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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 
 
WINHA INTERNATIONAL GROUP LIMITED
(Name of Registrant in its Charter)
 
Nevada
47-2450462
(State of Other Jurisdiction of incorporation or organization)
(I.R.S. Employer I.D. No.)
 
3rd Floor, No. 19 Changyi Road, Changmingshui Village
Weguishan Town, Zhongshan City, P.R. China 528458
(Address of Principal Executive Offices)
 
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
 
 
 
Page 
 
PART I
 
ITEM 1.
BUSINESS
1
ITEM 1A.
RISK FACTORS
5
ITEM 1B.
UNRESOLVED STAFF COMMENTS
11
ITEM 2.
PROPERTIES
11
ITEM 3.
LEGAL PROCEEDINGS
12
ITEM 4.
MINE SAFETY DISCLOSURES
12
     
 
PART II
 
     
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
12
ITEM 6.
SELECTED FINANCIAL DATA
13
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
13
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
16
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
16
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
47
ITEM 9A.
CONTROLS AND PROCEDURES
47
ITEM 9B.
OTHER INFORMATION
48
     
 
PART III
 
     
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
48
ITEM 11.
EXECUTIVE COMPENSATION
49
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
50
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
51
ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
51
     
 
PART IV
 
     
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
52
 
 


 
 
Transient Investment Company

On January 4, 2017 our subsidiary, Australian Winha Commerce and Trade Limited (“Australian Winha”), completed a public offering of its common stock on the ASX Limited Exchange in Australia. As a result, the beneficial interest of Winha International Group Limited (“Winha International”) in Australian Winha was reduced from 60% to 44.87%, thus making our interest in Australian Winha an investment security within the definitions set forth in the Investment Company Act of 1940. Australian Winha owns, indirectly, substantially all of the assets that have appeared on the balance sheets in prior reports with the Securities and Exchange Commission filed by Winha International. The reclassification of its interest in Australian Winha to an investment security, therefore, caused Winha International to become an investment company within the definitions set forth in the Investment Company Act of 1940.

The Board of Directors of Winha International has adopted a resolution directing the officers of Winha International to take all appropriate action so that, as soon as reasonably possible, but in any event prior to January 4, 2018, Winha International will cease to be an investment company. Management is endeavoring to effect one or more transactions that will cause investment securities to represent less than 40% of the Company’s shareholders equity. Winha International, therefore, qualifies as a “transient investment company” pursuant to SEC Rule 3a-2 promulgated under the Investment Company Act, and is currently exempt from regulation pursuant to that Act.  If, however, Winha International ceases to qualify for that exemption (which will occur automatically on January 4, 2018 if management’s efforts have not been successful before that date), then Winha International will be required to register as an investment company and restructure its management and operations to comply with the regulations applicable to registered investment companies.

Forward-Looking Statements
 
Certain statements in this Annual Report on Form 10-K constitute “forward-looking statements” that are based on current expectations, estimates, forecasts and assumptions and are subject to risks and uncertainties. Words such as “anticipate,” “assume,” “believe,” “estimate,” “expect,” “goal,” “intend,” “plan,” “project,” “seek,” “target,” and variations of such words and similar expressions are intended to identify such forward-looking statements. All forward-looking statements speak only as of the date on which they are made. Such forward-looking statements are subject to certain risks, uncertainties and assumptions relating to certain factors that could cause actual results to differ materially from those anticipated in such statements.
 
We cannot predict all of the risks and uncertainties. Accordingly, such information should not be regarded as representations that the results or conditions described in such statements or that our objectives and plans will be achieved and we do not assume any responsibility for the accuracy or completeness of any of these forward-looking statements. These forward-looking statements are found at various places throughout this Annual Report on Form 10-K and include information concerning possible or assumed future results of our operations, including statements about potential acquisition or merger targets; business strategies; future cash flows; financing plans; plans and objectives of management; any other statements regarding future acquisitions, future cash needs, future operations, business plans and future financial results, and any other statements that are not historical facts.
 
These forward-looking statements represent our intentions, plans, expectations, assumptions and beliefs about future events and are subject to risks, uncertainties and other factors. Many of those factors are outside of our control and could cause actual results to differ materially from the results expressed or implied by those forward-looking statements. In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than we have described. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of the Annual Report on Form 10-K. All subsequent written and oral forward-looking statements concerning other matters addressed in this Annual Report on Form 10-K and attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this Annual Report on Form 10-K.
 
Except to the extent required by law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, a change in events, conditions, circumstances or assumptions underlying such statements, or otherwise.


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.
 
The balance sheet of Zhongshan Winha and its financial results were consolidated with those of the Company from August 1, 2013 through January 3, 2017.
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.

1

 
 
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:

Product
 
Sales Revenue
 
Yushu Wild Cordyceps Sinensis (mushroom)
 
$
2,424,275
 
30-year JiShao DiaoHuang Rice Wine Gift Box
   
1,658,014
 
30-year JiShao DiaoHuang Rice Wine (5L)
   
1,616,784
 
30-year JiShao DiaoHuang Rice Wine (2.5L)
   
1,067,633
 
Snow Mountain Farm Wild Morcella
   
1,044,189
 
Tianlu Ripasso (wine)
   
1,037,737
 
Wild Ginseng Gift Box
   
1,010,491
 
Ken Gen Di Ke Lan Mountain Villa (wine)
   
936,150
 
Chateau Kiwi Merlot
   
916,140
 
Organic Sunflower Oil Gift Box
   
871,751
 

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:

Product
 
Sales Revenue
 
Mangosteen
 
$
2,223,351
 
30-year Chenjishaodiaohuang Wine
   
863,461
 
Kiwi fruit
   
795,154
 
30-year Chenjishaodiaohuang Wine - gift box
   
783,569
 
American red pear
   
755,966
 
Pitaya fruit
   
745,968
 
Cucumis metuliferus
   
728,156
 
Taiwan sweet nectarine
   
659,681
 
Moon cake of Zunlong Yayue
   
642,134
 
Superfine gold pear
   
624,147
 

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.

2


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:

Class
City
Franchisees
First-Tier City
Shenzhen
1
 
Guangzhou
9
     
Second-Tier City
Foshan
2
 
Dongguan
6
 
Shantou
5
 
Zhuhai
8
     
Third-Tier City
Zhongshan
2
 
Zhanjiang
5
 
Jiangmen
5
 
Huizhou
1


3

 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:

Class
Franchise Fee (1x)
Floor Space
Management Fee (monthly)
First-Tier City
600,000 RMB (89,153 US$)
Up to 100 m2
70,000 RMB (10,401 US$)
   
Up to 200 m2
80,000 RMB (11,887 US$)
   
Up to 300 m2
100,000 RMB (14,859 US$)
       
Second-Tier City
550,000 RMB (81,724 US$)
Up to 100 m2
50,000 RMB (7,429 US$)
   
Up to 200 m2
60,000 RMB (8,915 US$)
   
Up to 300 m2
70,000 RMB (10,401 US$)
       
Third-Tier City
450,000 RMB (66,865 US$)
Up to 200 m2
40,000 RMB (5,943 US$)
   
Up to 300 m2
50,000 RMB (7,429 US$)

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.

4

 
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.

5

 
Risks Related to Our General Business Operation
 

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.

6

 
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.
 
Risks Related to Doing Business in China
 
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.

7

 
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.

8

 
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.

9

 
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.
  
Risks Related To Our Securities
 
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 Company's primary operating subsidiary, Zhongshan Winha, is located in China, and is organized under the laws of that country. Winha International owns an indirect interest in Zhongshan Winha by reason of our minority interest in Australian Winha. The government of China imposes substantial restrictions on the ability of a Chinese company to transfer funds to its off-shore shareholders. Those restrictions will limit the ability of Australian Winha to obtain funds from Zhongshan Winha, with which Zhongshan Winha can pay dividends to its shareholders. Any funds transferred to Winha International by reason of the operations of Zhongshan Winha would be the result of a dividend paid by Australian Winha to its shareholders.

