SUNWIN STEVIA INTERNATIONAL, INC. - Quarter Report: 2011 July (Form 10-Q)

suwn10-q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly report ended July 31, 2011

[ ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to __________

Commission file number: 000-53595

SUNWIN INTERNATIONAL NEUTRACEUTICALS, INC.

(Exact name of registrant as specified in charter)

NEVADA	56-2416925
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

6 SHENGWANG AVE., QUFU, SHANDONG, CHINA	273100
(Address of principal executive offices)	(Zip Code)

(86) 537-4424999

(Registrant's telephone number, including area code)

NOT APPLICABLE

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark whether the registrant has been submitted electronically and posted on its corporate Web site, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer [ ]	Accelerated filer [ ]
Non-accelerated filer [ ]	Smaller reporting company [X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X].

Indicate the number of shares outstanding of each of the issuer's classes of common equity as of the latest practicable date: As of September 9, 2011 there were 156,856,137 shares of the registrant's common stock issued and outstanding.

SUNWIN INTERNATIONAL NEUTRACEUTICALS, INC. AND SUBSIDIARIES

FORM 10-Q

QUARTERLY PERIOD ENDED July 31, 2011

INDEX

	Page
PART I-FINANCIAL INFORMATION
Item 1. Financial Statements	1

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	13

Item 3. Quantitative and Qualitative Disclosures About Market Risk	18

Item 4. Controls and Procedures	18

PART II-OTHER INFORMATION
Item 1. Legal Proceedings	19

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	19

Item 3. Defaults Upon Senior Securities	19

Item 4. (Removed and Reserved)	19

Item 5. Other Information	19

Item 6 - Exhibits	20

Cautionary Note Regarding Forward-Looking Information and Factors That May Affect Future Results

This report contains forward-looking statements. The Securities and Exchange Commission encourages companies to disclose forward-looking information so that investors can better understand a company’s future prospects and make informed investment decisions. This report and other written and oral statements that we make from time to time contain such forward-looking statements that set out anticipated results based on management’s plans and assumptions regarding future events or performance. We have tried, wherever possible, to identify such statements by using words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “will” and similar expressions in connection with any discussion of future operating or financial performance. In particular, these include statements relating to future actions, future performance or results of current and anticipated sales efforts, expenses, the outcome of contingencies, such as legal proceedings, and financial results. A list of factors that could cause our actual results of operations and financial condition to differ materially is set forth below, and these factors are discussed in greater detail under Item 1A – “Risk Factors” in our Annual Report on Form 10-K for the year ended April 30, 2011 as filed with the Securiteis and Exchange Commission:

	-		Our ability to complete agreements with Domino Sugar and Wild Flavors.
	-		Our revenues have declined in the past two fiscal years and there are no assurances they will return to historic levels in future periods;
	-		Dependence upon continued market acceptance of our stevioside products, maintaining Generally Recognized as Safe status in the United States and obtaining approval in other countries in the world that currently do not permit use of steviosides in food products;
	-		Competition and low barriers to entry to the market in which we sell our products;
	-		Our dependence on the services of our president;
	-		Our inability to control the cost of our raw materials;
	-		The limitation on our ability to receive and use our cash flows effectively as a result of restrictions on currency exchange in the PRC;
	-		Our operations are subject to government regulation. If we fail to comply with the applicable regulations, our ability to operate in future periods could be in jeopardy;
	-		The absence of various corporate governance measures which may reduce stockholders’ protections against interested director transactions, conflicts of interest and other matters;
	-		The effect of changes resulting from the political and economic policies of the Chinese government on our assets and operations located in the PRC;
	-		The impact of economic reform policies in the PRC;
	-		The influence of the Chinese government over the manner in which our Chinese subsidiaries must conduct our business activities;
	-		The impact of any natural disasters and health epidemics in China.
	-		Regulations relating to offshore investment activities by Chinese residents may increase the administrative burden we face and create regulatory uncertainties that may limit or adversely affect our ability to complete a business combination with PRC companies.
	-		The lack of various legal protections in certain agreements to which we are a party and which are material to our operations which are customarily contained in similar contracts prepared in the United States;
	-		Our ability to enforce our rights due to policies regarding the regulation of foreign investments in China;
	-		Difficulties stockholders may face who seek to enforce any judgment obtained in the United States against us, which may limit the remedies otherwise available to our stockholders
	-		Our ability to comply with the United States Foreign Corrupt Practices Act which could subject us to penalties and other adverse consequences;
	-		Provisions of our articles of incorporation and bylaws may delay or prevent a take-over which may not be in the best interests of our stockholders;
	-		Adverse affects on the liquidity of our stock because it currently trades below $5.00 per share, is quoted on the OTC bulletin board, and is considered a “penny stock;” and
	-		The impact on our stock price due to future sales of restricted stock held by existing shareholders.

We caution that the factors described herein and other factors could cause our actual results of operations and financial condition to differ materially from those expressed in any forward-looking statements we make and that investors should not place undue reliance on any such forward-looking statements. Further, any forward-looking statement speaks only as of the date on which such statement is made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of anticipated or unanticipated events or circumstances. New factors emerge from time to time, and it is not possible for us to predict all of such factors. Further, we cannot assess the impact of each such factor on our results of operations or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

INDEX OF CERTAIN DEFINED TERMS USED IN THIS REPORT

We are on a fiscal year ending April 30, as such the year ended April 30, 2011 is referred to as “fiscal 2011” and the year ending April 30, 2012 is referred to as “fiscal 2012.” Also, the three month period ending July 31, 2011 is our first quarter and is referred to as the “first quarter of fiscal 2012.” Likewise, the three month period ending July 31, 2010 is referred to as the “first quarter of fiscal 2011.”

When used in this report, the terms:

	-	“Sunwin”, “we”, “us” and the “Company” refers to Sunwin International Neutraceuticals, Inc., a Nevada corporation, and our subsidiaries;

	-	“Sunwin Tech” refers to our wholly owned subsidiary Sunwin Tech Group, Inc., a Florida corporation;

	-	“Qufu Natural Green” refers to our wholly owned subsidiary Qufu Natural Green Engineering Co., Ltd., a Chinese limited liability company;

	-	“Shengya Veterinary Medicine” refers to, Shengya Veterinary Medicine Co., Ltd., a Chinese limited liability company, and a formerly wholly owned subsidiary of Qufu Natural Green, which was sold in July 2010;

	-	“Sunwin Stevia International” refers to our wholly owned subsidiary Sunwin Stevia International Corp., a Florida corporation, which was converted to Sunwin USA, LLC a Delaware limited liability company in May 2009;

	-	“Sunwin USA” refers to Sunwin USA, LLC, a Delaware limited liability company, a 55% owned equity method investment;

	-	“Sunwin Canada” refers to our formerly wholly owned subsidiary Sunwin (Canada) Pharmaceutical Ltd., a Canadian corporation, which was dissolved in August 2010

	-	“Qufu Shengwang” refers to Qufu Shengwang Stevia Biology and Science Co., Ltd., a Chinese limited liability company. Qufu Natural Green owns a 60% interest in Qufu Shengwang; and

	-	“Qufu Shengren” refers to Qufu Shengren Pharmaceutical Co., Ltd., a Chinese limited liability company, and a wholly owned subsidiary of Qufu Natural Green.

