Note 13 - Variable Interest Entities ("vies")

3 Months Ended

Jul. 31, 2016

Notes

Note 13 - Variable Interest Entities ("vies")

NOTE 13 – VARIABLE INTEREST ENTITIES ("VIEs")

On April 30, 2007, the Company entered into loan agreements with Mao Junbao ("MJ") and Mao Hong ("MH") for the establishment of Huitong. On April 30, 2007 the Company entered into an equity pledge agreement that provides that MJ and MH would pledge all their equities in Huitong to REDtone Shanghai.

Huitong acquired YuZhong, YuGuang, Haitai and FengCheng, as subsidiaries of the Company during financial year 2015.

Although the Company is not the shareholder of the above VIE subsidiaries, the Company has determined that it is the primary beneficiary of these entities, as the Company has controlling voting powers and entitled to receive the benefit from operations of these entities. Hence, these companies are identified as VIEs and are consolidated as if subsidiaries of the Company.

We did not identify any additional VIEs in which we hold a significant interest.

The total consolidated VIE assets and liabilities reflected on the Company's balance sheet are as follows:

	July 31, 2016	April 30, 2016
Assets
Cash and cash equivalents	$22,571	$161,340
Accounts receivable	634,182	640,656
Other receivables and deposits	46,086	185,144
Property, plant and equipment, net	479,920	413,072
Intangible assets, net	361,940	381,670
Total assets (not include amount due from intra-group companies and related parties)	1,544,699	1,781,882
Liabilities
Deferred income	972,557	1,145,770
Accounts payable	547,752	755,461
Accrued expenses and other payables	2,095,722	2,081,052
Taxes payable	73,443	18,332
Total liabilities (not include amount due to intra-group companies and related parties)	3,689,474	4,000,615

The results of VIEs are as follows, and are included in the consolidated statements of income of the Company:

	Three months ended July 31, 2016	Three months ended July 31, 2015
Revenue	$755,007	$1,683,697
Other income and gains	151	(12,028
Service costs (Not including service costs payable to intra-group companies)	(459,397)	(1,950,100)
Personnel cost	(58,570)	(93,417)
Depreciation expense	(9,801)	(73,168)
Amortization expense	(11,397)	(12,343)
Administrative and other expenses	(123,744)	(109,646)
Income/ (Loss) before provision for income taxes (Not including service costs payable to intra-group companies)	92,249	(567,005)
Provision for income taxes	(48,167)	(19,931)
Net income/ (loss)	44,082	(586,936)

Under the contractual arrangements with the VIEs, the Company has the power to direct activities of the VIEs and can have assets transferred freely out of the VIEs without restrictions. Therefore, the Company considers that there is no asset of VIEs that can only be used to settle obligations of the respective VIEs, except for registered capital and PRC statutory reserves of VIEs as of July 31, 2016. Since the VIEs are incorporated as limited liability companies under the PRC Company Law, creditors of the VIEs do not have recourse to the general credit of the Company. There is currently no contractual arrangement that would require the Company to provide additional financial support to the VIEs. As the Company is conducting certain businesses mainly through its VIEs, the Company may provide such support on a discretionary basis in the future, which could expose the Company to a loss.