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"). From February through May 2016, Winha International effected a reorganization of its subsidiaries, with the result that Australian Winha became the indirect owner, through subsidiaries, of Zhongshan Winha, the Company's operating subsidiary.
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.
1. ORGANIZATION AND BUSINESS (CONTINUED)
|
|
|
Percentage of
Shares
|
|
|
Bonus
shares
issued
|
|
|
|
|
|
|
|
|
|
|
Zhuowei Zhong
|
|
|
7
|
%
|
|
|
5,040,000
|
|
|
Beijing Ruihua Future Investment Management Co. Ltd.
|
|
|
5
|
%
|
|
|
3,600,000
|
|
|
Donghe Group Limited
|
|
|
5
|
%
|
|
|
3,600,000
|
|
|
Xinxi Zhong.
|
|
|
5
|
%
|
|
|
3,600,000
|
|
|
Zhifei Huang
|
|
|
4
|
%
|
|
|
2,880,000
|
|
|
Chun Yan Winne Lam
|
|
|
3
|
%
|
|
|
2,160,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
29
|
%
|
|
|
20,880,000
|
|
In addition, 11 individuals, suppliers of Zhongshan Winha, were each sold 1% of Australian Winha shares for $0.0001 per share as follows:
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).
WINHA INTERNATIONAL GROUP LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JUNE 30, 2017 AND 2016 (IN U.S. $) (UNAUDITED)
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting and Presentation
The unaudited interim consolidated financial statements of the Company as of June 30, 2017 and for the three months ended June 30, 2017 and 2016, have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the SEC which apply to interim financial statements. Accordingly, they do not include all of the information and footnotes normally required by accounting principles generally accepted in the United States of America for annual financial statements. In the opinion of management, such information contains all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results for the periods presented. The interim consolidated financial information should be read in conjunction with the consolidated financial statements and the notes thereto, included in the Company's Form 10-K filed with the SEC. The results of operations for the three months ended June 30, 2017 are not necessarily indicative of the results to be expected for future quarters or for the year ending March 31, 2018.
All significant inter-company accounts and transactions have been eliminated in consolidation.
All consolidated financial statements and notes to the consolidated financial statements are presented in United States dollars ("US Dollar" or "US$" or "$").
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 subsequent to the deconsolidation.
With the public offering in Australia in January 2017 (see Note 1), the Company no longer consolidates the operations of Australian Winha and its subsidiaries as its ownership was reduced to 44.87% and now recognizes the income (loss) on the equity method of accounting. Accordingly, the information presented in the financial statements and the related footnotes relates to the prior period that was consolidated with the Company.
WINHA INTERNATIONAL GROUP LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JUNE 30, 2017 AND 2016 (IN U.S. $) (UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Foreign Currency Translation
Almost all Company assets and operations are located in the PRC. The functional currency for the majority of the Company's operations is the Renminbi ("RMB"). For Winha International Investment Holdings Company, the functional currency for the majority of its operations is the Hong Kong Dollar ("HKD"). For Australian Winha, the functional currency is the Australian Dollar ("AUD"). The Company uses the United States Dollar ("US Dollar" or "US$" 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:
|
|
|
June 30,
2017
|
|
|
March 31,
2017
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance sheet items, except for stockholders' equity, as of period end
|
|
$
|
0.1475
|
|
|
$
|
0.1451
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
2017
|
|
|
Three Months Ended
June 30,
2016
|
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts included in the statements of operations, statements of changes in stockholders' equity and statements of cash flows
|
|
$
|
0.1457
|
|
|
$
|
0.1531
|
|
The exchange rates used to translate amounts in AUD into US dollars for the purposes of preparing the consolidated financial statements are as follows:
WINHA INTERNATIONAL GROUP LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JUNE 30, 2017 AND 2016 (IN U.S. $) (UNAUDITED)
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Foreign Currency Translation (continued)
|
|
June 30,
2017
|
|
March 31,
2017
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Balance sheet items, except for stockholders' equity, as of period end
|
|
$
|
0.7678
|
|
|
$
|
0.7644
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
2017
|
|
Three Months Ended
June 30,
2016
|
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts included in the statements of operations, statements of changes in stockholders' equity and statements of cash flows
|
|
$
|
0.7508
|
|
|
$
|
0.7455
|
|
For the three months ended June 30, 2017 and 2016, foreign currency translation adjustments of $(428,889)
and $
(925,980), 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.
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 2% subsequent to March 31, 2017. Further devaluations could occur in the future.
WINHA INTERNATIONAL GROUP LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JUNE 30, 2017 AND 2016 (IN U.S. $) (UNAUDITED)
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
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.
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 THREE MONTHS ENDED JUNE 30, 2017 AND 2016 (IN U.S. $) (UNAUDITED)
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.
|
When the fiscal year 2017 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 three months ended June 30, 2016, wholesale revenue of $2,083,498 was generated from these six stores.
|
|
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 $9,816,177 for three months ended June 30, 2016.
|
|
|
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 $1,492,731 for the three months ended
June 30, 2016,
and are included in revenue.
