NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016
(UNAUDITED,
IN U.S. $)
1.
|
ORGANIZATION
AND BUSINESS
|
Wonhe
High-Tech International, Inc. (the “Company” or “Wonhe High-Tech”) was incorporated in the State of Nevada
on August 13, 2007. The Company changed its name from Baby Fox International, Inc. to Wonhe High-Tech International, Inc. on April
20, 2012. On June 27, 2012, the Company acquired all of the outstanding capital stock of World Win International Holding Ltd.
or “World Win” in exchange for 19,128,130 shares of the Company’s common stock (the “Share Exchange”).
As
a result of the acquisition in June 2012, the Company’s consolidated subsidiaries included World Win, the Company’s
wholly-owned subsidiary, which is incorporated under the laws of the British Virgin Island (“BVI”), Kuayu International
Holdings Group Limited (Hong Kong), or “Kuayu,” a wholly-owned subsidiary of World Win which is incorporated under
the laws of Hong Kong, and Shengshihe Management Consulting (Shenzhen) Co., Ltd., or “Shengshihe Consulting,” a wholly-owned
subsidiary of Kuayu which is incorporated under the laws of the People’s Republic of China (“PRC”).
The
Company also consolidated the financial position and results of operations of Shenzhen Wonhe Technology Co., Ltd., or “Shenzhen
Wonhe,” a company incorporated under the laws of the PRC. Until September 15, 2015 Shenzhen Wonhe was effectively and substantially
controlled by Shengshihe Consulting through a series of captive agreements, and was considered a variable interest entity (“VIE”)
of Shengshihe Consulting, the effect of which was to cause the balance sheet and operating results of Shenzhen Wonhe to be consolidated
with those of Shengshihe Management in the Company’s financial statements. On September 15, 2015, Shengshihe Consulting
exercised its option to purchase all of the registered equity of Shenzhen Wonhe. As a result of the acquisition by Shengshihe
Consulting of the registered ownership of Shenzhen Wonhe, the balance sheet and operating results of Shenzhen Wonhe are consolidated
with those of Shengshihe Consulting as its 100% owned subsidiary.
In
July 2015, World Win, the Company’s wholly-owned subsidiary, organized Wonhe Multimedia Commerce Ltd. (“Australian
Wonhe”) under Australian law. 60% of the capital stock of Australian Wonhe was issued to World Win, 25% was issued to Wonhe
International (Hong Kong), which is wholly owned and controlled by Qing Tong, who is Chairman of the Board of Wonhe High-Tech
and the remaining 15% was issued to three non-affiliated financial consultants. On August 5, 2015, World Win sold all of the outstanding
capital stock of Kuayu to Australian Wonhe. In exchange for Kuayu, Australian Wonhe paid World Win $10,000 Hong Kong Dollars (US
$1,290). Kuayu is the sole owner of Shengshihe Consulting, which in turn owns Shenzhen Wonhe, the Company’s operating company.
The effect of the sale of Kuayu, therefore, reduced the interest of the Company in its operating company by 40%.
On
December 21, 2015, the Company’s 60% owned subsidiary, Australia Wonhe was listed on the ASX and sold 16,951,802 of its
ordinary shares for net proceeds of $1,941,318.
WONHE
HIGH-TECH INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016
(UNAUDITED,
IN U.S. $)
1.
|
ORGANIZATION
AND BUSINESS (continued)
|
The
Company’s current organization structure is as follows:
Shenzhen
Wonhe is a Chinese entity established on November 16, 2010 with registered capital of $7,495,000. Since its formation, Shenzhen
Wonhe has been involved in the research and development, outsourced-manufacturing and sale of hi-tech products based on x86 (instruction
set architecture based on the Intel 8086 CPU) and ARM (32-bit reduced instruction set architecture). Current products still under
research and development include a Smart Media Box (SMB), Home Smart Server (HSS), Mini PC (MPC), All in One PC (AIO-PC), Business
PAD (B-PAD), and Portable PAD (P-PAD). Since 2015, the Company has also marketed Wi-Fi-Routers. Currently Shenzhen Wonhe offers
three such routers: YLT-100S and YLT-300J for use by individuals, and YLT-300S for use primarily in shopping malls. Shenzhen Wonhe
is located in the Shenzhen, Guangdong Province in the PRC.
WONHE
HIGH-TECH INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016
(UNAUDITED,
IN U.S. $)
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
Basis
of Accounting and Presentation
The
accompanying consolidated financial statements have been prepared on the accrual basis of accounting. The consolidated financial
statements as of and for the three months ended March 31, 2017 and 2016 include Wonhe High-Tech, World Win, Wonhe Multimedia,
Kuayu, Shengshihe Consulting and Shenzhen Wonhe. All significant intercompany accounts and transactions have been eliminated in
consolidation.