10

 
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:

Subsidiary
Location
Sq. Meters
Zhongshan Winha
P89, First Floor, No. 17, Chancheng District, Foshan City
197
Zhongshan Winha Catering Management Co., Ltd.
Floors 1 and 2, Tianbo Bldg., B Factory, No. 19 Changyi Rd., Changmingshui Industrial Park, Wuguishan
1,045
Zhongshan Winha
First Berth, No. 43 Tongle Road, Dongshen Town
250

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

Province/City
Parcels (#)
Acres
Crops
Anhui
2
52.72
quince, grape
Beijing
2
67.82
pear, peach
Fujian
3
73.64
pomelo, loquat, kumquat
Gansu
1
28.50
apricot
Guangdong
7
231.80
plum, orange, waxberry, olive, acrumenn, peach, litchi
Guanxi
1
25.70
orange
Guizhou
1
31.80
banboo shoot
Hainan
2
48.60
mango, orange
Hebei
3
100.49
peach, jujube, pear
Heilongjiang
1
26.69
blueberry
Hubei
1
26.69
kiwi
Jiangsu
1
40.03
waxberry
Jiangxi
4
97.37
tangerine, orange, kumquat
Ningxia
1
49.75
goji berry
Qinghai
2
59.14
cherry, pear
Shaanxi
1
26.03
date
Shandong
2
54.86
apple, pear
Sichuan
3
75.13
peach, kiwi, loquat
Yunnan
3
69.53
loquat, apple, peach

We currently do not own any real property.  
 

11

 
 
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.

   
Bid
 
Quarter Ending
 
High
   
Low
 
June 30, 2015
 
$
2.75
   
$
2.75
 
September 30, 2015
 
$
2.75
   
$
2.75
 
December 31, 2015
 
$
2.75
   
$
2.75
 
March 31, 2016
 
$
3.75
   
$
2.75
 
                 
June 30, 2016
 
$
3.77
   
$
3.00
 
September 30, 2016
 
$
3.89
   
$
3.76
 
December 31, 2016
 
$
3.95
   
$
3.49
 
March 31, 2017
 
$
3.95
   
$
3.25
 
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.

12

 
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.
 
Events Affecting Consolidation
We operate our business in China through Zhongshan Winha. On August 1, 2013, our subsidiary, Shenzhen Winha, entered into a set of contractual agreements with Zhongshan Winha and its equity owners, including an exclusive business cooperation agreement, exclusive option agreement, loan agreement, share pledge agreement, power of attorney and spousal consents. Shenzhen Winha, through these arrangements, assumed operational control of Zhongshan Winha and became the primary beneficiary of those operations. As a result, Zhongshan Winha was considered a variable interest entity with respect to Shenzhen Winha and, as a result, from August 1, 2013 through November 27, 2015, the financial statements of Zhongshan Winha were consolidated with our Company’s financial statements.
On November 27, 2015, Shenzhen Winha exercised its option to purchase the registered equity of Zhongshan Winha from the shareholders of Zhongshan Winha.  Upon the exercise of the purchase option, Zhongshan Winha became a wholly owned subsidiary of Shenzhen Winha. The financial statements of Zhongshan Winha were consolidated with our Company’s financial statements, but now as a subsidiary.
In March 2016, our subsidiary, Sanmei Investment, transferred 29% of the outstanding shares of our subsidiary, Australian Winha, to persons and entities who were either affiliates of, or consultants to,  the Company, and transferred 11% of the shares of Australian Winha to persons who are  suppliers to Zhongshan Winha. The effect of above transaction reduced the interest of the Company in its Australian subsidiary, and indirectly in Zhongshan Winha, by 40%. Subsequently, on January 4, 2017, Australian Winha completed a public offering of its shares on the ASX Limited Exchange in Australia, which reduced our equity interest in Australian Winha to 44.87%. As a result, the financial statements of Australian Winha and its subsidiaries, including Zhongshan Winha, have been deconsolidated as of December 31, 2016 from the financial statements of our U.S. entity, Winha International. Our interest in Australian Winha and its subsidiaries is now recorded on our balance sheets as an “equity investment.”
Results of Operations
 
The results of operations reported by the Company in this Annual Report reflect:
 
·
the consolidated operations of Winha International and its subsidiaries, including Zhongshan Winha, from April 1, 2016 through December 31, 2016;
   
·
the consolidated operations of Winha International and its immediate subsidiaries, but not including Australian Winha and its subsidiaries, for the period from January 1, 2017 through March 31, 2017; and
   
·
44.87% of the net loss recorded by Australian Winha and its subsidiaries during the period from January 1, 2017 through March 31, 2017.
 

13

 
In future reports, unless Winha International’s equity interest in Australian Winha increases to exceed 50%, the results of operations of Australian Winha and its subsidiaries will be reflected in the financial statements of Winha International by recording Winha International’s portion of the net income or loss realized by Australian Winha as a gain or loss on investment, with a corresponding adjustment to the book value of the Company’s investment in Australian Winha.
The following discussion relates to the consolidated operations of the Company through December 31, 2016, prior to deconsolidation of Australian Winha and subsidiaries.
For the nine months ended December 31, 2016, our consolidated operations yielded $45,470,149 in revenue. This exceeded the revenue reported for the entire fiscal year ended March 31, 2016, primarily due to:
 
·
the initiation of franchising operations towards the end of fiscal year 2016 resulted in franchise-related revenue of $4,322,366 during the nine months ended December 31, 2016,compared to $3,055,692 during the year ended March 31, 2016; and
   
·
the initiation of wholesale operations during the summer of 2016 yielded $4,965,320 in revenue during the nine months ended December 31, 2016, compared to no such revenue during the year ended March 31, 2016.
 
Gross profit for the period ended December 31, 2016 was $20,940,813, representing a gross margin of 46%. Zhongshan Winha is not likely to realize gross margin at that level in future periods, however. The largest component of its revenue during fiscal year 2017 was custom-sales, made to order, which are the most profitable class of sales. Zhongshan Winha terminated its custom-made sales during the year, however, in order to focus on wholesale marketing and franchise operations.
Operating expenses recorded for the year ended March 31, 2017 were primarily attributable to the operations of Australian Winha and its subsidiaries during the period ended December 31, 2016. The operating expenses of the U.S. parent company consist almost entirely of professional fees and other expenses related to SEC reporting and shareholder relations, and represented less than 10% of the operating expenses reported for the year ended March 31, 2017.
General and administrative expenses for the fiscal year ended March 31, 2016 totaled $23,605,484, representing an increase of 2,233% from fiscal year 2015. The increase was due to stock compensation expense of $21,882,816 that was incurred when we distributed 40% of Australian Winha (and, indirectly, 40% of Zhongshan Winha) to persons who are either affiliates of the Company, consultants to the Company, or suppliers to Zhongshan Winha. Therefore, the general and administrative expenses recorded for the year ended March 31, 2017 are a more accurate reflection of the administrative costs that Australian Winha and subsidiaries will incur, albeit those included in this report represent a period of only nine months.
The process of deconsolidating Australian Winha and its subsidiaries from the financial statements of Winha International resulted in a deconsolidation loss of $4,431,367 reported by Winha International, primarily due to the reclassification of certain intercompany accounts. We also recorded an investment loss of $103,635, representing our 44.87% equity in the net loss of $230,969 that Australian Winha recorded for the three months ended March 31, 2017.
Our net after-tax income for the year ended March 31, 2017 was $7,916,678. The portion of that attributable to the operations of Australian Winha and subsidiaries during the nine months ended December 31, 2017 was allocable 60% to the shareholders of Winha International and 40% to the persons who were minority shareholders of Australian Winha during that period, resulting in a deduction of $5,030,472 attributable to the non-controlling interest held by those minority shareholders. The net income for the year ended March 31, 2017 attributable to the common stockholders of Winha International, therefore, was $2,886,206, or approximately $0.06 per share.

