SUNWIN STEVIA INTERNATIONAL, INC. - Quarter Report: 2017 July (Form 10-Q)

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

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

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)

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

	Page
PART I-FINANCIAL INFORMATION
Item 1.    Financial Statements	1
Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.    Quantitative and Qualitative Disclosures About Market Risk	23
Item 4.    Controls and Procedures	23
PART II-OTHER INFORMATION
Item 1.    Legal Proceedings	24
Item 1A.  Risk Factors	24
Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds	24
Item 3.     Defaults Upon Senior Securities	24
Item 4.     Mine Safety Disclosures	24
Item 5.     Other Information	24
Item 6.     Exhibits	24

When used in this report, the terms:
	-		"Sunwin", "we", "us" and the "Company" refers to Sunwin Stevia International, Inc., a Nevada corporation formerly known as Sunwin Neutraceuticals International, Inc., 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;
	-		"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, 100% owned subsidiary;
	-		"Qufu Shengwang" refers to Qufu Shengwang Stevia Biology and Science Co., Ltd., a Chinese limited liability company. Qufu Natural Green owns a 100% 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,  Chairman and a principal shareholder of our company;
			"Qufu Shengwang Import and Export" refers to Qufu Shengwang Import and Export Co., Ltd., a Chinese limited liability company, controlled by Mr. Zhang;
	-		"Shandong Group" refers to Shandong Shengwang Group Co., Ltd., a Chinese limited liability company, controlled by Mr. Zhang; and
	-		Mr. Weidong Chai, a management member of Qufu Shengren Pharmaceutical Co., Ltd.

SUNWIN STEVIA INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
		July 31,				April 30,
		2017				2017
		(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	676,927			$	51,116
Accounts receivable, net of allowance for doubtful accounts of $1,253,697 and $1,182,632, respectively			2,657,917				2,243,621
Accounts receivable - related party			569,485				339,270
Inventories, net			9,972,601				8,816,473
Prepaid expenses and other current assets			2,362,924				4,729,865
Due from related party			487,734				-
Total Current Assets			16,727,588				16,180,345
Property and equipment, net			8,189,166				8,241,197
Intangible assets, net			27,096				108,390
Land use rights, net			1,888,901				1,855,055
Other long-term asset			553,733				856,878
Total Assets		$	27,386,484			$	27,241,865
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses		$	7,666,375			$	7,036,471
Short-term loans			4,475,229				4,366,389
Due to related parties			283,343				125,312
Total Current Liabilities			12,424,947				11,528,172
Long-term loans			2,972,784				2,900,484
Total Liabilities			15,397,731				14,428,656
STOCKHOLDERS' EQUITY:
Preferred stock, $0.001 par value; 1,000,000 shares authorized; no shares issued and outstanding			-				-
Common stock, $0.001 par value, 200,000,000 shares authorized; 199,632,803 and 199,632,803 shares issued and outstanding as of July 31, 2017 and April 30, 2017, respectively			199,633				199,633
Additional paid-in capital			37,681,279				37,681,279
Accumulated deficit			(30,219,984	)			(29,112,556	)
Accumulated other comprehensive income			4,327,825				4,044,853
Total Stockholders' Equity			11,988,753				12,813,209
Total Liabilities and Stockholders' Equity		$	27,386,484			$	27,241,865
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

SUNWIN STEVIA INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(UNAUDITED)
		For the Three Months Ended July 31,
		2017				2016
Revenues		$	3,675,766			$	2,874,779
Revenues - related party			121,556				1,513,738
Total revenues			3,797,322				4,388,517
Cost of revenues			3,363,604				3,764,523
Gross profit			433,718				623,994
Operating expenses:
Selling expenses			363,716				414,150
General and administrative expenses			970,905				981,778
Research and development expenses			186,326				39,059
Total operating expenses, net			1,520,947				1,434,987
Loss from operations			(1,087,229	)			(810,993	)
Other income (expenses):
Other income			97,100				59,160
Interest income			168				268
Interest expense - related party			(22,070	)			(25,645	)
Interest expense			(95,397	)			(55,957	)
Total other expenses			(20,199	)			(22,174	)
Loss before income taxes			(1,107,428	)			(833,167	)
Provision for income taxes			-				-
Net loss		$	(1, 107,428	)		$	(833,167	)
Comprehensive loss:
Net loss		$	(1, 107,428	)		$	(833,167	)
Foreign currency translation adjustment			282,972				(373,471	)
Total comprehensive loss		$	(824,456	)		$	(1,206,638	)
Net loss per common share:
Net loss per share - basic and diluted		$	(0.01	)		$	(0.01	)
Weighted average common shares outstanding - basic and diluted			199,632,803				182,066,546
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

SUNWIN STEVIA INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
		For the Three Months Ended July 31,
		2017				2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss		$	(1, 107,428	)		$	(833,167	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation expense			356,155				324,049
Amortization of intangible assets			81,294				81,293
Amortization of land use right			12,939				13,382
Stock issued for services			-				36,250
Stock issued for employees' compensation			306,668				306,668
Allowance for doubtful accounts			41,004				176,448
Loss from sales of real estate investment held for resale			-				2,425
Changes in operating assets and liabilities:
Accounts receivable and notes receivable			(438,545	)			(311,352	)
Accounts receivable - related party			(218,655	)			263,908
Inventories			(923,256	)			(1,291,021	)
Prepaid expenses and other current assets			2,464,101				(316,399	)
Accounts payable and accrued expenses			442,856				1,648,293
Taxes payable			(17,132	)			(127,724	)
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES			1,000,001				(26,947	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment			(65,586	)			(299,181	)
Proceeds from disposal of real estate investment			-				303,149
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES			(65,586	)			3,968
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from loans			-				60,630
Advance due from related parties			2,420,352				1,200,657
Repayment of related party advances			(2,738,473	)			(1,945,238	)
NET CASH USED IN FINANCING ACTIVITIES			(318,121	)			(683,951	)
EFFECT OF EXCHANGE RATE ON CASH			9,517				(18,229	)
NET INCREASE (DECREASE) IN CASH			625,811				(725,159	)
Cash at the beginning of period			51,116				900,071
Cash at the end of period		$	676,927			$	174,912
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash paid for income taxes		$	-			$	-
Cash paid for interest		$	18,694			$	25,645
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Property and equipments acquired on credit as payable		$	22,429			$	168,651
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

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.

