SUNWIN STEVIA INTERNATIONAL, INC. - Quarter Report: 2019 July (Form 10-Q)
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 period ended July 31, 2019
or
[ ] 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 STEVIA INTERNATIONAL, 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)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
|
Trading Symbol (s)
|
Name of each exchange on which registered
|
None
|
SUWN
|
Not applicable
|
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]
|
Emerging growth company [ ]
|
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the
Securities Act. ☐
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 16, 2019, there were 199,632,803 shares of the registrant's common stock issued and outstanding.
SUNWIN STEVIA INTERNATIONAL, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTERLY PERIOD ENDED JULY 31, 2019
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
|
20
|
|
|
Item 3. Quantitative and Qualitative Disclosures About Market Risk
|
28
|
|
|
Item 4. Controls and Procedures
|
28
|
|
|
PART II-OTHER INFORMATION
|
|
Item 1. Legal Proceedings
|
29
|
|
|
Item 1A. Risk Factors
|
29
|
|
|
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
|
29
|
|
|
Item 3. Defaults Upon Senior Securities
|
29
|
|
|
Item 4. Mine Safety Disclosures
|
29
|
|
|
Item 5. Other Information
|
29
|
|
|
Item 6. Exhibits
|
29
|
FORWARD LOOKING STATEMENTS
This report contains forward-looking statements regarding our business, financial condition, results of operations and prospects. Words such as "expects,"
"anticipates," "intends," "plans," "believes," "seeks," "estimates" and similar expressions or variations of such words are intended to identify forward-looking statements, but are not deemed to represent an all-inclusive means of identifying
forward-looking statements as denoted in this report. Additionally, statements concerning future matters are forward-looking statements.
Although forward-looking statements in this report reflect the good faith judgment of our management, such statements can only be based on facts and factors
currently known by us. Consequently, forward-looking statements are inherently subject to risks and uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed in or anticipated by the
forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include, without limitation, those specifically addressed under the headings "Risks Factors" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" in our annual report on Form 10-K, in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this Form 10-Q and information contained in other reports that we
file with the SEC. You are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this report.
We file reports with the SEC. The SEC maintains a website (www.sec.gov) that contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC, including us. You can also read and copy any materials we file with the SEC at the SEC's Public Reference Room at 100 F Street, NE, Washington, DC 20549. You can obtain additional
information about the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
We undertake no obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date
of this report, except as required by law. Readers are urged to carefully review and consider the various disclosures made throughout the entirety of this quarterly report, which are designed to advise interested parties of the risks and factors
that may affect our business, financial condition, results of operations and prospects.
i
INDEX OF CERTAIN DEFINED TERMS USED IN THIS REPORT
We are on a fiscal year ending April 30, as such the year ending April 30, 2020 is referred to as "fiscal 2020" and the year ended April 30, 2019 is referred to as "fiscal 2019". Also, the three
month period ended July 31, 2019 is our first quarter and is referred to as the "first quarter of fiscal 2020". Likewise, the three month period ended July 31, 2018 is referred to as the "first quarter of fiscal 2019".
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, which was closed on April 30, 2018 and all of its assets and liabilities were transferred to the Company;
|
|
-
|
|
"Qufu Natural Green" refers to our wholly owned subsidiary Qufu Natural Green Engineering Co., Ltd., a Chinese limited liability company;
|
|
-
|
|
"Sunwin USA" refers to Sunwin USA, LLC, a Delaware limited liability company, a 100% owned subsidiary of Sunwin. Sunwin USA was previously Sunwin Stevia International Corp., a Florida corporation, it was
converted to Sunwin USA in May 2009;
|
|
-
|
|
"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. On July 30, 2019, Qufu Natural
Green sold its 100% interest of Qufu Shengwang to a third party; 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:
|
|||
|
-
|
|
Mr. Laiwang Zhang, Chairman and a principal shareholder of our company;
|
|
-
|
|
"Pharmaceutical Corporation" refers to Shandong Shengwang Pharmaceutical Co., Ltd., a Chinese limited liability company which is controlled by Mr. Laiwang Zhang;
|
|
-
|
|
"Qufu Shengwang Import and Export" refers to Qufu Shengwang Import and Export Co., Ltd., a Chinese limited liability company, controlled by Mr. Zhang; and
|
|
-
|
|
Mr. Weidong Chai, a management member of Qufu Shengren Pharmaceutical Co., Ltd.
