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 from different regions across China through its seven self-operated physical stores. The stores are supplemented by a restaurant that the Company opened in April 2015. The Company plans to open additional stores and restaurants during fiscal 2016. The Company also plans to develop its website and mobile store, as it expands its sales platform. The Company's business model utilizes a multi-channel shopping platform to sell locally-produced food, beverages, and arts and crafts that are well-known across China. Through this comprehensive shopping platform, 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.
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 ("Australia Winha"), which has been inactive since inception.
The Company operates its business through 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, Shenzhen Winha exercised its option, and the shareholders of Zhongshan Winha transferred their stock to Shenzhen Winha. Upon the exercise of the option, Zhongshan Winha became a wholly owned subsidiary of Shenzhen Winha. The purchase price was $.16. The following chart illustrates the Company's current corporate structure.
1. ORGANIZATION AND BUSINESS (CONTINUED)
Basis of Accounting and Presentation
The accompanying consolidated financial statements of the Company have been prepared on the accrual basis.
Until November 27, 2015, the consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries and its VIE for which it is deemed the primary beneficiary. On November 27, 2015, the VIE structure was terminated upon Shenzhen Winha exercising its option to purchase all of the registered equity of Zhongshan Winha. Shenzhen Winha became the sole owner of Zhongshan Winha. All significant inter-company accounts and transactions have been eliminated in consolidation.
All consolidated financial statements and notes to the consolidated financial statements are presented in United States dollars ("US Dollar" or "US$" or "$").
Foreign Currency Translation
Almost all Company assets and operations are located in the PRC. The functional currency for the majority of the Company's operations is the
Renminbi ("RMB"). The Company uses the United States Dollar ("US Dollar" or "US$" 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 income, 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:
|
|
December 31,
2015
|
|
|
March 31,
2015
|
|
|
|
|
|
|
|
|
Balance sheet items, except for stockholders' equity, as of period end
|
|
|
0.1540
|
|
|
|
0.1632
|
|
|
|
For the three months
ended December 31,
|
|
|
For the nine months
ended December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts included in the statements of income, statement of changes in stockholders' equity and statements of cash flows for the period
|
|
|
0.1563
|
|
|
|
0.1628
|
|
|
|
0.1596
|
|
|
|
0.1624
|
|
Foreign Currency Translation (continued)
For the three and nine months ended December 31, 2015 and 2014, foreign currency translation adjustments of $(279,514)
and $
273, respectively, and $(526,358) and $(97), respectively, have been reported as other comprehensive income (loss). Other comprehensive income (loss) of the Company consists entirely of foreign currency translation adjustments. 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 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.
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 co
ndition in terms of US dollar reporting. The PRC has devalued the RMB by approximately 3.5 % subsequent to June 30, 2015. 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. The growth rate in the PRC has recently started to narrow.
WINHA INTERNATIONAL GROUP LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (IN U.S. $)
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
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 December 31, 2015 and March 31, 2015 mainly represent the prepayments of approximately $29,900 and $146,000, respectively for decoration expenses and pre-business expenses of the Company's new stores.
Advances from Customers
Advances from customers represents prepaid cards purchased by customers at our retail locations. We believe that prepaid cards are principally purchased for gift purposes and usually used quickly. Accordingly the Company records the related obligation as a current liability.
Advances from customers was $722,997 and $732,212 as of
December 31
, 2015 and March 31, 2015, respectively.
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.
|
WINHA INTERNATIONAL GROUP LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (IN U.S. $)
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Website Development Costs (continued)
3.
|
Operating stage, whereby the related costs are expensed as incurred. Upgrades are usually expensed, unless they add additional functionality.
|
The Company has a website and ongoing website development costs of $45,636 and $39,014 as of December 31, 2015 and
March 31, 2015, respectively. The online sales platform is currently in use and the related costs are being amortized over five years. Amortization expense was $196 and $986, and $599 and $1,595 for the three and nine months ended December 31, 2015 and 2014, respectively.
