| Note 2. Summary of Significant Accounting Policies | 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 is deemed the primary beneficiary. On November 27, 2015, the VIE structure was terminated upon Shenzhen Winha exercising its option to purchase all of the registered equity of Zhongshan Winha. Shenzhen Winha became the sole owner of Zhongshan Winha. All significant inter-company accounts and transactions have been eliminated in consolidation. All consolidated financial statements and notes to the consolidated financial statements are presented in United States dollars (US Dollar or US$ or $). Foreign Currency Translation Almost all Company assets and operations are located in the PRC. The functional currency for the majority of the Companys operations is the Renminbi (RMB). The Company uses the United States Dollar (US Dollar or US$ or $) for financial reporting purposes. The financial statements of the Company have been translated into US dollars in accordance with FASB ASC 830, Foreign Currency Matters. All asset and liability accounts have been translated using the exchange rate in effect at the balance sheet date. Equity accounts have been translated at their historical exchange rates when the capital transactions occurred. Statements of income, changes in stockholders equity and cash flow amounts have been translated using the average exchange rate for the periods presented. Adjustments resulting from the translation of the Companys financial statements are recorded as other comprehensive income (loss). The exchange rates used to translate amounts in RMB into US dollars for the purposes of preparing the financial statements are as follows: December 31, 2015 March 31, 2015 Balance sheet items, except for stockholders equity, as of period end 0.1540 0.1632 For the three months ended December 31, For the nine months ended December 31, 2015 2014 2015 2014 Amounts included in the statements of income, statement of changes in stockholders equity and statements of cash flows for the period 0.1563 0.1628 0.1596 0.1624 For the three and nine months ended December 31, 2015 and 2014, foreign currency translation adjustments of $(279,514) and $273, respectively, and $(526,358) and $(97), respectively, have been reported as other comprehensive income (loss). Other comprehensive income (loss) of the Company consists entirely of foreign currency translation adjustments. Pursuant to ASC 740-30-25-17, Exceptions to Comprehensive Recognition of Deferred Income Taxes, Although government regulations now allow convertibility of the RMB for current account transactions, significant restrictions still remain. Hence, such translations should not be construed as representations that the RMB could be converted into US dollars at that rate or any other rate. The value of the RMB against the US dollar and other currencies may fluctuate and is affected by, among other things, changes in the PRCs political and economic conditions. Any significant revaluation of the RMB may materially affect the Companys financial condition in terms of US dollar reporting. The PRC has devalued the RMB by approximately 3.5 % subsequent to June 30, 2015. Further devaluations could occur in the future. Vulnerability Due To Operations in PRC The Companys 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 PRCs political, economic and social conditions. There is also no guarantee that the PRC governments pursuit of economic reforms will be consistent, effective or continue. The growth rate in the PRC has recently started to narrow. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Prepaid Expenses Prepaid expenses as of December 31, 2015 and March 31, 2015 mainly represent the prepayments of approximately 29,972 145,524 Advances from Customers Advances from customers represents prepaid cards purchased by customers at our retail locations. We believe that prepaid cards are principally purchased for gift purposes and usually used quickly. Accordingly the Company records the related obligation as a current liability. Advances from customers was $722,997 and $732,212 as of December 31, 2015 and March 31, 2015, respectively. Website Development Costs The Company accounts for website development costs in accordance with ASC 350-50, "Accounting for Website Development Costs", wherein website development costs are segregated into three activities: 1. Initial stage (planning), whereby the related costs are expensed. 2. Development stage (web application, infrastructure, graphics), whereby the related costs are capitalized and amortized once the website is ready for use. Costs for development content of the website may be expensed or capitalized depending on the circumstances of the expenditures. 3. Operating stage, whereby the related costs are expensed as incurred. Upgrades are usually expensed, unless they add additional functionality. The Company has a website and ongoing website development costs of $45,636 and $39,014 as of December 31, 2015 and March 31, 2015, respectively. The online sales platform is currently in use and the related costs are being amortized over five years. Amortization expense was $196 and $986, and $599 and $1,595 for the three and nine months ended December 31, 2015 and 2014, respectively. Revenue Recognition The Company recognizes revenue from the following channels: 1. Retail stores - The Company recognizes sales revenue from its seven retail stores, net of sales taxes and estimated sales returns at the time it sells merchandise to the customer. Customer purchases of shopping cards are not recognized as revenue until the card is redeemed and the customer purchases merchandise by using the shopping card. 2. Custom-made sales - The Company started Custom-made sales in August 2014. The target customers are commercial customers who can order online or in the Companys local stores and make full payment on site. All orders are forwarded to Zhongshan Winha immediately, which arranges the delivery. Revenue from the sale of products is recognized upon delivery to customers provided that there are no uncertainties regarding customer acceptance, there is persuasive evidence of an arrangement, and the sales price is fixed and determinable. Revenue generated from custom-made sales was $6,839,914 and $1,875,615, respectively, for three months ended December 31, 2015 and 2014. Revenue generated from custom-made sales was $17,038,823 and $4,940,031, respectively, for nine months ended December 31, 2015 and 2014. 