|
The information which appears on our website at www.sunwininternational.com is not part of this report.
ii
PART I - FINANCIAL INFORMATION
SUNWIN STEVIA INTERNATIONAL, INC. AND SUBSIDIARIES
|
||||||||
CONDENSED CONSOLIDATED BALANCE SHEETS
|
||||||||
|
July 31,
2019
|
April 30,
2019
|
||||||
|
(Unaudited)
|
|||||||
ASSETS
|
||||||||
CURRENT ASSETS:
|
||||||||
Cash and cash equivalents
|
$
|
785,383
|
$
|
294,199
|
||||
Accounts receivable, net of allowance for doubtful accounts of $76,475 and $78,159, respectively
|
3,296,157
|
2,985,166
|
||||||
Accounts receivable - related party
|
2,514,069
|
2,477,659
|
||||||
Inventories, net
|
12,668,205
|
11,991,956
|
||||||
Prepaid expenses and other current assets
|
2,318,291
|
1,676,347
|
||||||
Current assets held for sale
|
-
|
4,143,059
|
||||||
Total Current Assets
|
21,582,105
|
23,568,386
|
||||||
|
||||||||
Property and equipment, net
|
9,231,104
|
8,993,397
|
||||||
Non-current assets held for sale
|
-
|
2,925,706
|
||||||
Total Assets
|
$
|
30,813,209
|
$
|
35,487,489
|
||||
|
||||||||
LIABILITIES AND STOCKHOLDERS' EQUITY
|
||||||||
CURRENT LIABILITIES:
|
||||||||
Accounts payable and accrued expenses
|
$
|
9,427,209
|
$
|
7,680,049
|
||||
Short-term loans
|
9,174,683
|
6,079,983
|
||||||
Due to related parties
|
5,999,150
|
6,408,521
|
||||||
Current liabilities held for sale
|
-
|
988,748
|
||||||
Total Current Liabilities
|
24,601,042
|
21,157,301
|
||||||
|
||||||||
Long-term loans
|
2,789,806
|
9,845,706
|
||||||
Liabilities held for sale, non-current
|
-
|
947,445
|
||||||
Total Liabilities
|
27,390,848
|
31,950,452
|
||||||
|
||||||||
Commitments and Contingencies
|
||||||||
|
||||||||
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, 2019 and April 30, 2019, respectively
|
199,633
|
199,633
|
||||||
Additional paid-in capital
|
37,681,279
|
37,681,279
|
||||||
Accumulated deficit
|
(39,118,946
|
)
|
(38,735,711
|
)
|
||||
Accumulated other comprehensive income
|
4,660,395
|
4,391,836
|
||||||
Total Stockholders' Equity
|
3,422,361
|
3,537,037
|
||||||
Total Liabilities and Stockholders' Equity
|
$
|
30,813,209
|
$
|
35,487,489
|
||||
|
||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
|
- 1 -
SUNWIN STEVIA INTERNATIONAL, INC. AND SUBSIDIARIES
|
||||||||
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
|
||||||||
(UNAUDITED)
|
||||||||
For the Three Months Ended July 31,
|
||||||||
2019
|
2018
|
|||||||
Revenues
|
$
|
5,106,182
|
$
|
3,597,580
|
||||
Revenues - related parties
|
1,783,893
|
1,399,580
|
||||||
Total revenues
|
6,890,075
|
4,997,160
|
||||||
Cost of revenues
|
4,120,629
|
3,218,099
|
||||||
Cost of revenues - related parties
|
1,648,239
|
1,214,610
|
||||||
Total cost of revenues
|
5,768,868
|
4,432,709
|
||||||
Gross profit
|
1,121,207
|
564,451
|
||||||
Operating expenses:
|
||||||||
Selling expenses
|
374,432
|
487,655
|
||||||
General and administrative expenses
|
402,362
|
761,832
|
||||||
Research and development expenses
|
306,551
|
231,766
|
||||||
Total operating expenses, net
|
1,083,345
|
1,481,253
|
||||||
Income (loss) from operations
|
37,862
|
(916,802
|
)
|
|||||
Other (expenses) income
|
||||||||
Other expenses
|
(1,759
|
)
|
(746
|
)
|
||||
Grant income
|
14,537
|
-
|
||||||
Interest income
|
84
|
75
|
||||||
Interest expense - related party
|
(35,741
|
)
|
(35,718
|
)
|
||||
Interest expense
|
(144,787
|
)
|
(149,351
|
)
|
||||
Total other expense
|
(167,666
|
)
|
(185,740