The
unaudited interim consolidated financial statements of the Company as of March 31, 2017 and for the three months ended March 31,
2017 and 2016 have been prepared in accordance with accounting principles generally accepted in the United States of America and
the rules and regulations of the SEC which apply to interim financial statements. Accordingly, they do not include all of the
information and footnotes normally required by accounting principles generally accepted in the United States of America for annual
financial statements. In the opinion of management, such information contains all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the results for the periods presented. The interim consolidated financial information
should be read in conjunction with the consolidated financial statements and the notes thereto, included in the Company’s
Form 10-K filed with the SEC. The results of operations for the three months ended March 31, 2017 are not necessarily indicative
of the results to be expected for future quarters or for the year ending December 31, 2017.
All
consolidated financial statements and notes to the consolidated financial statements are presented in United States dollars (“US
Dollar” or “US$” or “$”).
Use
of Estimates
The
preparation of financial statements in accordance 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 disclosures
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.
Foreign
Currency Translation
Almost
all of the Company’s assets are located in the PRC. The functional currency for the majority of the operations is the Renminbi
(“RMB”). For Kuayu, the functional currency for the majority of its operations is the Hong Kong Dollar (“HKD”).
For Australian Wonhe, the functional currency is the Australian dollar (“AUD”). The Company uses the US Dollar for
financial reporting purposes. The consolidated financial statements of the Company have been translated into US dollars in accordance
with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification “ASC” section
830,
“Foreign Currency Matters.”
WONHE
HIGH-TECH INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016
(UNAUDITED,
IN U.S. $)
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (continued)
|
Foreign
Currency Translation (continued)
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. The consolidated statements of
operations and other comprehensive income (loss) amounts have been translated using the average exchange rate for the periods
presented. Adjustments resulting from the translation of the Company’s consolidated 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 consolidated financial statements
are as follows:
|
|
|
March
31,
2017
|
|
|
December 31,
2016
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
sheet items, except for stockholders’ equity, as of period’s end
|
|
|
0.1451
|
|
|
|
0.1440
|
|
|
|
|
|
|
|
|
|
Three
Months Ended
March
31,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts
included in the statements of income and comprehensive income, changes in stockholders’ equity and cash flows for the
periods presented
|
|
|
0.1452
|
|
|
|
0.1529
|
|
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
|
|
|
December 31,
2016
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
sheet items, except for stockholders’ equity, as of period’s end
|
|
|
0.7645
|
|
|
|
0.7202
|
|
WONHE
HIGH-TECH INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016
(UNAUDITED,
IN U.S. $)
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (continued)
|
Foreign
Currency Translation (continued)
|
|
|
Three
Months Ended
March
31,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts
included in the statements of income and comprehensive income, changes in stockholders’ equity and cash flows for the
periods presented
|
|
|
0.7576
|
|
|
|
0.7219
|
|
For
the three months ended March 31, 2017 and 2016, foreign currency translation adjustments of $190,984 and $437,197, respectively,
have been reported as other comprehensive income (loss). Other comprehensive income (loss) of the Company consists solely of foreign
currency translation adjustments. Pursuant to FASB 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
PRC 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 and Australian
dollars at that rate or any other rate.
The
value of the RMB against the US and Australian dollar 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.
Revenue
and Cost Recognition
The
Company receives revenues from the sale of electronic products. The Company’s revenue recognition policies are in compliance
with SEC Staff Accounting Bulletin (“SAB”) 104 (codified in FASB ASC Topic 605). Sales revenue is recognized when
the products are delivered and when customer acceptance occurs, the price is fixed or determinable, no other significant obligations
of the Company exist, and collectability is reasonably assured. Finished goods are delivered from outsourced manufacturers to
the Company. Revenue is recognized when the title to the products has been passed to the customer, which is the date the products
are picked up by the customer at the Company’s location or delivered to the designated locations by Company employees and
accepted by the customer and the previously discussed requirements are met. The customer’s acceptance occurs upon inspection
at the time of pickup or delivery by signing an acceptance form.
WONHE
HIGH-TECH INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016
(UNAUDITED,
IN U.S. $)
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (continued)
|
Revenue
and Cost Recognition (continued)
The
Company does not provide its customers with the right of return. A 36-month warranty is offered to customers for exchange or repair
of defective products, the cost of which is substantially covered by the outsourced manufacturers’ warranty policies as
specified in the contract between the Company and its outsourced manufacturers. As a result, the Company does not recognize a
warranty liability.
