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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

 FORM 10-K

 

☒	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For The Fiscal Year Ended March 31, 2017

 

☐	TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

  

Commission File No.  333-191063 

 

Issuer’s Telephone Number: 86-760-8896-3655

Securities registered pursuant to Section 12(b) of the Exchange Act: None.

 

Securities registered pursuant to Section 12(g) of the Exchange Act: None.

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.        Yes ☐    No ☒

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes ☐    No ☒

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes ☒ No ☐

  

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ☒

 

 Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,”  “smaller reporting company” and “emerging growth company in Rule 12b-2 of the Exchange Act. (Check One)  

 

Large accelerated filer ☐     Accelerated filer ☐      Non-accelerated filer☐       Smaller reporting company ☒

Emerging growth company  ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐   No ☒

 

The aggregate market value of the registrant’s voting common stock held by non-affiliates computed by reference to the closing price as of the last business day of the quarterly period ended September 30, 2016 was $57,601,591.  

 

As of July 13, 2017, the registrant had 49,989,500 shares of common stock issued and outstanding.

 

DOCUMENTS INCORPORATED BY REFERENCE:

None.

 

 

TABLE OF CONTENTS

 

 

 

 

PART I

 ITEM 1.     BUSINESS.

 

In this Annual Report on Form 10-K, the terms “Company,” “we,” “us,” and “our” refer to Winha International Group Limited (“Winha International”) and its subsidiaries, through which Winha International owns a 44.9% equity interest in a Chinese operating company, Zhongshan Winha Electronic Commerce Company Limited (“Zhongshan Winha”,) and a 22% interest in Flavours Fruit & Veg Pty Ltd (“Flavours”), an Australian operating company.

 

Overview

 

Zhongshan Winha retails specialty food products drawn from many regions across China through its chain of dedicated  stores. We provide customers with access to a large variety of local food products that can otherwise only be found in the producer’s region. Our vision is to promote cultures and traditions that exist throughout China, while bolstering local economies and raising awareness of the cultural heritage.

Initially, our marketing occurred exclusively in our retail stores, which were seven in number at the end of our previous fiscal year, on March 31, 2016. During the summer of 2016, however, we transferred control of six of those stores to independent operators, who are now customers for our products. In the summer of 2015 we expanded the scope of our brand by initiating a franchising program. To date we have granted 44 franchises to stores that purchase food products from our suppliers and retail the products under our brand and trade dress. The franchisees pay us a start-up fee and monthly management fee for the right to participate in our franchise program.

 

Our Corporate History and Structure

 

Winha International was incorporated in Nevada on April 15, 2013. On August 1, 2013, we obtained control of Zhongshan Winha through a series of contracts (the “VIE Agreements”) executed on August 1, 2013 by Zhongshan Winha, the equity-holders in Zhongshan Winha, and our subsidiary, Shenzhen Winha. The practical effect of the six VIE Agreements was to guarantee that any benefit or loss realized from the operations of Zhongshan Winha would be ultimately realized by our subsidiary, Shenzhen Winha Information Technology Company, Ltd. (“Shenzhen Winha”). Because Shenzhen Winha was to realize the ultimate benefit or loss from the operations of Zhongshan Winha, Zhongshan Winha was considered a variable interest entity with respect to Shenzhen Winha under U.S. accounting principles.             
    

On November 27, 2015 Shenzhen Winha exercised its option to purchase the registered equity of Zhongshan Winha for a price equivalent to US$0.16. Since that date, therefore, Zhongshan Winha has been a subsidiary of Winha International.

On May 24, 2016 we completed a reorganization of our subsidiaries, the purpose of which was to introduce an Australian subsidiary into our corporate structure, which would subsequently effect a public offering of its securities on the Australian Stock Exchange. That offering was completed on January 4, 2017, with the result that Winha International now owns only 44.87% of the outstanding shares in the Australian subsidiary. Therefore, the result of the reorganization and subsequent securities offering was that our equity interest in Zhongshan Winha was reduced by 55.13%. From that portion, a 40% interest was distributed to members of the Company’s management, consultants to the Company’s management, and suppliers to Zhongshan Winha. The remaining 15.13% reduction was the result of the public offering in Australia.

 

Products

 

With nearly 5,000 years of history and 56 ethnic groups, China is known for the variety of its cultures, in particular its diverse locally-produced specialty goods. As China covers almost 9.6 million square kilometers of land, the variation of climate and environment nourished many distinct local folk cultures and traditions that produced myriad local specialty goods.

 

 

Since the turn of the century, as the living standard in China has drastically improved, the demand for diversified consumer products has risen every year. Specialty goods, which reflect local cultures, history, and tradition, have become increasingly popular gifts for families and friends. However, due to factors such as limited business investment, incomplete infrastructure in certain rural areas, low brand awareness, lack of sales channels and ineffective marketing, the local specialty product business is still at its early stage.  In addition, with the goal to promote local cultures, China’s State Council has been actively working to stimulate domestic demand for local specialty goods.

Our business was founded to meet the demand for local specialty goods, both fresh and manufactured. We rely on direct suppliers across the country to supply products to us. We have established supply relationship with 21 direct suppliers across 15 provinces of China. In addition, during the summer of 2016 we leased 1,209 acres of land and purchased equipment used in orchards growing 41 varieties of fruit in various areas of China, as well as ten greenhouses. During fiscal year 2017, therefore, 1.18% of the products sold by Winha were grown by Winha.

During the past fiscal year, which ended on March 31, 2017, our best selling products were primarily manufactured products and fresh produce, generally delivered direct from the farm to our customer. Our ten best selling products during fiscal year 2017 were:

During the 2016 fiscal year, our best selling products were primarily fresh produce, generally delivered direct from the farm to our customer. Our ten best selling products during fiscal year 2016 were:

As the table indicates, our sales in our early years were dominated by fresh produce, most of which we sold to the hotel industry. However, in fiscal 2017 six of the ten products that generated the most sales were wine, two were packaged goods, and two were medicinal mushrooms, which shows the effect of our retail and franchise stores selling from inventory.

On May 23, 2016 we entered into a sales contract with Shenzhen Zhongbai Supply Chaim Co., Ltd., providing that it would import and deliver to us 3,000 boxes of honeycomb honey from Australia. During fiscal 2017, our initial sales of honeycomb honey yielded revenue of $344,946. We intend to highlight this product in our marketing to introduce the Chinese market to the special quality of Australian honey. Our expectation, then, is that sales of honeycomb honey will represent a growing portion of our revenue in the future.

Distribution

 

The fastest growing aspect of our product distribution is the wholesale of food products from our executive headquarters to commercial enterprises. We initiated these operations during fiscal year 2017.

In addition, we currently have two retail locations: our flagship store and a single restaurant. We also distribute through six retail stores that we operated until June 2016, at which time we transferred control over their operations to independent parties. The stores holds a variety of manufactured food products in inventory, and offer farm-to-kitchen delivery of a wide variety of fresh and manufactured food products. All orders placed at a retail store are filled from our central office, using our proprietary stock-sell-storage software system. This system enables us to find products for each store with the optimal delivery performance and best pricing, while also monitoring the inventory at each store and its sales performance.

During fiscal year 2016, only 22% of our revenue was the result of purchases of inventory located at a retail store. 71% was the result of custom orders placed at one of our retail stores. Most of these orders were placed by other business establishments, primarily hotels with restaurant services. Towards the end of fiscal year 2017, however, as we moved to streamline our operations and focus on wholesale, we terminated our custom sales operations.

In April of 2015, we expanded the marketing channels by opening our Restaurant at 19 Changyi Road in Wuguishan. The purpose of the Restaurant is less food service than food sampling. Potential customers are invited to visit the Restaurant, where our staff of chefs will prepare foods using the produce and products available at our retail stores. In this manner, our customers can preview both the quality of our products and creative ideas for incorporating our products into the customers’ menus. A small retail store is located onsite at the Restaurant, where customers can place orders for our products. However, we expect the Restaurant experience to yield sales throughout our system. With the success of the Restaurant in Wuguishan, in March 2016 we created a catering business in Shaxi Town, Yunnan. However, we sold that business in March 2017 for a gain of approximately $127,000.  

Franchises

We initiated our franchising program in the summer of 2015. Today we have 44 franchisees, each operating a single store under our trademark and trade dress. Our franchisees are geographically distributed as follows:

 Each franchisee signs a Joint Cooperation Agreement with Zhongshan Winha for a term of five years, renewable on application. The agreement gives the franchisee the right and obligation to use Zhongshan Winha’s trademarks and trade name to operate its store as part of Zhongshan Winha’s unified operating system. The franchisee is required to purchase its inventory from the suppliers engaged by Zhongshan Winha, and to otherwise comply with management policies developed by Zhongshan Winha for its franchisees. The franchisee is required to pay to Zhongshan Winha an initial franchise fee and then a monthly management fee, both of which are determined by the class of city in which the franchisee is located and the size of its store:

Our franchise program was initiated in the summer of 2015. During the year ended March 31, 2017, we recorded $4,322,366 in franchise and management fees. We intend to increase the number of franchised stores during fiscal 2018, and expect revenue from our franchise operations to represent an increasing portion of our total revenue.

