NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1.
CORPORATE INFORMATION
Tianmei Beverage Group Corporation Limited (the Company) is an entity registered under the Australian Corporations Act 2001 on 6 May 2016, which is contemplating becoming a public company in Australia through the filing of a registration statement with the Australian Securities & Investments Commission (ASIC). Tianmei International Beverage Co., Ltd. (Tianmei International) was incorporated in British Virgin Islands on 9 November 2015, and Mr. Xiaoran Zhang was the sole shareholder and director. Tianmei International is authorized to issue 50,000 shares at USD 1.00 each. On 16 May 2016, Mr. Xiaoran Zhang transferred his 50,000 shares of Tianmei International to the Company in consideration of USD 50,000. On the same day, Ms. Li Wang was appointed as Director of Tianmei International replacing Mr. Zhang.
On 7 April 2016, Tianmei International purchased all of the shareholding of Hong Kong Tianmei International Holding Co., Ltd. (Tianmei HK), which was incorporated on 16 September 2014 by Ms. Gao Yisha Yang, for HKD 10,000. Tianmei HK incorporated Shenzhen Tianmei Selenium-Rich Information Consulting Co., Ltd. (WFOE) on 15 December 2015 with the registered capital of RMB 500,000.
Guangdong Tianmei Selenium-Rich Beverage Chain Co., Ltd. (Guangdong Tianmei) is the operating entity, which was founded on 22 May 2015 in Guangdong Province in the Peoples Republic of China (PRC). Before 2 March 2016, Guangdong Tianmei was owned by four persons: Mr. Shili Zhang owned 44.94%, Ms. Xiaoqin Zheng owned 6%, Ms. Han Xu owned 44.06%, and Mr. Zuliang Xu owned 5%. On 2 March 2016, the Guangdong Tianmeis four shareholders transferred 100% ownership of Guangdong Tianmei to WFOE. On 21 April 2016, the transfer was approved by the Chinese local government.
As a result of series of the transaction among parties mentioned above, the Company owns 100% of Tianmei International, Tianmei International owns 100% of Tianmei HK, Tianmei HK owns 100% of WFOE, and WFOE owns 100% of Guandong Tianmei.
F-8
TIANMEI BEVERAGE GROUP CORPORATION LIMITED
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1.
CORPORATE INFORMATION (continued)
The Company has a corporate structure as follows:
On April 28, 2016, Biotechnology International Holding Ltd. (Biotechnology International), entered into an investment agreement with Guangdong Tianmei. The investment agreement provided that Biotechnology International would pay $1,000,000 to acquire a 30% interest of the Company. The acquisition by Biotechnology International of 30% of the Company was completed in May 2016. The receivable for equity share of $1,000,000 was presented as an offset to equity in the consolidated statement of financial position as at 31 May 2016. The investment agreement provided that payment of the $1,000,000 purchase price was due on June 20, 2016. Payment in full was received on June 17, 2016.
F-9
TIANMEI BEVERAGE GROUP CORPORATION LIMITED
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1.
CORPORATE INFORMATION (continued)
As at 31 May 2016, the Company was owned by the following shareholders: Biotechnology International owned 30%, Ms. Han Xu owned 30%, Ms. Mengdi Zhang owned 20%, and other shareholders owned 20%.
The Companys business, through its operating entity in China (Guangdong Tianmei), is comprised of the following:
Sale of Selenium-Rich Water
The Company has an annual contract with a water company to bottle, under the Companys label, water from a spring in the PRC that is rich in the mineral selenium. Selenium is believed to have antioxidant properties and play a key role in the human bodys metabolism. The bottled water is purchased by the Company from the supplier and is delivered directly to stores based upon monthly orders placed by each store. Accordingly, the Company does not have any inventory of selenium-rich water as at 31 May 2016. Revenue generated from the sale of selenium-rich water was $3,786,392 for the six months ended 31 May 2016.