14

 
Liquidity and Capital Resources 
The net book value of Australian Winha and its subsidiaries on January 4, 2017 was $13,141,799. As a result of the deconsolidation on that date, that book value was recorded as “equity investment” and all assets and liabilities of Australian Winha and its subsidiaries were eliminated from the balance sheet of Winha International. At the end of the fiscal year, on March 31, 2017, the Company’s equity in the net loss incurred by Australian Winha and subsidiaries during the fourth quarter of that year was recorded as an expense and deducted from our equity investment, resulting in a value of $13,042,386. This was offset by $205,725 in current liabilities of Winha International as of March 31, 2017, consisting of accounts payable, accrued expenses and a loan from shareholder.
The Statements of Cash Flows for the year ended March 31, 2017, similar to the Statements of Operations, presents changes in operating assets and liabilities realized almost entirely by Australian Winha and subsidiaries during the period from April 1, 2016 through December 31, 2016, combined with financing and investment cash flows realized primarily by Zhongshan Winha in that nine month period, and finally combined with cash flows that resulted from the deconsolidation. In future reports, unless Winha International’s equity interest in Australian Winha increases to exceed 50%, cash flows experienced by Australian Winha and its subsidiaries will not be reflected in the Statements of Cash Flows of Winha International.
Transfer of Cash
According to PRC laws and regulations, in the event that we need to finance our PRC operations in the future, we are allowed to provide funding by means of capital contributions through Australian Winha to Shenzhen Winha and/or loans to Zhongshan Winha. The loans would be subject to applicable government registration and approval requirements. We may not be able to complete the registration or obtain these government approvals on a timely basis. If we fail to complete such registration or receive such approvals, our ability to finance our PRC operations may be negatively affected, which could adversely affect the operating company’s liquidity and its ability to fund and expand our business.
 Current PRC regulations permit our PRC subsidiaries to pay dividends to Australian Winha. However, payment of dividends is subject to applicable regulatory requirements. Furthermore, cash transfers from our PRC subsidiaries to their parent companies outside of China are subject to PRC government control of currency conversion. We receive substantially all of our revenues in RMB. Under our current corporate structure, our income is primarily derived by our PRC subsidiaries. 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 the State Administration of Foreign Exchange (“SAFE”) by complying with certain procedural requirements. As profits and dividends are current account items, any revenue generated in the PRC may be paid to shareholders outside of the PRC as profit or dividends without prior approval from SAFE so long as we comply with certain procedural requirements. However, the PRC government may also, at its discretion, restrict access in the future to foreign currencies for current account transactions. If the foreign exchange control system prevents obtaining sufficient foreign currency to satisfy the currency demands, we may not be able to pay dividends in foreign currencies to Australian Winha which will make it difficult to pay dividends 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 Australian Winha, or otherwise satisfy its foreign currency denominated obligations. 
The Company currently intends to reinvest its earnings in expanding its operations and currently has no plans to pay any dividends.

15

 
Critical Accounting Policies and Estimates
In preparing our financial statements we are required to formulate working policies regarding valuation of our assets and liabilities and to develop estimates of those values.  In our preparation of the financial statements for the year ended March 31, 2017, there were no estimates made which were (a) subject to a high degree of uncertainty and (b) material to our results.  
Impact of Accounting Pronouncements
There were no recent accounting pronouncements that have or will have a material effect on the Company’s financial position or results of operations.
Off Balance Sheet Transactions 
We do not currently have any off-balance sheet arrangements.

ITEM 7A.        QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
 
Not applicable.
 
ITEM 8.           FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
 

Index to the Consolidated Financial Statements
Page
 
F-17
Report of Independent Registered Public Accounting Firm
   
F-18
Consolidated Balance Sheets as of March 31, 2017 and 2016.
   
F-20
Consolidated Statements of Operations and Comprehensive Income (Loss) for the  Years Ended March  31, 2017 and 2016.
   
F-22
Consolidated Statement of Changes in Stockholders’ Equity for the Years Ended March  31, 2017 and 2016.
   
F-24
Consolidated Statements of Cash Flows for the Years Ended March  31, 2017 and 2016.
   
F-26 to F-46
Notes to Consolidated Financial Statements.
 
16


 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 
To the Board of Directors and
Stockholders of Winha International Group, Ltd. and Subsidiaries
 
 
We have audited the accompanying consolidated balance sheets of Winha International Group, Ltd. and Subsidiaries (the "Company") as of March 31, 2017 and 2016 and the related consolidated statements of income and comprehensive income, changes in stockholders' equity, and cash flows for each of the years in the two year period ended March 31, 2017. Winha International Group, Ltd. and Subsidiaries' management is responsible for these consolidated financial statements.  Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Winha International Group, Ltd. and Subsidiaries as of March 31, 2017 and 2016, and the consolidated results of their operations and their cash flows for each of the years in the two year period ended March 31, 2017, in conformity with accounting principles generally accepted in the United States of America.
 
 
/s/ Wei, Wei & Co., LLP
 
Wei, Wei, & Co., LLP
Flushing, New York
July 14, 2017
 
F - 17



WINHA INTERNATIONAL GROUP LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (IN U.S. $)
MARCH 31, 2017 AND 2016
 
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.
F - 18



WINHA INTERNATIONAL GROUP LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (IN U.S. $) (CONTINUED)
MARCH 31, 2017 AND 2016
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
2017
   
2016
 
             
Current liabilities:
           
  Accounts payable
 
$
57,045
   
$
208,866
 
  Convertible debt
   
-
     
5,435,466
 
  Advances from customers
   
-
     
769,814
 
  Taxes payable
   
-
     
1,683,909
 
  Accrued expenses
   
30,000
     
246,387
 
  Loan from stockholder
   
118,680
     
477,199
 
                 
    Total current liabilities
   
205,725
     
8,821,641
 
                 
Commitments and contingent liabilities
   
-
     
-
 
                 
Stockholders’ equity:
               
               
Common stock, $0.001 par value per share, 200,000,000 shares authorized; 49,989,500 shares issued and outstanding as of March 31, 2017 and 2016
   
49,990
     
49,990
 
Additional paid-in capital
   
16,021,164
     
21,626,775
 
Statutory reserve
   
-
     
497,443
 
Retained earnings (deficit)
   
(3,235,951
)
   
(11,096,421
)
Other comprehensive income (loss)
   
1,458
     
(230,584
)
                 
  Sub total
   
12,836,661
     
10,847,203
 
                 
 Noncontrolling interests
   
-
     
7,285,620
 
                 
    Total stockholders’ equity
   
12,836,661
     
18,132,823
 
                 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
 
$
13,042,386
   
$
26,954,464
 
 
See accompanying notes to the consolidated financial statements.
F - 19



WINHA INTERNATIONAL GROUP LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
FOR THE YEARS ENDED MARCH 31, 2017 AND 2016 (IN U.S. $)
 
   
Year Ended
March 31,
 
   
2017
   
2016
 
             
Revenues
 
$
45,470,149
   
$
42,442,485
 
Cost of goods sold
   
24,529,336
     
19,992,753
 
                 
  Gross profit
   
20,940,813
     
22,449,732
 
                 
Operating expenses:
               
  Selling and marketing
   
1,440,856
     
2,492,594
 
  General and administrative
   
2,117,895
     
23,605,484
 
                 
    Total operating expenses
   
3,558,751
     
26,098,078
 
                 
Income (loss) from operations
   
17,382,062
     
(3,648,346
)
                 
Other income (expense):
               
  Other income
   
5,212
     
25,256
 
  Other (expenses)
   
(458,280
)
   