 Government Regulation

 

Foreign Exchange Regulation Relating to Foreign Invested Enterprises

 

The principal regulation governing foreign currency exchange in China is the Foreign Currency Administration Rules (1996), as amended (2008). Under these Rules, the RMB is freely convertible for current account items, such as trade and service-related foreign exchange transactions, but not for capital account items, such as direct investment, loan or investment in securities outside China unless the prior approval of, and/or registration with, the State Administration of Foreign Exchange of the People’s Republic of China, or SAFE, or its local counterparts (as the case may be) is obtained.

 

Pursuant to the Foreign Currency Administration Rules, foreign invested enterprises, or FIEs, in China may purchase foreign currency without the approval of SAFE for trade and service-related foreign exchange transactions by providing commercial documents evidencing these transactions. They may also retain foreign exchange (subject to a cap approved by SAFE) to satisfy foreign exchange liabilities or to pay dividends. In addition, if a foreign company acquires a subsidiary in China, the acquired company will also become an FIE. However, the relevant PRC government authorities may limit or eliminate the ability of FIEs to purchase and retain foreign currencies in the future. In addition, foreign exchange transactions for direct investment, loans and investment in securities outside China are still subject to limitations and require approvals from, and/or registration with, SAFE.

 

Regulation of Dividend Distributions

 

The principal regulations governing dividend distributions of wholly foreign owned companies include: the Companies Law (2005), the Wholly Foreign Owned Enterprise Law (2000), and the Wholly Foreign Owned Enterprise Law Implementing Rules (2001).

 

Under these regulations, wholly foreign owned companies in China may pay dividends only out of their accumulated profits, if any, as determined in accordance with PRC accounting standards and regulations. In addition, wholly foreign owned companies are required to set aside at least 10% of their respective accumulated profits each year, if any, to fund certain reserve funds, until the aggregate amount of these funds reaches 50% of the company’s registered capital. Wholly foreign owned companies may, at their discretion, allocate a portion of their after-tax profits based on PRC accounting standards to staff benefits and bonus funds. These reserve funds and staff benefits and bonus funds are not distributable as cash dividends.

 

Regulations on Product Liability and Consumers Protection

 

Product liability claims may arise if the products sold have any harmful effect on the consumers. The injured party may claim for damages or compensation. The Product Quality Law of the PRC, which was enacted in 1993 and amended in 2000, strengthens the quality control of products and protects consumers’ rights and interests. Under this law, manufacturers and distributors who produce or sell defective products may be subject to confiscation of earnings from such sales, revocation of business licenses and imposition of fines, and in severe circumstances, may be subject to criminal liability.

 

The Law of the PRC on the Protection of the Rights and Interests of Consumers was promulgated on October 31, 1993 and became effective on January 1, 1994 to protect consumers’ rights when they purchase or use goods or services. All business operators must comply with this law when they manufacture or sell goods and/or provide services to customers.

 

The Tort Law of the PRC effective on July 1, 2010 requires that when the product defect endangers people’s life or property, the injured party may hold the producer or the seller liable in tort and require that it remove obstacles, eliminate danger, or take other action. The Tort Law also requires that when a product is found to be defective after it is put into circulation, the producer and the seller shall give timely warnings, recall the defective product, or take other remedial measures.

Regulation of Franchise Operations

Article 7 of the Regulations on Administration of Commercial Franchise (State Council No. 485) requires that a franchisor, before initiating franchise operations, must operate at least two direct sale stores that have had continual operations for over one year, and must have the ability to provide operational guidance, technical support, business training, and related services to its franchisees. Zhongshan Winha met these requirements in the summer of 2015, when it initiated its franchise program.

 

Intellectual Property

 

Trademark

 

During fiscal 2016, our application for trademark protection for our Company’s tradename, “Winha”, was approved by the Chinese government.

 

Domain Names

 

We have an Internet Content Provider License to use the domain name www.winha.com.

 

Employees

 

We currently have 120 employees, all of whom are employed full time. 68 of our employees are located in our central administrative offices; the remainder staff our store, our restaurant and our agricultural operations.

ITEM 1A.       RISK FACTORS

 

Investing in our common stock involves a high degree of risk. The risks below are those that we believe are the material risks that we currently face, but are not the only risks facing us and our business. If any of the events contemplated by the following discussion should occur, our business, financial condition and operating results could be adversely affected, and you could lose all or part of your investment.

 

 

We May Encounter Substantial Competition in Our Business and Our Failure to Compete Effectively May Adversely Affect Our Ability to Generate Revenue.

 

We are a recently organized company. A number of our competitors, including Taobao, Gongtianxia.com and Techan.com, are established and have greater resources than we do. Our competitive strategy is to implement our innovative business model of selling local specialty goods retail on a shopping platform that utilizes both physical stores and virtual stores. However, we believe that new competitors will enter the market and adopt our business model to introduce new websites, mobile applications and services with competitive characteristics. We expect that we will be required to continue to invest in improving our services to compete effectively in our markets. Our competitors could develop a more efficient business model or undertake more aggressive and costly marketing campaigns than ours, which may adversely affect our marketing strategies and could have a material adverse effect on our business, results of operations and financial condition.

 

From Time to Time, We Need to Identify New Suppliers of Local Specialty Products. If We Cannot Obtain Sufficient Supply That Meet Our Standards at a Reasonable Cost or at All, Our Sales Could Be Interrupted, Our Financial Performance Could Suffer.

 

Though each local region generally has abundant sources of specialty products, we cannot assure that the specialty products will continue to be available or in the sense of quality and prices, accessible to us. Numerous factors, most of which are beyond our control, can influence the prices of the supply for local specialty products. These factors include, to name a few, general economic conditions, manufacturer capacity utilization, vendor backlogs and transportation delays, and other uncertainties.

 

If we experience insufficiency of the supply of local specialty products, our sales could be interrupted if we do not have inventory to meet the demand, which will directly lead to a decrease in our revenue and profit.

 

We May Not Be Able To Market Our Website and Mobile Store Successfully.

 

Once we establish a stable and comprehensive supply of specialty products across the country, we plan to launch a marketing campaign to fully promote and advertise our website and mobile store. The e-commerce industry is extremely competitive. Though very few, if any, specialize in local specialty goods, there are currently many general online shopping websites both in China and worldwide that sell local products.  An effective marketing plan will need to be executed in order to establish a loyal client base, and to get our website and mobile application known in the marketplace. If we fail to develop such an effective marketing plan, and if we are unable to market our website and mobile application successfully to consumers, we may not be able to sustain online business operations.

 

We May Not Be Able to Find Suitable Software Developers at an Acceptable Cost.

 

We contract with software developers to further develop and upgrade our website and mobile store and associated backend interface. Due to the current demand for skilled technological developers, we run the risk of not being able to find or retain suitable personnel at an acceptable price. We would also need to ensure that the candidates are adequately qualified to develop a website or mobile application that is user friendly, free of errors and seamless in design. Without these developers, we may not be able to further develop and upgrade the software, which is the most important aspect of our business development.

 

Food Safety Events Involving Us or Our Supply Chain Could Create Negative Publicity and Adversely Affect Sales And Operating Results.

 

Because some of our items are perishable food products, food safety is a top priority, and we dedicate resources to ensure that our customers enjoy safe and quality food products. However, food safety events, including instances of food-borne illness have often occurred in the Chinese food industry in the past, and could occur in the future. As a result, our stores could experience a significant increase in supply costs if there are food safety events whether or not such events involve our stores or those of competitors.

 

In addition, food safety events, whether or not involving us, could result in negative publicity for Winha or for the industry or market segments in which we operate. Increased use of social media could create and/or amplify the effects of negative publicity. This negative publicity, as well as any other negative publicity concerning types of food products we serve, may reduce demand for our products and could result in a decrease in guest traffic to our online, mobile store and physical stores as consumers shift their preferences to our competitors or to other products or food types. A decrease in traffic to our stores, website and/or mobile store as a result of these health concerns or negative publicity could result in a decline in sales.

 

We May Be Subject to Product Liability Claims if People or Properties Are Harmed By the Products We Sell.

 

Products sold through our stores, and those to be sold through our website and mobile store are manufactured by third parties. Some of those products may be defectively produced or manufactured. As a result, sales of such products through our stores, website or mobile store could expose us to product liability claims relating to personal injury or property damage and may require product recalls or other actions. Third parties subject to such injury or damage may bring claims or legal proceedings against us as the distributor of the products. We do not currently maintain any third-party liability insurance or product liability insurance in relation to products sold through our stores. As a result, any material product liability claim or litigation could have a material and adverse effect on our business, financial condition and results of operations. Even unsuccessful claims could result in the expenditure of funds and managerial efforts in defending them and could have a negative impact on our reputation.