Product Promotion and Placement Service
The Company has annual agreements with various vendors to assist them in the placement and marketing of their products. The Company receives a monthly fee from the vendors based upon the number of items being placed in each store. The Company has the ability to place these products based upon their relationships with over 900 stores in Guangdong Province. In connection with these placement services, the Company enters into annual contracts with each store and must prepay the store an annual slotting fee charged for each product placed. The Company has no responsibility regarding the vendors sales performance. Revenue generated from the product promotion and placement service was $6,354,485 for the six months ended 31 May 2016.
Sale of Selenium-Rich Water Related Products
Starting in April 2016, the Company has expanded its product line and contracted a local supplier to manufacture a series of patented selenium-rich water related products including a variety of drinking water stands, an all-house water purifier and a beauty sprayer. The products are purchased by the Company from the supplier and sold to the stores based upon orders placed by each store. The Company has inventories of selenium-rich water related products of USD 314,576 as at 31 May 2016. Revenue generated from the sale of selenium-rich water related products was $728,783 for the six months ended 31 May 2016.
F-10
TIANMEI BEVERAGE GROUP CORPORATION LIMITED
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2.
BASIS OF PREPARATION
2.1 Statement of compliance
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS).
The consolidated financial statements were authorized for issue by the Board of Directors on 12 November 2016.
2.2 Basis of measurement
The consolidated financial statements have been prepared on a historical cost basis except for assets and liabilities required to be measured at fair value (See Note 4).
2.3 Subsidiaries
Subsidiaries are those entities over which the Company has control. The Company controls an entity when the Company is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Company and are no longer consolidated from the date that control ceases. All intercompany transactions, balances and unrealized gains or losses on transactions between Group companies are eliminated.
The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of the Company as at 31 May 2016 and the results of these subsidiaries for the six months ended 31 May 2016.
2.4 Common control transactions
The predecessor values method is used to account for the acquisition of subsidiaries by the Company under common control. The predecessor values method requires financial statements to be prepared using predecessor book values without any step up to fair value. The difference between any consideration given and the aggregate book value of the assets and liabilities (as of the date of the transaction) of the acquired entity are recorded as an adjustment to equity as a common control reserve. No additional goodwill is created by the transaction. Based upon this treatment, the effect of transaction has been recast as if this transaction had occurred at the beginning of the earliest period being presented accordingly.
F-11
TIANMEI BEVERAGE GROUP CORPORATION LIMITED
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2.
BASIS OF PREPARATION (continued)
2.5 Functional and presentation currency
These consolidated financial statements are presented in US dollars, and the Companys functional currency is the Renminbi (RMB). All financial information presented has been rounded to the nearest US dollar.
2.6 Foreign currency translation
Almost all Company assets are located in the PRC. The functional currency for the Companys operations is the Renminbi (RMB). The Company uses the United States Dollar (US Dollar or US$ or $) for financial reporting purposes.
For the purpose of presenting the financial statements, the assets and liabilities of the Company are translated into US Dollar using the exchange rate prevailing at the end of reporting period. Income and expense items are translated at the average exchange rate for the period, unless exchange rates fluctuate significantly during that period, in which case the exchange rates at the dates of the transactions are used. Exchange differences arising, if any, are recognized in other comprehensive income and accumulated in equity. For the six months ended 31 May 2016, exchange differences on translating RMB to US Dollar of $(206,063) are recognized as other comprehensive loss in the consolidated statement of profit or loss and other comprehensive income (loss).
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 Dollar 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 PRCs political and economic conditions. Any significant revaluation of the RMB may materially affect the Companys financial condition in terms of US Dollar reporting.
F-12
TIANMEI BEVERAGE GROUP CORPORATION LIMITED
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2.
BASIS OF PREPARATION (continued)
2.7 Use of estimates and judgments
The preparation of the financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
3.1 Financial instruments
3.1.1
Non-derivative financial assets
The Company initially recognizes trade and other receivables on the date that they are originated. All other financial assets (including assets designated at fair value through profit or loss) are recognized initially on the trade date at which the Company becomes a party to the contractual provisions of the instrument. The Company derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Company is recognized as a separate asset or liability.
Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Company has a legal right to offset the amounts and intends either to settle on a net basis or to realize the asset and settle the liability simultaneously.
The Company has the following non-derivative financial assets:
F-13
TIANMEI BEVERAGE GROUP CORPORATION LIMITED
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
3.1 Financial instruments (continued)
Trade and other receivables
Trade and other receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognized initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, non-current trade and other receivables are measured at amortized cost using the effective interest method, less any impairment losses.
Cash and cash equivalents
Cash and cash equivalents are comprised of cash balances, money market funds and short-term investments with original maturities of three months or less.
3.1.2
Non-derivative financial liabilities
The Company recognizes liabilities on the date at which the Company becomes a party to the contractual provisions of the instrument. The Company derecognizes a financial liability when its contractual obligations are discharged, cancelled or expire. Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Company has a legal right to offset the amounts and intends either to settle on a net basis or to realize the asset and settle the liability simultaneously.
The Company has the following non-derivative financial liabilities: trade and other payables, advances from customers, taxes payable, and borrowings. Such financial liabilities are recognized initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, these financial liabilities are measured at amortized cost using the effective interest method.
3.1.3
Share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares are recognized as a deduction from equity, net of any tax effects.
F-14
TIANMEI BEVERAGE GROUP CORPORATION LIMITED
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
3.2 Inventories
Inventories are stated at the lower of cost or net realizable value. Cost is determined on a weighted average basis and comprises all costs of purchasing raw materials, direct labor and other costs.
Net realizable value is the estimated selling price in the ordinary course of business, less estimates of costs of completion and selling expenses.
When inventories are sold, the carrying amount of those inventories is recognized as an expense in the period in which the related turnover is recognized. The amount of any write-down of inventories to net realizable values and all losses of inventories are recognized as an expense in the period the write down or loss occurs. The amount of any reversal of any write-down of inventories is recognized as a reduction in the amount of inventories as an expense in the period in which the reversal occurs.
3.3 Property and equipment
3.3.1
Recognition and measurement
Items of property and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. Cost includes expenditures that are directly attributable to the acquisition of the asset. When parts of an item of property and equipment have different useful lives, they are accounted for as separate items (major components) of property and equipment. Gains and losses on disposal of an item of property and equipment are determined by comparing the proceeds from disposal with the carrying amount of property and equipment, and are recognized net within other income (loss) in the statement of profit or loss and other comprehensive income (loss).
F-15
TIANMEI BEVERAGE GROUP CORPORATION LIMITED
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
3.3 Property and equipment (continued)
3.3.2
Subsequent costs
The cost of replacing a part of an item of property and equipment is recognized at the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Company, and its cost can be measured reliably. The carrying amount of the replaced part is derecognized. The costs of the day-to-day servicing of property and equipment are recognized in the statement of profit or loss and comprehensive income (loss) as incurred.
3.3.3
Depreciation
Depreciation is calculated over the depreciable amount, which is the cost of an asset, or other amount substituted for cost, less its residual value, if any. Depreciation is recognized in profit or loss on a straight-line basis over the estimated useful lives of each part of an item of property and equipment, since this most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset. Leased assets are depreciated over the shorter of the lease term or their useful life unless it is reasonably certain that the Company will obtain ownership by the end of the lease term.
The estimated useful lives for the current period are as follows:
|
|
Electronic equipment
|
3 years
|
Motor vehicles
|
4 years
|
Office equipment
|
5 years
|
Depreciation methods, useful lives and residual values are reviewed at each financial year-end and adjusted if appropriate.
3.4 Impairment
3.4.1
Financial assets (including receivables)
A financial asset not carried at fair value through profit and loss is assessed at each reporting date to determine whether there is objective evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably.
