WEB NEWS Comments & Business Outlook
WONHE HIGH-TECH INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME (LOSS)
FOR THE THREE MONTHS ENDED MARCH 31, 2016 AND 2015
(IN U.S. $) (UNAUDITED)
Three Months Ended
March 31,
2016
2015
Sales
$
10,420,141
$
6,180,743
Cost of sales
(6,866,062
)
(3,251,861
)
Gross profit
3,554,079
2,928,882
Operating expenses:
Research and development expenses
47,109
23,787
Selling and marketing expenses
154,724
13,953
General and administrative expenses
367,312
138,108
Total operating expenses
569,145
175,848
Income from operations
2,984,934
2,753,034
Other income (expense):
Interest income
89,354
33,080
Other non-operating (expenses)
(2,734
)
-
Total non-operating income
86,620
33,080
Income before provision for income taxes
3,071,554
2,786,114
Provision for income taxes
397,305
349,235
See accompanying notes to the consolidated financial statements.
WONHE HIGH-TECH INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME (LOSS)
FOR THE THREE MONTHS ENDED MARCH 31, 2016 AND 2015
(UNAUDITED, IN U.S. $)
Three Months Ended
March 31,
2016
2015
Net income
2,674,249
2,436,879
Noncontrolling interests
(1,260,549
)
(121,553
)
Net income attributable to common stockholders
$
1,413,700
$
2,315,326
Earnings per common share, basic and diluted
$
0.02
$
0.06
Weighted average shares outstanding, basic and diluted
58,510,130
38,380,130
Comprehensive income:
Net income
$
2,674,249
$
2,436,879
Foreign currency translation adjustment
437,197
155,758
Comprehensive income
3,111,446
2,592,637
Comprehensive income attributable to noncontrolling interests
1,391,419
127,472
Comprehensive income attributable to common stockholders
$
1,720,027
$
2,465,165
Comments & Business Outlook
WONHE HIGH-TECH INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME (LOSS)
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
(IN U.S. $)
Year Ended December 31,
2015
2014
Sales
$
31,424,963
$
6,195,313
Cost of sales
(18,135,975
)
(3,257,289
)
Gross profit
13,288,988
2,938,024
Operating expenses:
Research and development expenses
142,527
92,956
Selling and marketing expenses
642,207
177,036
General and administrative expenses
8,394,140
489,714
Total operating expenses
9,178,874
759,706
Income from operations
4,110,114
2,178,318
Other income (expense):
Interest income
172,305
111,353
Other non-operating income
1,924
-
Other non-operating (expenses)
(69,302
)
-
Total non-operating income
104,927
111,353
Income before provision for income taxes
4,215,041
2,289,671
Provision for income taxes
1,489,251
295,973
Comments & Business Outlook
Item 1.01 Entry into a Material Definitive Agreement
On January 12, 2016 the Registrant's operating subsidiary, Shenzhen Wonhe Technology Co., Ltd. ("Shenzhen Wonhe"), entered into an agreement titled "Wireless Network Coverage Project in Beijing Area" with Guangdong Kesheng Enterprise Co., Ltd. ("Guangdong Kesheng"). The agreement contemplates that the two parties will work together to develop a wireless network in certain designated areas of Beijing. The commercial purpose of the network will be to serve as a vehicle for advertising and marketing, with the revenue to be shared between Shenzhen Wonhe and Guangdong Kesheng.
Shenzhen Wonhe has committed in the agreement to provide 382,990,000 RMB (USD $58.25 million) to the project, including 226,010,000 RMB (USD $34.37 million) in cash and 118,980,000 RMB (USD $18.09 million) in routers and other equipment. Shenzhen Wonhe will also contribute the network that it recently developed in the Tongzhou District of Beijing as a pilot project, at a cost of 38,000,000 RMB (USD $5.78 million). Shenzhen Wonhe's cash contribution will be paid over three years: 104,498,990 RMB in 2016, 84,636,558 RMB in 2017 and 36,871,412 RMB in 2018. Shenzhen Wonhe has also committed to develop the data systems that will be used by the network. Guangdong Kesheng has committed to supervise the engineering and construction, coordinate relationships with local government, and manage the network's operations.