|
)
|
||||
Loss from continuing operations before income taxes
|
(129,804
|
)
|
(1,102,542
|
)
|
||||
Provision for income taxes
|
-
|
-
|
||||||
Net loss from continuing operations
|
$
|
(129,804
|
)
|
$
|
(1,102,542
|
)
|
||
Discontinued operations
|
||||||||
Loss from discontinued operations, net of income tax
|
(20,016
|
)
|
(87,795
|
)
|
||||
Loss from disposal of discontinued operations
|
(233,415
|
)
|
-
|
|||||
Loss from discontinued operations, net of income tax
|
(253,431
|
)
|
(87,795
|
)
|
||||
Net loss
|
$
|
(383,235
|
)
|
$
|
(1,190,337
|
)
|
||
Comprehensive loss:
|
||||||||
Net loss
|
$
|
(383,235
|
)
|
$
|
(1,190,337
|
)
|
||
Foreign currency translation adjustment
|
268,559
|
(637,216
|
)
|
|||||
Total comprehensive loss
|
$
|
(114,676
|
)
|
$
|
(1,827,553
|
)
|
||
Earnings per common share:
|
||||||||
Continuing operations - basic and diluted
|
$
|
(0.00
|
)
|
$
|
(0.01
|
)
|
||
Discontinued operations - basic and diluted
|
(0.00
|
)
|
(0.00
|
)
|
||||
Net loss per common share - basic and diluted
|
$
|
(0.00
|
)
|
$
|
(0.01
|
)
|
||
Weighted average common shares outstanding - basic and diluted
|
199,632,803
|
199,632,803
|
||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
|
||||||||
- 2 -
SUNWIN STEVIA INTERNATIONAL, INC. AND SUBSIDIARIES
|
||||||||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
||||||||
(UNAUDITED)
|
||||||||
For the Three Months Ended July 31,
|
||||||||
2019
|
2018
|
|||||||
CASH FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
Net loss
|
$
|
(383,235
|
)
|
$
|
(1,190,337
|
)
|
||
Loss from discontinued operations
|
(253,431
|
)
|
(87,795
|
)
|
||||
Net loss from continuing operations
|
(129,804
|
)
|
(1,102,542
|
)
|
||||
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
|
||||||||
Depreciation expense
|
270,988
|
269,996
|
||||||
Loss on disposition of property and equipment
|
20,076
|
-
|
||||||
Stock issued for employees' compensation
|
-
|
306,667
|
||||||
Changes in operating assets and liabilities:
|
||||||||
Accounts receivable and notes receivable
|
(233,798
|
)
|
493,203
|
|||||
Accounts receivable - related party
|
(89,839
|
)
|
(191,638
|
)
|
||||
Inventories
|
(935,078
|
)
|
(839,235
|
)
|
||||
Prepaid expenses and other current assets
|
(820,060
|
)
|
(2,234,101
|
)
|
||||
Accounts payable and accrued expenses
|
2,651,845
|
(1,660,597
|
)
|
|||||
Taxes payable
|
(23,053
|
)
|
(111,364
|
)
|
||||
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES FROM CONTINUING OPERATIONS
|
711,277
|
(5,069,611
|
)
|
|||||
NET CASH PROVIDED BY DISCONTINUED OPERATING ACTIVITIES FROM DISCONTINUED OPERATIOIN
|
3,621,113
|
818,781
|
||||||
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
|
4,332,391
|
(4,250,830
|
)
|
|||||
CASH FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
Proceed from disposal of discontinued operations
|
726,839
|
-
|
||||||
Purchases of property and equipment
|
(665,210
|
)
|
(633,992
|
)
|
||||
Proceed from disposal of equipment
|
5,815
|
-
|
||||||
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES FROM CONTINUING OPERATIONS
|
67,444
|
(633,992
|
)
|
|||||
NET CASH USED IN INVESTING ACTIVITIES FROM DISCONTINUED OPERATIOIN
|
-
|
(767
|
)
|
|||||
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
|
67,444
|
(634,759
|
)
|
|||||
CASH FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
Proceeds from loans
|
-
|
5,045,780
|
||||||
Repayment of short term loans
|
-
|
(245,387