		For Three Months Ended July 31,
		2017				2016
Numerator:
Net loss attributable to Sunwin Stevia International, Inc.		$	(1, 107,428	)		$	(833,167	)
Numerator for basic EPS, loss applicable to common stock holders		$	(1,107,428	)		$	(833,167	)
Denominator:
Denominator for basic earnings per share - weighted average number of common shares outstanding			199,632,803				182,066,546
Stock awards, options, and warrants			-				-
Denominator for diluted earnings per share - weighted average outstanding average number of common shares outstanding			199,632,803				182,066,546
Basic and diluted loss per common share:
Loss per share - basic and diluted		$	(0.01	)		$	(0.01	)

As of July 31, 2017	RMB 6.73 to $1.00
As of April 30, 2017	RMB 6.90 to $1.00
Three months ended July 31, 2017	RMB 6.82 to $1.00
Three months ended July 31, 2016	RMB 6.60 to $1.00

 

NOTE 3 - INVENTORIES

At July 31, 2017 and April 30, 2017, inventories consisted of the following:

  

		July 31, 2017				April 30, 2017
		(unaudited)
Raw materials		$	4,542,803			$	4,087,036
Work in process			2,204,035				1,802,782
Finished goods			3,392,876				3,089,703
			10,139,714				8,979,521
Less: reserve for obsolete inventory			(167,113	)			(163,048	)
		$	9,972,601			$	8,816,473

NOTE 4 - PROPERTY AND EQUIPMENT

At July 31, 2017 and April 30, 2017, property and equipment consisted of the following:

			July 31, 2017				April 30, 2017
	Estimated Life		(unaudited)
Office equipment	3-10 Years		$	72,180			$	67,091
Auto and trucks	2-10 Years			458,436				446,968
Manufacturing equipment	2-20 Years			5,305,413				5,109,816
Buildings	5-20 Years			8,905,805				8,136,080
Construction in process				300,664				815,471
				15,042,498				14,575,426
Less: accumulated depreciation				(6,853,332	)			(6,334,229	)
			$	8,189,166			$	8,241,197

For the three months ended July 31, 2017 and 2016, depreciation expense totaled $356,155 and $324,049, of which $283,105 and $252,239 were included in cost of revenues, respectively, and of which $73,050 and $71,810 were included in general and administrative expenses, respectively. Depreciation is not taken during the period of construction or equipment installation. Upon completion of the installation of manufacturing equipment or any construction in progress, construction in progress balances will be classified to their respective property and equipment category.

 

NOTE 5 - INTANGIBLE ASSETS

     On August 8, 2012 the Company entered into an Exchange Agreement with WILD Flavors pursuant to which it purchased its 45% membership interest in Sunwin USA for an aggregate consideration of approximately $1,625,874, which includes the issuance of 7,666,666 shares of our common stock valued at approximately $1,533,333 and a cash payment of $92,541. In connection with the Exchange Agreement, WILD Flavor granted, transferred and assigned to Sunwin USA all of its rights, title and interest, and the trade name Only Sweet, including any trademarks, trademark registrations and applications, service marks, service mark registrations and applications, copyrights, copyright registrations and applications, trade address, trade names (whether or not registered or by whatever name or designation), owned, applied for, or registered in the name of, the WILD Flavor (the "Only Sweet Name Rights"). Additionally, we entered into a new Distributorship Agreement with WILD Procurement which is an affiliate of WILD Flavors, as discussed in Note 1. The transaction closed on August 20, 2012. The tangible assets of Sunwin USA were reduced from $1,825,804 to $1,625,874 as a result of the application of U.S. GAAP which requires elimination of the difference between the purchase price of the 45% membership interest in Sunwin USA and cost basis of the intangible assets recorded by Sunwin USA. Intangible assets have a useful life of five years and consist of the cost of Only Sweet Name Rights and related technologies as well as the fair value of the Wild Flavors distribution Agreement. For the three months ended July 31, 2017 and 2016, amortization expense amounted to $81,294 and $81,293, respectively.  

  

 

Intangible assets consisted of the following:

			July 31, 2017				April 30, 2017
	Estimated Life		(unaudited)
Only Sweet name rights and related technologies	5 Years		$	587,183			$	587,183
Distribution agreement and related distribution channels	5 Years			1,038,691				1,038,691
				1,625,874				1,625,874
Less: accumulated amortization				(1,598,778	)			(1,517,484	)
Intangible assets, net			$	27,096			$	108,390

 

NOTE 6 - LAND USE RIGHTS

Land use right consisted of the following:

 

		July 31, 2017				April 30, 2017
	Estimated Life	(unaudited)
Land use right	45 Years		$	2,361,306			$	2,303,168
Less: accumulated amortization				(472,405	)			(448,113	)
			$	1,888,901			$	1,855,055

In conjunction with our acquisition of Qufu Shengwang, we acquired land use rights for properties located in the PRC until March 14, 2054. For the three month periods ended July 31, 2017 and 2016, amortization expense related to land use rights amounted to $12,939 and $13,382, respectively.

