,000 shares of Australia Winha at $0.70401 per share (AUD$1.00) and was convertible at the option of the Company.
On December 17, 2015, Australia Winha borrowed another $4,892,896 (AUD$6,750,000) in the form of a twelve month convertible promissory note with interest at 6% per annum. The note was convertible into 6,750,000 shares of Australia Winha at $0.71012 per share (AUD$1.00) and was convertible at the option of the Company.
Australia Winha repaid the above notes on July 13, 2016. Interest expense was $117,011 and $92,383 for the years ended March 31, 2017 and 2016, respectively, and included in other expenses.
7. RELATED PARTY TRANSACTIONS
The Company obtained demand loans from the chairman of the board, which are non-interest bearing. The loans of $118,680 and $477,199 as of March 31, 2017 and 2016, respectively, are reflected as loan from stockholder in the consolidated balance sheets.
WINHA INTERNATIONAL GROUP LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2017 AND 2016 (IN U.S. $)
8. INCOME TAXES
The Company is required to file income tax returns in both the United States and the PRC. Its operations in the United States have been insignificant and income taxes have not been accrued.
The provision for income taxes consisted of the following for the years ended March 31:
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
4,444
,
504
|
|
|
$
|
4,575,137
|
|
Deferred
|
|
|
32,810
|
|
|
|
(32,810
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,477,314
|
|
|
$
|
4,542,327
|
|
The following table reconciles the effective income tax rates with the statutory rates for the years ended March 31, respectively:
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Statutory rate - PRC
|
|
|
25.0
|
%
|
|
|
(25.0
|
)%
|
Non-deductible deconsolidation loss
|
|
|
8.9
|
%
|
|
|
-
|
|
Non-deductible equity investment loss
|
|
|
0.2
|
%
|
|
|
-
|
|
Non-deductible stock compensation
|
|
|
-
|
|
|
|
146.9
|
%
|
Benefit of carryforward losses
|
|
|
0.3
|
%
|
|
|
(0.9
|
)%
|
Other
|
|
|
1.9
|
%
|
|
|
1.0
|
%
|
|
|
|
|
|
|
|
|
|
Effective income tax rate
|
|
|
36.1
|
%
|
|
|
122.0
|
%
|
The Company did not recognize any tax benefit related to Parent’s loss of approximately $(15,865,000) since it has no income. The stock compensation of approximately $15,865,000 would be deductible only to the U.S. Parent Company and accordingly there is no deferred tax benefit to be recognized. The stock compensation of approximately $6,017,000 can’t be deducted by the Operating Company under PRC tax laws.
Deferred tax assets and liabilities are recognized for expected future tax consequences of differences between the carrying amounts of assets and liabilities and their respective tax bases using enacted tax rates in effect for the year in which the differences are expected to reverse. The laws of China permit the carry-forward of net operating losses for a period of five years. U.S. federal net operating losses can generally be carried forward twenty years.
WINHA INTERNATIONAL GROUP LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2017 AND 2016 (IN U.S. $)
8. INCOME TAXES (CONTINUED)
Deferred tax assets are comprised of the following:
|
|
March 31,
2017
|
|
|
March 31,
2016
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
7,203,344
|
|
|
$
|
6,333,864
|
|
Inventory intercompany profit
|
|
|
-
|
|
|
|
2,596
|
|
Less: valuation allowance
|
|
|
(7,203,344
|
)
|
|
|
(6,303,650
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
-
|
|
|
$
|
32,810
|
|
At March 31, 2017 and 2016, the Company had unused operating loss carry-forwards of approximately $20,685,000 and $16,215,000 respectively, expiring in various years through 2037. As it is more likely than not that the benefit from the NOL carryforwards will not be realized, $7,239,616 and $6,303,650 valuation allowances have been recognized as of March 31, 2017 and 2016, respectively. The valuation allowance increased by approximately $900,000 and $6,243,000 for the years ended March 31, 2017 and 2016, respectively. The carryforwards are principally in the United States.
The Company’s tax filings are subject to examination by the tax authorities. The tax years March 31, 2016, 2015 and 2014 remain open to examination by the tax authorities in the PRC. The Company’s U.S. tax returns for the years ended March 31, 2016, 2015, and 2014 are subject to examination by the tax authorities.
9. CONCENTRATION OF CREDIT RISK
Substantially all of the Company’s bank accounts are located in The People’s Republic of China and Australia, which are not covered by protection similar to that provided by the FDIC on funds held in United States banks.