The
Company follows the guidance set forth by FASB ASC 605-45-45 to assess whether the Company acts as the principal or agent in the
transaction. The determination involves judgment and is based on an evaluation of whether the Company has the substantial risks
and rewards of ownership under the terms of the arrangement. Based on the assessment, the Company determined it acts as a principal
in the transaction and reports revenues on the gross basis.
FASB
ASC 605-45-45 sets forth eight criteria that support reporting recognition of gross revenue (i.e. principal sales) and three that
support reporting net revenue (i.e. agent sales). As applied to the relationship between the Company, its manufacturers, and its
customers, the following are the criteria that support reporting gross revenue:
|
●
|
Shenzhen
Wonhe is the primary obligor in each sale, as it is responsible for fulfillment of customer
orders, including the acceptability of the products purchased by the customer.
|
|
●
|
Shenzhen
Wonhe has general inventory risk, as it takes title to a product before that product
is ordered by or delivered to a customer.
|
|
●
|
Shenzhen
Wonhe establishes its own pricing for its products.
|
|
●
|
Shenzhen
Wonhe has discretion in supplier selection.
|
|
●
|
Shenzhen
Wonhe designed the Home Media Center Model 720 (the “HMC720”) and the two
Wifi Routers and is responsible for all of its specifications.
|
|
●
|
Shenzhen
Wonhe has physical inventory loss risk until the product is delivered to the customer.
|
|
●
|
Shenzhen
Wonhe has full credit risk for amounts billed to its customers.
|
The
only criterion supporting recognition of gross revenue that is not satisfied by the relationship between the Company and its manufacturers
is: the entity changes the product or performs part of the service. Moreover, none of the three criteria supporting recognition
of net revenue is present in the Company’s sales transactions. For this reason, the Company records gross revenue with respect
to sales by Shenzhen Wonhe.
WONHE
HIGH-TECH INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016
(UNAUDITED,
IN U.S. $)
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (continued)
|
Fair
Value of Financial Instruments
FASB
ASC 820 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.
|
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 measurements. Valuation techniques used need to maximize
the use of observable inputs and minimize the use of unobservable inputs. As of March 31, 2017 and December 31, 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 cash, accounts receivable and various receivables and payables, 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.
Advertising
Costs
Advertising
costs are paid to an advertising agency for market analysis and strategic planning and are charged to operations when incurred.
Advertising costs were $108,869 and $112,950 for the three months ended March 31, 2017 and 2016, respectively.
WONHE
HIGH-TECH INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016
(UNAUDITED,
IN U.S. $)
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (continued)
|
Research
and Development Costs
The
Company develops software to be marketed as part of its products, and that is not for internal use. The software is essential
to the functionality of the Company’s tangible products. Therefore, the Company accounts for research and development costs
incurred in development of its software in accordance with FASB ASC 985-20.
Research
and development costs are charged to operations when incurred. Development costs of computer software to be sold, leased, or otherwise
marketed are subject to capitalization beginning when a product’s technological feasibility has been established and ending
when a product is available for general release to customers. In most instances, the Company’s products are released soon
after technological feasibility has been established. Therefore, costs incurred subsequent to achievement of technological feasibility
are usually not significant, and generally most software development costs have been expensed as incurred. Research and development
costs were $639,540 and $47,109 for the three months ended March 31, 2017 and 2016, respectively.
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 are stated at cost, net of an allowance for doubtful accounts. Receivables outstanding longer than the payment terms
are considered past due. The Company provides an allowance for doubtful accounts for estimated losses resulting from the failure
of customers to make required payments when due. The Company reviews the accounts receivable on a periodic basis and makes allowances
where there is doubt as to the collectability of the outstanding balance. In evaluating the collectability of an individual receivable
balance, the Company considers many factors, including the age of the balance, the customer’s payment history, its current
credit-worthiness and current economic trends. As of March 31, 2017 and December 31, 2016, the Company considered all accounts
receivable collectable and an allowance for doubtful accounts was not necessary. For the three months ended March 31, 2017 and
2016, the Company did not write off any accounts receivable as bad debts.
WONHE
HIGH-TECH INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016
(UNAUDITED,
IN U.S. $)
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (continued)
|
Fixed
Assets and Depreciation
Fixed
assets 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. Leasehold improvements are
amortized over the lesser of the remaining term of the lease or the estimated useful lives of the improvements. 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 fixed asset categories are as follows:
|
Office
equipment
|
|
5
years
|
|
Motor
vehicles
|
|
5
years
|
Impairment
of Long-lived Assets
The
Company applies FASB ASC 360,
“Property, Plant and Equipment,”
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. No impairment of long-lived assets was recognized for
the periods presented.