|
)
|
|||||
Advance from related parties
|
663,686
|
1,312,916
|
||||||
Repayment of related party advances
|
(947,046
|
)
|
(682,451
|
)
|
||||
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES FROM CONTINUING OPERATIONS
|
(283,360
|
)
|
5,430,858
|
|||||
NET CASH USED IN FINANCING ACTIVITIES FROM DISCONTINUED OPERATIOIN
|
(3,621,113
|
)
|
(453,906
|
)
|
||||
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES
|
(3,904,473
|
)
|
4,976,952
|
|||||
EFFECT OF EXCHANGE RATE ON CASH
|
(4,177
|
)
|
(5,064
|
)
|
||||
NET INCREASE IN CASH
|
491,184
|
86,299
|
||||||
Cash at the beginning of period
|
294,199
|
75,917
|
||||||
Cash at the end of period
|
785,383
|
162,216
|
||||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
|
||||||||
Cash paid for income taxes
|
$
|
-
|
$
|
-
|
||||
Cash paid for interest
|
$
|
31,329
|
$
|
31,789
|
||||
NON-CASH INVESTING AND FINANCING ACTIVITIES:
|
||||||||
Property and equipments acquired on credit as payable
|
$
|
74,989
|
$
|
333,596
|
||||
Accrued interest payable to related party
|
$
|
27,978
|
$
|
25,619
|
- 3 -
SUNWIN STEVIA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2019
NOTE 1 - ORGANIZATION AND OPERATIONS
DESCRIPTION OF BUSINESS
Sunwin Stevia International, Inc. ("Sunwin Stevia International"), a Nevada corporation, and its subsidiaries are referred to in this report as "we", "us", "our", "Sunwin" or the "Company".
We sell stevioside, a natural sweetener, and other pharmaceutical productions. 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 product lines:
|
-
|
|
Stevioside; and
|
|
-
|
|
Corporate and other.
|
For the three months ended July 31, 2019 and fiscal year 2019, our subsidiaries included in continuing operations and discontinued operations consisted of the following:
- Sunwin Stevia International;
- Qufu Natural Green Engineering Co., Ltd. ("Qufu Natural Green"), wholly owned by Sunwin Stevia International;
- Qufu Shengren Pharmaceutical Co., Ltd. ("Qufu Shengren"), wholly owned by Qufu Natural Green;
- Qufu Shengwang Stevia Biology and Science Co., Ltd. ("Qufu Shengwang"), wholly owned by Qufu Natural Green; and
- Sunwin USA, LLC ("Sunwin USA"), wholly owned by Sunwin Stevia International.
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 99.
Since fiscal 2018 we invested in a new production line for Metformin as one of the new product markets we intend to branch into. Metformin is the raw material of Metformin hydrochloride tablets.
Metformin is the first-line medication for the treatment of type 2 diabetes, particularly in people who are not satisfied with simple diet control, especially those with obesity and hyperinsulinemia. This drug not only has a hypoglycemic effect, but
also may have the effect of reducing body weight and hyperinsulinemia. It can be effective in patients with poor efficacy of certain sulfonylureas, such as sulfonylureas, intestinal glycosidase inhibitors or thiazolidinedione hypoglycemic agents,
which are more effective than single use. It can also be used in patients with insulin therapy to reduce insulin consumption.
Sunwin USA
In fiscal year 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 August 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 $1,625,874, which includes the issuance of 7,666,666 shares of our common stock valued at $1,533,333 and a cash payment of $92,541, the purchased included the product development and supply chain for
OnlySweet.