 

NOTE 7 - RELATED PARTY TRANSACTIONS

Accounts receivable - related party and revenue - related party

On July 31, 2017 and April 30, 2017, we reported $569,485 and $339,270 in accounts receivable - related party, respectively, related to sales of products to Qufu Shengwang Import and Export Co., Ltd. ("Qufu Shengwang Import and Export"), a Chinese entity owned by our Chairman, Mr. Laiwang Zhang. For the three months ended July 31, 2017 and 2016, we had revenue - related party of $121,556 and $1,513,738, respectively, from Qufu Shengwang Import and Export,

Due to (from) related parties

From time to time, we receive advances from related parties and advance funds to related parties for working capital purposes. In the three months ended July 31, 2017 and 2016, we received advances from related parties for working capital totaled $2,420,352 and $1,200,657, respectively, and we repaid to related parties a total of $2,738,473 and $1,945,238, respectively. In the three months ended July 31, 2017 and 2016, interest expense related to due to related parties amounted to $22,070 and $25,645, respectively, which were included in interest expense in the accompanying consolidated statements of operations and comprehensive loss, and in connection with the advances of $743,196 (RMB5,000,000) and $1,189,114 (RMB8,000,000) from Shangdong Shengwang Pharmaceutical Co., Ltd. ("Pharmaceutical Corporation"), a Chinese entity owned by our Chairman, Mr. Laiwang Zhang. These advances bear interest at the rate of 7.87% per annum and we have repaid one of the loan of RMB5,000,000 with its accrued interests on April 1, 2017. The other advances bear no interest and are payable on demand. On July 31, 2017, the balance we owed Qufu Shengwang Import Export and Mr. Weidong Chai, a management member of Qufu Shengren Pharmaceutical Co., Ltd., of $146,000 and $137,343, respectively, and the balance due from Pharmaceutical Corporation was $487,734, which was repaid of $490,509 before September 12, 2017. On April 30, 2017, the balance we owed Qufu Shengwang Import Export and Mr. Weidong Chai totaled $21,878 and $134,002, respectively, the balance due from Pharmaceutical Corporation was $30,568, which was repaid on July 28, 2017. On July 31, 2017 and April 30, 2017, due to (from) related party activities consisted of the following: 

 

		Shandong Shengwang Pharmaceutical Co., Ltd.				Qufu Shengwang Import and Export Co., Ltd.				Mr. Wedong Chai				Total
Balance due (from) to related parties, April 30, 2017		$	(30,568	)		$	21,878			$	134,002			$	125,312
Working capital advances from related parties			2,301,660				118,692				-				2,420,352
Repayments			(2,709,161	)			(29,312	)			-				(2,738,473	)
Effect of foreign currency exchange			(49,665	)			34,742				3,341				(11,582	)
Balance due (from) to related parties, July 31, 2017		$	(487,734	)		$	146,000			$	137,343			$	(204,391	)

  

NOTE 8 - PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets on July 31, 2017 and April 30, 2017 totaled $2,362,924 and $4,729,865, respectively. As of July 31, 2017, prepaid expenses and other current assets includes $919,854 prepayments to suppliers for merchandise that had not been shipped to us and services that had not been provided to us, $1,226,668 prepayment for employees' stock-based compensation and $216,402 for business related employees' advances. As of April 30, 2017, $3,286,808 prepayments to suppliers for merchandise that had not been shipped to us and services that had not been provided to us, $1,226,668 prepayment for employees' stock-based compensation for shares issued, and $216,389 for business related employees' advances.

On December 1, 2015, we entered into three year employment agreements with four employees. Pursuant to employment agreements, we issued a total of 23 million shares of the Company's common stock to them, valued at $3,680,000, as employees' stock-based compensations over three-year term of their employment from December 1, 2015 through November 30, 2018. We will amortize these compensations over three years from December 1, 2015 to November 30, 2018 and we recognized $306,667, $1,226,668 and $511,111 as stock-based compensation expenses during the first quarter of fiscal year 2018 , fiscal year 2017 and fiscal year 2016, respectively. We also have recorded the remaining balance of the stock-based compensation of $1,635,554 as prepaid compensation, of which $1,226,668 included in prepaid expenses and other current assets and $408,886 included in the other long-term asset in the accompanying consolidated balance sheet at July 31, 2017.

During the third quarter of fiscal 2013, Qufu Shengwang paid Qufu Public Auction Center (the "Center") $610,751 as deposit for renewing the land use right. The deposit is required for the Center to appraise the land use right, which we do not know when we can receive the remaining refund. We received a total refund of $465,904 as of July 31, 2017 and the remaining balance of $144,847 and $141,325 has been classified to other long-term asset at July 31, 2017 and April 30, 2017, respectively.

  

NOTE 9 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses included the following as of July 31, 2017 and April 30, 2017:

Account		July 31, 2017				April 30, 2017
		(unaudited)
Accounts payable		$	5,614,397			$	5,096,599
Advanced from customers			83,289				40,900
Accrued salary payable			73,883				160,244
Tax payable			106,772				121,127
Deferred revenue			95,904				82,581
Other payable*			1,692,130				1,535,020
Total accounts payable and accrued expenses		$	7,666,375			$	7,036,471

 

On July 31, 2017, other payables consists of commission payable of $113,858, general liability, worker's compensation, and medical insurance payable of $492,230, consulting fee payable of $273,504, union and education fees payable of $287,394, interest payables for short-term loans of $292,741, advanced from the employees of $230,035 and other miscellaneous payables of $2,368. On April 30, 2017, other payables consists of commission payable of $133,712, general liability, worker's compensation, and medical insurance payable of $465,505, consulting fee payable of $266,852, union and education fees payable of $280,404 , interest payables for short-term loans of $213,153, advanced from the employees of $172,435 and other miscellaneous payables of $2,959.