 

 

Uncertainties With Respect to the PRC Legal System Could Adversely Affect Us.

 

We conduct all of our business through our subsidiary in China. Our operations in China are generally subject to laws and regulations applicable to foreign investments in China and, in particular, laws and regulations applicable to wholly foreign-owned enterprises. The PRC legal system is based on statutes. Prior court decisions may be cited for reference but have limited precedential value.

 

Since 1979, PRC legislation and regulations have significantly enhanced the protections afforded to various forms of foreign investments in China. However, China has not developed a fully integrated legal system and recently enacted laws and regulations may not sufficiently cover all aspects of economic activities in China. In particular, because these laws and regulations are relatively new, and because of the limited volume of published decisions and their nonbinding nature, the interpretation and enforcement of these laws and regulations involve uncertainties. In addition, the PRC legal system is based in part on government policies and internal rules (some of which are not published on a timely basis or at all) that may have a retroactive effect. As a result, we may not be aware of our violation of these policies and rules until sometime after the violation. In addition, any litigation in China may be protracted and result in substantial costs and diversion of resources and management’s attention.

 

Under the Enterprise Income Tax Law, We May Be Classified as a “Resident Enterprise” of China. Such Classification Will Likely Result in Unfavorable Tax Consequences to Us and Our Non-PRC Stockholders.

 

China passed a new Enterprise Income Tax Law, or the EIT Law, and its implementing rules, both of which became effective on January 1, 2008. Under the EIT Law, an enterprise established outside of China with “de facto management bodies” within China is considered a “resident enterprise,” meaning that it can be treated in a manner similar to a Chinese enterprise for enterprise income tax purposes. The implementing rules of the EIT Law define de facto management as “substantial and overall management and control over the production and operations, personnel, accounting, and properties” of the enterprise.

 

On April 22, 2009, the State Administration of Taxation of China (the “SAT”), issued the Notice Concerning Relevant Issues Regarding Cognizance of Chinese Investment Controlled Enterprises Incorporated Offshore as Resident Enterprises pursuant to Criteria of de facto Management Bodies, or the Notice, further interpreting the application of the EIT Law and its implementation to offshore entities controlled by a Chinese enterprise or group. Further to the Notice, the SAT issued the Administrative Measures for Enterprise Income Tax on Chinese-controlled Offshore Incorporated Resident Enterprises (Trial) on July 27, 2011, or Bulletin No. 45, which took effect on September 1, 2011, to provide more guidance on the implementation of the Notice. Pursuant to the Notice, an enterprise incorporated in an offshore jurisdiction and controlled by a Chinese enterprise or group will be classified as a “non-domestically incorporated resident enterprise” if (i) its senior management in charge of daily operations perform their duties mainly in China; (ii) its financial or personnel decisions are made or approved by bodies or persons in China; (iii) its substantial assets and properties, accounting books, corporate stamps, board and stockholder minutes are kept in China; and (iv) at least half of its directors with voting rights or senior management often reside in China. The Bulletin No. 45 provides clarification on the resident status determination, post-determination administration and competent tax authorities. It also specifies that when provided with a copy of PRC resident determination certificate from a Chinese-controlled offshore-incorporated resident enterprise, the payer should not withhold 10% income tax when paying certain Chinese-sourced income such as dividends, interest and royalties to the Chinese-controlled offshore-incorporated resident enterprise. A resident enterprise would be subject to an enterprise income tax rate of 25% on its worldwide income and must pay a withholding tax at a rate of 10% when paying dividends to its non-PRC stockholders. However, it remains unclear as to whether the Notice is applicable to an offshore enterprise controlled by a Chinese natural person. Therefore, it is unclear how tax authorities will determine tax residency based on the facts of each case.

 

If the PRC tax authorities determine that we are a “resident enterprise” for PRC enterprise income tax purposes, a number of unfavorable PRC tax consequences could follow. First, we may be subject to the enterprise income tax at a rate of 25% on our worldwide taxable income as well as PRC enterprise income tax reporting obligations. In our case, this would mean that income such as non-China source income would be subject to PRC enterprise income tax at a rate of 25%. Currently, we do not have any non-China source income. Second, under the EIT Law and its implementing rules, dividends paid to us from our PRC subsidiary would qualify as “tax-exempt income.” Finally, it is possible that future guidance issued with respect to the new “resident enterprise” classification could result in a situation in which a 10% withholding tax is imposed on dividends we pay to our non-PRC stockholders and with respect to gains derived by our non-PRC stockholders from transferring our shares. We are actively monitoring the possibility of “resident enterprise” treatment for the 2013 tax year and are evaluating appropriate organizational changes to avoid this treatment, to the extent possible.

 

If we were treated as a “resident enterprise” by PRC tax authorities, we would be subject to taxation in both the U.S. and China, and our PRC tax may not be creditable against our U.S. tax.

  

PRC Regulation of Loans and Direct Investment by Offshore Holding Companies to PRC Entities May Delay or Prevent Us From Making Loans or Additional Capital Contributions to Our PRC Operating Subsidiary, Which Could Materially and Adversely Affect Our Liquidity and Our Ability to Fund and Expand Our Business.

 

As an offshore holding company of our PRC operating subsidiary, we may make loans to our PRC subsidiary, or we may make additional capital contributions to our PRC subsidiary. Any loans to our PRC subsidiary are subject to PRC regulations. For example, loans by us to our subsidiary in China to finance its activities cannot exceed statutory limits which is the difference between the total investment and the registered capital of our PRC subsidiary and must be registered with the State Administration of Foreign Exchange, or SAFE. On August 29, 2008, SAFE promulgated Circular 142, a notice regulating the conversion by a foreign-invested company of foreign currency into RMB by restricting how the converted RMB may be used. Circular 142 requires that RMB converted from the foreign currency-denominated capital of a foreign-invested company may only be used for purposes within the business scope approved by the applicable governmental authority and may not be used for equity investments within the PRC unless such investments are otherwise provided for in the business scope. The foreign currency-denominated capital shall be verified by an accounting firm before converting into RMB. In addition, SAFE strengthened its oversight over the flow and use of RMB funds converted from the foreign currency-denominated capital of a foreign-invested company. To convert such capital into RMB, the foreign-invested company must report the use of such RMB to the bank, and the RMB must be used for the reported purposes. According to Circular 142, change of the use of such RMB without approval is prohibited. In addition, such RMB may not be used to repay RMB loans if the proceeds of such loans have not yet been used. Violations of Circular 142 may result in severe penalties, including substantial fines as set forth in the Foreign Exchange Administration Rules. In addition, the SAFE promulgated the Notice on Relevant Issues Concerning Strengthening the Administration of Foreign Exchange Business, or Circular 59, on November 9, 2010, which requires the government to closely examine the authenticity of settlement of net proceeds from offshore offerings and the net proceeds to be settled in the manner described in the offering documents. 

 

We may also decide to finance our subsidiary by means of capital contributions. These capital contributions must be approved by the Ministry of Commerce of China, or MOFCOM, or its local counterpart. We may not be able to obtain these government approvals on a timely basis, if at all, with respect to future capital contributions by us to our PRC subsidiary. If we fail to receive such approvals, our ability to capitalize our PRC operations may be negatively affected, which could adversely affect our liquidity and our ability to fund and expand our business.

 

Governmental Control of Currency Conversion May Affect the Value of Your Investment.

 

The PRC government imposes controls on the convertibility of RMB into foreign currencies and, in certain cases, the remittance of currency out of China. Prior approval from SAFE is required where RMB is to be converted into foreign currency and remitted out of China to pay certain capital account items, such as the repayment of loans denominated in foreign currencies as well as the proceeds of the liquidation of assets.

 

We receive substantially all of our revenues in RMB. Under our current corporate structure, our cash flow is primarily derived from dividend payments from our PRC subsidiary. Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and expenditures from trade-related transactions can be made in foreign currencies without prior approval from SAFE by complying with certain procedural requirements. As profit and dividend are current account items, our revenues generated in the PRC may be paid to shareholders outside of the PRC as profit or dividend without prior approval from SAFE so long as we comply with certain procedural requirements.

 

However, the PRC government may at its discretion restrict access in the future to foreign currencies for payments of profit and dividend. If the foreign exchange control system prevents us from obtaining sufficient foreign currency to satisfy our currency demands, we may not be able to pay dividends in foreign currencies to our shareholders.

 

Our inability to obtain the requisite approvals for converting RMB into foreign currencies, any delays in receiving such approvals or any future restrictions on currency exchanges may restrict the ability of our PRC subsidiary to remit sufficient foreign currency to pay dividends or other payments to us, or otherwise satisfy its foreign currency denominated obligations.

 

Fluctuation in the Value of the RMB May Have a Material Adverse Effect on the Value of Your Investment.