- 4 -
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 represented 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 - based fertilizers and feed additives.
On September 30, 2011, Qufu Shengwang purchased the 40% equity interest in Qufu Shengwang owned by our Korean partner, Korea Stevia Company, Limited, for $626,125 in cash, and as a result of this
repurchase transaction we now own 100% equity interest in all of the net assets of our subsidiary Qufu Shengwang. Therefore, the non-controlling interest of $2,109,028 in our balance sheet as of April 30, 2012 has been eliminated to reflect our 100%
interest in Qufu Shengwang.
On July 1, 2012, Qufu Shengwang entered into a Cooperation Agreement with Hegeng (Beijing) Organic Farm Technology Co, Ltd. ("Hegeng"), a Chinese manufacturer and distributor of bio-fertilizers and
pesticides, to jointly develop bio-bacterial fertilizers based on the residues from our stevia extraction. Under the Cooperation Agreement, Hegeng provides strain and formula that we apply to the stevia residues to produce bio-bacterial fertilizers
in the current facility of Qufu Shengwang. The bio-bacterial fertilizers will be distributed under Qufu Shengwang's name. No additional investment in the facility would be required. During the third quarter of fiscal year 2014, we decided to suspend
the agreement with Hegeng due to a lack of sales since the reaction to the products was lower than anticipated in fertilizer market.
On July 30, 2019, Qufu Shengwang was sold to an unaffiliated individual (see Note 3).
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements include the accounts of Sunwin and all our wholly-owned subsidiaries and 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 unaudited condensed
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. All intercompany accounts and transactions have
been eliminated in consolidation.
These unaudited condensed consolidated interim financial statements should be read in conjunction with the financial statements and footnotes for the year ended April 30, 2019 included in our Form
10-K as filed with the SEC. The results of operations and cash flows for the three months ended July 31, 2019 are not necessarily indicative of the results of operations or cash flows which may be reported for future periods or the full fiscal year.
The condensed consolidated balance sheet as of April 30, 2019 contained herein has been derived from the audited consolidated financial statements as of April 30, 2019, but do not include all
disclosures required by the U.S. GAAP.
Our unaudited condensed consolidated financial statements include the accounts of Sunwin and all our wholly-owned subsidiaries included in continuing operations and discontinued operations. All
intercompany accounts and transactions have been eliminated in consolidation. Qufu Shengwang is the subsidiary of discontinued operations and our subsidiaries for continuing operations include the following:
- Qufu Natural Green;
- Qufu Shengren; and
- Sunwin USA
- 5 -
USE OF ESTIMATES
The preparation of unaudited condensed consolidated 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 the disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates
include the allowance for doubtful accounts, the allowance for obsolete inventory, the useful life of property and equipment and intangible assets, assumptions used in assessing impairment of long-term assets and valuation of deferred tax assets, and
the value of stock-based compensation. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
We consider all highly liquid investments with maturities of three months or less at the time of purchase to be cash and equivalents. As of July 31, 2019, we held $684,127 of our cash and cash
equivalents with commercial banking institutions in the PRC, and $101,256 with banks in the United States. As of April 30, 2019, we held $294,199 of our cash and cash equivalents with commercial banking institution in PRC, and $88,506 in the United
States. In China, there is no equivalent federal deposit insurance as in the United States, so the amounts held in banks in China are not insured. We have not experienced any losses in such bank accounts through July 31, 2019.
ACCOUNTS RECEIVABLE
Accounts receivable and other 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 after exhaustive efforts on collection. As of July 31, 2019 and April 30, 2019, the allowance for
doubtful accounts was $76,475 and $78,159, respectively.
INVENTORIES
Inventories, consisting of raw materials, work in process, and finished goods related to our products, are stated at the lower of cost and net realizable value that can be estimated utilizing the
weighted average method. A reserve is established when management determines that certain slow-moving inventories may be sold at below book value. These reserves are recorded based on estimates. If inventory costs exceed expected market value due to
obsolescence or quantities in excess of expected demand, the Company will record reserves for the difference between the cost or estimated net realizable value. As of July 31, 2019 and April 30, 2019, the Company did not record a reserve for obsolete
or slow-moving inventories. If inventory costs exceed expected market value due to obsolescence or quantities in excess of expected demand, the Company will record a write down of inventories for the difference between the lower of cost or estimated
net realizable value. As of July 31, 2019 and April 30, 2019, the Company wrote down inventories in the amount of $0 and $999,548, respectively.