We also use the following terms when referring to certain related parties:

	-	“Pharmaceutical Corporation” refers to Shandong Shengwang Pharmaceutical Co., Ltd., a Chinese limited liability company which is controlled by Mr. Laiwang Zhang, President, Chairman and a principal shareholder of our company;

	-	“Shandong Group” refers to Shandong Shengwang Group Co., Ltd., a Chinese limited liability company, which is controlled by Mr. Laiwang Zhang, President, Chairman and a principal shareholder of our company; and

	-	“WILD Flavors” refers to WILD Flavors, Inc., a Delaware corporation.

iii

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SUNWIN INTERNATIONAL NEUTRACEUTICALS, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED BALANCE SHEETS

	July 31, 2011			April 30, 2011
				(Audited)
ASSETS
CURRENT ASSETS:
Cash	$	10,891,434		$	10,563,413
Accounts receivable, net of allowance for doubtful accounts of $1,253,628 and $1,098,240, respectively		1,903,409			2,080,332
Accounts receivable - related party		235,055			204,664
Notes receivable		572,012			505,260
Inventories, net		2,975,015			3,327,914
Prepaid taxes		4,811			43,359
Prepaid expenses and other current assets		190,560			62,664
Total Current Assets		16,772,296			16,787,606
Property and equipment, net		13,800,283			13,967,964
Land use rights		2,320,202			2,303,112
Total Assets	$	32,892,781		$	33,058,682
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses	$	2,671,754		$	2,495,776
Taxes payable		55,452			118,351
Derivative liability		5,203			5,203
Total Current Liabilities		2,732,409			2,619,330
STOCKHOLDERS' EQUITY:
Preferred stock, $0.001 par value; 1,000,000 shares authorized; no shares issued and outstanding		-			-
Common stock, $.001 par value, 200,000,000 shares authorized; 156,522,809 and 155,522,809 shares issued and outstanding		156,523			155,523
Additional paid-in capital		28,732,279			28,390,279
(Accumulated deficit) retained earnings		(5,463,262	)		(4,477,522	)
Accumulated other comprehensive income		4,660,383			4,262,044
Total Sunwin International Neutraceuticals, Inc. stockholders' equity		28,085,923			28,330,324
Noncontrolling interest		2,074,449			2,109,028
Total Stockholders' Equity		30,160,372			30,439,352
Total Liabilities and Stockholders' Equity	$	32,892,781		$	33,058,682

The accompanying notes are an integral part of these unaudited financial statements.

- 1 -

SUNWIN INTERNATIONAL NEUTRACEUTICALS, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

	For the Three Months Ended
	July 31,
	2011			2010
Revenues	$	2,627,051		$	2,227,016
Revenues - related party		221,395			103,539
Total revenues		2,848,446			2,330,555
Cost of revenues		2,484,590			1,792,142
Gross profit		363,856			538,413
Operating expenses:
Loss on equity investment		-			67,554
Selling expenses		149,083			114,528
General and administrative expenses		1,251,345			704,470
Total operating expenses		1,400,428			886,552
Operating loss		(1,036,572	)		(348,139	)
Other income:
Other income		24			1,064
Interest income		16,229			9,763
Total other income		16,253			10,827
Loss from continuing operations before income taxes and noncontrolling interest		(1,020,319	)		(337,312	)
Discontinued operations:
Loss from discontinued operations		-			(135,292	)
Gain on disposal of discontinued operations		-			11,450
Total loss from discontinued operations		-			(123,842	)
Loss before income taxes and noncontrolling interest		(1,020,319	)		(461,154	)
Income taxes		-			(5,005	)
Net loss		(1,020,319	)		(466,159	)
Less: loss attributable to noncontrolling interest		34,579			33,389
Net loss attributable to Sunwin International Neutracueticals, Inc.		(985,740	)		(432,770	)
Comprehensive Income:
Net loss		(1,020,319	)		(461,154	)
Gain on foreign currency translation		398,339			283,036
Total Comprehensive Income		(621,980	)		(183,123	)
Basic and diluted loss per common share:
Loss from continuing operations	$	(0.01	)	$	(0.00	)
Loss from discontinue operations		-			(0.00	)
Loss per common share	$	(0.01	)	$	(0.00	)
Weighted average common shares outstanding - basic and diluted		156,316,287			162,528,162
Amount attributable to Sunwin International Neutracueticals, Inc.
Loss from continuing operations, net of tax	$	(985,740	)	$	(308,928	)
Loss from discontinued operations, net of tax		-			(123,842	)
Net loss attributable to Sunwin International Neutracueticals, Inc.	$	(985,740	)	$	(432,770	)

The accompanying notes are an integral part of these unaudited financial statements.

- 2 -

SUNWIN INTERNATIONAL NEUTRACEUTICALS, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the Three Months Ended July 31,
	2011			2010

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(1,020,319	)	$	(466,159	)
Total loss from discontinued operations		-			123,842
Adjustments to reconcile net loss to net cash provided by operating activities
Depreciation expense		364,257			370,843
(Gain) loss on change in fair value of derivative liability		-			(3,290	)
Amortization of land use rights		13,648			17,265
Loss on equity investment		-			67,554
Stock issued in exchange for services		343,000			58,750
Allowance for doubtful accounts		139,509			-
Changes in operating assets and liabilities:
Accounts receivable and notes receivable		628			(251,665	)
Accounts receivable - related party		(27,418	)		16,956
Inventories		381,396			40,512
Prepaid expenses and other current assets		(125,855	)		(33,048	)
Tax receivable		38,748			1,782
Accounts payable and accrued expenses		282,795			848,221
Taxes payable		(63,850	)		1,806
Other current liabilities		(140,391	)		-
NET CASH PROVIDED BY CONTINUING OPERATIONS		186,148			793,369
Net cash provided by discontinued operations		-			-
NET CASH PROVIDED BY OPERATING ACTIVITIES		186,148			793,369
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(7,446	)		(67,395	)
NET CASH USED IN INVESTING ACTIVITIES		(7,446	)		(67,395	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of warrants		-			112,449
NET CASH PROVIDED BY FINANCING ACTIVITIES		-			112,449
EFFECT OF EXCHANGE RATE CHANGES ON CASH		149,319			76,988
NET CHANGE IN CASH		328,021			915,411
Cash at begining of period		10,563,413			10,416,522
Cash at ending of period	$	10,891,434		$	11,331,933
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash paid for income taxes	$	-		$	-
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Shares cancelled in disposal of subsidiary	$	-		$	3,674,716.00

The accompanying notes are an integral part of these unaudited financial statements.

- 3 -

SUNWIN INTERNATIONAL NEUTRACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS

Sunwin International Neutraceuticals, Inc., a Nevada corporation, and its subsidiaries are referred to in this report as “we”, “us”, “our”, or “Sunwin.”

We sell stevioside, a natural sweetener, as well as herbs used in traditional Chinese medicines. Except for the U.S.-based operations at Sunwin USA which we account for as an equity investment, substantially all of our operations are located in the People’s Republic of China (the “PRC”). We have built an integrated company with the sourcing and production capabilities designed to meet the needs of our customers. Our operations are organized into two operating segments related to our Stevioside and Chinese Medicine product lines.