Statutory
Reserve Fund
Pursuant
to corporate law of the PRC, Shengshihe Consulting and Shenzhen Wonhe are required to transfer 10% of their net income, as determined
under PRC accounting rules and regulations, to a statutory reserve fund until such reserve balance reaches 50% of their registered
capital. The statutory reserve fund is non-distributable, other than during liquidation, and can be used to fund prior years’
losses, if any, and may be utilized for business expansion or used to increase registered capital, provided that the remaining
reserve balance after such use is not less than 25% of the registered capital. As of March 31, 2017, $2,119,892 has been transferred
from retained earnings to the statutory reserve fund.
WONHE
HIGH-TECH INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016
(UNAUDITED,
IN U.S. $)
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (continued)
|
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. Valuation allowances are 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 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 December 31, 2016, the
Company did not have any liabilities for unrecognized 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 taxes in the United States
has been made as the Company had no U.S. taxable income for the three months ended March 31, 2017 and 2016.
BVI
World
Win is incorporated in the BVI and is governed by the income tax laws of the BVI. According to current BVI income tax law, the
applicable income tax rate for the Company is 0%.
Australia
Australian
Wonhe is incorporated in Australia. Pursuant to the income tax laws of Australia, the Company is not subject to tax on non-Australia
source income.
WONHE
HIGH-TECH INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016
(UNAUDITED,
IN U.S. $)
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (continued)
|
Income
Taxes (continued)
Hong
Kong
Kuayu
International 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
Wonhe and Shengshihe Consulting are subject to an Enterprise Income Tax at 25% and each file their own tax returns. Consolidated
tax returns are not permitted in China.
Noncontrolling
Interests
The
noncontrolling interest in Wonhe Multimedia not attributable, directly or indirectly to the Company, is measured at its carrying
value in the stockholders’ equity section of the consolidated balance sheets.
Net
Income Per Share
The
Company computes net income 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 amount available
to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted income
per common share is computed by dividing the amount available to common stockholders by the weighted average number of shares
of common stock outstanding plus the effect of any dilutive shares outstanding during the period. Accordingly, the number of weighted
average shares outstanding as well as the amount of net income per share are presented for basic and diluted per share calculations
for the period reflected in the accompanying consolidated statements of operations and other comprehensive income. There were
no dilutive shares outstanding during the three months period ended March 31, 2017 and 2016.
WONHE
HIGH-TECH INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016
(UNAUDITED,
IN U.S. $)
3.
|
Recently
Issued Accounting Standards
|
In
August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash
Payments. This ASU addresses the classification of certain specific cash flow issues including debt prepayment or extinguishment
costs, settlement of certain debt instruments, contingent consideration payments made after a business combination, proceeds from
the settlement of certain insurance claims and distributions received from equity method investees. This ASU is effective for
fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted.
An entity that elects early adoption must adopt all of the amendments in the same period. The Company is currently evaluating
the effect this ASU will have on its consolidated statement of cash flows.
In
June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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.
In
April, 2016, the FASB issued ASU No. 2016-10, Revenue with Contracts with Customers: Identifying Performance Obligations and Licensing,
which is an amendment to ASU No. 2014-09 that clarifies the aspects of identifying performance obligations and the licensing implementing
guidance, while retaining the related principles within those areas. The implementation guidelines follow ASU No. 2014-09.
In
March, 2016, the FASB issued ASU No. 2016-08, Revenue with Contracts with Customers: Principal versus Agent Considerations (Reporting
Revenue Gross versus net), which is an amendment to ASU No. 2014-09 that improved the operability and understandability of implementation
guidance versus agent considerations by clarifying the determination of principal versus agent. The implementation guidelines
follow ASU No. 2014-09.
WONHE
HIGH-TECH INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016
(UNAUDITED,
IN U.S. $)
3.
|
Recently
Issued Accounting Standards
(continued)
|
In
March 2016, the FASB issued ASU No. 2016-06, Contingent Put and Call Options in Debt Instruments, Derivatives and Hedging (Topic
815). ASU 2016-06 clarifies that determining whether the economic characteristics of a put or call are clearly and closely related
to its debt host requires only an assessment of the four-step decision sequence outlined in FASB ASC paragraph 815-15-25-24. Additionally,
entities are not required to separately assess whether the contingency itself is clearly and closely related. The standard is
effective for public business entities in interim and annual periods in fiscal years beginning after December 15, 2016. Early
adoption is permitted in any interim period for which the entity’s financial statements have not been issued, but would
be retroactively applied to the beginning of the year that includes the interim period. The standard requires a modified retrospective
transition approach, with a cumulative catch-up adjustment to opening retained earnings in the period of adoption. For instruments
that are eligible for the fair value option, an entity has a one-time option to irrevocably elect to measure the debt instrument
affected by the standard in its entirety at fair value with changes in fair value recognized in earnings. The Company does not
expect the application of this guidance to have a material impact on the Company’s Consolidated Statements of Operations
or Consolidated Statements of Condition.