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 three 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 Financial Accounting Standards Board (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.
Included in property and equipment is construction-in-progress which consisted of factory improvements and machinery
pending installation and included the costs of construction, machinery and equipment, and or any interest charges arising from borrowings used to finance these assets during the period of construction or installation of the assets if applicable. No
provision for depreciation is made on construction-in-progress until such time as the relevant assets are completed and ready for their intended use.
- 6 -
LONG-LIVED ASSETS
In accordance with ASC 360, we review and evaluate our long-lived assets, including property and equipment, intangible assets, and land use rights, for impairment or 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. Our 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. Based on our
evaluation, we have determined certain long-lived assets that are no longer useful for our operations, and we recorded a loss on disposition of property and equipment of $20,076 and $0 at July 31, 2019 and April 30, 2019, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
We 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, notes 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.
TAXES PAYABLE
We are required to charge for and to collect value added taxes (VAT) on our sales on behalf of the PRC tax authority. We record VAT that we billed our customers as VAT payable. In addition, we are
required to pay value added taxes on our primary purchases. We record VAT that is charged by our vendors as VAT receivable. We are required to file VAT return on a monthly basis with the PRC tax authority, in which we are entitled to claim the VAT
that we charged by vendors as VAT credit and these credits can be applied to our VAT payable that we billed our customers. Accordingly, these VAT payable and receivable are presented as net amounts for financial statement purposes. Taxes payable as
of July 31, 2019 and April 30, 2019 amounted to $100,099 and $125,854, respectively, consisted primarily of VAT taxes.
REVENUE RECOGNITION
Pursuant to the guidance of ASC 606, we record revenue when persuasive evidence of an arrangement exists, product delivery has occurred, the sales price to the customer is fixed or determinable, and
collectability is reasonably assured. The adoption of this guidance did not have a material impact on our condensed consolidated financial statements.
- 7 -
In accordance with ASC 606, we recognize revenues from the sale of stevia and other productions upon shipment and transfer of title based on the trade terms. All product sales with customer specific
acceptance provisions are recognized upon customer acceptance and the delivery of the products. We report revenues net of applicable sales taxes and related surcharges.
GRANT INCOME
Grants received from PRC government agencies are recognized as deferred grant income and recognized in the condensed consolidated statements of operations and comprehensive loss as and when they are
earned for the specific research and development projects for which these grants are designated for.
INCOME TAXES
The Company has adopted Accounting Standards Codification subtopic 740-10, Income Taxes ("ASC 740-10") which requires the recognition of deferred tax
liabilities and assets for the expected future tax consequences of events that have been included in the financial statement or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between
financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Valuation allowances are recorded to reduce the deferred tax assets to an amount that it
is more likely than not be realized.
We file federal and state income tax returns in the United States for our corporate operations pursuant to the U.S. Internal Revenue Code of 1986, as amended, and file separate foreign tax returns
for our Chinese subsidiaries pursuant to the China's Unified Corporate Income Tax Law.
We apply the provisions of ASC 740-10-50, "Accounting for Uncertainty in Income Taxes", which provides clarification related to the process associated with accounting for uncertain tax positions
recognized in our consolidated financial statements. Audit periods remain open for review until the statute of limitations has passed. The completion of review or the expiration of the statute of limitations for a given audit period could result in
an adjustment to the Company's liability for income taxes. Any such adjustment could be material to the Company's results of operations for any given quarterly or annual period based, in part, upon the results of operations for the given period. As
of July 31, 2019, the Company had no uncertain tax positions, and will continue to evaluate for uncertain positions in the future.