(99,755
)
  Deconsolidation (loss)
   
(4,431,367
)
   
-
 
  Investment (loss)
   
(103,635
)
   
-
 
                 
    Total other (expense)
   
(4,988,070
)
   
(74,499
)
                 
Income (loss) before provision for income taxes
   
12,393,992
     
(3,722,845
)
Provision for income taxes
   
4,477,314
     
4,542,327
 
                 
Net income (loss) before noncontrolling interests
   
7,916,678
     
(8,265,172
)
Noncontrolling interests
   
5,030,472
     
3,039,948
 
                 
Net income (loss) attributable to common stockholders
 
$
2,886,206
   
$
(11,305,120
)

 
See accompanying notes to the consolidated financial statements.
F - 20



WINHA INTERNATIONAL GROUP LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
FOR THE YEARS ENDED MARCH 31, 2017 AND 2016 (IN U.S. $) (CONTINUED)
   
Year Ended
March 31,
 
 
 
  2017
   
2016
 
             
Net income (loss) per common share, basic and diluted
 
$
0.06
   
$
(0.23
)
                 
Weighted average shares outstanding, basic and diluted
   
49,989,500
     
49,989,500
 
                 
Comprehensive income (loss):
               
  Net income (loss)
   
7,916,678
     
(8,265,172
)
  Foreign currency translation adjustment
   
(1,497,395
)
   
(414,183
)
                 
Comprehensive income (loss)
   
6,419,283
     
(8,679,355
)
  Comprehensive income attributable to noncontrolling interests
   
4,429,826
     
2,873,992
 
                 
Comprehensive income (loss) attributable to common stockholders
 
$
1,989,457
   
$
(11,553,347
)


See accompanying notes to the consolidated financial statements.
F - 21


WINHA INTERNATIONAL GROUP LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE YEARS ENDED MARCH 31, 2017 AND 2016 (IN U.S. $)
 
   
Common
Stock
   
Additional
Paid-in
Capital
   
Retained
 Earnings (Deficit)
   
Other
Comprehensive
(loss)
   
Statutory
 Reserve
Fund
   
Non-
controlling
Interests
   
Total
 
                                           
Balance, March 31, 2015
 
$
49,990
   
$
2,666,582
   
$
1,114,566
   
$
31,720
   
$
252,053
   
$
-
   
$
4,114,911
 
                                                         
Additional capital contribution from principal stockholder
   
-
     
816,001
     
-
     
-
     
-
     
-
     
816,001
 
Acquisition of VIE noncontrolling
  interest
   
-
     
(1,550
)
   
-
     
-
     
-
     
-
     
(1,550
)
Subsidiary stock issued
  for compensation
   
-
     
21,882,816
     
-
     
-
     
-
     
-
     
21,882,816
 
Reclassification for issuance of subsidiary stock for compensation
   
-
     
(3,737,074
)
   
(559,656
)
   
(14,077
)
   
(100,821
)
   
4,411,628
     
-
 
Net (loss) income
   
-
     
-
     
(11,305,120
)
   
-
     
-
     
3,039,948
     
(8,265,172
)
Appropriation of statutory  reserve
   
-
     
-
     
(346,211
)
   
-
     
346,211
     
-
     
-
 
Other comprehensive (loss)
   
-
     
-
     
-
     
(248,227
)
   
-
     
(165,956
)
   
(414,183
)
                                                         
Balance, March 31, 2016
 
$
49,990
   
$
21,626,775
   
$
(11,096,421
)
 
$
(230,584
)
 
$
497,443
   
$
7,285,620
   
$
18,132,823
 
 
See accompanying notes to the consolidated financial statements
 
F - 22


WINHA INTERNATIONAL GROUP LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE YEARS ENDED MARCH 31, 2017 AND 2016 (IN U.S. $)
 
   
Common
Stock
   
Additional
Paid-in
Capital
   
Retained
Earnings
(Deficit)
   
Other
Comprehensive Income
   
Statutory
Reserve
 Fund
   
Non-
controlling
 Interests
   
Total
 
                                           
Balance, March 31, 2016
 
$
49,990
   
$
21,626,775
   
$
(11,096,421
)
 
$
(230,584
)
 
$
497,443
   
$
7,285,620
   
$
18,132,823
 
                                                         
Net income
   
-
     
-
     
2,886,206
     
-
     
-
     
5,030,472
     
7,916,678
 
Appropriation of statutory  reserve
   
-
     
-
     
(329,937
)
   
-
     
329,937
     
-
     
-
 
Elimination due to deconsolidation
   
-
     
(5,605,611
)
   
5,304,201
     
1,128,790
     
(827,380
)
   
(11,715,445
)
   
(11,715,445
)
Other comprehensive (loss)
   
-
     
-
     
-
     
(896,748
)
   
-
     
(600,647
)
   
(1,497,395
)
                                                         
Balance, March 31, 2017
 
$
49,990
   
$
16,021,164
   
$
(3,235,951
)
 
$
1,458
   
$
-
   
$
-
   
$
12,836,661
 
 
See accompanying notes to the consolidated financial statements.
F - 23


WINHA INTERNATIONAL GROUP LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 2017 AND 2016 (IN U.S. $)
 
   
Years Ended
March 31,
 
   
2017
   
2016
 
             
Cash flows from operating activities:
           
Net income (loss)
 
$
7,916,678
   
$
(8,265,172
)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
               
Deconsolidation loss
   
4,431,367
     
-
 
Investment loss
   
103,635
     
-
 
Write off deferred registration costs
   
153,844
     
-
 
Write off website
   
34,140
     
-
 
Deferred taxes
   
30,835
     
(32,810
)
Depreciation and amortization
   
304,324
     
203,564
 
Stock compensation
   
-
     
21,882,816
 
    Changes in operating assets and liabilities:
               
    (Increase) in accounts receivable
   
(6,958,589
)
   
(171,660
)
     Decrease in inventories
   
872,509
     
1,097,696
 
     Decrease in advances to suppliers
   
55,523
     
72,799
 
    (Increase) in prepaid expenses
   
(5,799,085
)
   
(28,486
)
     (Decrease) in accounts payable
   
(3,374
)
   
(96,679
)
     (Decrease) increase in advances from customers
   
(668,436
)
   
37,602
 
     Increase in taxes payable
   
502,960
     
1,203,370
 
     Increase in accrued expenses
   
88,226
     
180,360
 
                 
Net cash provided by operating activities
   
1,064,557
     
16,083,400
 
                 
Cash flows from investing activities:
               
Acquisition of subsidiary
   
-
     
(1,550
)
Payments for website expansion
   
-
     
(10,234
)
Purchase of investment
   
(720,800
)
   
-
 
Purchase of fixed assets
   
(9,623,726
)
   
(1,705,551
)
Deconsolidation of cash
   
(13,258,063
)
   
-
 
                 
Net cash (used in) investing activities
   
(23,602,589
)
   
(1,717,335
)
 
See accompanying notes to the consolidated financial statements.
F - 24


WINHA INTERNATIONAL GROUP LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 2017 AND 2016 (IN U.S. $) (CONTINUED)
 
   
Years Ended
March 31,
 
   
2017
   
2016
 
             
Cash flows from financing activities:
           
Proceeds from convertible debt
   
-
     
5,537,359
 
Repayment of redeemable convertible notes
   
(5,107,995
)
   
-
 
Advance proceeds for sale of subsidiary's stock
   
6,123,137
     
-
 
Additional capital contribution
   
-
     
816,001
 
Proceeds from stockholder loan-net
   
1,260,804
     
404,971
 
Deferred registration costs
   
-
     
(212,312
)
                 
Net cash provided by financing activities
   
2,275,946
     
6,546,019
 
                 
Effect of exchange rate changes on cash
   
(1,286,544
)
   
(467,180
)
                 
Net change in cash
   
(21,548,630
)
   