Comments & Business Outlook
WONHE HIGH-TECH INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME (LOSS)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014
(UNAUDITED, IN U.S. $)
Three Months Ended
September 30,
Nine Months Ended September 30,
2015
2014
2015
2014
Sales
$
8,005,378
$
-
$
21,430,062
$
-
Cost of sales
(4,643,462
)
-
(11,759,459
)
-
Gross profit
3,361,916
-
9,670,603
-
Operating expenses:
Research and development expenses
48,770
32,344
104,155
79,624
Selling and marketing
309,859
11,062
441,221
162,897
General and administrative
8,055,125
108,180
8,356,569
352,651
Total operating expenses
8,413,754
151,586
8,901,945
595,172
Income (loss) from operations
(5,051,838)
(151,586
)
768,658
(595,172
)
Non-operating income (loss):
Interest income
48,098
30,721
129,770
91,621
Write off leasehold improvements
(54,404
)
-
(54,404
)
-
Other non-operating expenses
(8,150
)
-
(8,150
)
-
Total non-operating (loss) income
(14,456
)
30,721
(67,216
)
91,621
Management Discussion and Analysis
Sales. We commenced sales of our HMC660 products in December 2011, entirely within Guangdong Province. During the third quarter of 2013, however, we announced that we were developing a second generation home media center in order to expand our potential market. In order to achieve successful entry into other provinces, our product had to be redesigned to meet the purchasing standards of the local State Administration of Radio Film and Television (“SARFT”), as the customer group in other provinces that does not receive service through SARFT is dominated by local media companies.
As a result of our announcement that a second generation product was coming, demand for our first generation product fell significantly. Toward the end of 2013 we terminated production of the HMC660, and during the first three quarters of 2014 we recorded no sales, as we awaited our new product.
On October 15, 2014, our second generation home media center, the HMC720, passed its stability test, which was the final pre-requisite before we could introduce it to the market. In the fourth quarter of 2014 we commenced sales of the HMC720. Total revenue for the year ended December 31, 2014, all of which was recorded in the 4th quarter, was $6,195,313. For the three months ended September 30, 2015, sales of HMC 720 was $6,291,036. Sales of HMC 720 remained stable when compared with the prior two quarters and the last quarter of 2014. For the nine months ended September 30, 2015, sales of the HMC720 totaled $18,720,527, representing approximately 35,000 units sold.
In March 2015, we introduced our new product, “Wifi Router”, into the market. The unit selling price (including 3% VAT) is RMB 369 (US$60). The Wifi Router's model number is YLT-100S. In June 2015 we also introduced another Wifi Router, YLT-300S, into the market. As with our home media center, we do not manufacture the routers; all manufacturing of the Wifi Routers is outsourced. For the three months ended September 30, 2015, sales of our Wifi Routers were $1,714,342; for the nine months ended September 30, 2015, sales of Wifi Routers were $2,709,535.
Net Income (Loss). We reported net (loss) of $(5,377,720) and $(125,926) for the three months ended September 30, 2015 and 2014, respectively, and $(215,393) and $(518,511) for the nine months ended September 30, 2015 and 2014, respectively. The VIE agreements, which were terminated on September 15, 2015, assigned to Shengshihe Consulting only 95% of the net profit generated from Shenzhen Wonhe before September 15, 2015. In addition, for the period from August 5, 2015, we had a non-controlling interest equal to the 40% of Australian Wonhe not owned by the Company. For that reason, we reduced our net loss by an allocation to the"non-controlling interest” of $661,853 and $919,348 for the three and nine months ended September 30, 2015, and reduced our net loss by an allocation to the “non-controlling interest” of $7,055 and $28,170 for the three and nine months ended September 30, 2014 before recognizing net income (loss) attributable to the common stockholders. After those allocations, our net (loss) attributable to common stockholders’ for the three months ended September 30, 2015 and 2014 was $(6,039,573) ($(0.1) per share) and $(118,871) ($(0.00) per share), respectively. For the nine months ended September 30, 2015 and 2014 net (loss) attributable to common stockholders’ was $(1,134,741) ($(0.02) per share) and $(490,341) ($(0.01) per share), respectively.
Acquisition Activity
Item 2.01 Completion of Acquisition of Assets.
On September 15, 2015 the Registrant's 60%-owned subsidiary, Shengshihe Management Consulting (Shenzhen) Co., Ltd. ("Shengshihe Management"), exercised its option to purchase all of the registered equity of the Registrant's operating subsidiary, Shenzhen Wonhe Technology Co., Ltd. ("Shenzhen Wonhe"). The purchase price paid for the equity was RMB10,000 (approximately $1,634). The equity was purchased from Qing Tong, Nanfang Tong, Youliang Wang and Jingwu Li, who are the members of the Registrant's Board of Directors.