F-16
TIANMEI BEVERAGE GROUP CORPORATION LIMITED
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
3.4 Impairment (continued)
3.4.1
Financial assets (including receivables) (continued)
The Company considers evidence of impairment for trade and other receivables at both a specific asset and collective levels. All individually significant accounts receivables are assessed for specific impairment. All individually significant accounts receivable found not to be specifically impaired are then collectively assessed for any impairment that has been incurred but not yet identified. Trade and other receivables that are not individually significant are collectively assessed for impairment by grouping together receivables with similar risk characteristics.
In assessing collective impairment, the Company uses historical trends of the probability of default, timing of recoveries and the amount of loss incurred, adjusted for managements judgment as to whether current economic and credit conditions are such that the actual losses are likely to be greater or less than suggested by historical trends.
An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the assets original effective interest rate. Losses are recognized in profit or loss and reflected in an allowance account against receivables. When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss.
3.5 Non-financial assets
The carrying amounts of the Companys non-financial assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the assets recoverable amount is estimated and adjusted accordingly.
The recoverable amount of an asset is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.
F-17
TIANMEI BEVERAGE GROUP CORPORATION LIMITED
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
3.5 Non-financial assets (continued)
An impairment loss is recognized if the carrying amount of an asset exceeds its estimated recoverable amount. Impairment losses are recognized in profit and loss.
Impairment losses recognized in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the assets carrying amount does not exceed the carrying amount that would have been determined, net of depreciation, if no impairment loss had been recognized.
The Company has the following non-financial asset: property and equipment, prepayments, inventories, deferred offering costs, and deferred slotting fees.
Deferred slotting fees
In connection with the Companys product promotion and placement services, the Company is required to prepay each store where it places a vendors product, an annual slotting fee, which is shown as deferred slotting fees in the accompanying statement of financial position. As each slotting fee contract is renewed annually, the deferred slotting fees will be recognized within the following twelve months.
Deferred offering costs
Deferred offering costs consist principally of legal, accounting, and underwriters fees incurred that are related to a proposed offering and that will be charged to share premium upon the completion of the proposed offering or charged to expense if the proposed offering is not completed. The deferred offering costs for the six months ended 31 May 2016 consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accountings fees
|
|
|
|
$
76,486
|
Legal fees
|
|
|
|
65,363
|
Investment bank fees
|
|
|
|
97,817
|
Consulting expenses
|
|
|
|
75,948
|
Other expenses
|
|
|
|
21,080
|
Total deferred offering costs as at 31 May 2016
|
|
|
|
$
336,694
|
F-18
TIANMEI BEVERAGE GROUP CORPORATION LIMITED
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
3.6 Statutory reserve fund
Pursuant to corporate law of the PRC, the Company is required to transfer 10% of its net income, as determined under PRC accounting rules and regulations, to a statutory reserve fund until such reserve balance reaches 50% of the Companys registered capital. The statutory reserve fund is non-distributable other than during liquidation and can be used to fund previous years losses, if any, and may be utilized for business expansion or used to increase registered capital, provided that the remaining reserve balance after use is not less than 25% of registered capital. The required statutory reserve fund transfer was $268,189 for the six months ended 31 May 2016.
3.7 Revenue recognition
Revenue from the sale of goods in the course of ordinary activities is measured at the amount of the consideration received or receivable, net of estimated returns, trade discounts and volume rebates. Revenue is recognized when persuasive evidence exists, that the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the goods, and the amount of revenue can be measured reliably. If it is probable that discounts will be granted and the amount can be measured reliably, then the discount is recognized as a reduction of revenue as the sales are recognized.
The timing of the transfers of risks and rewards varies depending on the individual terms of the contract of sale. For sales of goods, usually transfer occurs when the product is received at the customers warehouse.
F-19
TIANMEI BEVERAGE GROUP CORPORATION LIMITED
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
3.8Income taxes
Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to taxes payable in respect of previous years.
Deferred taxes are recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously.