In
March 2016, the FASB issued ASU 2016-07, Investments—Equity Method and Joint Ventures (Topic 323): Simplifying the Transition
to the Equity Method of Accounting. This new guidance effectively removes the retroactive application imposed in current guidance
when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree
of influence. The amendments require that the equity method investor add the cost of acquiring the additional interest in the
investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of
the date the investment becomes qualified for equity method accounting. The new standard becomes effective for the Company on
January 1, 2017. Early adoption is permissible. The Company does not anticipate the adoption of ASU 2015-11 to have a material
impact on the consolidated financial statements and related disclosures.
In
March 2016, the FASB Issued ASU No. 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based
Payment Accounting. The updated guidance changes how companies account for certain aspects of share-based payment awards to employees,
including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification
in the statement of cash flows. The standard will be effective for the Company beginning January 1, 2017, with early application
permitted. The Company is evaluating the impact of adopting this new accounting guidance on its consolidated financial statements.
WONHE
HIGH-TECH INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016
(UNAUDITED,
IN U.S. $)
3.
|
Recently
Issued Accounting Standards
(continued)
|
In
February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases. The new standard establishes a right-of-use (“ROU”)
model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer
than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense
recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including
interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and
operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial
statements, with certain practical expedients available. This accounting standard update is not expected to have a material impact
on the Company’s financial statements.
In
January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement
of Financial Assets and Financial Liabilities. The updated guidance enhances the reporting model for financial instruments, which
includes amendments to address aspects of recognition, measurement, presentation and disclosure. The update to the standard
is effective for the Company beginning June 1, 2018. The Company is currently evaluating the effect the guidance will have on
the Consolidated Financial Statements.
Fixed
assets at March 31, 2017 and December 31, 2016 are summarized as follows:
|
|
|
March
31, 2017
|
|
|
December
31, 2016
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office
equipment
|
|
$
|
220,824
|
|
|
$
|
212,828
|
|
|
Motor
vehicles
|
|
|
623,522
|
|
|
|
618,706
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
844,346
|
|
|
|
831,534
|
|
|
Less:
accumulated depreciation
|
|
|
(430,901
|
)
|
|
|
(401,535
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
assets, net
|
|
$
|
413,445
|
|
|
$
|
429,999
|
|
Depreciation
expense charged to operations for the three months ended March 31, 2017 and 2016 was $26,249 and $91,579, respectively.
WONHE
HIGH-TECH INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016
(UNAUDITED,
IN U.S. $)
Intangible
assets at March 31, 2017 and December 31, 2016 are summarized as follows:
|
|
|
March
31, 2016
|
|
|
December 31,
2015
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software
|
|
$
|
50,035
|
|
|
$
|
49,649
|
|
|
Less:
accumulated amortization
|
|
|
(42,417
|
)
|
|
|
(40,469
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Intangible
assets, net
|
|
$
|
7,618
|
|
|
$
|
9,180
|
|
Amortization
expense charged to operations for the years ended March 31, 2017 and 2016 was $1,633 and $9,333 respectively.
In
May 2015, the Company entered into a lease agreement with an unrelated party at a monthly rent of $11,175 for one year, expiring
in May 2016. In May 2016, the Company renewed this lease at the same monthly rent to May 2017. In January 2017, the Company signed
an early termination agreement to cease the agreement without penalty and entered into another lease agreement with an unrelated
party at a monthly rent of $7,220 for one year, expiring in February 2018. Rent expense for the three months ended March 31, 2017
and 2016 was $38,176 and $34,038, respectively.
On
May 5 2016, the Company entered into an agreement to lease a laboratory office from an unrelated party with the fee to be determined
based on usage. The lease has a two-year term, which expires on May 5, 2018. The lease fee of the laboratory for the three months
ended March 31, 2017 was $134,892.