Prior to the acquisition, Shengshihe Management controlled Shenzhen Wonhe through a series of contractual agreements, which made Shenzhen Wonhe a variable interest entity, 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 Registrant's financial statements. As a result of the acquisition by Shengshihe Management of registered ownership of Shenzhen Wonhe, the balance sheet and operating results of Shenzhen Wonhe will hereafter continue to be consolidated with those of Shengshihe Management as its majority-owned subsidiary. The previous non-controlling interest will be reclassified to additional paid-in-capital.
Corporate Structure Info.
Item 2.01 Completion of Disposition of Assets.
Early in July 2015, World Win International Holdings Ltd. ("World Win"), a wholly-owned subsidiary of Wonhe High-Tech International, Inc. (the "Registrant"), 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 the Registrant. The remaining 15% was issued to three non-affiliated investors.
On August 5, 2015, World Win sold all of the outstanding capital stock of Kuayu International Holdings Group Limited ("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 Management Consulting (Shenzhen) Co., Ltd., which is the Registrant's subsidiary in China, with respect to which the operating company, Shenzhen Wonhe Technology Co., Ltd., is a variable interest entity. The effect of the sale of Kuayu, therefore, was to reduce the interest of the Registrant in its operating company by 40%. This will result in the Registrant recognizing a transaction loss of approximately $13,400,000 during the quarter ended September 30, 2015.
The purpose of the sale of Kuayu to Australian Wonhe is to facilitate a public offering of the capital stock of Australian Wonhe in Australia. The successful completion of an offering in Australia will further dilute the Registrant's ownership of Australian Wonhe.
Comments & Business Outlook
WONHE HIGH-TECH INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME (LOSS)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2015 AND 2014
(UNAUDITED, IN U.S. $)
Three Months Ended
June 30,
Six Months Ended June 30,
2015
2014
2015
2014
Sales
$
7,243,941
$
-
$
13,424,684
$
-
Cost of sales
(3,864,137
)
-
(7,115,998
)
-
Gross profit
3,379,804
-
6,308,686
-
Operating expenses:
Research and development expenses
31,597
23,569
55,385
47,280
Selling and marketing
117,409
43,620
131,362
151,835
General and administrative
163,336
121,732
301,444
244,471
Total operating expenses
312,342
188,921
488,191
443,586
Income (loss) from operations
3,067,462
(188,921
)
5,820,495
(443,586
)
Interest income
48,592
30,804
81,672
60,900
Income (loss) before provision for income taxes
3,116,054
(158,117
)
5,902,167
(382,686
)
Provision for income taxes
390,606
5,044
739,841
9,899
Management Discussion and Analysis
Sales. We commenced sales of our HMC660 products in December 2011. During the third quarter of 2013, however, we announced that we were developing a second generation home media center in order to expand our potential market. In order to achieve successful entry into other provinces, our product had to be redesigned to meet the purchasing standards of the local State Administration of Radio Film and Television (“SARFT”), as the customer group in other provinces that does not receive service through SARFT is dominated by local media companies.
As a result of our announcement that a second generation product was coming, demand for our first generation product fell significantly. Toward the end of 2013 we terminated production of the HMC660, and during the first three quarters of 2014, we recorded no sales, as we awaited our new product.
On October 15, 2014, our second generation home media center, the HMC720, passed its stability test, which was the final pre-requisite before we could introduce it to the market. In the fourth quarter of 2014 we commenced sales of the HMC720. Total revenue for the year ended December 31, 2014, all of which was recorded in the 4th quarter, was $6,195,313. In the first quarter of the current fiscal year, sales fell slightly to $6,180,743, as our distributors had inventory left from 2014. Sales in the first quarter were also reduced by the lull in business that occurs during the Chinese New Year celebration. In the second quarter of 2015, sales of the HMC720 rebounded to $6,365,846, resulting in sales of the HMC720 totaling $12,429,491 for the first half of 2015. We believe sales will increase in coming quarters.
In March 2015, we introduced a new product, “Wifi Router”, into the market. The unit selling price (including 3% VAT) is RMB 369 (@US$60). The Wifi Router's model number is YLT-100S. In June 2015 we also introduced another Wifi Router, YLT-300S, into the market. As with our home media center, we do not manufacture the routers; all manufacturing of the Wifi Routers is outsourced. For the three months ended June 30, 2015, sales of our Wifi Routers were $880,631; for the six months ended June 30, 2015, sales of Wifi Routers were $995,192.