A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized. A valuation allowance is established to reduce deferred tax assets to the amount expected to be realized.
Revenues, expenses and assets are recognized net of the amount of sales tax. The net amount of sales tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the consolidated statement of financial position.
In determining the amount of current and deferred tax, the Company takes into account the impact of uncertain tax positions and whether additional taxes and interest may be due. This assessment relies on estimates and assumptions and may involve a series of judgements about future events. New information may become available that causes the Company to change its judgements regarding the adequacy of existing tax liabilities; such changes to tax liabilities will impact tax expense in the period that such a determination is made. The Company believes that its current accruals for tax liabilities are adequate for all open tax years based on its assessment of relevant factors as well as the prevailing tax rules. However, there can be no assurance that the tax authorities will agree with this position, and therefore the Company ultimately could be liable for income taxes, interest and penalties.
F-20
TIANMEI BEVERAGE GROUP CORPORATION LIMITED
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
3.9 New standards and interpretations not yet adopted
A number of new standards, amendments to standards and interpretations have been issued since 31 May 2016 up to the date of authorization of the financial statements which are not yet effective and, have not been applied in preparing these financial statements. None of these new standards or amendments to standards when effective are expected to have a material effect on the consolidated financial statements of the Company except for the following:
IFRS 15 Revenue from Contracts with Customers, which is effective, after amendment, for periods beginning on or after 1 January 2018. IFRS 15 sets forth the requirements for recognizing revenue that applies to all contracts with customers. The Company is in the process of determining the possible effects, if any, on its financial reporting.
IFRS 16 Leases, which is effective for periods beginning on or after 1 January 2019. IFRS principally requires lessees to recognize assets and liabilities for all leases with terms longer than 12 months and to present the rights and obligations associated with these leases in the statement of financial position. IFRS 16 eliminates the classification of leases as either operating leases or finance leases for a lessee. Instead all leases are treated in a similar way to finance leases applying IAS 17. The Company is in the process of determining the possible effects, if any, on its financial reporting.
4.
DETERMINATION OF FAIR VALUES
A number of the Companys accounting policies and disclosures require the determination of fair value, for both financial and non-financial assets and liabilities. Fair values have been determined for measurement and/or disclosure purposes based on the following methods. When applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability.
4.1 Inventories
The fair value of inventories is determined based on the estimated selling price in the ordinary course of business less the estimated costs of completion and sale, and a reasonable profit margin based on the effort required to complete and sell the inventories.
F-21
TIANMEI BEVERAGE GROUP CORPORATION LIMITED
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
4.
DETERMINATION OF FAIR VALUES (continued)
4.2 Trade and other receivables
Due to the short-term nature of the current receivables, their carrying amount is assumed to be the same as their fair value. The fair value of trade and other receivables is estimated as the present value of future cash flows, discounted at the market rate of interest at the reporting date. This fair value is determined for disclosure purposes.
4.3 Non-derivative financial liabilities
Fair value, which is determined for disclosure purposes, is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the reporting date.
5.
FINANCIAL RISK MANAGEMENT
5.1 Credit risk
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Companys trade and other receivables from customers.
5.1.1
Receivables
The Companys exposure to credit risk is influenced mainly by the individual characteristics of each customer. In the normal course of business, the Company grants credit to its customers based on credit evaluations of their financial condition and generally requires no collateral or other security. No major customers were identified for the six months ended 31 May 2016.
Trade receivables are non-interest bearing and are generally on terms of 30-90 days. The Company establishes an allowance for impairment that represents its estimate of incurred losses in respect of trade and other receivables. The main components of this allowance are a specific loss component that relates to individually significant exposures, and a collective loss component established for groups of similar assets in respect of losses that have been incurred but not yet identified. On a periodic basis, management evaluates accounts receivable balances and establishes an allowance, based on history of past write-offs and collections. As at 31 May 2016, the Company considers all accounts receivable to be fully collectible and, therefore, did not provide for an allowance for doubtful accounts.