 

NOTE 10 -LOAN PAYABLE

Short-term loans obtained from various individual lenders that are due within one year for working capital purpose. These loans are unsecured and can be renewed with 10 days advance notice prior to maturity date. At July 31, 2017 and April 30, 2017, short-term loans consisted of the following:

		July 31, 2017				April 30, 2017
		(Unaudited)
Loan from Min Wu, an employee of Qufu Shengren, due on October 5, 2017, with an annual interest rate of 10% at October 6, 2016.		$	29,728			$	29,005
Multiple loans from Jianjun Yan, non-related individual, due on October 6, 2017, with an annual interest rate of 10% at October 7, 2016.			1,190,303				1,161,354
Multiple loans from Jianjun Yan, non-related individual, due on March 30, 2018, with annual interest rate of 4% at March 31, 2017.			1,486,392				1,450,242
Loan from Junzhen Zhang, non-related individual, due on October 5, 2017, with an annual interest rate of 10% at October 6, 2016.			22,296				21,754
Loan from Jian Chen, non-related individual, due on January 26, 2018 and April 10, 2018, bearing an annual interest rate of 10%, with the principle amount of RMB700,000 ($104,047) and RMB300,000 ($44,592)  at January 27, 2017 and April 11, 2017, respectively.			148,639				145,024
Loan from Qing Kong, non-related individual, due on March 6, 2018, with an annual interest rate of 10% at March 7, 2017.			65,401				63,811
Loan from Guihai Chen, non-related individual, due on March 10, 2018, with an annual interest rate of 10% at March 11, 2017.			16,350				15,953
Loan Weifeng Kong, non-related individual, due on November 28, 2017, with an annual interest rate of 10% at November 29, 2016.			29,728				29,004
Loan Shidong Wang, non-related individual, due on March 7, 2018, with an annual interest rate of 4% at March 8, 2017.			1,486,392				1,450,242
Total		$	4,475,229			$	4,366,389

 

 Long-term loan payable

Long-term loans payable obtained from various individual lenders that are due more than one year for working capital purpose. These loans are unsecured and can be renewed with one month advance notice prior to maturity date. At July 31, 2017 and April 30, 2017, long-term loans consisted of the following:

	July 31, 2017				April 30, 2017
	(Unaudited)
Loan Xuxu Gu, non-related individual, due on March 8, 2019, with an annual interest rate of 4% at March 9, 2017		$	1,486,392			$	1,450,242
Loan Dadong Mei, non-related individual, due on March 8, 2019, with an annual interest rate of 4% at March 9, 2017			1,486,392				1,450,242
Total:		$	2,972,784			$	2,900,484

 

For the three months ended July 31, 2017 and 2016, interest expense related to short-term loans and long-term loans amounted to $95,397 and $55,957, respectively, which were included in interest expense in the accompanying consolidated statements of operations and comprehensive loss.

NOTE 11 - SEGMENT INFORMATION

The following information is presented in accordance with ASC Topic 280, "Segment Reporting", for the three months ended July 31, 2017 and 2016; we operated in three reportable business segments - (1) natural sweetener (stevioside), (2) traditional Chinese medicines and (3) corporate and other. Our reportable segments are strategic business units that offer different products and are managed separately based on the fundamental differences in their operations. Condensed financial information with respect to these reportable business segments for the three months ended July 31, 2017 and 2016 is as follows:

 

		Three Months Ended July 31,
		2017				2016
Revenues:
Chinese medicine - third party		$	681,266			$	674,007
Chinese medicine - related party			-				-
Total Chinese medicine		$	681,266			$	674,007
Stevioside - third party			2,994,500				2,200,772
Stevioside - related party			121,556				1,513,738
Total Stevioside			3,116,056				3,714,510
Total segment and consolidated revenues		$	3,797,322			$	4,388,517
Interest income (expense):
Chinese medicine		$	163			$	54
Stevioside			(117,462	)			(81,388	)
Corporate and other			-				-
Total segment and consolidated interest expense		$	(117,299	)		$	(81,334	)
Depreciation and amortization:
Chinese medicine		$	67,782			$	75,193
Stevioside			382,606				343,531
Total segment and consolidated depreciation and amortization		$	450,388			$	418,724
Income (loss) before income taxes:
Chinese medicine		$	(75,716	)		$	41,649
Stevioside			(658,875	)			(458,799	)
Corporate and other			(372,837	)			(416,017	)
Total consolidated loss before income taxes		$	(1,107,428	)		$	(833,167	)

		July 31, 2017				April 30, 2017
Segment tangible assets:
Chinese medicine		$	1,316,524			$	1,319,227
Stevioside			6,872,642				6,921,970
Corporate and other							-
Total consolidated assets		$	8,189,166			$	8,241,197

 

NOTE 12 - CONCENTRATIONS AND CREDIT RISK

 

(i)    Customer Concentrations

 

For the three months ended July 31, 2017 and 2016, customers accounting for 10% or more of the Company's revenue were as follows:

 

	Net Sales
	For the three months ended July 31, 2017								For the three months ended July 31, 2016
	Chinese Medicine				Stevioside				Chinese Medicine				Stevioside
Qufu Shengwang Import and Export Trade Co., Ltd(1)			-				*				-				34.3	%
Shandong Yidatong Enterprises Co., Ltd			-				11.3	%			-				19.1	%
Total			-				11.3	%			-				53.4	%

 

(1)  Qufu Shengwang Import and Export Co., Ltd is a related party, an entity owned by Mr. Laiwang Zhang.