 

The value of the RMB against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in political and economic conditions. On July 21, 2005, the PRC government changed its decade-old policy of pegging the value of the RMB to the U.S. dollar. Under the new policy, the RMB is permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies. Provisions on Administration of Foreign Exchange, as amended in August 2008, further changed China’s exchange regime to a managed floating exchange rate regime based on market supply and demand. From 2008 to 2015 the exchange rate between the RMB and the U.S. dollar remained relatively stable. Since September of 2015, however, the Chinese government has reduced the value of the RMB three times, for an aggregate reduction of almost four percent. Substantially all of our revenues and costs are denominated in RMB, and a significant portion of our financial assets are also denominated in RMB. We principally rely on dividends and other distributions paid to us by our subsidiary in China. Any significant revaluation of the RMB may materially and adversely affect our cash flows, revenues, earnings and financial position, and the value of, and any dividends payable on, our ordinary shares in U.S. dollars. Any fluctuations of the exchange rate between the RMB and the U.S. dollar could also result in foreign currency translation losses for financial reporting purposes.

 

PRC Regulations Relating to the Establishment of Offshore Special Purpose Companies by PRC Residents May Subject Our Potential PRC Resident Shareholders to Penalties and Limit Our Ability to Inject Capital Into Our PRC Subsidiary, Limit Our PRC Subsidiary’s Ability to Distribute Profits to Us, or Otherwise Adversely Affect Us.

 

The SAFE has promulgated several regulations, including the Notice on Relevant Issues Concerning Foreign Exchange Administration for Domestic Residents’ Financing and Roundtrip Investment through Offshore Special Purpose Vehicles, or Circular 75, effective on November 1, 2005 and its implementation rules. These regulations require PRC residents and PRC companies to register with local branches of the SAFE before SPVs conduct any overseas financing, have any change in equity interest, conduct any round-trip investments or have any other material changes in capital or equity interest in SPVs. An amendment to registration or filing with the local SAFE branch by such PRC residents or PRC companies is also required for the injection of equity interests or assets of an onshore enterprise in the offshore special purpose company or overseas funds raised by such offshore company, or any other material change involving a change in the capital of the offshore special purpose company.  Any PRC resident shareholders holding direct or indirect interest in our company may be subject to Circular 75 and its implementation rules. Failure by any such PRC residents to comply with Circular 75 and its implementation rules could subject themselves to fines or legal sanctions, restrict our overseas or cross-border investment activities, limit our ability to inject capital into our PRC subsidiary, limit our PRC subsidiary’s ability to distribute profits to us or affect our ownership structure, which could adversely affect our business and prospects.

  

 

The Company’s Shares Currently Trade for Less Than $5.00 Per Share, and Thus are a Penny Stock. Trading in Penny Stocks Has Many Restrictions and These Restrictions Could Severely Affect the Price and Liquidity of the Company’s Shares.

 

Since commencing trading in August 2014, our stock has traded below $5.00 per share. Our stock, therefore, is known as a “penny stock”, which is subject to various regulations involving disclosures to be given to you prior to the purchase of any penny stock. The SEC has adopted regulations which generally define a “penny stock” to be any equity security that has a market price of less than $5.00 per share, subject to certain exceptions. A penny stock is subject to rules that impose additional sales practice requirements on broker/dealers who sell these securities to persons other than established customers and accredited investors. For transactions covered by these rules, the broker/dealer must make a special suitability determination for the purchase of these securities. In addition, the broker/dealer must receive the purchaser’s written consent to the transaction prior to the purchase. He must also provide certain written disclosures to the purchaser. Consequently, the “penny stock” rules may restrict the ability of broker/dealers to sell our securities, and may negatively affect the ability of holders of shares of our common stock to resell them. These disclosures require a potential purchaser to acknowledge that he understands the risks associated with buying penny stocks and that he can absorb the loss of his entire investment. Penny stocks are low priced securities that do not have a very high trading volume. Consequently, the price of the stock is often volatile and you may not be able to buy or sell the stock when you want to.

 

We Do Not Anticipate Paying Dividends in the Foreseeable Future.

 

We have never declared or paid any cash dividends or distributions on our capital stock. We currently intend to retain our future earnings, if any, to support operations and to finance expansion and therefore we do not anticipate paying any cash dividends on our common stock in the foreseeable future.

 

The declaration, payment and amount of any future dividends will be made at the discretion of the board of directors, and will depend upon, among other things, the results of our operations, cash flows and financial condition, operating and capital requirements, and other factors as the board of directors considers relevant. There is no assurance that future dividends will be paid, and, if dividends are paid, there is no assurance with respect to the amount of any such dividend.

The Company’s only operating subsidiaries are currently held as minority investments. The Company does not have voting control over any operating subsidiary. The Company, therefore, has no ability to cause an operating subsidiary to distribute accumulated funds as dividends or otherwise. The Company, therefore, unless it changes its subsidiary structure to include majority-owned operating subsidiaries of significant size, will be unable to control the use of the retained earnings of the entities in which it has investments.

 

 

The Lack of Public Company Experience of Our Management Team Could Adversely Impact Our Ability to Comply With the Reporting Requirements of U.S. Securities Laws.

 

Our management lacks public company experience, which could impair our ability to comply with legal and regulatory requirements such as those imposed by Sarbanes-Oxley Act of 2002. Our management has never been responsible for managing a publicly traded company. Such responsibilities include complying with federal securities laws and making required disclosures on a timely basis. Our management may not be able to implement programs and policies in an effective and timely manner that adequately respond to such increased legal, regulatory compliance and reporting requirements, including establishing and maintaining internal controls over financial reporting.  Any such deficiencies, weaknesses or lack of compliance could have a materially adverse effect on our ability to comply with the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) which is necessary to maintain our public company status. If we were to fail to fulfill those obligations, our ability to continue as a U.S. public company would be in jeopardy in which event you could lose your entire investment in our company.

 

ITEM 1B.       UNRESOLVED STAFF COMMENTS

 

Not applicable.

 

ITEM 2.           PROPERTIES.

 

Our principal executive office is located at Suite 3F of the Tianbo Office Building, No. 19 Changyi Road, Changmingshui Industry District, Wuguishan, China. The property at this location, consisting of 686 sq. meters, is leased by the Company, at monthly rental expenses of RMB 13,710 (approximately $2,037) with 10% annual increases, for a term of ten years ending June 30, 2025.

Our subsidiaries now lease commercial space for one retail store, one restaurant and one warehouse, as follows:

We currently lease 1,208.91 acres of agricultural land in parcels ranging from 21 to 56 acres, as follows:

We currently do not own any real property.  

 

 

 

ITEM 3.           LEGAL PROCEEDINGS.

 

There are no material pending legal proceedings to which we are a party or of which any of our property is the subject.  

 

ITEM 4.           MINE SAFETY DISCLOSURES.

 

Not applicable.

 

PART II

 

ITEM 5.           MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

 

Market Information

 

 Our common stock has been listed for quotation on the OTC Pink Market since August 14, 2014.  It is currently listed under the symbol “WINH.”  The following table sets forth for the respective periods indicated the prices of the common stock, as reported by the OTC Pink Market.  Such prices are based on inter-dealer bid and asked prices, without markup, markdown, commissions, or adjustments and may not represent actual transactions.

Holders

 

As of July 12, 2017, there were 411 holders of record of our common stock.

 

Dividends

 

To date, we have not declared or paid any dividends on our common stock. We currently do not anticipate paying any cash dividends in the foreseeable future on our common stock. Although we intend to retain our earnings, if any, to finance the expansion and growth of our business, our board of directors has the discretion to declare and pay dividends in the future.

 

Payment of dividends in the future will depend upon our earnings, capital requirements, and any other factors that our board of directors deems relevant.

 

Recent Sales of Unregistered Securities

 

The Company did not effect any unregistered sale of securities during the fourth quarter of fiscal year 2017.

 

ITEM 6.           SELECTED FINANCIAL DATA.

 

Not applicable.

  

ITEM 7.           MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

Results of Operations

 

The results of operations reported by the Company in this Annual Report reflect:
 

ITEM 7A.        QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

Not applicable.

 

ITEM 8.           FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

 

Index to the Consolidated Financial Statements

 

 

 

 

WINHA INTERNATIONAL GROUP LIMITED AND SUBSIDIARIES

 

ASSETS		2017				2016
Current assets:
Cash and cash equivalents		$	-			$	21,548,630
Accounts receivable			-				1,417,860
Inventory			-				1,523,959
Advances to suppliers			-				151,230
Prepaid expenses			-				174,010
Deferred tax assets			-				32,810
Total current assets			-				24,848,499
Equity investment			13,042,386				-
Property, plant and equipment, net			-				1,847,977
Website - net			-				45,676
Deferred registration cost			-				212,312
TOTAL ASSETS		$	13,042,386			$	26,954,464

 

See accompanying notes to the consolidated financial statements.