Net Income (Loss). We reported net income (loss) of $2,725,448 and $(163,161) for the three months ended June 30, 2015 and 2014, respectively, and $5,162,326 and $(392,585) for the six months ended June 30, 2015 and 2014, respectively. The VIE agreements assign to Shengshihe Consulting 95% of the net profit generated from Shenzhen Wonhe. For that reason, we deducted a "non-controlling interest” of $135,942 and $257,495 from our net income for the three and six months ended June 30, 2015, and reduced our net loss by an allocation to the “non-controlling interest” of $8,914 and $21,114 for the three and six months ended June 30, 2014 before recognizing net income (loss) attributable to the common stockholders. Our net income (loss) attributable to common stockholders’ for the three months ended June 30, 2015 and 2014 was $2,589,506 ($.05 per share) and $(154,247) ($(0.00) per share), respectively. For the six months ended June 30, 2015 and 2014 net income (loss) attributable to common stockholders’ was $4,904,831 ($0.11 per share) and $(371,471) ($(0.01) per share), respectively.
CFO Trail
Item 5.02 Departure of Director or Certain Officers; Election of Directors; Appointment of Certain Officers
On June 1, 2015 Yang Jie submitted his resignation from his position as a member of the Registrant's Board of Directors.
On June 2, 2015 the Board of Directors elected Youliang Wang to fill the vacancy on the Board of Directors. Information regarding Mr. Wang follows.
Youliang Wang. Mr. Wang provides the Registrant with the benefit of 25 years of business experience. Mr. Wang is currently the General Manager and Chief Executive Officer of Heilongjiang Zhongxian Information Co., Ltd., and has held those positions since 2010. From 2008 to 2010, Mr. Wang was employed as Vice President of the Jiangsu branch of Guofa Venture Investment Co., Ltd. From 2006 to 2008, Mr. Wang was employed as Chief Marketing Officer of Yunnan Nanyao Jiaoxiong Pharmaceutical Co., Ltd. From 1997 to 2006, Mr. Wang was employed as President of Tonghua Hongyuan Trading Co., Ltd., a company that he founded. Previously, Mr. Wang spent six years as a staff member in the Tonghua branch of China Construction Bank. Mr. Wang graduated from Jilin University with a bachelor's degree in economics. He is 48 years old.
Also on June 2, 2015 the Board of Directors appointed Jingwu Li to serve as the Registrant's Chief Financial Officer. Mr. Li has been a member of the Registrant's Board of Directors since June 2012. Information about Mr. Li follows.
Jingwu Li. Since 2010, Mr. Li has been employed as Vice Director of Shenzhen Wonhe Technology Co., Ltd., an affiliate of the Registrant. During the same period, Mr. Li has also been employed as Vice Director of Guwang Xinke Venture Capital Investment Jiangsu Co., Ltd. From 2006 until 2010, Mr. Li served as a director and general manager of Hong Kong Jianheng International Limited, a company specializing in international trade and e-commerce. From 2005 until 2006, Mr. Li served as a general manager of Shanghai Jinmu Trading Co., Ltd., a steel products processing and trading company. From 2002 until 2005, Mr. Li served as the Vice-General Manager of Beijing Fuyuan Shengshi E-Commerce Co., Ltd., a company engaged in e-commerce. From 1999 until 2002, Mr. Li served as the business section chief in the Pizhou City Labor Trade Centre. Mr. Li graduated from the Capital University of Economics and Business with a degree in university economic management. He is 39 years old.
Comments & Business Outlook
WONHE HIGH-TECH INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME (LOSS)
FOR THE THREE MONTHS ENDED MARCH 31, 2015 AND 2014
(UNAUDITED, IN U.S. $)
Three Months Ended March 31,
2015
2014
Sales
$
6,180,743
$
-
Cost of sales
(3,251,861
)
-
Gross profit
2,928,882
-
Operating expenses:
Research and development
23,787
23,711
Selling and marketing
13,953
108,215
General and administrative
138,108
122,739
Total operating expenses
175,848
254,665
Income (loss) from operations
2,753,034
(254,665
)
Interest income
33,080
30,096
Income (loss) before provision for (benefit from) income taxes
2,786,114
(224,569
)
Provision for income taxes
349,235
4,855
Net income (loss)
2,436,879
(229,424
)
Noncontrolling interests
(121,553
)
12,200
Net income (loss) attributable to common stockholders
$
2,315,326
$
(217,224
)
Earnings (loss) per common share, basic and diluted
$
0.06
$
(0.01
)
Weighted average shares outstanding, basic and diluted
38,380,130
38,380,130
Management Discussion and Analysis
Sales. We commenced sales of our HMC660 products in December 2011. During the third quarter of 2012, however, we announced that we were developing a second generation home media center in order to expand our potential market. In order to achieve successful entry into other provinces, our product had to be redesigned to meet the purchasing standards of the local State Administration of Radio Film and Television (“SARFT”), as the customer group in other provinces that does not receive service through SARFT is dominated by local media companies.