 *   This represents less than 10% of the Company's revenue for the fiscal year 2016.

(ii)    Vendor Concentrations

For the three months ended July 31, 2017 and 2016, suppliers accounting for 10% or more of the Company's purchase were as follows:

		Net Purchases
		For the three months ended July 31, 2017								For the three months ended July 31, 2016
		Chinese Medicine				Stevioside				Chinese Medicine				Stevioside
Dongtai Jintudi Stevia Co., Ltd			-				15.2	%			-				*
Dongtai Yandun Stevia Corp.			-				32.5	%			-				*
Dongtai Jiangrongfeng Stevia Corp.			-				*				-				26.1	%
Gansu Puhua Stevia Develop Co., Ltd			-				-				-				13.1	%
Zhucheng Haotian Pharmaceutical Co., Ltd			-				*				-				18.6	%
Total			-				47.7	%			-				57.8	%

 

(iii)    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 the PRC. At July 31, 2017, we had $656,592 of cash balance held in PRC banks, where there is no equivalent of federal deposit insurance as in the United States. As a result, cash held in PRC financial institutions is not insured. We have not experienced any losses in such accounts through July 31, 2017.

 

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.

NOTE 13 - SUBSEQUENT EVENTS

 

Our management has evaluated all activities subsequent to our balance sheet date through the issuance date of this report and concluded that no subsequent events have occurred that would require adjustments or disclosure to the accompanying unaudited condensed consolidated financial statements.

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 the preceding unaudited condensed consolidated financial statements and footnotes and our 2017 Annual Report on Form 10-K for fiscal year ended April 30, 2017.

 

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 production and distribution capabilities designed to meet the needs of our customers.

 

Our operations were organized in two operating segments related to our product lines:

 

	-		Stevioside, and
	-		Chinese Medicine.

 

Recent Developments

We are planning to start buildings a new facility with annual capacity of 500 metric tons in order to meet substantially increased demand for our high-grade stevia products. In fiscal 2017 and the first quarter of fiscal 2018, we have invested approximately $88,000 and $468,000, respectively, in this new facility. The new manufacturing facility is fully equipped with stainless steel equipment without any plastic while it has a fully automated system in order to prevent any potential contamination from operators and plastic. In addition, the new manufacturing facility uses the most advanced production equipment that is the first time to be used for stevia production in the industry, such as scraper with centrifuge and fluidized drying system.

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. 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.

Steviosin is a natural low calorie stevioside extract for medicinal use, containing rebaudioside A at 90% with the total steviol glycosides meeting or exceeding 95% on a dry weight basis. Steviosin is used as an alternative sweetener in the pharmaceutical production in China.

OnlySweet is an all natural, zero calorie, dietary supplement comprised of three natural ingredients, including stevioside.  Based on our strategy to develop new products 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.

Chinese Medicine Segment

In our Chinese medicine segment, we manufacture and sell approximately 152 different extracts, which can be divided into the following three general categories:

	-		single traditional Chinese medicine extracts;
	-		compound traditional Chinese medicine extracts; and
	-		purified extracts, including active parts and monomer compounds such as soy isoflavone.

OUR PERFORMANCE

 

 Our revenues totaled approximately $3,797,000 during the three months ended July 31, 2017, a decrease of 13.5%, as compared with the same period in 2016, while our gross margin decreased to 11.4% from 14.2%. Our total operating expenses in the three months ended July 31, 2017 increased by approximately $86,000, or 6.0% compared to the same period in 2016 primarily due to an increase of approximately $147,000, or 377.0% in research and development expenses, offset by a decrease of approximately $50,000, or 12.2% in selling expense and a decrease of approximately $11,000, or 1.1% in general and administrative expense. Our net loss for the three months ended July 31, 2017 was approximately $1,107,000, compared to $833,000 in the same period in 2016.

Our operating performance for the three months ended July 31, 2017 was primarily driven by an increase of 1.1% in sales revenue from our Chinese medicine segment, offset by a decrease of 16.1% in sales revenue from our stevia products in our Stevioside segment, including a decrease in sales to related parties of 92.0 % for their international customers.

While we have broadened our stevia product offerings to include a number of higher quality stevia grades needed in new product formulations we are developing to introduce to the U.S. and European food and beverage industry, the demand for higher grade stevia products has yet to materialize to the degree we had anticipated, and thus we hope that our sales volume in higher grade stevia products will increase in fiscal 2018 as the demands increase. Stevia has been widely accepted by the food industry and many new stevia manufacturers have entered this industry in the past few years, and recently we introduced a new product line. We are now focusing on new types of stevia products, including tablets, liquid, High A products, and others. We expect to consistently increase our sales of our new products; however we cannot quantify this increase and its effects on future periods.

 

The slightly increase in revenues in our Chinese medicine was primarily due to the increase of our unit sales price as the average market prices increased in this segment and the result of restructuring our Chinese medicine segment.

Our Outlook

We believe that there are significant opportunities for worldwide growth in our Stevioside segment, primarily in the U.S. and EU. For fiscal 2018 and beyond, we will continue to focus on our core business of producing and selling stevioside series products.