 

 

 

See accompanying notes to the consolidated financial statements.

 

 

See accompanying notes to the consolidated financial statements.

See accompanying notes to the consolidated financial statements.

 

 

See accompanying notes to the consolidated financial statements

 

 

 

See accompanying notes to the consolidated financial statements.

 

 

See accompanying notes to the consolidated financial statements.

 

		Years Ended March 31,
		2017				2016
Cash flows from financing activities:
Proceeds from convertible debt			-				5,537,359
Repayment of redeemable convertible notes			(5,107,995	)			-
Advance proceeds for sale of subsidiary's stock			6,123,137				-
Additional capital contribution			-				816,001
Proceeds from stockholder loan-net			1,260,804				404,971
Deferred registration costs			-				(212,312	)
Net cash provided by financing activities			2,275,946				6,546,019
Effect of exchange rate changes on cash			(1,286,544	)			(467,180	)
Net change in cash			(21,548,630	)			20,444,904
Cash, beginning of year			21,548,630				1,103,726
Cash, end of year		$	-			$	21,548,630
Supplemental disclosure of cash flow information:
Cash paid for interest		$	191,844			$	-
Cash paid for income taxes		$	3,911,672			$	3,568,799

 

 

See accompanying notes to the consolidated financial statements.

Winha International Group Limited (“Winha International”) was incorporated in Nevada on April 15, 2013.  The subsidiaries of the Company and their principal activities are described as follows:

 

Winha International and its subsidiaries are collectively referred to as the “Company”. The Company retails local specialty products, including locally-produced food, beverages, and arts and crafts, from different regions across China through its subsidiaries. The Company will provide customers with access to a variety of local products that can typically only be found in local stores or markets in specific regions of China.

 

Initially, the Company operated its business through a variable interest entity, Zhongshan Winha Electronic Commerce Company Limited (“Zhongshan Winha”) which has two wholly owned limited liability subsidiaries, Zhongshan Supermarket Limited (“Zhongshan Supermarket”) and Zhongshan Winha Catering Management Co., Ltd. (“Winha Catering”), as well as three incorporated branches.  The Company had the controlling interest in Zhongshan Winha via its wholly owned subsidiary Shenzhen Winha Information Technologies Company Ltd. (“Shenzhen Winha”) through a series of contractual arrangements. On November 27, 2015, the shareholders of Zhongshan Winha transferred their stock to Shenzhen Winha, upon the exercise of its option to purchase all of the registered equity. Zhongshan Winha is now a wholly owned subsidiary of Shenzhen Winha. The purchase price was $0.16.

 

In May 2015, C&V International Company Limited, a wholly owned subsidiary of Winha International, set up a wholly owned subsidiary, Australia Winha Commerce and Trade Limited (“Australian Winha”), which has been inactive since inception.

 

In March 2016, 29% of the outstanding shares of Australian Winha were transferred to the following individuals and entities, each of which has a direct or indirect relationship with the major shareholder and consultants of the Company.

 

 

 

 

 

1.   ORGANIZATION AND BUSINESS (CONTINUED)

In addition, 11 individuals, who were suppliers to Zhongshan Winha, were each sold 1% of Australian Winha shares for $0.0001 per share.

The effect of these transactions was to reduce the interest of the Company in its Australian subsidiary by 40%. The Company used the Australian Winha offering price for its initial public offering in Australia to approximate the fair value of the 40% stock issued. The Company recognized stock compensation of $21,882,816 during the year ended March 31, 2016 in general and administrative expenses.

On January 4, 2017, the Company’s 60% owned subsidiary, Australian Winha, was admitted to the ASX Limited Exchange in Australia and there were 24,271,191 ordinary shares issued at an issue price of AUD$0.35 per share to yield net proceeds of AUD$8,494,917 (approximately USD$6,123,000).  As a result of the offering, the Company’s 60% ownership of Australian Winha was diluted to 44.87%.  Because the Company’s ownership of Australia Winha is less than 50%, the Company is required to deconsolidate Australia Winha and recognize its share of the earnings (loss) reported by Australian Winha on the equity basis of accounting (See notes 2 and 5).

Basis of Accounting and Presentation

The accompanying consolidated financial statements of the Company have been prepared on the accrual basis.

Until November 27, 2015, the consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries and its VIE for which it was deemed the primary beneficiary.  On November 27, 2015, the VIE structure was terminated upon Shenzhen Winha exercising its option to purchase all of the registered equity of Zhongshan Winha.  Shenzhen Winha became the sole owner of Zhongshan Winha.  All significant inter-company accounts and transactions have been eliminated in consolidation.

All consolidated financial statements and notes to the consolidated financial statements are presented in United States dollars (“US Dollar” or “US$” or “$”).  Most of the accompanying notes to these financial statements relate to the operations of Australia Winha and subsidiaries for the period through January 3, 2017, when the reduction of the Company’s interest in Australian Winha below 50% required the deconsolidation of Australian Winha from the Company’s financial statements.

 

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Deconsolidation of Australian Winha and Equity Method on Investment

On January 4, 2017, the Company’s 60% owned subsidiary, Australian Winha issued 24,271,191 ordinary shares in connection with its public offering in Australia.  After the offering, the Company’s 60% ownership of Australian Winha was diluted to 44.87%.  In our financial statements, we consolidated Australian Winha until January 3, 2017. Since January 4, 2017, Winha International accounts for its investment in Australian Winha as an equity method investment.

Winha International recognized a $4,431,367 loss associated with the deconsolidation.  As of January 3, 2017, Australian Winha represented total assets of $39,611,043 and total liabilities of $10,322,431. For the 2017 period prior to the deconsolidation, Australian Winha earned revenues $45,470,149, net income attributable to Winha International totaled $7,215,770, cash inflow from operating activities totaled $1,208,793, cash outflow from investing activities totaled $10,344,526, and cash inflow from financing activities totaled $2,275,946.

Foreign Currency Translation

Almost all Company assets and operations are located in the PRC.  The functional currency for the majority of the Company’s operations is the Renminbi (“RMB”). For Winha International Investment Holdings Company, the functional currency for the majority of its operations is the Hong Kong Dollar (“HKD”). For Australian Winha, the functional currency is the Australian Dollar (“AUD”).  The Company uses the United States Dollar (“US Dollar” or “US$” or “$”) for financial reporting purposes.  The financial statements of the Company have been translated into US dollars in accordance with FASB ASC 830, “Foreign Currency Matters.”

All asset and liability accounts have been translated using the exchange rate in effect at the balance sheet date.  Equity accounts have been translated at their historical exchange rates when the capital transactions occurred.  Statements of operations, changes in stockholders’ equity and cash flow amounts have been translated using the average exchange rate for the periods presented.  Adjustments resulting from the translation of the Company’s financial statements are recorded as other comprehensive income (loss).

The exchange rates used to translate amounts in RMB into US dollars for the purposes of preparing the financial statements are as follows:

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Foreign Currency Translation (continued)

The exchange rates used to translate amounts in AUD into US dollars for the purposes of preparing the consolidated financial statements are as follows:

For the years ended March 31, 2017 and 2016, foreign currency translation adjustments of $(1,497,395) and $(414,183), respectively, have been reported as other comprehensive (loss).  Pursuant to ASC 740-30-25-17, “Exceptions to Comprehensive Recognition of Deferred Income Taxes,” the Company does not recognize deferred U.S. taxes related to the undistributed earnings of its foreign subsidiaries and, accordingly, recognizes no income tax expense or benefit from foreign currency translation adjustments.

Although government regulations in China now allow convertibility of the RMB for current account transactions, significant restrictions still remain.  Hence, such translations should not be construed as representations that the RMB could be converted into US dollars at that rate or any other rate.

Foreign Currency Translation (continued)

The value of the RMB against the US dollar and other currencies may fluctuate and is affected by, among other things, changes in the PRC’s political and economic conditions. Any significant revaluation of the RMB may materially affect the Company’s financial condition in terms of US dollar reporting. The PRC has devalued the RMB by approximately 1% subsequent to March 31, 2017. Further devaluations could occur in the future.

Vulnerability Due to Operations in PRC

The Company’s operations may be adversely affected by significant political, economic and social uncertainties in the PRC.  Although the PRC government has been pursuing economic reform policies for more than twenty years, no assurance can be given that the PRC government will continue to pursue such policies or that such policies may not be significantly altered, especially in the event of a change in leadership, social or political disruption or unforeseen circumstances affecting the PRC’s political, economic and social conditions.  There is also no guarantee that the PRC government’s pursuit of economic reforms will be consistent, effective or continue.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.  Actual results could differ from those estimates.

Prepaid Expenses

Prepaid expenses as of March 31, 2016 mainly represent the prepayments of approximately $174,000 for prepaid decoration expenses of the Company’s new stores.

Advances from Customers

Advances from customers represents prepaid cards purchased by customers at our retail locations. Advances from customers was $769,814 as of March 31, 2016. These cards are no longer being issued.