20,444,904
 
Cash, beginning of year
   
21,548,630
     
1,103,726
 
                 
Cash, end of year
 
$
-
   
$
21,548,630
 
                 
Supplemental disclosure of cash flow information:
               
                 
 Cash paid for interest
 
$
191,844
   
$
-
 
 Cash paid for income taxes
 
$
3,911,672
   
$
3,568,799
 
 
Noncash financing activities:
           
             
Payment of accrued expenses and other payables by shareholder in the form of a loan
 
$
363,115
   
$
41,328
 
                 
Property, equipment, construction in process transferred from prepayment
 
$
1,051,888
   
$
-
 

 
See accompanying notes to the consolidated financial statements.
F - 25




WINHA INTERNATIONAL GROUP LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
FOR THE YEARS ENDED MARCH 31, 2017 AND 2016 (IN U.S. $)
 
1.  ORGANIZATION AND BUSINESS
Winha International Group Limited (“Winha International”) was incorporated in Nevada on April 15, 2013.  The subsidiaries of the Company and their principal activities are described as follows:
 
Winha International and its subsidiaries are collectively referred to as the “Company”. The Company retails local specialty products, including locally-produced food, beverages, and arts and crafts, from different regions across China through its subsidiaries. The Company will provide customers with access to a variety of local products that can typically only be found in local stores or markets in specific regions of China.
 
Initially, the Company operated its business through a variable interest entity, Zhongshan Winha Electronic Commerce Company Limited (“Zhongshan Winha”) which has two wholly owned limited liability subsidiaries, Zhongshan Supermarket Limited (“Zhongshan Supermarket”) and Zhongshan Winha Catering Management Co., Ltd. (“Winha Catering”), as well as three incorporated branches.  The Company had the controlling interest in Zhongshan Winha via its wholly owned subsidiary Shenzhen Winha Information Technologies Company Ltd. (“Shenzhen Winha”) through a series of contractual arrangements. On November 27, 2015, the shareholders of Zhongshan Winha transferred their stock to Shenzhen Winha, upon the exercise of its option to purchase all of the registered equity. Zhongshan Winha is now a wholly owned subsidiary of Shenzhen Winha. The purchase price was $0.16.
 
In May 2015, C&V International Company Limited, a wholly owned subsidiary of Winha International, set up a wholly owned subsidiary, Australia Winha Commerce and Trade Limited (“Australian Winha”), which has been inactive since inception.
 
In March 2016, 29% of the outstanding shares of Australian Winha were transferred to the following individuals and entities, each of which has a direct or indirect relationship with the major shareholder and consultants of the Company.
 
   
Percentage
 of Shares
 
       
Zhuowei Zhong
   
7
%
Beijing Ruihua Future Investment Management Co. Ltd.
   
5
%
Donghe Group Limited
   
5
%
Xinxi Zhong.
   
5
%
Zhifei Huang
   
4
%
Chun Yan Winne Lam
   
3
%
         
Total
   
29
%
 
F - 26


 
 WINHA INTERNATIONAL GROUP LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
FOR THE YEARS ENDED MARCH 31, 2017 AND 2016 (IN U.S. $)
 
 
1.   ORGANIZATION AND BUSINESS (CONTINUED)

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

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

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

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting and Presentation
The accompanying consolidated financial statements of the Company have been prepared on the accrual basis.
Until November 27, 2015, the consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries and its VIE for which it was deemed the primary beneficiary.  On November 27, 2015, the VIE structure was terminated upon Shenzhen Winha exercising its option to purchase all of the registered equity of Zhongshan Winha.  Shenzhen Winha became the sole owner of Zhongshan Winha.  All significant inter-company accounts and transactions have been eliminated in consolidation.

All consolidated financial statements and notes to the consolidated financial statements are presented in United States dollars (“US Dollar” or “US$” or “$”).  Most of the accompanying notes to these financial statements relate to the operations of Australia Winha and subsidiaries for the period through January 3, 2017, when the reduction of the Company’s interest in Australian Winha below 50% required the deconsolidation of Australian Winha from the Company’s financial statements.
 
F - 27


WINHA INTERNATIONAL GROUP LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
FOR THE YEARS ENDED MARCH 31, 2017 AND 2016 (IN U.S. $)
 
 
2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Deconsolidation of Australian Winha and Equity Method on Investment

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

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

Foreign Currency Translation

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

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

The exchange rates used to translate amounts in RMB into US dollars for the purposes of preparing the financial statements are as follows:
 
F - 28


WINHA INTERNATIONAL GROUP LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
FOR THE YEARS ENDED MARCH 31, 2017 AND 2016 (IN U.S. $)
 
2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Foreign Currency Translation (continued)

   
March 31,
2017
   
March 31,
2016
 
Balance sheet items, except for stockholders’ equity, as of period end
   
N/A
   
$
0.1550
 
                 
   
Year Ended
March 31,
2017
   
Year Ended
March 31,
2016
 
Amounts included in the statements of operations, statements of changes in stockholders’ equity and statements of cash flows
 
$
0.1486
   
$
0.1579
 

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

   
March 31,
2017
   
March 31,
2016
 
Balance sheet items, except for stockholders’ equity, as of period end
 
$
0.7644
   
$
0.7668
 
                 
   
Year Ended
March 31,
2017
   
Year Ended
March 31,
2016
 
Amounts included in the statements of operations, statements of changes in stockholders’ equity and statements of cash flows
 
$
0.7532
   
$
0.7361
 

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

Although government regulations in China now allow convertibility of the RMB for current account transactions, significant restrictions still remain.  Hence, such translations should not be construed as representations that the RMB could be converted into US dollars at that rate or any other rate.
 
F - 29


WINHA INTERNATIONAL GROUP LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
FOR THE YEARS ENDED MARCH 31, 2017 AND 2016 (IN U.S. $)
 
2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Foreign Currency Translation (continued)
The value of the RMB against the US dollar and other currencies may fluctuate and is affected by, among other things, changes in the PRC’s political and economic conditions. Any significant revaluation of the RMB may materially affect the Company’s financial condition in terms of US dollar reporting. The PRC has devalued the RMB by approximately 1% subsequent to March 31, 2017. Further devaluations could occur in the future.

Vulnerability Due to Operations in PRC

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

Use of Estimates

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

Prepaid Expenses

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

Advances from Customers

Advances from customers represents prepaid cards purchased by customers at our retail locations. Advances from customers was $769,814 as of March 31, 2016. These cards are no longer being issued.
 
F - 30


WINHA INTERNATIONAL GROUP LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
FOR THE YEARS ENDED MARCH 31, 2017 AND 2016 (IN U.S. $)

 
2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Write Off Deferred Registration Costs

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

Website Development Costs

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

1.
Initial stage (planning), whereby the related costs are expensed.
   
2.
Development stage (web application, infrastructure, graphics), whereby the related costs are capitalized and amortized once the website is ready for use. Costs for development content of the website may be expensed or capitalized depending on the circumstances of the expenditures.
   
3.
Operating stage, whereby the related costs are expensed as incurred. Upgrades are usually expensed, unless they add additional functionality.
 
The Company had a website and ongoing website development costs of $45,676 as of March 31, 2016.  The Company wrote off the net book value of website and development costs of $34,140 due to the discontinuance of the website during the year ended March 31, 2017.  Amortization expense was $2,360 and $790 for the years ended March 31, 2017 and 2016, respectively.

Revenue Recognition

The Company’s revenue recognition policies comply with FASB ASC 605 “Revenue Recognition.” The Company recognizes product revenue when the following fundamental criteria are met: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred, (iii) the price paid by the customer is fixed or determinable and (iv) collection of the resulting accounts receivable is reasonably assured. The Company recognizes revenue from the following channels: 
F - 31


WINHA INTERNATIONAL GROUP LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
FOR THE YEARS ENDED MARCH 31, 2017 AND 2016 (IN U.S. $)
 
2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue Recognition (continued)
a)
Retail stores - The Company recognizes sales revenue from its retail stores, net of sales taxes and estimated sales returns at the time it sells merchandise to the customer. Customer purchases of shopping cards are not recognized as revenue until the card is redeemed when the customer purchases merchandise by using the shopping card.
   