WINHA INTERNATIONAL GROUP LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JUNE 30, 2017 AND 2016 (IN U.S. $) (UNAUDITED)
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 THREE MONTHS ENDED JUNE 30, 2017 AND 2016 (IN U.S. $) (UNAUDITED)
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 June 30, 2017 and March 31, 2017, 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.
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 June 30, 2017 and March 31, 2017, 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 calculated.
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 THREE MONTHS ENDED JUNE 30, 2017 AND 2016 (IN U.S. $) (UNAUDITED)
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 three months ended June 30, 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 THREE MONTHS ENDED JUNE 30, 2017 AND 2016 (IN U.S. $) (UNAUDITED)
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 three months ended June 30, 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 periods reflected in the accompanying consolidated statements 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 $276,438 for the three months ended June 30, 2016.
WINHA INTERNATIONAL GROUP LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JUNE 30, 2017 AND 2016 (IN U.S. $) (UNAUDITED)
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 FASB issued 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.
WINHA INTERNATIONAL GROUP LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JUNE 30, 2017 AND 2016 (IN U.S. $) (UNAUDITED)
3. RECENTLY ISSUED ACCOUNTING STANDARDS
(CONTINUED)
In April 2016, the FASB issued ASU 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 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.
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.
WINHA INTERNATIONAL GROUP LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JUNE 30, 2017 AND 2016 (IN U.S. $) (UNAUDITED)
4. EQUITY INVESTMENT
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.
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 Company's 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.
The following table reconciles the investment income with equity investment for the three months ended June 30, 2017 and March 31, 2017, respectively:
|
|
June 30,
2017
|
|
March 31,
2017
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Equity investment - beginning
|
|
$
|
13,042,386
|
|
|
$
|
13,141,799
|
|
|
Investment income (loss)
|
|
$
|
2,263,752
|
|
|
$
|
(103,635
|
)
|
|
Other comprehensive (loss) gain
|
|
$
|
(428,889
|
)
|
|
$
|
4,222
|
|
|
Dividend declared (approximately USD $0.026 per share)
|
|
$
|
(1,166,554
|
)
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity investment - ending
|
|
$
|
13,710,695
|
|
|
$
|
13,042,386
|
|
The following table summarized the operation information of Australia Winha:
|
|
June 30,
2017
|
|
March 31,
2017
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
18,665,611
|
|
|
$
|
22,107,355
|
|
|
Gross profit
|
|
$
|
7,353,321
|
|
|
$
|
8,825,839
|
|
|
Net income (loss)
|
|
$
|
5,045,134
|
|
|
$
|
(230,969
|
)
|
|
Total assets
|
|
$
|
41,260,271
|
|
|
$
|
43,293,241
|
|
|
Total liabilities
|
|
$
|
3,424,863
|
|
|
$
|
3,438,626
|
|
5. RELATED PARTY TRANSACTIONS
The Company obtained demand loans from the chairman of the board, which are non-interest bearing. The loans of $118,680 as of June 30, 2017 and March 31, 2017 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 THREE MONTHS ENDED JUNE 30, 2017 AND 2016 (IN U.S. $) (UNAUDITED)
6. 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 months ended June 30:
|
|
|
2017
|
|
|
2016
|
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
-
|
|
|
$
|
1,556,884
|
|
|
Deferred
|
|
|
-
|
|
|
|
(25,741
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
-
|
|
|
$
|
1,531,143
|
|
The following table reconciles the effective income tax rates with the statutory rates for the three months ended June 30, respectively:
|
|
|
2017
|
|
|
2016
|
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Statutory rate - PRC
|
|
|
-
|
|
|
|
25.0
|
%
|
|
Benefit of carryforward losses
|
|
|
-
|
|
|
|
(1.1
|
)%
|
|
Other
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective income tax rate
|
|
|
-
|
|
|
|
23.9
|
%
|
During the three months ended June 30, 2016, 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 THREE MONTHS ENDED JUNE 30, 2017 AND 2016 (IN U.S. $) (UNAUDITED)
6. INCOME TAXES (CONTINUED)
Deferred tax assets are comprised of the following:
|
|
June 30,
2017
|
|
|
March 31,
2017
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
7,239,616
|
|
|
$
|
7,239,616
|
|
|
Less: valuation allowance
|
|
|
(7,239,616
|
|
|
|
(7,239,616
|
)
|
|
Net deferred tax asset
|
|
|
|
|
|
|
|
|
At June 30, 2017 and March 31, 2017, the Company had unused operating loss carry-forwards of approximately $20,685,000 and $20,685,000 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 valuation allowance has been recognized as of June 30, 2017 and March 31, 2017. The valuation allowance increased by approximately $936,000 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.
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