BASIC AND DILUTED EARNINGS PER SHARE
Pursuant to ASC Section 260-10-45, basic loss per common share is computed by dividing loss available to common shareholders by the weighted average number of shares of common stock outstanding for
the periods presented. Diluted 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 ours, subject to anti-dilution limitations. The following table presents a reconciliation of basic and diluted net income per common share:
- 8 -
|
For Three Months Ended July 31,
|
|||||||
|
2019
|
2018
|
||||||
Numerator:
|
||||||||
Net Loss for basic and diluted attributable to common shareholders
|
$
|
(383,235
|
)
|
$
|
(1,190,337
|
)
|
||
Net loss from continuing operations
|
$
|
(129,804
|
)
|
$
|
(1,102,542
|
)
|
||
Net loss from discontinued operation
|
(253,431
|
)
|
(87,795
|
)
|
||||
Denominator:
|
||||||||
Denominator for basic earnings per share - weighted average number of common shares outstanding
|
199,632,803
|
199,632,803
|
||||||
Stock awards, options, and warrants
|
-
|
-
|
||||||
Denominator for diluted earnings per share - weighted average number of common shares outstanding
|
199,632,803
|
199,632,803
|
||||||
Basic and diluted loss per common share:
|
||||||||
Net loss from continuing operations - basic and diluted
|
$
|
(0.00
|
)
|
$
|
(0.01
|
)
|
||
Net loss from discontinued operations - basic and diluted
|
(0.00
|
)
|
(0.00
|
)
|
||||
Net loss per common share - basic and diluted
|
$
|
(0.00
|
)
|
(0.01
|
)
|
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.
The reporting currency of the Company is the U.S. dollar. The functional currency of the parent company is the U.S. dollar and the functional currency of the Company's operating subsidiaries is the
Chinese Renminbi ("RMB"). In accordance with ASC 830-20-35, the consolidated financial statements were translated into United States dollars using balance sheet date rates of exchange for assets and liabilities, and average rates of exchange for the
period for the income statements and cash flows. Equity accounts were stated at their historical rate. 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.
RMB is not a fully convertible currency. All foreign exchange transactions involving RMB must take place either through the People's Bank of China (the "PBOC") or other institutions authorized to buy
and sell foreign exchange. The exchange rate adopted for the foreign exchange transactions are the rates of exchange quoted by the PBOC, which are determined largely by supply and demand. Translation of amounts from RMB into United States dollars
("$") was made at the following exchange rates for the respective periods:
As of July 31, 2019
|
RMB 6.88 to $1.00
|
As of April 30, 2019
|
RMB 6.73 to $1.00
|
|
|
Three months ended July 31, 2019
|
RMB 6.88 to $1.00
|
Three months ended July 31, 2018
|
RMB 6.52 to $1.00
|
COMPREHENSIVE LOSS
Comprehensive loss is comprised of net loss and all changes to the statements of stockholders' equity, except those due
to investments by stockholders, changes in paid-in capital and distributions to stockholders. For the Company, comprehensive loss for the three months ended July 31, 2019 and 2018 included net loss and unrealized gains (losses) from foreign currency
translation adjustments.
- 9 -
CONCENTRATIONS OF CREDIT RISK
Substantially all of our operations are carried out in the PRC. Accordingly, our business, financial condition and results of operations may be influenced by the political, economic and legal
environment in the PRC, and by the general state of the PRC's economy. Our operations in the PRC are subject to specific considerations and significant risks not typically associated with companies in North America. Our results may be adversely
affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.
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. As of July 31, 2019, we had $684,127 of cash balance held in PRC banks, which is not insured. We have not experienced any losses in such accounts through July 31, 2019.
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
Stock-based compensation is accounted for based on the requirements of the Share-Based Payment topic of ASC 718 which requires recognition in the financial statements of the cost of employee and
director services received in exchange for an award of equity instruments over the period the employee or director is required to perform the services in exchange for the award (presumptively, the vesting period). ASC 718 also requires measurement of
the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award.
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. Research and development costs were $306,551 and $231,766 for the three months ended July 31, 2019 and 2018, respectively.
SHIPPING COSTS
Shipping costs are included in selling expenses and totaled $22,895 and $36,765 for the three months ended July 31, 2019 and 2018, respectively.
ADVERTISING
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current period presentation for amounts related to the discontinue operations (see Note 3). These reclassifications had no impact
on net earnings and financial position.