Employment
Agreements
Shenzhen
Wonhe, our operating subsidiary, entered into employment agreements with our officers Nanfang Tong and Qing Tong on November 1,
2016:
Nanfang
Tong’s employment agreement, as the chief executive officer, provides for a monthly salary of RMB 13,000 (approximately
US $1,886) and expires on October 31, 2019. Mr. Tong is eligible for a bonus which is determined by, and at the discretion of,
the Board of Directors of the Company, based on a review of Mr. Tong’s performance.
Qing
Tong’s employment agreement as chairman of Board of Directors provides for a monthly salary of RMB 15,000 (approximately
US $2,177) and expires on October 31, 2019. Mr. Tong is eligible for a bonus which is determined by, and at the discretion of,
the Board of Directors of the Company, based on a review of Mr. Tong’s performance.
WONHE
HIGH-TECH INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016
(UNAUDITED,
IN U.S. $)
6.
|
commitments
(continued)
|
Employment
Agreements (continued)
At
March 31, 2017, the future commitments under these agreements was approximately $ 134,100.
Other
than the salary and social benefits required by the government, which are defined in the employment agreements, we currently do
not provide benefits to the officers. Other than government severance payments, our executive officers are not entitled to severance
payments upon the termination of their employment agreements or following a change in control.
PRC
employment law requires that an employee be paid severance pay based on the number of years worked with the employer at the rate
of one month’s wage for each full year worked. Any period of more than six months but less than one year shall be counted
as one year. The severance pay payable to an employee for any period of less than six months shall be one-half of his monthly
wages. The monthly salary mentioned above is defined as the average salary of 12 months before revocation or termination of the
employment contract.
Strategic
Cooperation Agreement
In
April 2015, Shenzhen Wonhe entered into a strategic cooperation agreement with Shenzhen Yunlutong Technology Co., Ltd (the “YLT”),
which is owned by one of the Company’s directors, who owns 4.87% of the Company’s common stock. The agreement expires
in 3 years. Under the agreement, as amended and restated, YLT and Shenzhen Wonhe agreed to engage in mutual cooperation aimed
at the sale of routers by Shenzhen Wonhe to YLT. The Company produced approximately $18,211,683 in sales with YLT for the year
ended December 31, 2016.
In
addition, Shenzhen Wonhe obtained the exclusive right to acquire YLT if its gross annual revenues reach RMB 150,000,000 (US $24,480,000)
and net annual profit reaches RMB 12,500,000 (US $2,040,000) during the term of the agreement. The price of the acquisition shall
be established by an independent appraiser. YLT agreed not to sell any equity or issue any debt during the 3 years, and any change
in ownership of YLT must be approved by Shenzhen Wonhe.
In
April 2015, Shenzhen Wonhe entered into a strategi cooperation agreement with Shenzhen Yunlutong Technology Co., Ltd ( “YLT”),
which is owned by one of the Company’s directors, who owns 4.87% of the Company’s common stock. The agreement expires
in 3 years. Under the agreement, as amended and restated, YLT and Shenzhen Wonhe agreed to engage in mutual cooperation aimed
at the sale of routers by Shenzhen Wonhe to YLT. The Company produced approximately $8,800,500 in sales with YLT for the three
months period ended March 31, 2017.
In
addition, Shenzhen Wonhe obtained the exclusive right to acquire YLT if its gross annual revenues reach RMB 150,000,000 (US $24,480,000)
and net annual profit reaches RMB 12,500,000 (US $2,040,000) during the term of the agreement. The price of the acquisition shall
be established by an independent appraiser. YLT agreed not to sell any equity or issue any debt during the 3 years, and any change
of ownership of YLT must be approved by Shenzhen Wonhe.
WONHE
HIGH-TECH INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016
(UNAUDITED,
IN U.S. $)
7.
|
RELATED
PARTY TRANSACTIONS
|
From
time to time, a stockholder/officer loans money to the Company, primarily to meet the non-RMB cash requirements of the parent
and its subsidiaries. The loans are non-interest bearing, and the balance due was $728,549 and $434,324 at March 31, 2017 and
December 31, 2016, respectively.
The
loans principally represent professional and legal fees incurred in the U.S. paid by the stockholder and operating expenses for
Wonhe High-Tech and Shengshihe Consulting since their inception. The balance is reflected as loan from stockholder.
Nanfang
Tong, the Company’s Chief Executive Officer and Qing Tong, the Chairman of the Board, are brothers.
On
April 19, 2016 the Company sold a total of 15,000,000 shares of common stock to two investors in a private offering. Qing Tong,
a member of the Company’s board of directors, purchased 3,000,000 shares. The remaining 12,000,000 shares were purchased
by an unaffiliated entity. The purchase price for the shares was 0.52 Renminbi (approx. $.08) per share, or a total of 7,800,000
Renminbi (approx. $1,200,000).