F-22
TIANMEI BEVERAGE GROUP CORPORATION LIMITED
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
5.
FINANCIAL RISK MANAGEMENT (continued)
The aging of receivables as at 31 May 2016 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
Impairment
|
|
|
|
|
|
Not past due
|
|
|
$
1,291
|
$
-
|
Past due 0-30 days
|
|
|
-
|
-
|
Past due 31-60 days
|
|
|
-
|
-
|
More than 60 days
|
|
|
-
|
-
|
|
|
|
$
1,291
|
$
-
|
5.2 Cash
Substantially all of the Companys assets and bank accounts are in banks located in the PRC. The exchange rate of the RMB is determined by the government of the PRC and the remittance of funds out of the PRC is subject to exchange restrictions imposed by the government of the PRC.
5.3 Liquidity risk
Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Companys approach to manage liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Companys reputation.
5.4 Market risk
The Company is exposed to market risk through its use of financial instruments and specifically to interest rate risk, which result from its operating activities. The change of economic conditions causes the risks, and the Company works to mitigate the risks.
F-23
TIANMEI BEVERAGE GROUP CORPORATION LIMITED
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
5.
FINANCIAL RISK MANAGEMENT (continued)
5.5 Capital management
The Companys debt to adjusted capital ratio at 31 May 2016 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
|
$
3,756,298
|
Less: cash and cash equivalents
|
|
|
|
12,015,425
|
Net debt
|
|
|
|
-
|
Total equity
|
|
|
|
$
13,013,865
|
Net debt to capital ratio
|
|
|
|
-
|
6.
INCOME TAX EXPENSE
6.1 Provision for income taxes
The provision for income taxes for the six months ended 31 May 2016 consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
$
1,482,333
|
Deferred
|
|
|
|
-
|
Total income tax provision
|
|
|
|
$
1,482,333
|
6.2 Reconciliation of effective tax rate
|
|
|
|
Tax rate
|
Amount
|
Operating profit before income tax expense
|
|
$ 4,163,491
|
Tax using the Companys domestic tax rate
|
25.00%
|
1,040,873
|
Tax effect of:
Non-deductible expenses due to
share compensation
Changes in estimates related to prior years
|
10.57%
0.03%
|
440,171
1,289
|
|
35.60%
|
$ 1,482,333
|
F-24
TIANMEI BEVERAGE GROUP CORPORATION LIMITED
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
7.
DEPOSIT
On 16 May 2016, the Company and the shareholders of Chenzhou Qianlifeng Beverage Co., Ltd. (Qianlifeng) signed an Agreement of Acquisition Intention (the agreement) to transfer 100% ownership in Qianlifeng to the Company for RMB 5,000,000 (approximately USD 768,000). This agreement is subject to various preconditions, which must be satisfactorily completed prior to 31 December 2016.
An initial payment of 20% (RMB 1,000,000) of the total price was made by the Company on 20 May 2016. The amount is reflected as a $151,895 deposit on the consolidated statement of financial position as at 31 May 2016. The payment was made into a joint account managed by the Company and the shareholders of Qianlifeng. Upon satisfactory completion of the preconditions of the agreement, the remaining balance shall also be paid into the same account.
8.
PREPAYMENTS
As at 31 May 2016, the majority of the prepayments consist of advertising expenses made in advance to various vendors.
9.
PROPERTY AND EQUIPMENT
9.1 Carrying amounts of property and equipment
As at 31 May 2016, the carrying amounts of property and equipment consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electronic equipment
|
|
|
|
$
106,018
|
Motor vehicles
|
|
|
|
294,647
|
Office equipment
|
|
|
|
81,525
|
Total property and equipment, net
|
|
|
|
$
482,190
|
F-25
TIANMEI BEVERAGE GROUP CORPORATION LIMITED
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
9.