In June 2010 we elected to streamline our product offerings to focus on our core business of producing and selling stevia and other herb-based products, including herb extracts and herb medicines. Consequently, we have exited all business activities related to our veterinary medicines and on June 29, 2010 entered into an agreement to sell our 100% interest in our Shengya Veterinary Medicine subsidiary to Mr. Laiwang Zhang, our President and Chairman of the Board of Directors. The transaction closed on July 31, 2010. See Note 9 – Discontinued Operations.

Stevioside Segment

Stevioside and rebaudioside are all natural, low calorie sweeteners extracted from the leaves of the stevia rebaudiana plant. Stevioside is a safe and natural alternative to sugar for people needing low sugar or low calorie diets.

Chinese Medicine Segment

In our Chinese Medicine Segment, we manufacture and sell a variety of traditional Chinese medicine formula extracts which are used in products made for use by both humans and animals.

Qufu Shengwang

In fiscal 2009, Qufu Natural Green acquired a 60% interest in Qufu Shengwang from its shareholder, Shandong Group, for $4,026,851. The purchase price represents 60% of the value of the net tangible assets of Qufu Shengwang as of April 30, 2008. Shandong Group is owned by Laiwang Zhang, our President and Chairman of the Board of Directors. Qufu Shengwang manufactures and sells stevia feed additives.

Qufu Shengren

In fiscal 2009, Qufu Natural Green acquired Qufu Shengren for $3,097,242. The purchase price was equal to the value of the assets of Qufu Shengren as determined by an independent asset appraisal in accordance with asset appraisal principles in the PRC. Prior to being acquired by us, Qufu Shengren was engaged in the production and distribution of bulk drugs and pharmaceuticals. Subsequent to the acquisition, Qufu Shengren produces and distributes steviosides with a full range of grades from rebaudioside-A 10 to 98.

WILD Flavors

In fiscal 2009, we entered into a distribution agreement with WILD Flavors to assist our 55% owned subsidiary Sunwin USA in the marketing and worldwide distribution of our stevioside based sweetener products and issued WILD Flavors a 45% interest in Sunwin USA. In exchange WILD Flavors agreed to provide Sunwin USA with sales, marketing, logistics and supply chain management, product development and regulatory services valued at $1,000,000 over a period of two years beginning on February 5, 2009. WILD Flavors acts as the sole manager of Sunwin USA and is responsible for all of its business and affairs.

BASIS OF PRESENTATION

We are on a fiscal year ending April 30; as such the year ended April 30, 2011 is referred to as “fiscal 2011”, and the year ended April 30, 2010 is referred to as “fiscal 2010.”

- 4 -

SUNWIN INTERNATIONAL NEUTRACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC") for interim financial reporting. The accompanying consolidated financial statements for the interim periods presented are unaudited and reflect all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial position and operating results for the periods presented. Certain financial statement amounts relating to prior periods have been reclassified to conform to the current period presentation.

These unaudited consolidated interim financial statements should be read in conjunction with the financial statements for the year ended April 30, 2011 and notes thereto contained on our Form 10-K as filed with the SEC. The results of operations and cash flows for the three months ended July 31, 2011 are not necessarily indicative of the results of operations or cash flows which may be reported for future periods or the full fiscal year.

Our consolidated financial statements include the accounts for the parent company and all our wholly owned and majority owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

Our subsidiaries include the following:

- Qufu Natural Green;

- Qufu Shengren;

- Qufu Shengwang; and

- Sunwin Tech.

The assets, liabilities and results of operations of the discontinued veterinary segment are classified as Discontinued Operations for all periods presented.

USE OF ESTIMATES

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented.

Significant estimates include the allowance for doubtful accounts, which is based on an evaluation of our outstanding accounts receivable including the age of amounts due, the financial condition of our specific customers and historical bad debt experience. This evaluation methodology has proven to provide a reasonable estimate of bad debt expense in the past and we intend to continue to employ this approach in our analysis of collectability.

We also rely on assumptions and estimates to calculate the reserve for obsolete inventory and the depreciation of property, plant and equipment. We make assumptions regarding the expiration and duration of our products held as inventory based on historical experience and if applicable, regulatory recommendation. We also group property plant and equipment into similar groups of assets and estimate the useful life of each group of assets; see Note 3 – Property and Equipment for further information on asset groups and estimated useful lives. Further, we rely on certain assumptions and calculations underlying our provision for taxes in China. Assumptions and estimates employed in these areas are material to our reported financial conditions and results of operations. These assumptions and estimates have been materially accurate in the past and are not expected to materially change in the future. Actual results could differ from these estimates.

CASH AND CASH EQUIVALENTS

We consider all highly liquid instruments with a maturity of three months or less and money market accounts to be cash equivalents. The carrying value of these instruments approximates their fair value.

ACCOUNTS RECEIVABLE

Accounts receivable are reported at net realizable value. We have established an allowance for doubtful accounts based upon factors pertaining to the credit risk of specific customers, historical trends, and other information. Delinquent accounts are written off when it is determined that the amounts are uncollectible. At July 31 and April 30, 2011, the allowance for doubtful accounts was $1,253,628 and $1,098,240, respectively.

- 5 -

SUNWIN INTERNATIONAL NEUTRACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

INVENTORIES

Inventories, consisting of raw materials, work in process, and finished goods related to our products, are stated at the lower of cost or market (estimated net realizable value) utilizing the weighted average method.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Depreciation and amortization are provided using the straight line method over the estimated economic lives of the assets, which range from five to twenty years. Expenditures for major renewals and betterments that extend the useful lives of property and equipment are capitalized. Expenditures for maintenance and repairs are charged to expense as incurred. In accordance with paragraph 360-10-35-17 of the FASB Accounting Standards Codification (“ASC”), we examine the possibility of decreases in the value of fixed assets when events or changes in circumstances reflect the fact that their recorded value may not be recoverable.

LONG-LIVED ASSETS

The Company reviews and evaluates its long-lived assets, including property and equipment and land use rights, for impairment when events or changes in circumstances indicate that the related carrying amounts may not be recoverable. An impairment is considered to exist if the total estimated future cash flows on an undiscounted basis are less than the carrying amount of the assets, including goodwill, if any. An impairment loss is measured and recorded based on discounted estimated future cash flows. In estimating future cash flows, assets are grouped at the lowest level for which there is identifiable cash flows that are largely independent of future cash flows from other asset groups. The Company’s estimates of future cash flows are based on numerous assumptions and it is possible that actual future cash flows will be significantly different than the estimates.

TAXES PAYABLE

We are required to charge for and to collect value added taxes (VAT) on our sales. In addition, we pay value added taxes on our primary purchases, recorded as a receivable. These amounts are presented as net amounts for financial statement purposes. Taxes payable at July 31, and April 30, 2011 amounted to $55,452 and $118,351, respectively, consisting primarily of VAT taxes payable.