10.
PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION
The following is the condensed financial information of Winha International Group Limited only, the US parent, balance sheet as of March 31, 2016 and the related statements of income and cash flows for the twelve months ended March 31, 2016:
WINHA INTERNATIONAL GROUP LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2017 AND 2016 (IN U.S. $)
10.
PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION (CONTINUED)
Condensed Balance Sheet
ASSETS
|
|
March 31,
2016
|
|
|
|
|
|
Investment in subsidiaries
|
|
$
|
11,050,554
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
11,050,554
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
March 31,
2016
|
|
|
|
|
|
|
Accrued Expenses
|
|
|
45,000
|
|
Stockholder loans
|
|
$
|
158,351
|
|
|
|
|
|
|
Stockholders’ equity
|
|
|
|
|
Common stock, $0.0001 par value; 200,000,000 shares authorized; 49,989,500 shares issued and outstanding as of March 31, 2016
|
|
|
49,990
|
|
Additional paid-in capital
|
|
|
21,626,775
|
|
Statutory reserve
|
|
|
497,443
|
|
Retained earnings (deficit)
|
|
|
(11,096,421
|
)
|
Other comprehensive income (loss)
|
|
|
(230,584
|
)
|
|
|
|
|
|
Total stockholders’ equity
|
|
|
10,847,203
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
$
|
11,050,554
|
|
WINHA INTERNATIONAL GROUP LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2017 AND 2016 (IN U.S. $)
10.
PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION (CONTINUED)
Condensed Statement of Income
|
|
Year Ended
|
|
|
|
March 31,
2016
|
|
|
|
|
|
Revenues
|
|
|
|
Share of earnings from investment in subsidiaries
|
|
$
|
7,761,602
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
Stock compensation
|
|
|
(15,865,042
|
)
|
General and administrative
|
|
|
(161,732
|
)
|
|
|
|
|
|
Net (loss)
|
|
$
|
(8,265,172
|
)
|
Condensed Statement of Cash Flows
|
|
Year Ended
March 31,
2016
|
|
|
|
|
|
Cash flows from operating activities
|
|
|
|
Net income
|
|
$
|
(8,265,172
|
)
|
Adjustments to reconcile net income to net cash provided by (used in) operating activities
|
|
|
|
|
Share of earnings from investment in subsidiaries
|
|
|
(7,761,602
|
)
|
Stock compensation
|
|
|
15,865,042
|
|
Increase in accrued expenses and other payables
|
|
|
161,732
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
-
|
|
|
|
|
|
|
Net change in cash
|
|
|
-
|
|
Cash, beginning of period
|
|
|
-
|
|
|
|
|
|
|
Cash, end of period
|
|
$
|
-
|
|
|
|
|
|
|
Noncash financing activities:
|
|
|
|
|
Payment of accrued expenses and other payables by shareholder
|
|
$
|
116,732
|
|
WINHA INTERNATIONAL GROUP LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2017 AND 2016 (IN U.S. $)
10.
PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION (CONTINUED)
Basis of Presentation
The Company records its investment in its subsidiaries under the equity method of accounting. Such investments are presented as “Investment in subsidiaries” on the condensed balance sheet and the subsidiaries profits are presented as “Share of earnings from investment in subsidiaries” in the condensed statement of income.
Certain information and footnote disclosures normally included in financial statements prepared in conformity with accounting principles generally accepted in the United States of America have been condensed or omitted. The parent only financial information has been derived from the Company’s consolidated financial statements and should be read in conjunction with the Company’s consolidated financial statements.
There were no cash transactions in the US parent company during the twelve months ended March 31, 2016.
Restricted Net Assets
Under PRC laws and regulations, the Company’s PRC subsidiaries are restricted in their ability to transfer certain of their net assets to the Company in the form of dividend payments, loans or advances. The restricted net assets of the Company’s PRC subsidiaries amounted to approximately $11,050,554 as of March 31, 2016.
The Company’s operations and revenues are conducted and generated in the PRC, and all of the Company’s revenues being earned and currency received are denominated in RMB. RMB is subject to the foreign exchange control regulations in China, and, as a result, the Company may be unable to distribute any dividends outside of China due to PRC foreign exchange control regulations that restrict the Company’s ability to convert RMB into US Dollars.
11. SUBSEQUENT EVENT
On June 1, 2017, the Board of Australian Winha announced that Australian Winha will pay an unfranked final dividend of AUD $0.035179 (approximately USD $0.026) per share.