Revenue Recognition
The Company recognizes revenue from the following channels:
1.
|
Retail stores - The Company recognizes sales revenue from its seven 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 and the customer purchases merchandise by using the shopping card.
|
|
|
2.
|
Custom-made sales - The Company started "Custom-made" sales in August 2014. 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 $6,839,914 and $1,875,615, respectively, for three months ended December 31, 2015 and 2014. Revenue generated from custom-made sales was $17,038,823 and $4,940,031, respectively, for nine months ended December 31, 2015 and 2014.
|
WINHA INTERNATIONAL GROUP LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (IN U.S. $)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue Recognition (continued)
3.
|
Franchise and management fees
|
During the quarter ended September 30, 2015, the Company commenced franchising the use of the Company's trademark, name identification and other business resources, in accordance with the agreement. The franchisee is required to 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 franchisor. The franchise and management fees recognized by the Company were $941,292 and $1,458,744 for the three and nine months ended December 31, 2015 and included in revenue.
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.
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 (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 December 31, 2015 and March 31, 2015, 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 cash, accounts receivable, inventory, advances to suppliers, accounts payables and accrued expenses, and advances from customers 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 December 31, 2015 and March 31, 2015 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 (IN U.S. $)
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Inventory
Inventory, comprised principally of merchandise and food products, is 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 excessive or unusable inventories. Inventory amounts are reported net of such allowances, if any. There was no allowance for excessive or unusable inventories as of December 31, 2015 and March 31, 2015.
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.
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
|
Impairment of Long-Lived Assets
The Company applies 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. No impairment of long-lived assets was recognized for the periods presented.
WINHA INTERNATIONAL GROUP LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (IN U.S. $)
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
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 December 31, 2015 and March 31, 2015, the Company did not record any liabilities for unrecognized income tax benefits.
The income tax laws of various jurisdictions in which the Company and its subsidiaries operate are summarized as follows:
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 three and nine months ended December 31, 2015 and 2014.
WINHA INTERNATIONAL GROUP LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (IN U.S. $)
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Income Taxes (continued)
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.
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.
Net Income (Loss) Per 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 three and nine months ended December 31, 2015 and 2014. Accordingly, the number of weighted average shares outstanding as well as the amount of net income per share are presented for basic and diluted per share calculations for the period reflected in the accompanying consolidated statement of income and other comprehensive income.
WINHA INTERNATIONAL GROUP LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (IN U.S. $)
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
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 set-off 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 $420,360 and $967,741, respectively, for the three and nine months ended December 31, 2015. The required transfer to the statutory reserve fund was $139,591 for the three and nine months ended December 31, 2014.
3. RECENTLY ISSUED ACCOUNTING STANDARDS
In November 2015, the FASB issued Accounting Standards Update No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes (ASU 2015-17), which simplifies the presentation of deferred income taxes by requiring deferred tax assets and liabilities be classified as noncurrent on the balance sheet. ASU 2015-17 is effective for annual periods beginning after December 15, 2016 and interim periods within that year. Early adoption is permitted. This accounting standard update is not expected to have a material impact on the Company's consolidated financial statements.
In September 2015, the FASB issued Accounting Standards Update ("ASU") 2015-16: Simplifying the Accounting for Measurement-Period Adjustments ("ASU 2015-16"), which eliminates the requirement to restate prior period financial statements for measurement period adjustments. The new guidance requires that the cumulative impact of a measurement period adjustment (including the impact on prior periods) be recognized in the reporting period in which the adjustment is identified. ASU 2015-16 is effective for interim and annual periods beginning after December 15, 2015. Early adoption is permitted. This accounting standard update is not expected to have a material impact on the Company's consolidated financial statements.
WINHA INTERNATIONAL GROUP LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (IN U.S. $)
3. RECENTLY ISSUED ACCOUNTING STANDARDS (CONTINUED)
In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date. The amendment in this ASU defers the effective date of ASU No. 2014-09 for all entities for one year. Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in ASU 2014-09 to annual reporting periods beginning December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 31, 2016, including interim reporting periods with that reporting period. This accounting standard update is not expected to have a material impact on the Company's financial statements.
In March 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") ASU 2015-03 – Interest – Imputation of Interest (Subtopic 835-30). This ASU addressed the simplification of debt issuance costs presentation by presenting debt issuance costs in the balance sheet as a direct deduction from the carrying amount of the debt, consistent with debt discounts or premiums. This accounting standard update is not expected to have a material impact on the Company's consolidated financial statements.
In January 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") ASU 2015-01 – Income Statement – Extraordinary and Unusual Items (Subtopic 225-20). This ASU addressed the simplification of income statement presentation by eliminating the concept of extraordinary items. The amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. A reporting entity may apply the amendments prospectively. A reporting entity also may apply the amendments retrospectively to all prior periods presented in the financial statements. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. This accounting standard update is not expected to have a material impact on the Company's consolidated financial statements.