DERIVATIVE LIABILITY

We issued a total of 10,793,750 common stock purchase warrants exercisable at $0.65 per share in connection with an offering of our equity securities in 2007. On February 20, 2009, our Board of Directors approved the permanent reduction in the exercise price of these warrants to $0.15 per share. At July 31 and April 30, 2011, 22,725 warrants were outstanding, and these warrants will expire March 26, 2012. The exercise price of the warrants is subject to reset adjustment in the event of price reduction. If we issue or sell shares of our common stock for an amount less than the exercise price per share, the exercise price of the warrants is reduced to equal the new issuance price of those shares. The outstanding warrants have been determined to not be indexed to our stock and are carried at their fair value as a derivative liability. For the three months ended July 31, 2011 and 2010, the change in fair value of the derivative liability was not material.

We determined the fair value of the warrants at each reporting date using the Black-Scholes Option Pricing Model based on the following assumptions and key inputs for each series of warrants and reporting date:

	July 31, 2011			April 30, 2011
Dividend Yield		0	%		0	%
Volatility		106	%		107	%
Risk Free Rate		0.16	%		0.22	%
Expected Term (Years)		0.64			0.89
Asset Price	$	0.32		$	0.36
Exercise Price	$	0.15		$	0.15

- 6 -

SUNWIN INTERNATIONAL NEUTRACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

FAIR VALUE OF FINANCIAL INSTRUMENTS

We follow ASC Section 825-10-50-10 for disclosures regarding the fair value of financial instruments and have adopted ASC Section 820-10-35-37 to measure the fair value of our financial instruments. ASC Section 820-10-35-37 establishes a common definition for fair value to be applied to existing generally accepted accounting principles that require the use of fair value measurements, establishes a framework for measuring fair value, and expands disclosure about such fair value measurements. The adoption of ASC Section 820-10-35-37 did not have an impact on our financial position or operating results, but did expand certain disclosures.

ASC Section 820-10-35-37 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Additionally, ASC Section 820-10-35-37 requires the use of valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized below:

Level 1:	Observable inputs such as quoted market prices in active markets for identical assets or liabilities
Level 2:	Observable market-based inputs or unobservable inputs that are corroborated by market data
Level 3:	Unobservable inputs for which there is little or no market data, which require the use of the reporting entity’s own assumptions.

The carrying amounts of our financial assets and liabilities, such as cash, accounts receivable, prepayments and other current assets, accounts payable, taxes payable and accrued expenses, approximate their fair values because of the short maturity of these instruments.

We do not have any assets or liabilities measured at fair value on a recurring or a non-recurring basis. Consequently, we did not have any fair value adjustments for assets and liabilities measured at fair value at July 31 and April 30, 2011, nor were there gains or losses reported in the statement of operations for the three months ended July 31, 2011 and 2010 that were attributable to the change in unrealized gains or losses relating to those assets and liabilities still held at the reporting date for the interim periods then ended.

INCOME TAXES

We file federal and state income tax returns in the United States for our corporate operations, and file separate foreign tax returns for our Chinese subsidiaries. We account for income taxes under the provisions of ASC Section 740-10-30, which is an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in our financial statements or tax returns.

BASIC AND DILUTED EARNINGS PER SHARE

Pursuant to ASC Section 260-10-45, basic income (loss) per common share is computed by dividing income (loss) available to common shareholders by the weighted average number of shares of common stock outstanding for the periods presented. Diluted income (loss) per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that would then share in the income of the Company, subject to anti-dilution limitations.

At July 31, 2011 and 2010 outstanding purchase warrants which could have resulted in the issuance of 22,725 and 34,630 additional common shares, respectively, were anti-dilutive as we reported a net loss applicable to our common shareholders for both periods; additionally, outstanding purchase warrants which could have resulted in the issuance of 26,666,666 additional common shares were also anti-dilutive as the exercise price of the warrants exceeded the average market price. As a result, basic loss per share was equal to diluted loss per share for the three months ended July 31, 2011 and 2010.

FOREIGN CURRENCY TRANSLATION

Transactions and balances originally denominated in U.S. dollars are presented at their original amounts. Transactions and balances in other currencies are converted into U.S. dollars in accordance with ASC Section 830-20-35 and are included in determining net income or loss.

- 7 -

SUNWIN INTERNATIONAL NEUTRACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Our reporting currency is the U.S. dollar. The functional currency of our Chinese subsidiaries is the Chinese Renminbi (“RMB”). The financial statements of the subsidiaries are translated into United States dollars using period-end rates of exchange for assets and liabilities, and average rates of exchange for the period for revenues, costs, and expenses. Net gains and losses resulting from foreign exchange transactions are included in the consolidated statements of operations. Translation adjustments resulting from the process of translating the local currency financial statements into U.S. dollars are included in other comprehensive income or loss.

COMPREHENSIVE LOSS

Comprehensive loss is comprised of net loss and other comprehensive income or loss. Other comprehensive income or loss refers to revenues, expenses, gains and losses that under U.S. GAAP are included in comprehensive income but excluded from net income as these amounts are recorded directly as an adjustment to stockholders’ equity.

Our other comprehensive income consists of currency translation adjustments. The following table sets forth the computation of comprehensive income for the three months ended July 31, 2011 and 2010, respectively:

	For the Three Months Ended July 31,
	2011			2010
	(unaudited)			(unaudited)
Net loss	$	(1,020,319	)	$	(466,159	)
Other comprehensive income (loss), net of tax:
Realized gain of foreign currency translation from sale of subsidiary		-			(1,243,481)
Foreign currency translation gain , net of tax		398,339			283,036
Comprehensive loss		(621,980	)		(1,426,604	)
Comprehensive loss attributable to noncontrolling interests		34,579			33,389
Comprehensive loss attributable to Sunwin International Neutraceuticals, Inc.	$	(587,401	)	$	(1,393,215	)

CONCENTRATIONS OF CREDIT RISK

Financial instruments which potentially subject us to concentrations of credit risk consist principally of cash and trade accounts receivable. We place our cash with high credit quality financial institutions in the United States and China. At July 31, 2011, we had $10,874,706 on deposit in China, which is not insured. We have not experienced any losses in such accounts through July 31, 2011.

Almost all of our sales are credit sales which are primarily to customers whose ability to pay is dependent upon the industry economics prevailing in these areas; however, we believe that the concentration of credit risk with respect to trade accounts receivable is limited due to generally short payment terms. We also perform ongoing credit evaluations of our customers to help further reduce potential credit risk.

STOCK BASED COMPENSATION

We account for the grant of stock, stock options, warrants and restricted stock awards in accordance with ASC Section 718, “Compensation - Stock Compensation” and the applicable provisions of ASC Section 505, “Equity”, which requires entities to recognize in the statement of operations the grant-date fair value of stock options and other equity-based compensation.

RESEARCH AND DEVELOPMENT

Research and development costs are expensed as incurred and are included in general and administrative expenses in the accompanying statements of operations. Research and development costs are incurred on a project specific basis and were not material for the three months ended July 31, 2011 and 2010.

REVENUE RECOGNITION

In general, we record revenue when persuasive evidence of an arrangement exists, services have been rendered or product delivery has occurred, the sales price to the customer is fixed or determinable, and collectability is reasonably assured.

- 8 -

SUNWIN INTERNATIONAL NEUTRACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

RECENT ACCOUNTING PRONOUNCEMENTS

In June 2011, the FASB issued an Accounting Standard Update (“ASU” No. 2011-05, “Comprehensive Income (Topic 220). Under the amendments to Topic 220, Comprehensive Income, entities have the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. This Update eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders' equity. The amendments in this Update should be applied retrospectively. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. For nonpublic entities, the amendments are effective for fiscal years ending after December 15, 2012, and interim and annual periods thereafter. This update is not expected to have a material impact on the Company’s consolidated financial position or results of the operations.