3. Franchise and management fees - During the quarter ended September 30, 2015, the Company commenced franchising the use of the Company's trademark, name identification and other business resources, in accordance with the agreement. The franchisee is required to pay franchise fees and management fees to Zhongshan Winha. Franchise fee revenue from franchise sales is recognized only when all material services or conditions relating to the sale have been substantially performed or satisfied by the franchisor. The franchise and management fees recognized by the Company were $941,292 and $1,458,744 for the three and nine months ended December 31, 2015 and included in revenue. Zhongshan Winha grants certain commercial customers limited rights to return products and provides price protection for inventories held by resellers at the time of published price reductions. Zhongshan Winha establishes an estimated allowance for future product returns based upon historical return experience when the related revenue is recorded and provides for appropriate price protection reserves when pricing adjustments are approved. Zhongshan Winhas return policy allows customers to return their merchandise in the original box and/or packaging within 7 days of purchase. The Company has not experienced material returns. Fair Value of Financial Instruments FASB ASC 820, Fair Value Measurement, 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. ASC 820 requires the use of observable market data, when available, in making fair value measurements. When inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs. As of December 31, 2015 and March 31, 2015, none of the Companys assets and liabilities were required to be reported at fair value on a recurring basis. Carrying values of non-derivative financial instruments, including cash, accounts receivable, inventory, advances to suppliers, accounts payables and accrued expenses, and advances from customers approximate their fair values due to the short term nature of these financial instruments. There were no changes in methods or assumptions during the periods presented. Cash and Cash Equivalents The Company considers all demand and time deposits and all highly liquid investments with an original maturity of three months or less to be cash equivalents. Accounts Receivable Accounts receivable is stated at cost, net of an allowance for doubtful accounts, if required. Receivables outstanding longer than the payment terms are considered past due. The Company maintains an allowance for doubtful accounts for estimated losses when necessary resulting from the failure of customers to make required payments. The Company reviews the accounts receivable on a periodic basis and makes allowances where there is doubt as to the collectability of individual balances. In evaluating the collectability of individual receivable balances, the Company considers many factors, including the age of the balance, the customers payment history, its current credit-worthiness and current economic trends. The Company considers all accounts receivable at December 31, 2015 and March 31, 2015 to be fully collectible and, therefore, did not provide an allowance for doubtful accounts. For the periods presented, the Company did not write off any accounts receivable as bad debts. Inventory Inventory, comprised principally of merchandise and food products, is stated at the lower of cost or market. The value of inventory is determined using the weighted average cost method. The Company estimates an inventory allowance for excessive or unusable inventories. Inventory amounts are reported net of such allowances, if any. There was no allowance for excessive or unusable inventories as of December 31, 2015 and March 31, 2015. Property, Plant and Equipment Property, plant and equipment are recorded at cost, less accumulated depreciation. Cost includes the price paid to acquire the asset, and any expenditure that substantially increases the assets value or extends the useful life of an existing asset. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Major repairs and betterments that significantly extend original useful lives or improve productivity are capitalized and depreciated over the periods benefited. Maintenance and repairs are generally expensed as incurred. The estimated useful lives for property, plant and equipment categories are as follows: Furniture, fixtures and equipment 3 to 5 years Leasehold improvements Over the shorter of the remaining lease term or estimated useful life of the improvements. Motor vehicles 5 years Impairment of Long-Lived Assets The Company applies FASB ASC 360, Accounting for the Impairment and Disposal of Long-Lived Assets, Income Taxes The Company accounts for income taxes in accordance with FASB ASC 740, Income Taxes Under ASC 740, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position would be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. ASC 740 also provides guidance on the de-recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, and accounting for interest and penalties associated with these tax positions. As of December 31, 2015 and March 31, 2015, the Company did not record any liabilities for unrecognized income tax benefits. The income tax laws of various jurisdictions in which the Company and its subsidiaries operate are summarized as follows: United States The Company is subject to United States tax at graduated rates from 15% to 35%. No provision for income tax in the United States has been made as the Company had no U.S. taxable income for the three and nine months ended December 31, 2015 and 2014. Cayman Islands C&V International Holdings Company Limited is incorporated in Cayman Islands and is governed by the income tax laws of the Cayman Islands. According to current Cayman Islands income tax law, the applicable income tax rate for the Company is 0%. Hong Kong Winha International Investment Holdings Company Limited is incorporated in Hong Kong. Pursuant to the income tax laws of Hong Kong, the Company is not subject to tax on non-Hong Kong source income. PRC Shenzhen Winha, Zhongshan Winha Electronic Commerce Company Limited together with Zhongshan Winha Catering Management Company Limited and Zhongshan Supermarket Limited are subject to an Enterprise Income Tax at 25% and each files its own tax return. Australia Winha Commerce and Trade Limited is incorporated in Australia. Pursuant to the income tax laws of Australia, the Company is not subject to tax on non-Australian source income. Net Income (Loss) Per Share The Company computes net income (loss) per common share in accordance with FASB ASC 260, Earnings Per Share December 31, 2015 and 2014. Statutory Reserve The Companys 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 Companys China-based subsidiaries, are required to make appropriations from their after-tax profit as determined under generally accepted accounting principles in the PRC (the after-tax-profit under PRC GAAP) to a general non-distributable reserve fund. Each year, at least 10% of each entities after-tax-profit under PRC GAAP is required to be set aside as a general reserve fund until the fund equals 50% of the registered capital of the applicable entity. The statutory reserve fund is restricted as to use and can only be used to set-off against losses, expansion of production and operations and increasing registered capital of the respective company. The fund is not allowed to be transferred to the Company in terms of cash dividends, loans or advances, nor is it allowed for distribution except under liquidation. The required transfer to the statutory reserve fund was $420,360 and $967,741, respectively, for the three and nine months ended December 31, 2015. The required transfer to the statutory reserve fund was $139,591 for the three and nine months ended December 31, 2014. |