In August 2014, the FASB issued authoritative guidance that requires an entity's management to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity's ability to continue as a going concern and requires additional disclosures if certain criteria are met. This guidance is effective for fiscal periods ending after December 15, 2016, with early adoption permitted. This accounting standard update is not expected to have a material impact on the Company's consolidated financial statements.
WINHA INTERNATIONAL GROUP LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (IN U.S. $)
4.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are summarized as follows:
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2015
|
|
|
2015
|
|
|
|
|
|
|
|
|
Furniture, fixtures and equipment
|
|
$
|
437,020
|
|
|
$
|
380,979
|
|
Leasehold improvements
|
|
|
17,864
|
|
|
|
18,908
|
|
Motor vehicles
|
|
|
355,510
|
|
|
|
71,658
|
|
|
|
|
|
|
|
|
|
|
|
|
|
810,394
|
|
|
|
471,545
|
|
Less: Accumulated depreciation
|
|
|
(179,892
|
)
|
|
|
(80,232
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
630,502
|
|
|
$
|
391,313
|
|
For the three months ended December 31, 2015 and 2014, depreciation expense was $34,469 and $24,988, respectively. For the nine months ended December 31, 2015 and 2014, depreciation expense was $107,875 and $37,720, respectively.
5. LEASES
The Company leases its offices, warehouse and stores under operating leases expiring in various years through 2023.
The total future minimum lease payments as of December 31, 2015 are as follows:
Year Ending March 31,
|
|
Amount
|
|
|
|
|
|
2016
|
|
|
62,849
|
|
2017
|
|
|
250,411
|
|
2018
|
|
|
196,336
|
|
2019
|
|
|
165,770
|
|
2020
|
|
|
91,401
|
|
Thereafter
|
|
|
325,019
|
|
|
|
|
|
|
Total
|
|
$
|
1,091,786
|
|
Rent expense was $61,589 and $44,968, and $188,546 and $94,864 for the three and nine months ended December 31, 2015 and 2014, respectively.
WINHA INTERNATIONAL GROUP LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (IN U.S. $)
6. CONVERTIBLE NOTES
In May 2015, C&V International Company Limited ("C&V"), a wholly owned subsidiary of Winha International Group Limited, set up a wholly owned subsidiary, Australia Winha Commerce and Trade Limited ("Australia Winha"), which is inactive since inception (See Note 11).
On September 1, 2015, Australia Winha borrowed $528,008 (AUD$750,000) in the form of a twelve month convertible promissory note with interest at 6% per annum. The note is convertible into 750,000 shares of Australia Winha at $0.70401 per share (AUD$1.00) and is convertible at the option of the Company.
On December 17, 2015, Australia Winha borrowed another $4,793,276 (AUD$6,750,000) in the form of a twelve month convertible promissory note with interest at 6% per annum. The note is convertible into 6,750,000 shares of Australia Winha at $0.71012 per share (AUD$1.00) and is convertible at the option of the Company. There was no beneficial conversion feature associated with both notes. The due date of the notes may be extended based upon mutual agreement of both parties.
7. RELATED PARTY TRANSACTIONS
The Company obtained demand loans from the chairman of the board, which are non-interest bearing. The loans of $115,215 and $72,228 as of December 31, 2015 and March 31, 2015, respectively, are reflected as loan from stockholder in the consolidated balance sheets.
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 three and nine months ended December 31, 2015 and 2014.
|
|
Three Months Ended
December 31,
|
|
|
Nine Months Ended
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
1,401,274
|
|
|
$
|
323,301
|
|
|
$
|
3,218,501
|
|
|
$
|
323,301
|
|
Deferred
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,401,274
|
|
|
$
|
323,301
|
|
|
$
|
3,218,501
|
|
|
$
|
323,301
|
|
WINHA INTERNATIONAL GROUP LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (IN U.S. $)
8. INCOME TAXES (CONTINUED)
The following table reconciles the effective income tax rates with the statutory rates for the three and nine months ended December 31, 2015 and 2014, respectively:
|
|
For the three months
ended December 31,
|
|
|
For the nine months
ended December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statutory rate - PRC
|
|
|
25.0
|
%
|
|
|
(25.0
|
%)
|
|
|
25.0
|
%
|
|
|
25.0
|
%
|
Change in valuation allowance
|
|
|
-
|
|
|
|
1.0
|
%
|
|
|
-
|
|
|
|
(6.0
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective income tax rate
|
|
|
25.0
|
%
|
|
|
24.0
|
%
|
|
|
25.0
|
%
|
|
|
19.0
|
%
|
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.