The
shares were sold to investors who are accredited investors and were purchasing for their own accounts. The offering, therefore,
was exempt from registration under the Securities Act of 1933 pursuant to Section 4(2) and Section 4(5) of the Securities Act.
The offering was also sold in compliance with the exemption from registration provided by Regulation S, as all of the purchasers
were residents of the People’s Republic of China.
On March 1, 2017, the
Board of Directors of Wonhe Multimedia Commerce Ltd., in which Wonhe High-Tech indirectly owns a 53.3% interest, declared a cash
dividend of AUD $0.005882 per share, for a total dividend of AUD $894,000 (approximately USD $683,463). The dividend payment will
be made to the shareholders of Wonhe Multimedia Commerce Ltd. on May 31, 2017.
WONHE
HIGH-TECH INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016
(UNAUDITED,
IN U.S. $)
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. In the PRC, the Company files tax returns for Shenzhen Wonhe and Shengshihe
Consulting.
The
provision for (benefit from) income taxes consists of the following for the three months ended March 31, 2017 and 2016:
|
|
|
Three
Months Ended
March
31,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
1,085,744
|
|
|
$
|
397,305
|
|
|
Deferred
|
|
|
13,623
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,099,367
|
|
|
$
|
397,305
|
|
The
following is a reconciliation of the statutory rate with the effective income tax rate for the three months ended March 31, 2017
and 2016.
|
|
|
Three
Months Ended
March
31,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Tax
at PRC statutory rate
|
|
|
25.0
|
%
|
|
|
25.0
|
%
|
|
VIE
tax holiday
|
|
|
-
|
|
|
|
(12.5
|
)
|
|
Other
|
|
|
0.4
|
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective
tax rate
|
|
|
25.4
|
%
|
|
|
12.9
|
%
|
The
following presents the aggregate dollar and per share effects of the Company’s subsidiaries’ tax holidays:
|
|
|
Three
Months Ended
March
31,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Aggregate
dollar effect of tax holiday
|
|
$
|
-
|
|
|
$
|
1,448,924
|
|
|
Per
share effect, basic and diluted
|
|
|
-
|
|
|
|
0.03
|
|
WONHE
HIGH-TECH INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016
(UNAUDITED,
IN U.S. $)
10.
|
INCOME
TAXES (
continued
)
|
During
the quarter ended March 31, 2017, the Company filed its U.S. federal income tax returns, including information returns on Internal
Revenue Service (“IRS”) Form 5471, “Information Return of U.S. Persons with Respect to Certain Foreign Corporations”
for the fiscal years ended December 31, 2015, 2014, and 2013. Failure to furnish any income tax and information returns with respect
to any foreign business entity required, within the time prescribed by the IRS, subjects the Company to civil penalties. Management
is of the opinion that penalties, if any, that may be assessed would not be material to the consolidated financial statements.
Because
the Company did not generate any income in the United States or otherwise have any U.S. taxable income, the Company does not believe
that it has any U.S. federal income tax liabilities with respect to any transactions that the Company or any of its subsidiaries
may have engaged in through December 31, 2016. However, there can be no assurance that the IRS will agree with this position,
and therefore the Company ultimately could be liable for U.S. federal income taxes, interest and penalties. The tax years ended
December 31, 2015, 2014 and 2013 remain open to examination by the IRS.
All
of the Company’s operations are conducted in the PRC. At March 31, 2017, the Company’s unremitted foreign earnings
of its PRC subsidiaries totaled approximately $25.9 million and the Company held approximately $30.2 million of cash and cash
equivalents in the PRC. These unremitted earnings are planned to be reinvested indefinitely into the operations of the Company
in the PRC. While repatriation of cash held in the PRC may be restricted by local PRC laws, most of the Company’s foreign
cash balances could be repatriated to the United States but, under current U.S. income tax laws, would be subject to U.S. federal
income taxes less applicable foreign tax credits. Determination of the amount of unrecognized deferred U.S. income tax liability
on the unremitted earnings is not practicable because of the complexities associated with this hypothetical calculation, and as
the Company does not plan to repatriate any cash in the PRC to the United States during the foreseeable future, no deferred tax
liability has been accrued.
As
disclosed in Note 10, the Company was delinquent in filing certain tax returns with the U.S. Internal Revenue Service and the
2015, 2014 and 2013 tax years are open and subject to examination by the tax authorities. The Company is unable to determine the
amount of penalties, if any, that may be assessed at this time. Management is of the opinion that penalties, if any, that may
be assessed would not be material to the consolidated financial statements.