PROPERTY AND EQUIPMENT (continued)
9.2 Cost or deemed cost
The cost or deemed cost of the property and equipment for the six months ended 31 May 2016 consists of the following:
|
|
|
|
|
|
Electronic equipment
|
Motor
vehicles
|
Office
equipment
|
Total
|
|
|
|
|
|
As at 30 November 2015
|
$
120,974
|
$
60,552
|
$
103,358
|
$
284,884
|
Additions
|
25,137
|
270,254
|
764
|
296,155
|
Disposals
|
-
|
-
|
-
|
-
|
Effect of exchange rate
fluctuations
|
(3,524)
|
(4,481)
|
(2,793)
|
(10,798)
|
As at 31 May 2016
|
$
142,587
|
$
326,325
|
$
101,329
|
$
570,241
|
9.3 Depreciation and impairment losses
The depreciation and impairment losses of property and equipment for the six months ended 31 May 2016 consist of the following:
|
|
|
|
|
|
|
|
Electronic equipment
|
Motor
vehicles
|
Office
equipment
|
Total
|
|
|
|
|
|
|
As at 30 November 2015
|
|
$
16,048
|
$
6,308
|
$
10,004
|
$
32,360
|
Depreciation for the period
|
|
21,175
|
25,814
|
10,178
|
57,167
|
Impairment loss
|
|
-
|
-
|
-
|
-
|
Effect of exchange rate
fluctuations
|
|
(654)
|
(444)
|
(378)
|
(1,476)
|
As at 31 May 2016
|
|
$
36,569
|
$
31,678
|
$
19,804
|
$
88,051
|
F-26
TIANMEI BEVERAGE GROUP CORPORATION LIMITED
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
10.
TRADE AND OTHER PAYABLES AND ADVANCE FROM CUSTOMERS
Trade and other payables and advance from customers at 31 May 2016 consist of the following:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade and other payables
|
|
|
|
|
$
819,752
|
Advance from customers
|
|
|
|
|
778,234
|
|
|
|
|
|
$
1,597,986
|
11.
BORROWINGS
The borrowings from third parties of $89,673 as at 31 May 2016 consist of a $77,800 short-term borrowing from unrelated third parties for the capital contribution to WFOE, and a $11,873 short-term borrowing from an unrelated third party for the professional fees paid on behalf of the Company.
Amount owed to the prior shareholder of Guangdong Tianmei totaling $614,056 was fully repaid during the six months ended 31 May 2016.
12.
CONVERTIBLE DEBT PAYABLE
On 29 March 2016, the Company issued convertible notes with a 6% per annum interest rate to three unrelated individuals in the principal amounts of RMB 1,000,000 (approximately USD 153,000), RMB 5,000,000 (approximately USD 763,000), and RMB 600,000 (approximately USD 87,000), respectively. The holder of the note is entitled to convert all or a portion of the convertible note plus accrued interest, if any, at the lenders sole option, into shares of common stock of the Company at a conversion price of the issue price on the conversion date.
Subsequent to 31 May 2016, on 29 June 2016, the Company repaid the three convertible notes in full.
F-27
TIANMEI BEVERAGE GROUP CORPORATION LIMITED
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
13.
SHARE CAPITAL
|
|
|
|
|
Ordinary shares
|
In issue as at 1 December 2015
|
-
|
Issued for cash
|
48,000,000
|
Issued for compensation
|
12,000,000
|
Issued for ownership exchange
|
60,000,000
|
In issue as at 31 May 2016 by paid in cash
|
60,000,000
|
In issue as at 31 May 2016 by paid in subsidiary ownership
|
60,000,000
|
Authorized par value $0
|
120,000,000
|
Ordinary shares
All shares rank equally with regards to the Companys residual assets. The holders of ordinary shares are entitled to receive dividends as declared from time to time, and are entitled to one vote per share at meetings of the Company.