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Write Off Deferred Registration Costs

The deferred registration costs are related to Australian Winha’s first IPO attempt. As the first attempt was denied by the ASX, all costs of $153,844 had been write off as of March 31, 2017 and included in other expenses.

Website Development Costs

The Company accounts for website development costs in accordance with ASC 350-50, “Accounting for Website Development Costs”, wherein website development costs are segregated into three activities:

 

The Company had a website and ongoing website development costs of $45,676 as of March 31, 2016.  The Company wrote off the net book value of website and development costs of $34,140 due to the discontinuance of the website during the year ended March 31, 2017.  Amortization expense was $2,360 and $790 for the years ended March 31, 2017 and 2016, respectively.

Revenue Recognition

The Company’s revenue recognition policies comply with FASB ASC 605 “Revenue Recognition.” The Company recognizes product revenue when the following fundamental criteria are met: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred, (iii) the price paid by the customer is fixed or determinable and (iv) collection of the resulting accounts receivable is reasonably assured. The Company recognizes revenue from the following channels: 

Revenue Recognition (continued)

 

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:

 

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Fair Value of Financial Instruments (continued)

ASC 820 requires the use of observable market data, when available, in making fair value measurements.  When inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement.  Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.  As of March 31, 2017 and 2016, none of the Company’s assets and liabilities were required to be reported at fair value on a recurring basis.  Carrying values of non-derivative financial instruments, including accounts payable, accrued expenses and loan from stockholder approximate their fair values due to the short term nature of these financial instruments.  There were no changes in methods or assumptions during the periods presented.

Cash and Cash Equivalents

The Company considers all demand and time deposits and all highly liquid investments with an original maturity of three months or less to be cash equivalents.

Accounts Receivable

Accounts receivable is stated at cost, net of an allowance for doubtful accounts, if required.  Receivables outstanding longer than the payment terms are considered past due.  The Company maintains an allowance for doubtful accounts for estimated losses when necessary resulting from the failure of customers to make required payments.  The Company reviews the accounts receivable on a periodic basis and makes allowances where there is doubt as to the collectability of individual balances.

In evaluating the collectability of individual receivable balances, the Company considers many factors, including the age of the balance, the customer’s payment history, its current credit-worthiness and current economic trends.  The Company considers all accounts receivable at March 31, 2016 to be fully collectible and, therefore, did not provide an allowance for doubtful accounts.  For the periods presented, the Company did not write off any accounts receivable as bad debts.

 

Inventories

Inventories, comprised of merchandise and food products, are stated at the lower of cost or market.  The value of inventory is determined using the weighted average cost method.

The Company estimates an inventory allowance for excess or unusable inventories.  Inventory is reported net of such allowances, if any.  There was no allowance for excess or unusable inventories as of March 31, 2016.

Property, Plant and Equipment

Property, plant and equipment are recorded at cost, less accumulated depreciation.  Cost includes the price paid to acquire the asset, and any expenditure that substantially increases the asset’s value or extends the useful life of an existing asset.  Depreciation is computed using the straight-line method over the estimated useful lives of the assets.  Major repairs and betterments that significantly extend original useful lives or improve productivity are capitalized and depreciated over the periods benefited.  Maintenance and repairs are generally expensed as incurred.

During the three months ended September 30, 2016, the Company acquired various fruit orchards for $9,425,559. The fruit orchards grow 41 different kinds of fruits in various areas in China. The book value of the orchards includes costs related to saplings, fertilizer, pesticide, water, electricity, labor and land leasing. The planting costs are capitalized. In addition, the Company also capitalized $453,134 for ten greenhouses utilized in the process of growing vegetables.

The estimated useful lives for property, plant and equipment categories are as follows:

WINHA INTERNATIONAL GROUP LIMITED AND SUBSIDIARIES

 

 

Income Taxes (continued)

United States

The Company is subject to United States tax at graduated rates from 15% to 35%.  No provision for income tax in the United States has been made as the Company had no U.S. taxable income for the years ended March 31, 2017 and 2016.

Anguilla

Sanmei International Investment Co, Ltd is incorporated in Anguilla and is governed by the income tax laws of Anguilla. According to current Anguilla income tax law, the applicable income tax rate for the Company is 0%.

Australia

Winha Commerce and Trade Limited is incorporated in Australia.  Pursuant to the income tax laws of Australia, the Company is not subject to tax on non-Australian source income.

Cayman Islands

C&V International Holdings Company Limited is incorporated in Cayman Islands and is governed by the income tax laws of the Cayman Islands.  According to current Cayman Islands income tax law, the applicable income tax rate for the Company is 0%.

Hong Kong

Winha International Investment Holdings Company Limited is incorporated in Hong Kong.  Pursuant to the income tax laws of Hong Kong, the Company is not subject to tax on non-Hong Kong source income.

PRC

Shenzhen Winha, Zhongshan Winha Electronic Commerce Company Limited together with Zhongshan Winha Catering Management Company Limited and Zhongshan Supermarket Limited are subject to an Enterprise Income Tax at 25% and each files its own tax return.

 

Net Income (Loss) Per Common Share

The Company computes net income (loss) per common share in accordance with FASB ASC 260, “Earnings Per Share” (“ASC 260”).  Under the provisions of ASC 260, basic net income (loss) per common share is computed by dividing the net income (loss) by the weighted average number of shares of common stock outstanding during the period.  Diluted income per common share is computed by dividing the net income by the weighted average number of shares of common stock outstanding plus the effect of any potential dilutive shares outstanding during the period. There were no dilutive shares outstanding during the years ended March 31, 2017 and 2016.  Accordingly, the number of weighted average shares outstanding as well as the amount of net income per share are the same for basic and diluted per share calculations for the period reflected in the accompanying consolidated statement of income and other comprehensive income.

Statutory Reserve

The Company’s China-based subsidiaries and related entities are required to make appropriations of retained earnings for certain non-distributable reserve funds.

Pursuant to the China Foreign Investment Enterprises laws, the Company’s China-based subsidiaries, are required to make appropriations from their after-tax profit as determined under generally accepted accounting principles in the PRC (the “after-tax-profit under PRC GAAP”) to a general non-distributable reserve fund. Each year, at least 10% of each entities after-tax-profit under PRC GAAP is required to be set aside as a general reserve fund until the fund equals 50% of the registered capital of the applicable entity.

The statutory reserve fund is restricted as to use and can only be used to offset against losses, expansion of production and operations and increasing registered capital of the respective company. The fund is not allowed to be transferred to the Company in terms of cash dividends, loans or advances, nor is it allowed for distribution except under liquidation.

The required transfer to the statutory reserve fund was $329,937 and $245,390, respectively, for the years ended March 31, 2017 and 2016.

WINHA INTERNATIONAL GROUP LIMITED AND SUBSIDIARIES

3.  RECENTLY ISSUED ACCOUNTING STANDARDS

In February 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-05, Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets. This ASU requires all entities to derecognize a business or nonprofit activity in accordance with Topic 810, and also requires all entities derecognize an equity method investment in accordance with Topic 860.  The amendments in this ASU eliminate the scope exceptions, and simplifies GAAP. This ASU is effective for fiscal years beginning after December 15, 2017, including interim reporting periods within that reporting period.  Public entities may apply the guidance earlier but only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period.  The Company is evaluating the impact of adopting this new accounting guidance on its consolidated financial statements.

In August 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This ASU addresses the classification of certain specific cash flow issues including debt prepayment or extinguishment costs, settlement of certain debt instruments, contingent consideration payments made after a business combination, proceeds from the settlement of certain insurance claims and distributions received from equity method investees. This ASU is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. An entity that elects early adoption must adopt all of the amendments in the same period. The Company is currently evaluating the effect this ASU will have on its consolidated statement of cash flows.

 

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The new standard requires financial assets measured at amortized cost be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The standard will be effective for the Company beginning January 1, 2020, with early application permitted. The Company is evaluating the impact of adopting this new accounting guidance on its consolidated financial statements.

 

In May, 2016, the FASB issued ASU No. 2016-10, Revenue with Contracts with Customers: Narrow-scope Improvements and Practical Expedients, which is an amendment to ASU No. 2014-09 that clarifies the objective of the collectability criterion, to allow entities to exclude amounts collected from customers from all sales taxes from the transaction price, to specify the measurement date for noncash consideration is contract inception. Variable consideration guidance applies only to variability resulting from reasons other than the form of the consideration, and clarification on contract modifications at transition. The implementation guidelines follow ASU No. 2014-09.