WONHE
HIGH-TECH INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016
(UNAUDITED,
IN U.S. $)
12.
|
Concentration
of Credit Risk
|
Cash
and cash equivalents
Substantially
all of the Company’s bank accounts are in banks located in the People’s Republic of China and are not covered by protection
similar to that provided by the FDIC on funds held in United States banks. The Company’s bank account in Australia is protected
by Australian government up to AUD 250,000.
Major
customers
One
customer accounted for approximately 34% of total sales for the three months ended March 31, 2017 and approximately 37% of total
sales for the year ended December 31, 2016. Two customers accounted for approximately 57% of accounts receivable as of March 31,
2017. Six customers accounted for approximately 97% of accounts receivable as of December 31, 2016, the largest being 34%.
Shenzhen
Wonhe is required to make contributions to PRC multi-employer welfare programs by government regulations sometimes identified
as the Mainland China Contribution Plan. Specifically, the following regulations require that the Company pay a percentage of
employee salaries into the specified plans:
13.
|
CONTRIBUTIONS
TO MULTI-EMPLOYER WELFARE PROGRAMS
|
|
Regulation
|
|
Plan
|
|
%
of Salary
|
|
|
|
|
|
|
|
|
|
|
Shenzhen
Special Economic Zone Social Retirement Insurance Regulations
|
|
Pension
|
|
|
13
|
%
|
|
Shenzhen
Work-Related Injury Insurance Regulations
|
|
Workers
Comp.
|
|
|
0.4
|
%
|
|
Guangdong
Unemployment Insurance Regulations
|
|
Unemployment
|
|
|
2
|
%
|
|
Housing
Provident Fund Management Regulations
|
|
Housing
|
|
|
5
|
%
|
|
Shenzhen
Social Medical Insurance Measures
|
|
Medical
|
|
|
6.5%
or 0.6
|
%*
|
|
Guangdong
Employees Maternity Insurance
|
|
Maternity
|
|
|
0.5%
or 0.2
|
%*
|
|
*
|
Depending
on their position in the Company, employees receive either hospitalization, medical and maternity insurance or comprehensive
medical and maternity insurance, which is a lower premium.
|
Total
contributions to employee welfare programs for the three months ended March 31, 2017 and 2016 were as follow:
|
|
|
Three
Months Ended
March
31,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
contributions
|
|
$
|
162,018
|
|
|
$
|
11,723
|
|
WONHE
HIGH-TECH INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016
(UNAUDITED,
IN U.S. $)
On
January 12, 2016 the Company’s operating subsidiary, Shenzhen Wonhe Technology Co., Ltd. (“Shenzhen Wonhe”),
entered into an agreement titled “Cooperative Agreement on Wireless Network Coverage Project in Beijing Area” with
Guangdong Kesheng Enterprise Co., Ltd. (“Guangdong Kesheng”). The agreement contemplated that the two parties would
work together to develop a wireless network in certain designated areas of Beijing. The commercial purpose of the network was
to serve as a vehicle for advertising and marketing, with the income to be shared between Shenzhen Wonhe and Guangdong Kesheng.
Shenzhen Wonhe committed in the agreement to make a capital contribution of RMB 382,990,000 (USD $55.63 million) to the project.
Shenzhen Wonhe also committed to develop the data systems that will be used by the network. Guangdong Kesheng committed to supervise
the engineering and construction, coordinate relationships with local government, and manage the network’s operations.
On
November 30, 2016 Shenzhen Wonhe and Guangdong Kesheng signed an amendment to the January agreement, titled “Cooperative
Agreement on Wireless Network Coverage Project in Beijing Area”, which terminates the participation of Shenzhen Wonhe in
the construction and operation of the wireless network, and also terminates the commitment of Shenzhen Wonhe to develop the data
systems used by the network. Shenzhen Wonhe has no further obligation to contribute capital to the project, and will receive no
distribution of income from the project. Shenzhen Wonhe will, however, supply 36,300 routers for the project prior to the end
of 2017, and Guangdong Kesheng will pay Shenzhen Wonhe RMB 1,800 ($261) for each router.
As
of November 30, 2016 Shenzhen Wonhe had contributed to the wireless network project cash, equipment, engineering, and a pilot
project in the Tongzhou District of Beijing. The total contribution of RMB 175,755,641 (USD$25.53 million) will be repaid to Shenzhen
Wonhe in three equal annual installments, and Shenzhen Wonhe will get the first repayment on December 31, 2017; the unpaid portion
of that obligation will accrue interest at 4.75% per annum.
WONHE
HIGH-TECH INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016
(UNAUDITED,
IN U.S. $)