As a result of our announcement that a second generation product was coming, demand for our first generation product fell significantly. Toward the end of 2013 we terminated production of the HMC660, and during the first three quarters of 2014, we recorded no sales, as we awaited the new product.
On October 15, 2014, our second generation home media center, the HMC720, passed its stability test, which was the final pre-requisite before we could introduce it to the market. In the fourth quarter of 2014 we commenced sales of the HMC720. Total revenue for the year ended December 31, 2014, all of which was recorded in the 4th quarter, was $6,195,313. In the first quarter of the current fiscal year, sales fell slightly to $6,180,743, as our distributors had inventory left from 2014. Sales in the first quarter were also reduced by the lull in business that occurs during the Chinese New Year celebration. We expect sales to increase in coming quarters.
In March 2015, we introduced a new product, “Wifi Router”, into the market. The unit selling price (including 3% VAT) is RMB 369 (US$60). The Wifi Router's model number is YLT-100S. We don't manufacture the router; all manufacturing of the Wifi Routers is outsourced. For the three months ended March 31, 2015, sales of our HMC 720 were $6,064,311, sales of our Wifi Router were $116,432.
Net Income (Loss). We reported net income (loss) of $2,436,879 and $(229,424) for the three months ended March 31, 2015 and 2014, respectively. The VIE agreements assign to Shengshihe Consulting only 95% of the net profit generated from Shenzhen Wonhe. For that reason, we deducted a "non-controlling interest” of $121,553 from the net income for the three months ended March 31, 2015 and reduced our net loss by an allocation to the “non-controlling interest” of $12,200 for the three months ended March 31, 2014 before recognizing net income (loss) attributable to the common stockholders. After that, our net income (loss) attributable to the common stockholders’ for the three months ended March 31, 2015 and 2014 was $2,315,326, $.06 per share and $(217,224), $(0.01) per share, respectively.
Deal Flow
Item 3.02 Unregistered Sale of Equity Securities
On April 22, 2015 the Registrant sold 20,130,000 shares of common stock to 27 individuals and entities in a private offering. Included among the purchasers were three members of the Registrant's board of directors: Nanfang Tong (1,600,000 shares), Qing Tong (1,500,000 shares) and Jingwu Li (1,500,000 shares). The purchase price for the shares was 4.6 Renminbi (approx. $.77) per share, or a total of 93,000,600 Renminbi (approx. $15,500,100).
The shares were sold to individuals 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 are residents of the People’s Republic of China.
Comments & Business Outlook
WONHE HIGH-TECH INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(IN U.S. $)
For the Year Ended December 31,
2014
2013
Sales
$
6,195,313
$
25,474,097
Cost of sales
(3,257,289
)
(13,218,664
)
Gross profit
2,938,024
12,255,433
Operating expenses:
Research and development
92,956
156,172
Selling and marketing
177,036
415,933
General and administrative
489,714
794,592
Total operating expenses
759,706
1,366,697
Income from operations
2,178,318
10,888,736
Interest income
111,353
87,840
Income before provision for (benefit from) income taxes
2,289,671
10,976,576
Provision for (benefit from) income taxes
295,973
(2,072,575
)
Net income
1,993,698
13,049,151
Noncontrolling interests
(96,756
)
(649,632
)
Net income attributable to common stockholders
$
1,896,942
12,399,519
Earnings per common share, basic and diluted
$
0.05
$
0.37
Weighted average shares outstanding, basic and diluted
38,380,130
33,553,463
Management Discussion and Analysis
Sales. We commenced sales of our HMC660 products in December 2011. As a result of pre-marketing during 2011 and an advertising program in 2012, sales grew rapidly in 2012 and the first six months of 2013, albeit entirely within Guangdong Province. During the third quarter, however, we announced that we were developing a second generation home media center in order to expand our potential market. In order to achieve successful entry into other provinces, our product had to be redesigned to meet the purchasing standards of the local State Administration of Radio Film and Television (“SARFT”), as the customer group in other provinces that does not receive service through SARFT is dominated by local media companies.