NOTE 2 - INVENTORIES

At July 31 and April 30, 2011, inventories consisted of the following:

	July 31, 2011			April 30, 2011
	(unaudited)
Raw materials	$	1,075,280		$	736,533
Work in process		214,126			179,585
Finished goods		2,394,666			3,099,869
		3,684,072			4,015,987
Less: reserve for obsolete inventory		(709,057	)		(688,073	)
	$	2,975,015		$	3,327,914

NOTE 3 - PROPERTY AND EQUIPMENT

At July 31 and April 30, 2011, property and equipment consisted of the following:

	Estimated Life	July 31, 2011			April 30, 2011
		(unaudited)
Office Equipment	5-7 Years	$	40,092		$	39,568
Auto and Trucks	10 Years		806,636			796,099
Manufacturing Equipment	20 Years		11,529,789			11,364,168
Buildings	20 Years		6,694,887			6,607,434
			19,071,404			18,807,269
Less: Accumulated Depreciation			(5,271,121	)		(4,839,305	)
		$	13,800,283		$	13,967,964

For the three months ended July 31, 2011 and 2010, depreciation expense totaled $364,257 and $370,843, respectively.

NOTE 4- LAND USE RIGHTS

Intangible assets consisted of the following:

	Estimated Life	July 31, 2011			April 30, 2011
		(unaudited)
Land Use Right	43.5years	$	2,480,959		$	2,448,171
Less: Accumulated Amortization			(160,757	)		(145,059	)
		$	2,320,202		$	2,303,112

- 9 -

SUNWIN INTERNATIONAL NEUTRACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

For the three month periods ended July 31, 2011 and 2010, amortization expense amounted to $13,648 and $17,265, respectively.

NOTE 5 - RELATED PARTY TRANSACTIONS

Accounts Receivable – related party

At July 31 and April 30, 2011, we reported $235,055 and $204,664 in accounts receivable – related party, respectively. Accounts receivable – related party reflected amounts due from Qufu Shengwang Import and Export Corporation, a Chinese entity owned by our Chairman, Mr. Laiwang Zhang, for merchandise that has been delivered. Total related party revenues during the three months ended July 31, 2011 and 2010 were $221,395 and $103,539, respectively.

NOTE 6 - PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets at July 31, and April 30, 2011 totaled $190,560 and $62,664, respectively, and includes prepayments to suppliers for merchandise that had not been shipped to us, services that had not been provided to us and employee advances. We recognize prepayments as inventory or expense as suppliers make delivery of goods or provide services for which we have paid.

NOTE 7 - STOCKHOLDERS' EQUITY

On April 22, 2011 we entered into a consulting agreement with China Direct Investments, Inc. (“CDI”) to perform consulting services for fiscal 2012 and agreed to a consulting fee of 1,500,000 shares of the Company’s common stock. On May 6, 2011 we issued 1,000,000 shares of our common stock valued at $343,000 to CDI, which was recognized as consulting expense for the three months ended July 31, 2011. We recognized $58,750 in stock-based consulting expenses during the three months ended July 31, 2010. These amounts are reflected in general and administrative expenses in the accompanying consolidated statements of operations.

During the first quarter of fiscal 2011, we issued 737,750 shares of our common stock upon the exercise of purchase warrants at $0.15 per share providing proceeds to us of $112,449. A summary of the changes to our outstanding stock warrants during the three months ended July 31, 2011 is as follows:

	Shares		Weighted Average Exercise Price
Outstanding at April 30, 2011		26,689,391	$	0.35
Granted		-		-
Exercised		-		-
Forfeited		-		-
Warrants exercisable at July 31, 2011 (unaudited)		26,689,391	$	0.35

The following information applies to all warrants outstanding at July 31, 2011:

		Warrants Outstanding			Warrants Exercisable
Range of Exercise Prices		Shares	Weighted Average Remaining Contractual Life	Weighted Average Exercise Price	Shares	Weighted Average Exercise Price
$	0.15	22,725	0.67	$0.15	22,725	$0.15
$	0.35	26,666,666	2.52	$0.35	26,666,666	$0.35
		26,689,391		$0.30	26,689,391	$0.30

- 10 -

SUNWIN INTERNATIONAL NEUTRACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 8 - SEGMENT INFORMATION

The following information is presented in accordance with ASC Topic 280, “Segment Reporting.” For the three months ended July 31, 2011 and 2010, we operated in two reportable business segments - (1) sale of natural sweetener (stevioside) and (2) the sale of traditional Chinese medicines, organic herbal medicine, neutraceutical products, and veterinary medicines prepared from organic herbal ingredients. Our reportable segments are strategic business units that offer different products and are managed separately based on the fundamental differences in their operations. Condensed information with respect to these reportable business segments for the three months ended July 31, 2011 is as follows:

(Unaudited)	Stevioside			Chinese Medicines			Corporate and Other			Consolidated
Net revenues	$	2,091,131		$	757,315		$	-		$	2,848,446
Interest income	$	10,442		$	2,006		$	3,781		$	16,229
Depreciation and amortization	$	358,518		$	19,387		$	-		$	377,905
Net loss from continuing operations	$	(374,352	)	$	(215,595	)	$	(430,372	)	$	(1,020,319	)

Segment assets	$	28,792,387		$	3,574,625		$	525,769		$	32,892,781

Condensed information with respect to these reportable business segments for the three months ended July 31, 2010 is as follows:

(Unaudited)	Stevioside			Chinese Medicines			Corporate and Other			Consolidated
Net revenues	$	1,836,117		$	494,438		$	-		$	2,330,555
Interest income	$	7,537		$	2,226		$	-		$	9,763
Depreciation and amortization	$	370,412		$	17,696		$	-		$	388,108
Net loss from continuing operations	$	(47,502	)	$	(143,604	)	$	(146,206	)	$	(337,312	)

NOTE 9 – DISCONTINUED OPERATIONS

In June 2010, as part of our strategy to streamline our product offerings to focus on our core business of producing and selling stevia and other herb-based products, including herb extracts and herb medicines, and also to eliminate subsidiaries with minimal operations, we elected to sell our Veterinary Medicine division and to dissolve Sunwin Canada and reclassified the subsidiaries as “Discontinued Operations” beginning with our financial statements for the first quarter of fiscal 2011. The assets and liabilities, as well as the results of operations, of the discontinued subsidiary are classified as “Discontinued Operations” for the three months ended July 31, 2011 and 2010.

The following tables set forth the financial results of the discontinued operations for the three months ended July 31, 2011 and fiscal 2010.

	Three Months Ended July 31,
	2011		2010
Revenues	$	-	$	326,284
Cost of Revenue		-		203,489
Gross profit		-		122,795
Operating and other non-operating expenses		-		(258,087	)
Loss from discontinued operations		-		(135,292	)
Gain from disposal of discontinued operations		-		11,450
Total loss from discontinued operations	$	-	$	(123,842	)

- 11 -

SUNWIN INTERNATIONAL NEUTRACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 10 - SUBSEQUENT EVENTS

We have evaluated all events that occurred after the balance sheet date through the date when the financial statements were issued and determined there were no subsequent events.