As at 31 May 2016, a total of 120,000,000 shares were issued and outstanding to ten shareholders. On 6 May 2016, 48,000,000 ordinary shares were issued to three shareholders for cash, and 6,000,000 ordinary shares were issued to five shareholders for compensation. Those ordinary shares were issued at an exercise price of AUD $ 0.20 per share in a total of AUD $12,000,000 (approximately USD 8,839,000). The remaining three shareholders paid in their ownership in Guangdong Tianmei for exchange of the 66,000,000 ordinary shares in the Company.
14.
RELATED-PARTY
14.1 Related party transactions
In the normal course of business, the Company conducts certain transactions with Guangdong Gewang Biotechnology Co., Ltd. (Gewang), a related party affiliated by common control, and Biotechnology International, a related party with 30% ownership of the Company. Gewang and Biotechnology International are both 100% subsidiaries of China Gewang Biotechnology, Inc. (China Gewang).
F-28
TIANMEI BEVERAGE GROUP CORPORATION LIMITED
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
14.
RELATED-PARTY (continued)
14.1 Related party transactions (continued)
The following is a summary of balances and significant transactions with related parties as at and for the six months ended 31 May 2016:
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|
|
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|
|
|
|
|
|
Receivable for equity share:
|
|
|
|
|
|
|
|
|
|
Biotechnology International
|
|
|
|
$
1,000,000
|
|
|
|
|
|
Trademark expenses:
|
|
|
|
|
|
|
|
|
|
Gewang
|
|
|
|
$
895
|
Outstanding balances at 31 May 2016 are unsecured and non-interest bearing.
14.2 Trademark
The Company entered into an agreement on 10 June 2015 for the right to use Gewangs trademark for 10 years. The future commitment is approximately $1,500 each year.
14.3 Key management personnel compensation
Key management personnels annual compensation is comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
Short-term employee benefits
|
|
|
|
|
$
65,563
|
Post-employment benefits
|
|
|
|
|
-
|
Termination benefits
|
|
|
|
|
-
|
Other long-term benefits
|
|
|
|
|
-
|
Share-based payments
|
|
|
|
|
-
|
|
|
|
|
|
$
65,563
|
F-29
TIANMEI BEVERAGE GROUP CORPORATION LIMITED
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
15.
FINANCIAL INSTRUMENTS
15.1 Credit risk
15.1.1 Exposure to credit risk
The carrying amount of financial assets represents the Companys maximum credit exposure. The maximum exposure to credit risk as at 31 May 2016 was as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
Trade and other receivables
|
|
|
|
|
|
$
1,291
|
Cash and cash equivalents
|
|
|
|
|
|
12,015,425
|
|
|
|
|
|
|
$
12,016,716
|
15.2 Liquidity risk
The following are the contractual maturities (including interest payments where applicable) of financial liabilities.
15.2.1 Non-derivative financial liabilities
|
|
|
|
|
|
31 May 2016
|
Carrying amount
|
Contractual cash flow
|
6 months or less
|
6-12 months
|
More than 1 year
|
|
|
|
|
|
|
Trade and other payables
|
$
819,752
|
$
819,752
|
$
819,752
|
$
-
|
$
-
|
Advance from customers
|
778,234
|
778,234
|
778,234
|
-
|
-
|
Taxes payable
|
1,066,132
|
1,066,132
|
1,066,132
|
-
|
-
|
Convertible debt payable
|
1,002,507
|
1,002,507
|
1,002,507
|
-
|
-
|
Borrowings
third parties
|
89,673
|
89,673
|
89,673
|
-
|
-
|
|
$
3,756,298
|
$
3,756,298
|
$
3,756,298
|
$
-
|
$
-
|
F-30
TIANMEI BEVERAGE GROUP CORPORATION LIMITED
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
15.
FINANCIAL INSTRUMENTS (continued)
15.3 Fair values
15.3.1 Fair values versus carrying amounts
The fair values of financial assets and liabilities, together with the carrying amounts shown in the consolidated statement of financial position as at 31 May 2016 were as follows:
Assets carried at amortized cost