As a result of our announcement that a second generation product was being developed, demand for our first generation product fell significantly. Sales in the third quarter of 2013 fell by 27% from the third quarter of 2012; sales in the fourth quarter of 2013 were only $814,816. Toward the end of 2013 we terminated production of the HMC660, and during the first three quarters of 2014 we recorded no sales, as we awaited the new product.
On October 15, 2014, our second generation home media center, the HMC720, passed the stability test given by Dongguan Yueshi Electronic Products Test Co., Ltd., which was the final pre-requisite before we could introduce it to the market. In the fourth quarter of 2014 we liquidated our remaining inventory of the HMC600 at a discounted price of $285,417, and commenced sales of the HMC720. Total revenue for 2014, all of which was recorded in the 4th quarter, was $6,195,313.
Net Income (loss). We reported net income of $1,993,698 and $13,049,151 for the years ended December 31, 2014 and 2013, respectively. The VIE agreements assign to Shengshihe Consulting 95% of the net profit generated from Shenzhen Wonhe. For that reason, we deducted a”non-controlling interest” of $96,756 for the year ended December 31, 2014 and $649,632 for the year ended December 31, 2013 before recognizing net income attributable to the common stockholders on our Consolidated Statements of Income and Comprehensive Income. After that, our net income attributable to the common stockholders’ for the years ended December 31, 2014 and 2013 was $1,896,942, $.05 per share, and $12,399,519, $0.37 per share, respectively.
Comments & Business Outlook
WONHE HIGH-TECH INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE (LOSS) INCOME
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013 (UNAUDITED, IN U.S.$)
Three Months Ended September 30,
Nine Months Ended September 30,
2014
2013
2014
2013
Sales
$
-
$
4,896,263
$
-
$
24,659,281
Cost of sales
-
(2,506,107
)
-
(12,621,288
)
Gross profit
-
2,390,156
-
12,037,993
Operating expenses:
R & D expenses
32,344
32,243
79,624
128,577
Selling and marketing
11,062
109,681
162,897
299,706
General and administrative
108,180
188,136
352,651
601,381
Total operating expenses
151,586
330,060
595,172
1,029,664
(Loss) income from operations
(151,586
)
2,060,096
(595,172
)
11,008,329
Interest income
30,721
27,704
91,621
58,581
(Loss) income before (benefit from) provision for income taxes
(120,865
)
2,087,800
(503,551
)
11,066,910
Provision for (benefit from) income taxes
5,061
(2,946
)
14,960
(2,067,773
)
Three Months Ended September 30,
Nine Months Ended September 30,
2014
2013
2014
2013
Net (loss) income
(125,926
)
2,090,746
(518,511
)
13,134,683
Noncontrolling interests
7,055
(103,813
)
28,170
(654,549
)
Net (loss) income attributable to common stockholders
$
(118,871
)
$
1,986,933
$
(490,341
)
$
12,480,134
(Loss) earnings per common share, basic and diluted
$
(0.00
)
$
0.05
$
(0.01
)
$
0.39
Weighted average shares outstanding, basic and diluted
38,380,130
38,380,130
38,380,130
31,962,125
Management Discussion and Analysis
Sales. We started sales of our HMC 660 products in December 2011 and the first quarter of 2012 was our first profitable quarter. When we initiated sales at the end of 2011, we engaged an advertising company to generate publicity about the HMC660. This program caused demand for the product to rise quickly, which contributed to the rapid growth of sales. For the years ended December 31, 2013 and 2012, sales of $25,474,097 and $25,181,823 represented 53,476 and 53,920 units of HMC 660, respectively.
Sales of the HMC660 continued to grow through the first six months of 2013. During the third quarter, however, we announced that we were developing the second generation of the HMC660. The reason for this development project is to expand our potential market. To date we have focused our sales effort in Guangdong Province. We want to expand our customer base, but have been informed that in order to achieve successful entry into other provinces, our product will have to meet the purchasing standards of the local State Administration of Radio Film and Television (“SARFT”), as the customer group that does not receive service through SARFT is dominated by local media companies. The changes being implemented in the second generation product, therefore, are changes needed to meet SARFT purchasing standards.