- 12 -

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the information contained in our unaudited consolidated financial statements and the notes thereto appearing elsewhere herein and in conjunction with the Risk Factors, audited financial statements and Management’s Discussion and Analysis set forth in our Annual Report on Form 10-K for fiscal 2011.

OVERVIEW

We sell stevioside, a natural sweetener, as well as herbs used in traditional Chinese medicines. Substantially all of our operations are located in the PRC. We have built an integrated company with the sourcing and production capabilities designed to meet the needs of our customers. During 2011 and 2010 our operations were organized in two operating segments related to our Stevioside and Chinese Medicine product lines.

In May 2011, we and WILD Flavors agreed with Domino Foods, Inc. (“Domino Sugar”) to collaborate in offering natural sweeteners made from all natural products, such as cane sugar, rice, malt and stevia, to the food and beverage industry. The three companies have agreed to focus their efforts to introduce a wide range of all natural, low calories and no calorie sweetening solutions that contain Sunwin Stevia™. These innovative sweeteners may include both natural and artificial sweeteners plus sophisticated flavor modifiers based on the needs and demands of specific customers. In furtherance of these collaboration efforts, we are in the final stages of continuing negotiations with Domino Sugar for an agreement to distribute products jointly developed by WILD Flavors and Domino Sugar that include our stevia products.

Domino Sugar is the largest marketer of refined sugar in the United States and its affiliates produce and market the nationally recognized Domino®, C&H® and Florida Crystals® brands. In addition to the most comprehensive assortment of refined cane sugar products, Domino Sugar also produces brown rice syrup, evaporated cane juice, fondants, honey, invert sugar, malt and molasses, as well as flavor and texture modifiers. Based on this wide assortment of sweeteners, Domino Sugar has built long-term, outstanding business relationships with many consumer product companies, retailers, foodservice operators and distributors.

We are continuing our discussions with WILD Flavors to revise the Sunwin USA Operating Agreement and the February 5, 2009 Distribution Agreement we entered into with WILD Flavors in light of our collaboration efforts and proposed business relationship with Domino Sugar. We anticipate that Sunwin USA’s current operations may no longer be required. Also, we plan to continue our collaboration with WILD Flavors on the expansion opportunities in the European Union (“EU”) following the recent determination by the EU Standing Committee on Food Chain and Animal Health that stevia is safe for use in food ingredients throughout the EU.

While we expect to finalize agreements with Domino Sugar and WILD Flavors in the second quarter of fiscal 2012, there can be no assurances that we will be able to finalize these agreements on terms acceptable to us or at all.

Stevioside

Stevioside and rebaudioside are all natural low calorie sweeteners extracted from the leaves of the stevia rebaudiana plant. Stevioside is a safe and natural alternative to sugar for people needing low sugar or low calorie diets. Stevioside can be used to replace sugar in beverages and foods, including those that require baking or cooking where synthetic chemical based sweetener replacements are not suitable.

OnlySweet™ is an all natural, zero calorie, dietary supplement comprised of three natural ingredients, including stevioside. Given our strategy to develop new products in collaboration with Domino Sugar that contain our stevia products, we are evaluating our strategy for the sale and distribution of OnlySweet™.

In an effort to meet the international food safety standards mandated by larger consumer product companies that we expect to target as customers in the future, we have made capital investments to enhance our manufacturing facilities, equipment and documentation systems, changed certain manufacturing processes and carried out additional personnel training in order to meet these standards. These investments allowed us to meet the HACCP System Certification, ISO 9001:2008 Certification and ISO 22000:2005 Food Safety Certification. We obtained these certifications in November, 2010.

- 13 -

Chinese Medicines Segment

In our Chinese Medicine segment, we manufacture and sell approximately 325 different extracts, including traditional Chinese medicine extracts and purified extracts, which may include active parts and monomer compounds such as soy isofavone.

Discontinued Operations

In June 2010, we elected to streamline our product offerings to focus on our core business of producing and selling stevia and other herb-based products including herb extracts and herb medicines. On July 31, 2010 we exited all business activities related to our veterinary medicine business through the sale of our 100% interest in our Shengya Veterinary Medicine subsidiary to Mr. Laiwang Zhang, our president and chairman of the Board of Directors, in exchange for 7,818,545 shares of our common stock owned by Mr. Zhang, valued at $3.7 million, which we subsequently cancelled. We recorded a gain on the sale of this business in the amount of approximately $11,000. As a result of the above-referenced transaction, the assets, liabilities, and results of operations of the discontinued subsidiary have been reclassified as “Discontinued Operations” for fiscal 2012 and 2011. Accordingly, the discussion of our results of operations that follows is based upon our continuing Stevioside and Chinese Medicine operations.

Our Performance

Our total revenues of $2.8 million in the first quarter of fiscal 2012 increased by 22.2% compared with the first quarter of fiscal 2011, while our gross margin decreased to 12.8% from 23.1% over the same period. Our total operating expenses in the first quarter of fiscal 2012 increased by approximately $0.4 million compared to the first quarter of fiscal 2011. Our loss from continuing operations for the first quarter of fiscal 2012 was $0.9 million, compared to $0.3 million in the same period in fiscal 2011. The decline in our operating performance for the first quarter of fiscal 2012 was primarily a function of lower gross margins in both of our operating segments and higher stock-based consulting expenses.

Our Outlook

We continue to believe that there are significant opportunities for worldwide growth in our Stevioside segment, primarily in the U.S. and EU. We expect our negotiations with Domino Sugar will lead to a distribution agreement with them for products jointly developed by WILD Flavors and Domino Sugar that include our stevia products. We believe that this agreement will provides us with the opportunity to enter the U.S. consumer products market with new products that incorporate our high grade stevia extracts. Our management believes that the decision to differentiate ourselves as a producer of higher quality stevia grades and product formulations through these collaboration efforts will lead to sustainable growth in stevia shipments in the future.

- 14 -

RESULTS OF OPERATIONS

The following table summarizes our results from continuing operations for the three-month periods ended July 31, 2011 and 2010. The percentages represent each line item as a percentage of revenues.