Some of the recent favorable observations related to the stevia markets in fiscal 2018 include:

	-	Chinese domestic food and beverages, particularly herbal tea manufacturers and the pharmaceutical industry, have increased the use of steviosides;
	-	Southeast and South Asia have renewed and increased their interest in stevia, particularly high grade stevia; and
	-	The marketing strategy to differentiate ourselves as a producer of higher quality stevia grades and product formulations through these collaboration efforts may lead to sustainable growth in stevia sales volume in the future.

Meanwhile, we are also facing challenges in competitive pricing and raw materials for fiscal 2018. During fiscal 2017, the market prices of stevioside products were impacted by strong price competition among Chinese manufacturers. We expect the pressure from pricing competition to continue in fiscal 2018. We anticipate the price of stevia leaves, the raw material used to produce our stevioside series products, to increase in fiscal 2018.

 

The following table summarizes our results from operations for the three month periods ended July 31, 2017 and 2016. The percentages represent each line item as a percent of revenues: 

For the Three Months ended July 31, 2017
		Chinese Medicine								Stevioside								Corporate and other				Consolidated
Total revenues		$	681,266				100.0	%		$	3,116,056				100.0	%		$	-			$	3,797,322				100.0	%
Cost of revenues			571,967				84.0	%			2,791,637				89.6	%			-				3,363,604				88.6	%
Gross profit			109,299				16.0	%			324,419				10.4	%			-				433,718				11.4	%
Research and development expenses			884				0.1	%			185,442				6.0	%			-				186,326				4.9	%
Other operating expenses			184,269				27.1	%			777,515				25.0	%			372,837				1,334,621				35.2	%
Other income (expenses)			139				0.0	%			(20,338	)			(0.7	)%			-				(20,199	)			(0.5	)%
Loss before income taxes		$	(75,715	)			(11.1	)%		$	(658,876	)			(21.1	)%		$	(372,837	)		$	(1,107,428	)			(29.2	)%

For the Three Months ended July 31, 2016
		Chinese Medicine								Stevioside								Corporate and other				Consolidated
Total revenues		$	674,007				100.0	%		$	3,714,511				100.0	%		$	-			$	4,388,518				100.0	%
Cost of revenues			435,647				64.6	%			3,328,876				89.6	%			-				3,764,523				85.8	%
Gross profit			238,360				35.4	%			385,635				10.4	%			-				623,995				14.2	%
Research and development expenses			-				-				39,059				1.0	%			-				39,059				0.9	%
Other operating expenses			196,756				29.2	%			783,155				21.1	%			416,017				1,395,928				31.8	%
Other income (expenses)			45				0.0	%			(22,218	)			(0.6	)%			-				(21,172	)			(0.5	)%
Income (loss) before income taxes		$	41,649				6.2	%		$	(458,799	)			(12.4	)%		$	(416,017	)		$	(833,167	)			(19.0	)%

Revenues

Total revenues in the three months ended July 31, 2017 decreased by approximately 13.5%, as compared to the same period in 2016. Stevioside revenues, which accounts for 82.1% and 84.6% of our total revenues in the three months ended July 31, 2017 and 2016, respectively, decreased by approximately 16.1%, while Chinese medicine revenues increased by approximately $7,000 or 1.1%.

Within our Stevioside segment, revenues from sales to third parties increased by 36.1% and sales to the related party decreased by 92.0% in the three months ended July 31, 2017, as compared to the same period in 2016. We have been trying to develop our domestic and international market, in the past three months, and we have increased dependence of our sales to domestic market. Revenues from the sales in the domestic clients increased from 46.6% to 85.5% of our total revenue in the three months ended July 31, 2017, as compared to the same period in 2016. Since we do not have the authorization to export products from China, we used to outsource all of our exporting business to a related party, Qufu Shengwang Import and Export, which has authorizations to export. We started to outsource our exporting business to Yi-Da Tong, which is a third party export agent since March 2016. Revenues from the sales in the international clients decreased from 53.4% to 14.5% of our total revenue in the three months ended July 31, 2017, as compared to the same period in 2016. In addition, newly launched products including A3-99 and enzyme treated stevia have been well accepted by the markets, especially in the U.S., where the adoption rate for stevia in food and beverage has been slower than expected, we produced 94 metric tons of stevioside for the three months ended July 31, 2017, as compared to 105 metric tons during the same period in 2016. We generated approximately $527,000 and $462,000 in revenue from producing over 7.3 metric tons and 5.9 metric tons of A3-99 and A3-98 in the three months ended July 31, 2017 and 2016, respectively.

Our unit sale price fluctuated from month to month in the three months ended July 31, 2017, which was mainly affected by the market environment; the average unit sale price is decreased by approximately 11.7% compare to the same period in 2016. Facing challenges in competitive pricing and raw materials for in the three months ended July 31, 2017, the market prices of stevioside products were impacted by strong price competition among Chinese manufacturers. We anticipate the price of stevia leaves, the raw material used to produce our stevioside series products, to increase in the near future.

We believe that the increase of sales in Chinese Medicine segment is primarily due to the sales quantity of approximately 97.9 metric tons, which increased by 6.8% (sales amount increased by only $7,259 or 1.1%) in the three months ended by July 31, 2017, as compared to the same period in 2016. We have more than 150 products in the Chinese Medicine segment, and their prices fluctuate depend on the market. We expect demand to increase in the future as we expand our client base, however, we are not able to quantify this future increase.