As a result of our announcement that a second generation product was being developed, demand for our first generation product fell significantly. Sales in the third quarter of 2013 fell by 27% from the third quarter of 2012; sales in the fourth quarter of 2013 were only $814,816. Toward the end of 2013 we terminated production of the HMC660. The overall result was that sales for year ended December 31, 2013 increased by only $292,274 compared with sales during the year ended December 31, 2012.
In the third quarter of 2014, our second generation of HMC 660 was successfully developed, which is called HMC 720. It passed the stability test by Dongguan Yueshi Electronic Products Test Co., Ltd on October 15, 2014. As the new product is not permitted to be sold before the stability test is successfully completed, for the three and nine month periods ended September 30, 2014, we did not have any sales.
Net Income (loss). We reported net (loss) income of ($125,926) and $2,090,746 for the three months ended September 30, 2014 and 2013, and $(518,511) and $13,134,683 for the nine months ended September 30, 2014 and 2013, respectively. The VIE agreements assign to Shengshihe Consulting only 95% of the net earnings from Shenzhen Wonhe. For that reason, we allocated a ”non-controlling interest” of ($7,055) and ($28,170) for three and nine months ended September 30, 2014 and deducted a “non-controlling interest” of $103,813 and $654,549 for three and nine months ended September 30, 2013 before recognizing net income attributable to the common stockholders’ on our Consolidated Statements of Operations and Comprehensive Income. After that, our net (loss) income attributable to the common stockholders’ for the three months ended September 30, 2014 and 2013 was $(118,871), ($.00) per share and $1,986,933, $.05 per share, and for the nine months ended September 30, 2014 and 2013 was $(490,341), ($0.01) per share and $12,480,134 , $0.39 per share, respectively.
Comments & Business Outlook
WONHE HIGH-TECH INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE (LOSS) INCOME
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2014 AND 2013 (UNAUDITED, IN U.S.$)
Three Months Ended June 30,
Six Months Ended June 30,
2014
2013
2014
2013
Sales
$
-
$
10,145,618
$
-
$
19,763,018
Cost of sales
-
(5,192,768
)
-
(10,115,181
)
Gross profit
-
4,952,850
-
9,647,837
Operating expenses:
R & D expenses
23,569
36,046
47,280
96,334
Selling and marketing
43,620
108,049
151,835
190,025
General and administrative
121,732
180,025
244,471
413,246
Total operating expenses
188,921
324,120
443,586
669,605
(Loss) income from operations
(188,921
)
4,628,730
(443,586
)
8,948,232
Interest income
30,804
16,722
60,900
30,877
(Loss) income before (benefit from) provision for income taxes
(158,117
)
4,645,452
(382,686
)
8,979,109
Provision for (benefit from) income taxes
5,044
(2,069,645
)
9,899
(2,064,827
)
Management Discussion and Analysis
Sales. During 2011 we had twelve full-time employees involved in developing a market for HMC660. They introduced the product to electronics distribution companies throughout the Guangdong Province of China and established cooperative sales relationships with several of them. When we initiated sales at the end of 2011, we engaged an advertising company at a monthly cost of $31,820 to generate publicity about the HMC660. This program caused demand for the product to rise quickly, which contributed to the rapid growth of sales. For the year ended December 31, 2013, sales were $25,474,097 representing 53,476 units of the HMC 660.
Net Income (loss). We reported net (loss) income of ($163,161) and $6,715,097 for the three months ended June 30, 2014 and 2013, and $(392,585) and $11,043,936 for the six months ended June 30, 2014 and 2013, respectively. The VIE agreements assign to Shengshihe Consulting only 95% of the net profit generated from Shenzhen Wonhe. For that reason, we have a “non-controlling interest” of $8,914 and $21,114 for three and six months ended June 30, 2014 and deducted a “non-controlling interest” of $335,015 and $550,735 for three and six months ended June 30, 2013, respectively, before recognizing net income attributable to the common stockholders on our Consolidated Statements of Operations and Comprehensive (Loss) Income. After that, our net (loss) income attributable to the common stockholders’ for the three months ended June 30, 2014 and 2013 was $(154,247) ($(0.00) per share) and $6,380,082 ($0.19 per share), respectively, and for the six months ended June 30, 2014 and 2013 was $(371,471), ($(0.01) per share) and $10,493,201, ($0.37 per share), respectively.