For the Three Months Ended July 31, 2011
	Chinese Medicine					Stevioside					Corporate and Other			Consolidated
Revenues	$	757,315		100.0	%	$	2,091,131		100.0	%	$	-		$	2,848,446		100.0	%
Cost of goods sold		731,992		96.7	%		1,752,598		83.8	%		-			2,484,590		87.2	%
Gross profit		25,323		3.3	%		338,533		16.2	%		-			363,856		12.8	%
Other operating expenses		241,836		31.9	%		724,439		34.6	%		434,153			1,400,428		49.2	%
Other income		918		0.1	%		11,554		0.6	%		3,781			16,253		0.6	%
Loss from continuing operations
before taxes and
noncontrolling interest	$	(215,595	)	-28.5	%	$	(374,352	)	-17.9	%	$	(430,372	)	$	(1,020,319	)	(35.8)	%


For the Year Ended July 31, 2010
	Chinese Medicine					Stevioside					Corporate and Other			Consolidated
Revenues	$	494,438		100.0	%	$	1,836,117		100.0	%	$	-		$	2,330,555		100.0	%
Cost of goods sold		399,351		80.8	%		1,392,791		75.9	%		-			1,792,142		76.9	%
Gross profit		95,087		19.2	%		443,326		24.1	%		-			538,413		23.1	%
Other operating expenses		240,917		48.7	%		499,429		27.2	%		146,206			886,552		38.0	%
Other income (expense)		2,226		0.5	%		8,601		0.5	%		-			10,827		0.5	%
Loss from continuing operations
before taxes and
noncontrolling interest	$	(143,604	)	-29.0	%	$	(47,502	)	-2.6	%	$	(146,206	)	$	(337,312	)	(14.5)	%

Total revenues in the first quarter of fiscal 2012 increased by $0.5 million, or 22.2%, as compared to the first quarter of fiscal 2011. Stevioside revenues, which comprised 73.4% and 78.8% of our revenues for the first quarter of fiscal 2012 and fiscal 2011, respectively, increased by $0.3 million, or 13.9%, while revenues in our Chinese Medicine segment increased by 0.3 million, or 53.2%. The increase in Stevioside revenues was mainly the result of higher sales in the U.S. markets through our distribution agreement with WILD Flavors as well as sales increases to Chinese manufacturers who use our products as raw materials.

Cost of revenues in the first quarter of fiscal 2012 increased by $0.7 million, as compared to the first quarter of fiscal 2011. Gross margin on Stevioside sales decreased during the first quarter of fiscal 2012 to 16.2%, compared with 24.1% in the same period of fiscal 2011. The Chinese Medicine gross margin decreased to 3.3% in the current quarter compared to 19.2% in the first quarter of fiscal 2011. As a result, consolidated gross margin for the first quarter of fiscal 2012 was 12.8%, as compared to 23.1% in the same period of fiscal 2011. The lower gross margins for Stevioside were mainly attributable to increased competition in both the domestic and international markets resulting in downward pressure on pricing. The lower gross margin for Chinese Medicine is mainly due to continued increases in the cost of raw materials.

Operating expenses increased by $0.5 million in the first quarter of fiscal 2012 compared to the first quarter of fiscal 2011. Stock-based consulting expenses pertaining to investor relations, accounting, SEC compliance and business and strategic advisory services increased by $0.3 million during the quarter. In addition, bad debt expense pertaining to the Stevioside segment increased by $0.1 million during the quarter.

Loss from continuing operations in the first quarter of fiscal 2012 was $1.0 million, compared to $0.3 million in the first quarter of fiscal 2011. The increase is mainly due to lower gross margins and higher operating expenses. The total loss from discontinued operations was $0.1 million in the first quarter of fiscal 2011, with no comparable amount in fiscal 2012. Net loss in the first quarter of fiscal 2011 was $1.0 million, compared to $0.5 million in the same period of fiscal 2011.

- 15 -

LIQUIDITY AND CAPITAL RESOURCES

Liquidity is the ability of a company to generate sufficient cash to satisfy its needs for cash. The following table provides a comparison of the components of our working capital between July 31, 2011 and April 30, 2011:

	July 31, 2011		April 30, 2011		Increase (Decrease)			%
Current assets:	(Unaudited)
Cash	$	10,891,434	$	10,563,413	$	328,021			3.1	%
Accounts receivable, net		1,903,409		2,080,332		(176,923	)		(8.5)	%
Accounts receivable-related party		235,055		204,664		30,391			14.8	%
Note receivable		572,012		505,260		66,752			13.2	%
Inventories, net		2,975,015		3,327,914		(352,899	)		(10.6)	%
Prepaid taxes		4,811		43,359		(38,548	)		(88.9)	%
Prepaid expenses and other current assets		190,560		62,664		127,896			204.1	%
Total current assets	$	16,772,296	$	16,787,606	$	(15,310	)		(0.1)	%

Current liabilities:
Accounts payable and accrued expenses	$	2,671,754	$	2,495,776	$	175,978			7.1	%
Taxes payable		55,452		118,351		(62,899	)		(53.1)	%
Derivative liability		5,203		5,203		-			0.0	%
Total current liabilities	$	2,732,409	$	2,619,330	$	113,079			4.3	%

At July 31 and April 30, 2011, we had working capital of $14.0 million and $14.2 million, respectively. Our cash balance at July 31, 2011 was $10.9 million, as compared to cash of $10.6 million at April 30, 2011. We believe that our existing cash and cash equivalents and internally generated funds will be sufficient to cover working capital requirements and capital expenditures for the next twelve months. We currently have no significant capital expenditure commitments.

Accounts receivable, net of allowance for doubtful accounts and including accounts receivable from related parties, decreased by $0.1 million during the first quarter of fiscal 2012, mainly due to the increase in the allowance for doubtful accounts. The days’ sales outstanding in accounts receivable decreased to 71 days as of July 31, 2011, as compared to 79 days as of April 30, 2011.

At July 31, 2011 inventories, net of reserve for obsolescence, totaled $3.0 million, as compared to $3.3 million as of April 30, 2011. The decrease is mainly due to a reduction in finished goods in our stevioside business partially offset by an increase in raw materials.

During the third quarter of fiscal 2011 we loaned $0.5 million to a subsidiary of China Direct Investments, Inc., our corporate management services provider. The maturity date of this loan is December 31, 2011.

Our accounts payable and accrued expenses were $2.7 million at July 31, 2011, an increase of $0.2 from April 30, 2011. This balance, as well as that of V.A.T. taxes payable, is subject to the timing of payments for balances due related to purchases made in the ordinary course of business.

Net cash provided by operating activities was $0.2 million during the first quarter of fiscal 2012, as compared to $0.8 million for the first quarter of fiscal 2011. The following table summarizes the components of cash flow from operations for the first quarter of fiscal 2012 and fiscal 2011:

	2011			2010
Net loss from continuing operations	$	(1,020,319	)	$	(466,159	)
Depreciation, amortization, stock-based
compensation and other non-cash
gains and losses		860,414			511,122
Increase in accounts receivable		(26,790	)		(234,709	)
Decrease in inventory		381,396			40,512
Increase in accounts payable,
accrued expenses and other payables		282,795			850,027
Discontinued operations		-			-
Other, net		(291,348	)		92,576
Total cash provided by operating activities	$	186,148		$	793,369

- 16 -

Net cash used in investing activities totaled approximately $7,000 during the first quarter of fiscal 2012, as compared to $0.1 million in the first quarter of fiscal 2011, and was comprised of capital expenditures. The capital expenditures in fiscal 2011 were largely the result of the initiatives we undertook to meet the food safety standards and achieve the necessary certifications mandated by large consumer product companies that we expect to target as customers for our Stevioside business.

Net cash provided by financing activities totaled $0.1 million during the first quarter of fiscal 2011, comprised entirely of proceeds from the exercise of common stock purchase warrants, with no comparable amount in fiscal 2012.

The functional currency of our Chinese subsidiaries is the Chinese Renminbi (“RMB”). Substantially all of our cash is held in the form of RMB at financial institutions located in the PRC, where there is no equivalent of federal deposit insurance as in the United States. As a result, cash accounts at financial institutions in the PRC are not insured. We have not experienced any losses in such accounts as of July 31, 2011.