 

Cost of Revenues and Gross Margin

Cost of revenues in the three months ended July 31, 2017 decreased by 10.7%, compared to the same period in 2016. Cost of revenues as a percentage of revenues slightly increased from 85.8% to 88.6% during the three months ended 2017 and 2016. Gross margin in Stevioside segment remained stable at 10.4% for the three months ended by July 31, 2017, comparing the same period in 2016, which was primarily due to the improvements in efficiency of our production line to offset the higher raw material costs. Gross margin in Chinese Medicine segment was 16.0% in the three months ended July 31, 2017, a decrease as compared to the gross margin of 35.4% in the same period in 2016. The lower gross margin for Chinese Medicines was primarily due to high market competition with lower sales price and higher raw material costs for the low quality of raw materials received, causing an increase in purchase quantity in order to produce the same grade of products. We believe that the slower market for Chinese veterinary medicines seen in prior periods has stabilized and the market has improved. Since we purchase our raw materials on the spot market, we are unable to predict, with any degree of certainty, our raw material costs and their impact on our gross margin in future periods. Our consolidated gross margin for the three months ended by July 31, 2017 was 11.4%, as compared to 14.2% in the same period in 2016.   

Selling Expenses

For the three months ended July 31, 2017, we had a decrease of approximately $50,000, or 12.2% in selling expenses, as compared to the same period in 2016. The decrease was primarily due to the approximately $58,000 decrease in promotion expense, $15,000 decrease in shipping and freight, $6,000 decrease in commission, and $4,000 decrease in local taxes, offset by approximately $17,000 increase in advertising expenses, $6,000 increase in salary, $5,000 increase in office expense, and $5,000 increase in miscellaneous expense in the three months ended July 31, 2017.

General and Administrative Expenses

 

Our general and administrative expenses for the three months ended July 31, 2017 decreased by approximately $11,000, or 1.1% from the same period in 2016. The decrease was primarily due to a decrease of approximately $36,000 in stock based compensation for consulting services in connection with our common stock issued, $36,000 decrease in depreciation and amortization expenses since the disposition of property and equipment at the end of fiscal year 2017, $17,000 decrease in office expense, $22,000 decrease in salary and wage expenses, $13,000 decrease in product testing fee, and $6,000 decrease in travel expense, offset by $41,000 increase in bad debt expense, $56,000 increase in repairs and maintenance fee, and $22,000 increase in meals and entertainment expenses.

Research and Development Expense

For the three months ended July 31, 2017, our research and development expenses amounted to approximately $186,000, as compared to $39,000 for the same period in 2016. The increase of $147,000 was primarily due to the increase in spendings for third party technical consulting fees in the three months ended July 31, 2017.

 Other Income (Expenses)

For the three months ended July 31, 2017, other expense, net of other income, amounted to approximately $20,000, a decrease of $2,000 as compared to the other expense, net of other income, amounted to approximately $22,000 for the three months ended July 31, 2016. The decrease was primarily attributable to a decrease of interest expense – related party of $3,000 and an increase in other income of $38,000, offset by interest expense in the increased amount of approximately $39,000.

Net Loss

Net loss in the three months ended July 31, 2017 was approximately $1,107,000, compared to $833,000 in the three months ended July 31, 2016. The increase was primarily due to decrease in revenues, hence decrease in gross profit with higher operating expenses mainly from higher research and development expense.

 

Liquidity is the ability of a company to generate sufficient cash to meet its operational cash requirements.  

At July 31, 2017, we had working capital of $4,303,000, including cash of $677,000, as compared to working capital of $4,652,000 and cash of $51,000 at April 30, 2017. The approximate 626,000 increase in our cash at July 31, 2017 from April 30, 2017 is primarily attributable to net cash provided by operating activities, which offset from net cash used in investing activities in purchase of property and equipment to improve our productivity and net cash used in financing activities in repayment of related party advances. We believe that our existing cash and cash equivalents and internally generated funds will be sufficient to cover our working capital requirements and capital expenditures for the next twelve months.       

Accounts receivable, net of allowance for doubtful accounts, including accounts receivable from related parties, increased by approximately $645,000 during the three months ended July 31, 2017. The days for sales outstanding in accounts receivable increased to 70 days as of July 31, 2017, as compared to 20 days as of April 30, 2017. The days for sales outstanding in accounts receivable for third party sales increased to 61 days as of July 31, 2017, as compared to 15 days as of April 30, 2017.  We will reevaluate and categorize accounts receivable for sales and will target to improve our collection effort in accounts receivable for related party sales and accounts receivable for third party sales in fiscal 2018.

At July 31, 2017 inventories, net of reserve for obsolescence, totaled approximately $9,973,000, as compared to $8,816,000 as of April 30, 2017. The increase is primarily due to our increase in procurements of raw materials to meet our anticipated higher sales volume during the three months ended July 31, 2017. This inventory has not yet been sold due to the market demand not raising as much as we predicted, however the higher inventory balance will prepare us for our anticipated upcoming increase in demand.

Our accounts payable and accrued expenses were approximately $7,666,000 at July 31, 2017, an increase of approximately $630,000 from April 30, 2017. The increase is primarily due to in purchasing and the timing of payments for balances related to raw material purchases made in the ordinary course of business.

Loans payable at July 31, 2017 and April 30, 2017 totaled approximately $7,448,000 (RMB50,108,000) and $7,267,000 (RMB50,108,000), respectively. These loans payable consisted of short-term loans of approximately $4,475,000 (RMB30,108,000) and long-term loans of $2,973,000 (RMB20,000,000) from multiple non-related individuals, which bearing annual interest rates of 10% - 4%.  The maturity dates of the loans payable at July 31, 2017 range from October 5, 2017 to March 8, 2019.  During the three months ended July 31, 2017, the Company did not borrow additional short-term loan and long-term loan.