 
When the current fiscal year began, the Company had operated seven retail stores. During the three months ended September 30, 2016, the Company assigned the operation of six of its retail stores in Sanshui, Shunde, Chancheng, Xiaolan, Dongguan and Guangzhou to six independent individuals. Revenues are derived from the sale of food products to these six stores and one store that the Company operates. The Company recognizes revenue for product sales upon transfer of title to the six stores. Purchase orders and/or contracts are generally used to determine the existence of an arrangement. Shipping documents and the completion of any store acceptance requirements, when applicable, are used to verify product delivery. The Company assesses whether a price is fixed or determinable based upon the payment terms associated with the transaction and whether the sales price is subject to refund or adjustment
   
 
During the year ended March 31, 2017, wholesale revenue of $4,965,320 was generated from these six stores.
   
b)
Custom-made sales - The target customers are commercial customers who can order online or in the Company’s local stores and make full payment on site. All orders are forwarded to Zhongshan Winha immediately, which arranges the delivery. Revenue from the sale of products is recognized upon delivery to customers provided that there are no uncertainties regarding customer acceptance, there is persuasive evidence of an arrangement, and the sales price is fixed and determinable.  Revenue generated from custom-made sales was $29,713,348 and $29,943,950, respectively, for years ended March 31, 2017 and 2016, respectively.
   
c)
Franchise and management fees
   
 
During the three months ended September 30, 2015, the Company commenced franchising the use of the Company’s trademark, name identification and other business resources. The franchisee is required to pay franchise fees and management fees to Zhongshan Winha. Franchise fee revenue from franchise sales is recognized only when all material services or conditions relating to the sale have been substantially performed or satisfied by the Company. The franchise and management fees recognized by the Company were $4,322,366 and $3,055,692 for the years ended March 31, 2017 and 2016, respectively, and are included in revenue.
 
F - 32


 
WINHA INTERNATIONAL GROUP LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
FOR THE YEARS ENDED MARCH 31, 2017 AND 2016 (IN U.S. $)
 
2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue Recognition (continued)
Zhongshan Winha grants certain commercial customers limited rights to return products and provides price protection for inventories held by resellers at the time of published price reductions. Zhongshan Winha establishes an estimated allowance for future product returns based upon historical return experience when the related revenue is recorded and provides for appropriate price protection reserves when pricing adjustments are approved.
Zhongshan Winha’s return policy allows customers to return their merchandise in the original box and/or packaging within 7 days of purchase.  The Company has not experienced material returns or price adjustments
Fair Value of Financial Instruments
FASB ASC 820, “Fair Value Measurement,” specifies a hierarchy of valuation techniques based upon whether the inputs to those valuation techniques reflect assumptions other market participants would use based upon market data obtained from independent sources (observable inputs).  In accordance with ASC 820, the following summarizes the fair value hierarchy:
Level 1 Inputs
– Unadjusted quoted market prices for identical assets and liabilities in an active market that the Company has the ability to access.
   
Level 2 Inputs
– Inputs other than the quoted prices in active markets that are observable either directly or indirectly.
 
Level 3 Inputs
– Inputs based on prices or valuation techniques that are both unobservable and significant to the overall fair value measurements.
F - 33



WINHA INTERNATIONAL GROUP LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
FOR THE YEARS ENDED MARCH 31, 2017 AND 2016 (IN U.S. $)
 
2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Fair Value of Financial Instruments (continued)
ASC 820 requires the use of observable market data, when available, in making fair value measurements.  When inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement.  Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.  As of March 31, 2017 and 2016, none of the Company’s assets and liabilities were required to be reported at fair value on a recurring basis.  Carrying values of non-derivative financial instruments, including accounts payable, accrued expenses and loan from stockholder approximate their fair values due to the short term nature of these financial instruments.  There were no changes in methods or assumptions during the periods presented.
Cash and Cash Equivalents
The Company considers all demand and time deposits and all highly liquid investments with an original maturity of three months or less to be cash equivalents.
Accounts Receivable
Accounts receivable is stated at cost, net of an allowance for doubtful accounts, if required.  Receivables outstanding longer than the payment terms are considered past due.  The Company maintains an allowance for doubtful accounts for estimated losses when necessary resulting from the failure of customers to make required payments.  The Company reviews the accounts receivable on a periodic basis and makes allowances where there is doubt as to the collectability of individual balances.
In evaluating the collectability of individual receivable balances, the Company considers many factors, including the age of the balance, the customer’s payment history, its current credit-worthiness and current economic trends.  The Company considers all accounts receivable at March 31, 2016 to be fully collectible and, therefore, did not provide an allowance for doubtful accounts.  For the periods presented, the Company did not write off any accounts receivable as bad debts.
F - 34



WINHA INTERNATIONAL GROUP LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
FOR THE YEARS ENDED MARCH 31, 2017 AND 2016 (IN U.S. $)
 
2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Inventories
Inventories, comprised of merchandise and food products, are stated at the lower of cost or market.  The value of inventory is determined using the weighted average cost method.
The Company estimates an inventory allowance for excess or unusable inventories.  Inventory is reported net of such allowances, if any.  There was no allowance for excess or unusable inventories as of March 31, 2016.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost, less accumulated depreciation.  Cost includes the price paid to acquire the asset, and any expenditure that substantially increases the asset’s value or extends the useful life of an existing asset.  Depreciation is computed using the straight-line method over the estimated useful lives of the assets.  Major repairs and betterments that significantly extend original useful lives or improve productivity are capitalized and depreciated over the periods benefited.  Maintenance and repairs are generally expensed as incurred.
During the three months ended September 30, 2016, the Company acquired various fruit orchards for $9,425,559. The fruit orchards grow 41 different kinds of fruits in various areas in China. The book value of the orchards includes costs related to saplings, fertilizer, pesticide, water, electricity, labor and land leasing. The planting costs are capitalized. In addition, the Company also capitalized $453,134 for ten greenhouses utilized in the process of growing vegetables.
The estimated useful lives for property, plant and equipment categories are as follows:

Furniture, fixtures and equipment
3 to 5 years
Leasehold improvements
Over the shorter of the remaining lease term or estimated useful life of the improvements.
Motor vehicles
5 years
Greenhouses
3 years
Fruit orchards
Not yet producing

F - 35


WINHA INTERNATIONAL GROUP LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
FOR THE YEARS ENDED MARCH 31, 2017 AND 2016 (IN U.S. $)
 
2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Impairment of Long-Lived Assets

The Company follows FASB ASC 360, "Accounting for the Impairment and Disposal of Long-Lived Assets," which addresses the financial accounting and reporting for the recognition and measurement of impairment losses for long-lived assets.  In accordance with ASC 360, long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  The Company may recognize the impairment of long-lived assets in the event the net book value of such assets exceeds the future undiscounted cash flows attributable to those assets.  The Company wrote off its website development costs of $34,140 during the three months ended September 30, 2016.

Income Taxes

The Company accounts for income taxes in accordance with FASB ASC 740, "Income Taxes" ("ASC 740"), which requires the recognition of deferred income taxes for differences between the basis of assets and liabilities for financial statement and income tax purposes.  Deferred tax assets and liabilities represent the future tax consequences for those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled.  Deferred taxes are also recognized for operating losses that are available to offset future taxable income.  A valuation allowance is established, when necessary, to reduce deferred tax assets to the amount expected to be realized.  ASC 740 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements.