In 1996, the Chinese government introduced regulations which relaxed restrictions on the conversion of the RMB; however restrictions still remain, including but not limited to restrictions on foreign invested entities. Foreign invested entities may only buy, sell or remit foreign currencies after providing valid commercial documents at only those banks authorized to conduct foreign exchanges. Furthermore, the conversion of RMB for capital account items, including direct investments and loans, is subject to PRC government approval. Chinese entities are required to establish and maintain separate foreign exchange accounts for capital account items. We cannot be certain Chinese regulatory authorities will not impose more stringent restrictions on the convertibility of the RMB, especially with respect to foreign exchange transactions. Accordingly, cash on deposit in banks in the PRC is not readily deployable by us for purposes outside of the PRC. Our cash position by geographic area is as follows:

	July 31, 2011		April 30, 2011
		(Unaudited)
China	$	10,874,706	$	10,532,233

United States		16,728		31,180
Total	$	10,891,434	$	10,563,413

Off Balance Sheet Arrangements

Under SEC regulations, we are required to disclose our off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, such as changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. An off-balance sheet arrangement means a transaction, agreement or contractual arrangement to which any entity that is not consolidated with us is a party, under which we have:

	•		Any obligation under certain guarantee contracts,
	•		Any retained or contingent interest in assets transferred to an unconsolidated entity or similar arrangement that serves as credit, liquidity or market risk support to that entity for such assets,
	•		Any obligation under a contract that would be accounted for as a derivative instrument, except that it is both indexed to our stock and classified in stockholder’s equity in our statement of financial position, and
	•		Any obligation arising out of a material variable interest held by us in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to us, or engages in leasing, hedging or research and development services with us.

We do not have any off-balance sheet arrangements that we are required to disclose pursuant to these regulations. In the ordinary course of business, we enter into operating lease commitments, purchase commitments and other contractual obligations. These transactions are recognized in our financial statements in accordance with accepted accounting principles generally accepted in the United States of America (“U.S. GAAP”).

- 17 -

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of financial statements in conformity with U.S. GAAP requires estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities in the consolidated financial statements and accompanying notes. The SEC has defined a company’s critical accounting policies as the ones that are most important to the portrayal of the company’s financial condition and results of operations, and which require the company to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Based on this definition, we have identified the critical accounting policies and judgments addressed below. We also have other key accounting policies, which involve the use of estimates, judgments and assumptions that are significant to understanding our results, which are described in Note 1 to our financial statements. Although we believe that our estimates, assumptions and judgments are reasonable, they are based upon information presently available. Actual results may differ significantly from these estimates under different assumptions, judgments or conditions.

Estimates

Significant estimates for the periods reported include the allowance for doubtful accounts which is based on an evaluation of our outstanding accounts receivable including the age of amounts due, the financial condition of our specific customers and historical bad debt experience. This evaluation methodology has proven to provide a reasonable estimate of bad debt expense in the past and we intend to continue to employ this approach in our analysis of collectability. However, we are aware that given the current global economic crises, including that of the PRC, meaningful time horizons may change. We intend to enhance our focus on the evaluation of our customers' sustainability and adjust our estimates as may be indicted.

We rely on assumptions such as volatility, forfeiture rate, and expected dividend yield when calculating the fair value of our derivative liability related to common stock purchase warrants. We also rely on assumptions and estimates to calculate our reserve for obsolete inventory and the depreciation of property, plant and equipment. We make assumptions of expiration of our products held as inventory based on historical experience and if applicable, regulatory recommendation. We also group property plant and equipment into similar groups of assets and estimate the useful life of each group of assets.

Further, we rely on certain assumptions and calculations underlying our provision for taxes in the PRC. Assumptions and estimates employed in these areas are material to our reported financial conditions and results of operations. These assumptions and estimates have been materially accurate in the past and are not expected to materially change in the future. Actual results could differ from these estimates.

Revenue recognition

We record revenue when persuasive evidence of an arrangement exists, services have been rendered or product delivery has occurred, the sales price to the customer is fixed or determinable, and collectability is reasonably assured.

Long-lived assets

We review the carrying value of long-lived assets for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of long-lived assets is measured by comparison of its carrying amount to the undiscounted cash flows that the asset or asset group is expected to generate. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the property, if any, exceeds its fair value.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable for a smaller reporting company.

ITEM 4. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) that are designed to ensure that information required to be disclosed by us in reports that we file under the Exchange Act is recorded, processed, summarized and reported as specified in the SEC’s rules and forms and that such information required to be disclosed by us in reports that we file under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer, or CEO, and our Chief Financial Officer, or CFO, to allow timely decisions regarding required disclosure.

Management, with the participation of our CEO and CFO, performed an evaluation of the effectiveness of our disclosure controls and procedures as of July 31, 2011.

- 18 -

Based on this evaluation our management concluded that our disclosure controls and procedures were effective as of July 31, 2011 such that the information relating to our company, required to be disclosed in our Securities and Exchange Commission reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and (ii) is accumulated and communicated to our management, including our CEO, to allow timely decisions regarding required disclosure.

Our management believes that our disclosure controls and procedures provide a reasonable level of assurance of achieving their objectives. Our management does not expect, however, that our disclosure controls and procedures or internal financial controls will prevent all errors or fraud. A control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting identified in connection with the evaluation of our controls performed during the quarter ended July 31, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

None.

ITEM 1A. RISK FACTORS.

Risk factors describing the major risks to our business can be found under Item 1A, “Risk Factors”, in our fiscal 2011 Annual Report on Form 10-K. There has been no material change in our risk factors from those previously discussed in the fiscal 2011 Annual Report on Form 10-K.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. (REMOVED AND RESERVED).

ITEM 5. OTHER INFORMATION.

None.

- 19 -

ITEM 6. EXHIBITS

Exhibit

Number			Description
	10.21	*	Consulting Agreement between China Direct Investments, Inc. and Sunwin International Neutraceuticals, Inc dated April 22, 2011.
	31.1	*	Section 302 Certificate of Chief Executive Officer
	31.2	*	Section 302 Certificate of Chief Financial Officer
	32	*	Section 906 Certificate of Chief Executive Officer and Chief Financial Officer
101.INS		**	XBRL INSTANCE DOCUMENT
101.SCH		**	XBRL TAXONOMY EXTENSION SCHEMA
101.CAL		**	XBRL TAXONOMY EXTENSION CALCULATION LINKBASE
101.DEF		**	XBRL TAXONOMY EXTENSION DEFINITION LINKBASE
101.LAB		**	XBRL TAXONOMY EXTENSION LABEL LINKBASE
101.PRE		**	XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE

* - Filed herewith.

** - In accordance with Regulation S-T, the XBRL-formatted interactive data files that comprise Exhibit 101 to this Quarterly Report on Form 10-Q/A shall be deemed “furnished” and not “filed”.

- 20 -

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	SUNWIN INTERNATIONAL NEUTRACEUTICALS, INC.


Dated: September 14, 2011	By: /s/ Dongdong Lin
	Dongdong Lin,
	Chief Executive Officer


Dated: September 14, 2011	By: /s/ Fanjun Wu
	Fanjun Wu,
	Chief Financial Officer

- 21 -