Cash Flows Analysis

 

NET CASH FLOW PROVIDED BY (USED IN) OPERATING ACTIVITIES:

Net cash provided by operating activities was approximately $1,000,000 during the three months ended July 31, 2017, as compared to net cash used in operating activities of $27,000 in the same period in 2016. The increase resulting from cash provided by operating activities was primarily due to depreciation and amortization expenses of approximately $450,000, allowance for doubtful accounts of $41,000, stock issued for employees' compensation of $307,000, $2,464,000 decrease in prepaid expense and other current assets, and $443,000 increase in accounts payable and accrued expenses, offset by net loss of approximately $1,107,000, $923,000 increase in inventories, $439,000 increase in accounts receivable, $218,000 increase in accounts receivable-related party, and $17,000 decrease in taxes payables.

Net cash used in operating activities was approximately $27,000 during the three months ended July 31, 2016, as compared to net cash provided by operating activities of $911,000 in the same period in 2015. The decrease resulting from cash provided by operating activities was primarily due to depreciation and amortization expenses of approximately $419,000, allowance for doubtful accounts of $176,000, stock issued for services of $36,000, stock issued for employees' compensation of $307,000, $264,000 decrease in accounts receivable-related party, $1,648,000 increase in accounts payable and accrued expenses, offset by net loss of approximately $833,000, $1,291,000 increase in inventories, $311,000 increase in accounts receivable, $316,000 increase in prepaid expense and other current assets and $128,000 decrease in taxes payables.

 

NET CASH FLOW (USED IN) PROVIDED BY INVESTING ACTIVITIES:

Net cash used in investing activities amounted to approximately $66,000 during the three months ended July 31, 2017 due to capital expenditures for property and equipment.

Net cash provided by investing activities amounted to approximately $4,000 during the three months ended July 31, 2016 due to proceeds from sales / disposal of real estate investments of approximately $303,000, offset by $299,000 capital expenditures for property and equipment.

NET CASH FLOW USED IN FINANCING ACTIVITIES:

Net cash used in financing activities amounted to approximately $318,000 in the three months ended July 31, 2017, primarily due to repayments made to related party advances, net of proceed received from related party advances. During the three months ended July 31, 2017, from time to time, we made repayments of related party advances approximately $2,738,000 for working capital purposes and we also received advances from related parties totaling of approximately $2,420,000.

Net cash used in financing activities amounted to approximately $684,000 in the three months ended July 31, 2016, primarily due to proceeds from short-term loan of approximately $61,000 and repayments made to related party advances, net of proceed received from related party advances. During the three months ended July 31, 2016, from time to time, we received advances from related parties totaling approximately $1,201,000 for working capital purposes and we also made repayments to related parties of approximately $1,945,000.

CASH ALLOCATION BY COUNTRIES

The functional currency of our Chinese subsidiaries is the Chinese 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, 2017.

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 follow:

		July 31, 2017				April 30, 2017
		(Unaudited)
China		$	656,592			$	30,781
United States			20,335				20,335
Total		$	676,927			$	51,116

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 as 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 U.S. ("U.S. GAAP").

 

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 2 to our unaudited condensed consolidated 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.  

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable to 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 ("CEO"), and our Chief Financial Officer ("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, 2017.  

Based on this evaluation our management concluded that our disclosure controls and procedures were not effective as of July 31, 2017 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.

 

Management's Report on Internal Control over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act. Our management is also required to assess and report on the effectiveness of our internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 ("Section 404"). As reported in our Form 10-K for the year ended April 30, 2017, management assessed the effectiveness of our internal control over financial reporting as of April 30, 2017 and, during our assessment, management identified significant deficiencies related to (i) the U.S. GAAP expertise of our internal accounting staff, (ii) our internal audit functions and (iii) a lack of segregation of duties within accounting functions. Although management believes that these deficiencies do not amount to a material weakness, our internal controls over financial reporting were not effective at April 30, 2017.

Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. As a result, we have not been able to take steps to improve our internal controls over financial reporting during the three months ended July 31, 2017. However, to the extent possible, we will implement procedures to assure that the initiation of transactions, the custody of assets and the recording of transactions will be performed by separate individuals.

A material weakness (within the meaning of PCAOB Auditing Standard No. 5) is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of the company's financial reporting.

 

In light of this significant deficiency, we performed additional analyses and procedures in order to conclude that our consolidated financial statements for the three months ended July 31, 2017 included in this quarterly report on Form 10-Q were fairly stated in accordance with the U.S. GAAP. Accordingly, management believes that despite our significant deficiency, our consolidated financial statements for the three months ended July 31, 2017 are fairly stated, in all material respects, in accordance with the U.S. GAAP.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting identified in connection with the evaluation of our controls performed during the quarter ended July 31, 2017 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 2017 Annual Report on Form 10-K. There has been no material change in our risk factors from those previously discussed in the fiscal 2017Annual 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.  MINE SAFETY DISCLOSURE.

 

None.

 

ITEM 5. OTHER INFORMATION.

 

None.

 

ITEM 6.  EXHIBITS

 

Exhibit No.		Description of Exhibit
31.1		Section 302 Certificate of Chief Executive Officer.*
31.2		Section 302 Certificate of Chief Financial Officer.*
32.1		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".

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 STEVIA INTERNATIONAL, INC.
Dated: September 14, 2017	By: /s/ Dongdong Lin
	Dongdong Lin,
	Chief Executive Officer
Dated: September 14, 2017	By: /s/ Fanjun Wu
	Fanjun Wu,
	Chief Financial Officer