Under ASC 740, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position.  The tax benefits recognized in the financial statements from such a position would be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement.  ASC 740 also provides guidance on the de-recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, and accounting for interest and penalties associated with these tax positions.  As of March 31, 2017 and 2016, the Company did not record any liabilities for unrecognized income tax benefits.  The earnings of equity investment will be indefinitely reinvested and, accordingly, no deferred taxes will be calculaated.

The income tax laws of various jurisdictions in which the Company and its subsidiaries operate are summarized as follows:
F - 36



WINHA INTERNATIONAL GROUP LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
FOR THE YEARS ENDED MARCH 31, 2017 AND 2016 (IN U.S. $)
 
2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes (continued)
United States
The Company is subject to United States tax at graduated rates from 15% to 35%.  No provision for income tax in the United States has been made as the Company had no U.S. taxable income for the years ended March 31, 2017 and 2016.
Anguilla
Sanmei International Investment Co, Ltd is incorporated in Anguilla and is governed by the income tax laws of Anguilla. According to current Anguilla income tax law, the applicable income tax rate for the Company is 0%.
Australia
Winha Commerce and Trade Limited is incorporated in Australia.  Pursuant to the income tax laws of Australia, the Company is not subject to tax on non-Australian source income.
Cayman Islands
C&V International Holdings Company Limited is incorporated in Cayman Islands and is governed by the income tax laws of the Cayman Islands.  According to current Cayman Islands income tax law, the applicable income tax rate for the Company is 0%.
Hong Kong
Winha International Investment Holdings Company Limited is incorporated in Hong Kong.  Pursuant to the income tax laws of Hong Kong, the Company is not subject to tax on non-Hong Kong source income.
PRC
Shenzhen Winha, Zhongshan Winha Electronic Commerce Company Limited together with Zhongshan Winha Catering Management Company Limited and Zhongshan Supermarket Limited are subject to an Enterprise Income Tax at 25% and each files its own tax return.

F - 37



WINHA INTERNATIONAL GROUP LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
FOR THE YEARS ENDED MARCH 31, 2017 AND 2016 (IN U.S. $)
 
2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Net Income (Loss) Per Common Share

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

Statutory Reserve

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

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

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

The required transfer to the statutory reserve fund was $329,937 and $245,390, respectively, for the years ended March 31, 2017 and 2016.
F - 38


WINHA INTERNATIONAL GROUP LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
FOR THE YEARS ENDED MARCH 31, 2017 AND 2016 (IN U.S. $)
 
3.  RECENTLY ISSUED ACCOUNTING STANDARDS
In February 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-05, Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets. This ASU requires all entities to derecognize a business or nonprofit activity in accordance with Topic 810, and also requires all entities derecognize an equity method investment in accordance with Topic 860.  The amendments in this ASU eliminate the scope exceptions, and simplifies GAAP. This ASU is effective for fiscal years beginning after December 15, 2017, including interim reporting periods within that reporting period.  Public entities may apply the guidance earlier but only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period.  The Company is evaluating the impact of adopting this new accounting guidance on its consolidated financial statements.
In August 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This ASU addresses the classification of certain specific cash flow issues including debt prepayment or extinguishment costs, settlement of certain debt instruments, contingent consideration payments made after a business combination, proceeds from the settlement of certain insurance claims and distributions received from equity method investees. This ASU is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. An entity that elects early adoption must adopt all of the amendments in the same period. The Company is currently evaluating the effect this ASU will have on its consolidated statement of cash flows.
 
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The new standard requires financial assets measured at amortized cost be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The standard will be effective for the Company beginning January 1, 2020, with early application permitted. The Company is evaluating the impact of adopting this new accounting guidance on its consolidated financial statements.
 
In May, 2016, the FASB issued ASU No. 2016-10, Revenue with Contracts with Customers: Narrow-scope Improvements and Practical Expedients, which is an amendment to ASU No. 2014-09 that clarifies the objective of the collectability criterion, to allow entities to exclude amounts collected from customers from all sales taxes from the transaction price, to specify the measurement date for noncash consideration is contract inception. Variable consideration guidance applies only to variability resulting from reasons other than the form of the consideration, and clarification on contract modifications at transition. The implementation guidelines follow ASU No. 2014-09.
F - 39


WINHA INTERNATIONAL GROUP LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
FOR THE YEARS ENDED MARCH 31, 2017 AND 2016 (IN U.S. $)
 
3.  RECENTLY ISSUED ACCOUNTING STANDARDS (CONTINUED)

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

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

4.  PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are summarized as follows:
   
March 31,
2017
   
March 31,
2016
 
             
Furniture, fixtures and equipment
 
$
-
   
$
1,131,124
 
Leasehold improvements
   
-
     
629,536
 
Motor vehicles
   
-
     
361,967
 
                 
     
-
     
2,122,627
 
Less: accumulated depreciation
   
-
     
(274,650
)
                 
   
$
-
   
$
1,847,977
 
For the years ended March 31, 2017 and 2016, depreciation and amortization expense was $301,964 and $202,604 , respectively.
F - 40



WINHA INTERNATIONAL GROUP LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
FOR THE YEARS ENDED MARCH 31, 2017 AND 2016 (IN U.S. $)
 
5.   EQUITY INVESTMENT

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

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

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

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

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

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

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

F - 41



WINHA INTERNATIONAL GROUP LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
FOR THE YEARS ENDED MARCH 31, 2017 AND 2016 (IN U.S. $)
 
8.  INCOME TAXES

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

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

   
2017
   
2016
 
             
Current
 
$
4,444,504
   
$
4,575,137
 
Deferred
   
32,810
     
(32,810
)
                 
   
$
4,477,314
   
$
4,542,327
 

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

   
2017
   
2016
 
             
Statutory rate - PRC
   
25.0
%
   
(25.0
)%
Non-deductible deconsolidation loss
   
8.9
%
   
-
 
Non-deductible equity investment loss
   
0.2
%
   
-
 
Non-deductible stock compensation
   
-
     
146.9
%
Benefit of carryforward losses
   
0.3
%
   
(0.9
)%
Other
   
1.9
%
   
1.0
%
                 
Effective income tax rate
   
36.1
%
   
122.0
%

The Company did not recognize any tax benefit related to Parent’s loss of approximately $(15,865,000) since it has no income. The stock compensation of approximately $15,865,000 would be deductible only to the U.S. Parent Company and accordingly there is no deferred tax benefit to be recognized. The stock compensation of approximately $6,017,000 can’t be deducted by the Operating Company under PRC tax laws.

Deferred tax assets and liabilities are recognized for expected future tax consequences of differences between the carrying amounts of assets and liabilities and their respective tax bases using enacted tax rates in effect for the year in which the differences are expected to reverse. The laws of China permit the carry-forward of net operating losses for a period of five years. U.S. federal net operating losses can generally be carried forward twenty years.