WINHA INTERNATIONAL GROUP LIMITED AND SUBSIDIARIES

3.  RECENTLY ISSUED ACCOUNTING STANDARDS (CONTINUED)

In April 2016, the FASB issued Accounting Standards Update No. 2016-12, Revenue from Contracts with Customers. In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). This guidance supersedes current guidance on revenue recognition in Topic 605, Revenue Recognition. In addition, there are disclosure requirements related to the nature, amount, timing, and uncertainty of revenue recognition. In August 2015, the FASB issued ASU No.2015-14 to defer the effective date of ASU No. 2014-09 for all entities by one year. For public business entities that follow U.S. GAAP, the deferral results in the new revenue standard being effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted for interim and annual periods beginning after December 15, 2016. The Company is currently evaluating the impact of adopting this standard on its consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which supersedes the existing guidance for lease accounting, Leases (Topic 840). ASU 2016-02 requires lessees to recognize leases on their balance sheets, and leaves lessor accounting largely unchanged. The amendments in this ASU are effective for the Company beginning April 1, 2020 and interim periods within that fiscal year. Early application is permitted for all entities. ASU 2016-02 requires a modified retrospective approach for all leases existing at, or entered into after, the date of initial application, with an option to elect to use certain transition relief. The Company is currently assessing the impact that the adoption of ASU 2016-02 will have on its consolidated financial statements.

4.  PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are summarized as follows:

		March 31, 2017				March 31, 2016
Furniture, fixtures and equipment		$	-			$	1,131,124
Leasehold improvements			-				629,536
Motor vehicles			-				361,967
			-				2,122,627
Less: accumulated depreciation			-				(274,650	)
		$	-			$	1,847,977

For the years ended March 31, 2017 and 2016, depreciation and amortization expense was $301,964 and $202,604 , respectively.

 

5.   EQUITY INVESTMENT

On January 4, 2017, the Company’s 60% owned subsidiary, Australian Winha issued 24,271,191 ordinary shares.  After the offering, the Company’s 60% ownership of Australian Winha was reduced to 44.87%.

Under the equity method, the investment in Australian Winha was initially recognized at fair value of $13,141,799 and adjusted thereafter to recognize the Company’s share of the profit or loss and other comprehensive income (loss) of Australian Winha.  For three months ended March 31, 2017, Australian Winha had revenues of $22,107,355, gross profit of $8,825,839, and a net loss of $230,969. The Company recognized investment loss of $103,635, and other comprehensive gain of $4,222.  As of March 31, 2017, the long-term investment is $13,042,386.

On November 7, 2016, Australian Winha, entered into a series of contractual agreements (the “Acquisition Agreements”) with Flavours Fruit & Veg Pty Ltd (“Flavours”), an Australia company, World of Flavours Pty Ltd (“World”) and Select Providor Pty Ltd (“Select”) (collectively “Flavours Shareholders”), to acquire 49% shares of Flavours.

6.  CONVERTIBLE NOTES

On September 1, 2015, Australia Winha borrowed $542,570 (AUD$750,000) in the form of a twelve month convertible promissory note with interest at 6% per annum. The note was convertible into 750,000 shares of Australia Winha at $0.70401 per share (AUD$1.00) and was convertible at the option of the Company.

On December 17, 2015, Australia Winha borrowed another $4,892,896 (AUD$6,750,000) in the form of a twelve month convertible promissory note with interest at 6% per annum. The note was convertible into 6,750,000 shares of Australia Winha at $0.71012 per share (AUD$1.00) and was convertible at the option of the Company.

Australia Winha repaid the above notes on July 13, 2016. Interest expense was $117,011 and $92,383 for the years ended March 31, 2017 and 2016, respectively, and included in other expenses.

7.  RELATED PARTY TRANSACTIONS

The Company obtained demand loans from the chairman of the board, which are non-interest bearing.  The loans of $118,680 and $477,199 as of March 31, 2017 and 2016, respectively, are reflected as loan from stockholder in the consolidated balance sheets.

 

8.  INCOME TAXES

The Company is required to file income tax returns in both the United States and the PRC.  Its operations in the United States have been insignificant and income taxes have not been accrued.

The provision for income taxes consisted of the following for the years ended March 31:

The following table reconciles the effective income tax rates with the statutory rates for the years ended March 31, respectively:

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.

 

8.  INCOME TAXES (CONTINUED)

Deferred tax assets are comprised of the following:

		March 31, 2017				March 31, 2016
Net operating loss carryforwards		$	7,203,344			$	6,333,864
Inventory intercompany profit			-				2,596
Less: valuation allowance			(7,203,344	)			(6,303,650	)
Net deferred tax asset		$	-			$	32,810

At March 31, 2017 and 2016, the Company had unused operating loss carry-forwards of approximately $20,685,000 and $16,215,000 respectively, expiring in various years through 2037.  As it is more likely than not that the benefit from the NOL carryforwards will not be realized, $7,239,616 and $6,303,650 valuation allowances have been recognized as of March 31, 2017 and 2016, respectively.  The valuation allowance increased by approximately $900,000 and $6,243,000 for the years ended March 31, 2017 and 2016, respectively.  The carryforwards are principally in the United States.

The Company’s tax filings are subject to examination by the tax authorities.  The tax years March 31, 2016, 2015 and 2014 remain open to examination by the tax authorities in the PRC.  The Company’s U.S. tax returns for the years ended March 31, 2016, 2015, and 2014 are subject to examination by the tax authorities.

9.  CONCENTRATION OF CREDIT RISK

Substantially all of the Company’s bank accounts are located in The People’s Republic of China and Australia, which are not covered by protection similar to that provided by the FDIC on funds held in United States banks.

10.  PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION

The following is the condensed financial information of Winha International Group Limited only, the US parent, balance sheet as of March 31, 2016 and the related statements of income and cash flows for the twelve months ended March 31, 2016:

 

10.  PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION (CONTINUED)

Condensed Balance Sheet

WINHA INTERNATIONAL GROUP LIMITED AND SUBSIDIARIES

 

10.  PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION (CONTINUED)

Condensed Statement of Income

Condensed Statement of Cash Flows

 

10.  PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION  (CONTINUED)

Basis of Presentation

The Company records its investment in its subsidiaries under the equity method of accounting.  Such investments are presented as “Investment in subsidiaries” on the condensed balance sheet and the subsidiaries profits are presented as “Share of earnings from investment in subsidiaries” in the condensed statement of income.

Certain information and footnote disclosures normally included in financial statements prepared in conformity with accounting principles generally accepted in the United States of America have been condensed or omitted.  The parent only financial information has been derived from the Company’s consolidated financial statements and should be read in conjunction with the Company’s consolidated financial statements.

There were no cash transactions in the US parent company during the twelve months ended March 31, 2016.

Restricted Net Assets

Under PRC laws and regulations, the Company’s PRC subsidiaries are restricted in their ability to transfer certain of their net assets to the Company in the form of dividend payments, loans or advances. The restricted net assets of the Company’s PRC subsidiaries amounted to approximately $11,050,554 as of March 31, 2016.

The Company’s operations and revenues are conducted and generated in the PRC, and all of the Company’s revenues being earned and currency received are denominated in RMB.  RMB is subject to the foreign exchange control regulations in China, and, as a result, the Company may be unable to distribute any dividends outside of China due to PRC foreign exchange control regulations that restrict the Company’s ability to convert RMB into US Dollars.       

11.  SUBSEQUENT EVENT

On June 1, 2017, the Board of Australian Winha announced that Australian Winha will pay an unfranked final dividend of AUD $0.035179 (approximately USD $0.026) per share.

 

ITEM 9.           CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

 

None.

 

ITEM 9A.          CONTROLS AND PROCEDURES.

 

Evaluation of Disclosure Controls and Procedures.  Our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule13a-15(e) promulgated by the Securities and Exchange Commission) as of March 31, 2017.  The evaluation revealed that there are material weaknesses in our disclosure controls, specifically:

 

Based on their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the Company’s system of disclosure controls and procedures was not effective as of March 31, 2017.

 

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934.  We have assessed the effectiveness of those internal controls as of March 31, 2017, using the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) Internal Control – Integrated Framework (1992) as a basis for our assessment.

Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.  All internal control systems, no matter how well designed, have inherent limitations.  Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

A material weakness in internal controls is a deficiency in internal control, or combination of control deficiencies, that adversely affects the Company’s ability to initiate, authorize, record, process, or report external financial data reliably in accordance with accounting principles generally accepted in the United States of America such that there is more than a remote likelihood that a material misstatement of the Company’s annual or interim financial statements that is more than inconsequential will not be prevented or detected. In the course of making our assessment of the effectiveness of internal controls over financial reporting, we identified four material weaknesses in our internal control over financial reporting.  These material weaknesses consisted of the material weaknesses in our disclosure controls itemized above. .

Because of the above conditions, management’s assessment is that the Company’s internal controls over financial reporting were not effective as of March 31, 2017.

 

There were no changes that occurred during the fourth quarter of the fiscal year 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) under the Exchange Act).

 

ITEM 9B.          OTHER INFORMATION.

 

None.

 

PART III

 

ITEM 10.        DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

Winha International:

The following table sets forth the name and age of the sole officer and director of Winha International.