Deferred tax assets are comprised of the following:
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2015
|
|
|
2015
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
187,915
|
|
|
$
|
40,168
|
|
Inventory intercompany profit
|
|
|
7,695
|
|
|
|
20,760
|
|
Less: valuation allowance
|
|
|
(195,610
|
)
|
|
|
(60,928
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
-
|
|
|
$
|
-
|
|
At December 31, 2015 and March 31, 2015, the Company had unused operating loss carry-forwards of approximately $833,096 and $161,000 respectively, expiring in various years through 2019. The Company has established a valuation allowance of $195,610 and $60,928 against the deferred tax asset related to net operating loss carry-forwards at December 31, 2015 and March 31, 2014, respectively, due to the uncertainty of realizing the benefit. The carryforwards are principally in Hong Kong and the United States.
WINHA INTERNATIONAL GROUP LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (IN U.S. $)
8. INCOME TAXES (CONTINUED)
The Company's tax filings are subject to examination by the tax authorities. The tax years for 2014 and 2013 remain open to examination by the tax authorities in the PRC. The
Company's U.S. tax returns are subject to examination by the tax authorities for the years ended March 31, 2015, 2014, 2013 and 2012. In August, 2015, the Company was assessed a penalty of $30,000 USD by the Internal Revenue Service for failure to file timely Form 5471's. The appeal submitted by the Company is currently under the IRS's review and no decision has been made as of December 31, 2015.
9. CONCENTRATION OF CREDIT RISK
Substantially all of the Company's bank accounts are located in The People's Republic of China and 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, 2015 and the related statements of income and cash flows for the twelve months ended March 31, 2015:
Condensed Balance Sheet
ASSETS
|
|
March 31,
2015
|
|
|
|
|
|
Investment in subsidiaries
|
|
$
|
4,156,530
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
4,156,530
|
|
WINHA INTERNATIONAL GROUP LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (IN U.S. $)
10. PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION (CONTINUED)
Condensed Balance Sheet (continued)
LIABILITIES AND
STOCKHOLDERS
'
EQUITY
|
|
March 31,
2015
|
|
|
|
|
|
Stockholder loans
|
|
$
|
41,619
|
|
|
|
|
|
|
Stockholders' equity
|
|
|
|
|
Common stock, $0.0001 par value; 200,000,000 shares authorized; 49,989,500 shares issued and outstanding as of March 31, 2015
|
|
|
49,990
|
|
Additional paid-in capital
|
|
|
2,666,582
|
|
Statutory reserve
|
|
|
252,053
|
|
Retained earnings
|
|
|
1,114,566
|
|
Other comprehensive income
|
|
|
31,720
|
|
|
|
|
|
|
Total stockholders' equity
|
|
|
4,114,911
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
$
|
4,156,530
|
|
Condensed Statement of Income
|
|
Year Ended
|
|
|
|
March 31, 2015
|
|
|
|
|
|
Revenues
|
|
|
|
Share of earnings from
investment in subsidiaries and VIE
|
|
$
|
2,438,198
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
General and administrative
|
|
|
(71,646
|
)
|
|
|
|
|
|
Net income
|
|
$
|
2,366,552
|
|
WINHA INTERNATIONAL GROUP LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (IN U.S. $)
10. PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION (CONTINUED)
Condensed Statement of Cash Flows
|
|
Year Ended
March 31
|
|
|
|
2015
|
|
|
|
|
|
Cash flows from operating activities
|
|
|
|
Net income
|
|
$
|
2,366,552
|
|
Adjustments to reconcile net income to net cash provided by (used in) operating activities
|
|
|
|
|
Share of earnings from investment in subsidiaries and VIE
|
|
|
(2,438,198
|
)
|
Increase in accrued expenses and other payables
|
|
|
71,646
|
|
|
|
|
|
|
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
|
|
$
|
41,619
|
|
Basis of Presentation
The Company records its investment in its subsidiaries and VIE under the equity method of accounting. Such investments are presented as "Investment in subsidiaries and VIE" on the condensed balance sheet and the subsidiaries and VIE profits are presented as "Share of earnings from investment in subsidiaries and VIE" 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, 2015.
WINHA INTERNATIONAL GROUP LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (IN U.S. $)
10. PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION (CONTINUED)
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 $ 4,157,000 as of March 31, 2015.
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.