F - 42



WINHA INTERNATIONAL GROUP LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
FOR THE YEARS ENDED MARCH 31, 2017 AND 2016 (IN U.S. $)
 
8.  INCOME TAXES (CONTINUED)
Deferred tax assets are comprised of the following:
   
March 31,
2017
   
March 31,
2016
 
             
Net operating loss carryforwards
 
$
7,203,344
   
$
6,333,864
 
Inventory intercompany profit
   
-
     
2,596
 
Less: valuation allowance
   
(7,203,344
)
   
(6,303,650
)
                 
Net deferred tax asset
 
$
-
   
$
32,810
 


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

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

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

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

F - 43



WINHA INTERNATIONAL GROUP LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
FOR THE YEARS ENDED MARCH 31, 2017 AND 2016 (IN U.S. $)
 
10.  PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION (CONTINUED)

Condensed Balance Sheet

ASSETS
  March 31,
2016
 
       
 Investment in subsidiaries
 
$
11,050,554
 
         
TOTAL ASSETS
 
$
11,050,554
 
         
LIABILITIES AND STOCKHOLDERS’  EQUITY
 
March 31,
2016
 
         
Accrued Expenses
   
45,000
 
Stockholder loans
 
$
158,351
 
         
Stockholders’ equity
       
Common stock, $0.0001 par value; 200,000,000 shares authorized; 49,989,500 shares issued and outstanding as of March 31, 2016
   
49,990
 
Additional paid-in capital
   
21,626,775
 
Statutory reserve
   
497,443
 
Retained earnings (deficit)
   
(11,096,421
)
Other comprehensive income (loss)
   
(230,584
)
         
Total stockholders’ equity
   
10,847,203
 
         
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
 
$
11,050,554
 

F - 44


WINHA INTERNATIONAL GROUP LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
FOR THE YEARS ENDED MARCH 31, 2017 AND 2016 (IN U.S. $)
 
10.  PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION (CONTINUED)

Condensed Statement of Income

   
Year Ended
 
   
March 31,
2016
 
       
Revenues
     
 Share of earnings from investment in subsidiaries
 
$
7,761,602
 
         
Operating expenses
       
 Stock compensation
   
(15,865,042
)
 General and administrative
   
(161,732
)
         
Net (loss)
 
$
(8,265,172
)

Condensed Statement of Cash Flows
   
Year Ended
March 31,
 2016
 
       
Cash flows from operating activities
     
 Net income
 
$
(8,265,172
)
 Adjustments to reconcile net income to net cash provided by (used in) operating activities
       
  Share of earnings from investment in subsidiaries
   
(7,761,602
)
Stock compensation
   
15,865,042
 
  Increase in accrued expenses and other payables
   
161,732
 
         
    Net cash provided by (used in) operating activities
   
-
 
         
Net change in cash
   
-
 
Cash, beginning of period
   
-
 
         
Cash, end of period
 
$
-
 
         
Noncash financing activities:
       
 Payment of accrued expenses and other payables by shareholder
 
$
116,732
 

F - 45



WINHA INTERNATIONAL GROUP LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
FOR THE YEARS ENDED MARCH 31, 2017 AND 2016 (IN U.S. $)
 
10.  PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION  (CONTINUED)
Basis of Presentation
The Company records its investment in its subsidiaries under the equity method of accounting.  Such investments are presented as “Investment in subsidiaries” on the condensed balance sheet and the subsidiaries profits are presented as “Share of earnings from investment in subsidiaries” in the condensed statement of income.
Certain information and footnote disclosures normally included in financial statements prepared in conformity with accounting principles generally accepted in the United States of America have been condensed or omitted.  The parent only financial information has been derived from the Company’s consolidated financial statements and should be read in conjunction with the Company’s consolidated financial statements.
There were no cash transactions in the US parent company during the twelve months ended March 31, 2016.
Restricted Net Assets
Under PRC laws and regulations, the Company’s PRC subsidiaries are restricted in their ability to transfer certain of their net assets to the Company in the form of dividend payments, loans or advances. The restricted net assets of the Company’s PRC subsidiaries amounted to approximately $11,050,554 as of March 31, 2016.
The Company’s operations and revenues are conducted and generated in the PRC, and all of the Company’s revenues being earned and currency received are denominated in RMB.  RMB is subject to the foreign exchange control regulations in China, and, as a result, the Company may be unable to distribute any dividends outside of China due to PRC foreign exchange control regulations that restrict the Company’s ability to convert RMB into US Dollars.       
11.  SUBSEQUENT EVENT
On June 1, 2017, the Board of Australian Winha announced that Australian Winha will pay an unfranked final dividend of AUD $0.035179 (approximately USD $0.026) per share.

F - 46


 
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
 
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:
·
We have not achieved the desired level of corporate governance with regard to identifying and measuring the risk of material misstatement. Because of our limited internal resources, we lack key monitoring mechanisms such as independent directors and audit committee to oversee and monitor the Company’s risk management, business strategies and financial reporting procedures.
   
·
We have not designed and implemented controls to maintain appropriate segregation of duties in our manual and computer-based business processes which could affect the Company’s purchasing controls, the limits on the delegation of authority for expenditures, and the proper review of manual journal entries.
   
·
Our accounting department personnel have limited knowledge and experience in US GAAP and reports with the Securities and Exchange Commission (the “SEC”).  To remediate the material weakness, the management has hired an external consultant with extensive experience in US GAAP and reports to the SEC, who is responsible for assisting the Company with (i) the preparation of its financial statements in accordance with US GAAP and (ii) its periodic reports with the SEC.
 
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’s Annual Report on Internal Control Over Financial Reporting.
 
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.
47


 
Changes in Internal Control over Financial Reporting
 
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.
 
Name
 
Age
 
Position
Chung Yan Winnie Lam
 
40
 
President, Secretary, Treasurer & Director
 
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.
 
Name
 
Age
 
Position
Zhuowei Zhong
 
45
 
Chairman of the Board
Zhifei Huang
 
40
 
Chief Executive Officer
Huiwen Huang
 
52
 
Director of Legal Affairs

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.
48



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.
 
Fiscal
Year
 
Salary
   
Bonus
   
Stock
Awards
   
Option
Awards
   
Other
Compensation
 
Chung Yan Winnie Lam
 2017    
--
     
--
     
--
     
--
     
--
 
 2016    
--
     
--
     
--
     
--
     
--
 
 2015    
--
     
--
     
--
     
--
     
--
 

49


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.  
 
Beneficial Owner
 
Amount
and Nature
of Beneficial
Ownership(1)
   
Percentage
of Class
 
Chung Yan Winnie Lam
   
0
     
--
 
All officers and directors As a group (1 person)
   
0
     
--
 
Zening Lai
   
35,181,893
(2) 
   
70.4
%
---------------------------------
(1)  Except as otherwise noted, all shares are owned of record and beneficially.
(2)  Includes 35,181,844 shares owned of record by Pilot International Investment Co., Inc., of which Zening Lai  is the sole shareholder.

50


ITEM 13.        CERTAIN RELATIONSHIP AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
 
Certain Relationships and Related Transactions

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”).
Director Independence
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.
51



PART IV
 
ITEM 15.        EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Exhibit List
  
3.1
Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the Registration Statement on Form S-1 of the Company filed September 9, 2013 by the Company with the SEC)
   
3.2
By-laws (incorporated by reference to Exhibit 3.2 to the Registration Statement on Form S-1 of the Company filed September 9, 2013 by the Company with the SEC)
   
10.1
Form of Joint Cooperation Agreement executed by Zhongshan Winha and its franchisees - filed as an exhibit to the Company’s Annual Report on Form 10-K for the year ended March 31, 2016 and incorporated herein by reference.
   
10.2
Labor Contract dated April 29, 2016 between Zhongshan Winha Electronic Commerce Company Limited and Zhuowei Zhong
   
10.3
Labor Contract dated May 4, 2016 between Zhongshan Winha Electronic Commerce Company Limited and Zhifei Huang
 
31.1
Certification of the President of the Company, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
   
32.1
Certification of the President of the Company, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
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*

* The XBRL related information in Exhibit 101 shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that section and shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing or document.
52



SIGNATURES
 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934 the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
Dated: July 14, 2017
Winha International Group Limited
 
 
 
 
By:
/s/ Chung Yan Winnie Lam
 
 
Chung Yan Winnie Lam
 
 
 (Principal Executive Officer, Principal Financial Officer, and Principal Accounting Officer)
 
Pursuant to the requirements of the Securities Exchange Act of 1934 this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on July 13, 2017.
 
Signature
 
Title
 
Date
 
 
 
 
 
/s/ Chung Yan Winnie Lam
 
President and Sole Director
 
July 14, 2017
Chung Yan Winnie Lam
 
(Principal Executive Officer, Principal Financial Officer, and Principal Accounting Officer)
 
 
 
 
 
 
53