Comments & Business Outlook
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(IN U.S.$)
For the Years Ended
December 31,
2013
2012
Sales
$
25,474,097
$
25,181,823
Cost of sales
(13,218,664
)
(12,886,550
)
Gross profit
12,255,433
12,295,273
Operating expenses:
Research and development expenses
156,172
574,053
Selling and marketing expenses
415,933
389,091
General and administrative expenses
794,592
1,849,814
Total operating expenses
1,366,697
2,812,958
Income from operations
10,888,736
9,482,315
Other income (expense):
Interest income
87,840
113,016
Income before provision for (benefit from) income taxes
10,976,576
9,595,331
Provision for (benefit from) income taxes
(2,072,575
)
2,355,125
Net income
13,049,151
7,240,206
Noncontrolling interests
(649,632
)
(360,435
)
Net income attributable to common stockholders
$
12,399,519
$
6,879,771
Earnings per common share, basic and diluted
$
0.37
$
0.29
Weighted average shares outstanding, basic and diluted
33,553,463
23,900,130
Comprehensive income:
Net income
$
13,049,151
$
7,240,206
Foreign currency translation adjustment
695,960
58,224
Comprehensive income
13,745,111
7,298,430
Comprehensive income attributable to noncontrolling interests
(682,331
)
(363,327
)
Comprehensive income attributable to common stockholders
$
13,062,780
$
6,935,103
Management Discussion and Analysis
Sales
At the end of 2011, our major product, HMC660, passed the stability test administered by Shenzhen Yitong Testing Technology Co., Ltd., an independent entity authorized by the government to perform such tests. The stability test, which was developed by the regulatory board of the electronics industry, is a test to examine product hardware operation, heat dissipation and chip stability to ensure the product is qualified to operate smoothly under normal conditions. The stability test was the final requirement before our product could be launched to the market. We started sales of our HMC 660 products in December 2011 and the first quarter of 2012 was our first profitable quarter.
During 2011 we had twelve full-time employees involved in developing a market for HMC660. They introduced the product to electronics distribution companies throughout China and established cooperative sales relationships with several of them. When we initiated sales at the end of 2011, we engaged an advertising company at a monthly cost of $31,820 to generate publicity about the HMC660. This program caused demand for the product to rise quickly, which contributed to the rapid growth of sales. For the years ended December 31, 2013 and 2012, sales of $25,474,097 and $25,181,823 represented 53,476 and 53,920 units of HMC 660.
Sales of the HMC660 continued to grow through the first six months of 2013. During the third quarter, however, we announced that we were developing the second generation of HMC660. The reason for this development project is to expand our potential market. To date we have focused our sales effort in Guangdong Province. We want to expand our customer base, but have been informed that in order to achieve successful entry into other provinces, our product will have to meet the purchasing standards of the local State Administration of Radio Film and Television (“SARFT”), as the customer group that does not receive service through SARFT is dominated by local media companies. The changes being implemented in the second generation product, therefore, are changes needed to meet SARFT purchasing standards.
As a result of our announcement that a second generation product was coming, demand for our first generation product fell significantly. Sales in the third quarter of 2013 fell by 27% from the third quarter of 2012; sales in the fourth quarter of 2013 were only $814,816. Toward the end of 2013 we terminated production of the HMC660. The overall result was that sales for year ended December 31, 2013 increased by only $292,274 compared with sales during the year ended December 31, 2012.
For 2014 and beyond, we expect sales growth to rebound, as the market for the second generation HMC660 will be expanded and the product will be enhanced by improvements we have made in response to customer feedback. In addition, although we have no fixed date for introduction of any new product, we expect that sales of new products, when they are ready, will be facilitated by our success with the HMC660 and our utilization of a now-established marketing network.
Net Income
We reported net income of $13,049,151 and $7,240,206, respectively, for the years ended December 31, 2013 and 2012. The VIE agreements assign to Shengshihe Consulting only 95% of the net profit generated from Shenzhen Wonhe. For that reason, we deducted a “non-controlling interest” of $649,632 before recognizing net income attributable to the common shareholders on our Consolidated Statements of Income and Comprehensive Income for the year ended December 31, 2013. After that deduction and taking into account the income and expenses incurred by the parent corporation, our net income attributable to the Company for the years ended December 31, 2013 and 2012 was $12,399,519 ($.37 per share) and $6,879,771 ($.29 per share), respectively.
For the fourth quarter of 2013, when we realized only $814,816 in sales, we recorded a net loss attributable to common shareholders of $80,615. Until we introduce the second generation HMC660 to the market, we will continue to incur net losses.