 

 

Set forth below is a brief description of the background and business experience of our executive officer and director .

 

Chung Yan Winnie Lam is the owner and a director of Blaze Group Limited, a bridal shop in Hong Kong, which wholesales, retails and rents wedding dresses and evening gowns. Additionally, Ms. Lam is one of the owners, and the Marketing Director of, Jonathon Arndt Gallery of Jewels, a jewelry shop in Beverly Hills, California. Ms. Lam holds a Bachelor of Science from the University of Southern California Marshall School of Business.

 

Zhongshan Winha:

The following table sets forth the name and age of the senior executive officers of Zhongshan Winha.

 

Set forth below is a brief description of the background and business experience of our executive officer and director .

Zhuowei Zhong has been involved in the management of marketing enterprises for the past twenty years. Prior to joining Zhongshan Winha as Chairman in 2013, Mr. Zhong was employed for three years as Managing Director of Zhongshan Winha Culture Media Co., Ltd. From 2003 to 2010, Mr. Zhong was employed as General Manager of Guangdong Xiangdao Marketing Planning Co.  From 1999 to 2003, Mr. Zhong was employed as General Manager of Zhongshan Xinyuzhou Electrical Appliance Co., Ltd. From 1995 to 1999, he served as Marketing Director of Zhongshan Like Chongcao Manufacturing Co., Ltd. In 2006, Mr. Zhong was awarded an Executive Masters Degree in Business Administration by Zhongshan University.

Zhifei Huang  joined Zhongshan Winha in 2013 after serving for two years as General Manager of Zhongshan Wanyin Investment and Management Co., Ltd. From 2007 to 2010 Mr. Huang was employed as Sales Director by Guangzhou Caihe Education Investment Group. From 2000 to 2006 Mr. Huang served as Customer Service Manager for Guangzhou Kangpu Health Industry Co., Ltd.  From 1997 to 2000 he was a Traffic Supervisor with the Foshan Highway Bureau. In 2008, Mr. Huang was awarded an Executive Masters Degree in Business Administration by Zhongshan University.

Huiwen Huang joined Zhongshan Winha in 2013 after six years involvement with Guangzhou Hongda Ceramic Co., Ltd. which he founded in 2006. Previously, from 2000 to 2006, Mr. Huang was employed as Marketing Operations Manager by the Gaoming Branch of China Union. From 1996 to 2000, he served as Company Manager for the Gaoming Subsidiary Company of the Foshan Branch of PICC. Mr. Huang was awarded a Bachelor of Law Degree by Zhongshan University in 1993. In 2004, Mr. Huang was awarded a Masters Degree in Business Administration by Zhongshan University

Family Relationship

 

There are no family relationships between any of our directors or executive officers.

 

Employment Agreements

 

We have not entered into an employment agreement with our executive officer and director.

 

Board of Directors

 

Our director holds office until the next annual meeting of shareholders and until her successor has been duly elected and qualified. Officers are elected by and serve at the discretion of the board of directors.

 

Code of Ethics

 

We currently do not have a code of ethics that applies to our executive officers, as we have only one executive officer.

 

Board Committees

 

We have not formed an Audit Committee, Compensation Committee or Nominating and Corporate Governance Committee. Our Board of Directors performs the principal functions of each such committee. We currently do not have an audit committee financial expert on our Board of Directors.  We believe that the cost of hiring an audit committee financial expert to act as one of our directors and to be a member of an Audit Committee outweighs the benefits of having an audit committee financial expert at this time.

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

The Company does not have a class of securities registered under the Exchange Act and therefore its directors, executive officers, and any persons holding more than ten percent of the Company’s common stock are not required to comply with Section 16 of the Exchange Act.

 

ITEM 11.         EXECUTIVE COMPENSATION. 

 

Summary Compensation Table

  

The following table sets forth all compensation awarded to, earned by, or paid by Winha International or its subsidiaries to Chung Yan Winnie Lam, the Company’s Chief Executive Officer, for services rendered in all capacities to the Company during the years ended March 31, 2017, 2016 and 2015.  There were no executive officers whose total salary and bonus for the fiscal year ended March 31, 2017 exceeded $100,000.

 

Compensation:  Zhongshan Winha

During the year ended March 31, 2017 Zhongshan Winha paid Zhuowei Zhong for services as its Chairman a total of 129,216 RMB (US$19,200), and paid Zhifei Huang for services as its Chief Executive Officer a total of 150,957 RMB (US$22,430).

Zhongshan Winha is party to a Labor Contract with Zhuowei Zhong, to secure his services as its Chairman. The term of the Labor Contract is April 29, 2016 to April 25, 2019. The Labor Contract provides for a salary of 10,000 RMB (US$1,486) per month.

Zhongshan Winha is party to a Labor Contract with Zhifei Huang, to secure his services as its Chief Executive Officer. The term of the Labor Contract is May 4, 2016 to May 3, 2019. The Labor Contract provides for a salary of 9,000 RMB (US$1,337) per month.

Compensation of Our Director

 

From inception to March 31, 2017, our sole director, Chung Yan Winnie Lam, did not receive any compensation solely for service as a director.

 

It is our current policy that our director is reimbursed for reasonable out-of-pocket expenses incurred in attending each board of directors meeting.

 

Outstanding Equity Awards at Fiscal Year-End Table

 

None.

  

ITEM 12.        SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

  

The following table sets forth certain information with respect to the beneficial ownership of our voting securities by (i) each director and named executive officer, (ii) all executive officers and directors as a group; and (iii) each shareholder known to be the beneficial owner of 5% or more of the outstanding common stock of the Company.

 

Beneficial ownership is determined in accordance with the rules of the SEC. Generally, a person is considered to beneficially own securities: (i) over which such person, directly or indirectly, exercises sole or shared voting or investment power, and (ii) of which such person has the right to acquire beneficial ownership at any time within 60 days (such as through exercise of stock options or warrants). For purposes of computing the percentage of outstanding shares held by each person or group of persons, any shares that such person or persons has the right to acquire within 60 days are deemed to be outstanding, but are not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. Unless otherwise indicated below, the address of each person listed in the table below is 3rd Floor, No. 19 Changyi Road, Changmingshui Village, Wuguishan Town,  Zhongshan City, China.  

 

---------------------------------

ITEM 13.        CERTAIN RELATIONSHIP AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

 

There have been no transactions since the beginning of the 2017 fiscal year, or any currently proposed transaction, in which we were or are to be a participant and the amount involved exceeded or exceeds the lesser of $120,000 or one percent of the average of our total assets at year-end for the last two completed fiscal years, and in which any related person had or will have a direct or indirect material interest (other than compensation described under “Executive Compensation”).

There are no members of our Board of Directors who are independent, as “independent” is defined in the rules of the NYSE MKT.

 ITEM 14.        PRINCIPAL ACCOUNTANT FEES AND SERVICES.

 

Audit Fees

 

Wei, Wei & Co., LLP billed $115,000 to the Company for professional services rendered for the audit of financial statements for the year ended March 31, 2017. Wei, Wei & Co., LLP billed $64,000 to the Company for professional services rendered for the audit of financial statements for the year ended March 31, 2016.

 

Audit-Related Fees

 

Wei, Wei & Co., LLP billed $0 to the Company during the year ended March 31, 2017 for assurance and related services that are reasonably related to the performance of the 2017 audit or review of the quarterly financial statements.  Wei, Wei & Co., LLP billed $0 to the Company during the year ended March 31, 2016 for assurance and related services that are reasonably related to the performance of the 2016 audit or review of the quarterly financial statements

 

Tax Fees

 

Wei, Wei & Co., LLP billed $0 to the Company during the year ended March 31, 2017 for professional services rendered for tax compliance, tax advice and tax planning.  Wei, Wei & Co., LLP billed $0 to the Company during the year ended March 31, 2016 for professional services rendered for tax compliance, tax advice and tax planning.

 

All Other Fees

 

Wei, Wei & Co., LLP billed $0 to the Company in the year ended March 31, 2017 for services not described above.  Wei, Wei & Co., LLP billed $0 to the Company during the year ended March 31, 2016 for services not described above.

 

It is the policy of the Company that all services other than audit, review or attest services must be pre-approved by the Board of Directors.  No such services were performed by Wei, Wei & Co., LLP.

 

Subcontracted Services

 

The hours expended on Wei, Wei & Co., LLP’s engagement to audit the Company’s financial statements for the year ended March 31, 2017 that were attributed to work performed by persons other than full-time permanent employees of Wei, Wei & Co., LLP was not greater than 50% of the total hours expended.

PART IV

 

ITEM 15.        EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

  

 

 

101 INS	XBRL Instance Document*
101 SCH	XBRL Schema Document*
101 CAL	XBRL Calculation Linkbase Document*
101 DEF	XBRL Definition Linkbase Document*
101 LAB	XBRL Labels Linkbase Document*
101 PRE	XBRL Presentation Linkbase Document*

 

 

 

 

 

 

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