SEGMENT REPORTING
The Company uses the "management approach" in determining reportable operating segments. The management approach
considers the internal organization and reporting used by the Company's chief operating decision maker for making operating decisions and assessing performance as the source for determining the Company's reportable segments. The Company's chief
operating decision maker has been identified as the chief executive officer of the Company who reviews financial information of separate operating segments based on U.S. GAAP. The chief operating decision maker now reviews results analyzed by
customer. This analysis is only presented at the revenue level with no allocation of direct or indirect costs. Consequently, the Company has determined that it has only one operating segment.
- 10 -
RECENT ACCOUNTING PRONOUNCEMENTS
In May 2014, the FASB issued ASU 2014-09, "Revenue from contracts with Customers (Topic 606)". Under ASU 2014-09, revenue is recognized when a customer
obtains control of promised goods or services and is recognized in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. In addition, the standard requires disclosure of the nature,
amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. This standard, which is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2017. The guidance permits two
methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (modified
retrospective method). The Company adopted this standard effective May 1, 2018 by using the full retrospective method to restate prior reporting period presented. The Company has identified its revenue streams and assessed each for the impacts. The
Company completed its analysis and concluded that the adoption of Topic 606 did not have a material impact in the timing or amount of revenue recognized, including the presentation of revenues in the Company's consolidated statements of income and
comprehensive loss.
In February 2018, the FASB issued ASU 2018-02, "Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income".
These amendments provide financial statement preparers with an option to reclassify stranded tax effects within accumulated other comprehensive income to retained earnings in each period in which the effect of the change in the U.S. federal corporate
income tax rate in the Tax Cuts and Jobs Act (or portion thereof) is recorded. The amendments in this ASU are effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption
of ASU 2018-02 is permitted, including adoption in any interim period for the public business entities for reporting periods for which financial statements have not yet been issued. The amendments in this ASU should be applied either in the period of
adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized. The Company has adopted this guidance in fiscal 2019.
In March 2018, the FASB issued ASU 2018-05, "Income Taxes (Topic 740) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118". The amendments in this ASU add SEC paragraphs
pursuant to the SEC Staff Accounting Bulletin No. 118, which expresses the view of the staff regarding application of Topic 740, Income Taxes, in the reporting period that includes December 22, 2017 - the date on which the Tax Cuts and Jobs Act was
signed into law. The amendments are effective upon addition to the FASB Accounting Standards Codification. The adoption of this guidance is did not have a material impact on our consolidated financial statements.
A variety of proposed or otherwise potential accounting standards are currently under study by standard setting organizations and various regulatory agencies. Due to the tentative and preliminary
nature of those proposed standards, we have not determined whether implementation of such proposed standards would be material to our consolidated financial statements.
GOING CONCERN
Our unaudited condensed consolidated financial statements have been prepared assuming we will continue as a going concern. The Company has incurred recurring losses with a net loss of approximately
$383,000 for the three months ended July 31, 2019 and has a significant accumulated deficit of $39.1 million as of July 31, 2019. The Company's cash balance and revenues generated are not currently sufficient and cannot be projected to cover
operating expenses for the next twelve months from the date of this report. These factors raise doubt as to the ability of the Company to continue as a going concern. Management's plans include attempting to improve its business profitability, its
ability to generate sufficient cash flow from its operations to meet its operating needs on a timely basis, obtain additional working capital funds through debt and equity financings, and restructure on-going operations to eliminate inefficiencies to
raise cash balance in order to meet its anticipated cash requirements for the next twelve months from the date of this report. Management intends to make every effort to improve its current sales force as to further develop and expand the
international markets for its new products as well as continuing with the current sources of funds to meet working capital needs on as needed basis. There can be no assurance that these plans and arrangements will be successful.
The ability of the Company to continue as a going concern is dependent upon its ability to achieve profitable operations and raise additional capital. The accompanying unaudited condensed
consolidated financial statements do not include any adjustments related to the recoverability or classification of asset-carrying amount or the amounts and classification of liabilities that may result should the Company be unable to continue as a
going concern.
- 11 -
NOTE 3 - DISCONTINUED OPERATIONS
On July 30, 2019, Qufu Natural Green entered into an Asset Transfer Agreement with Na Li, an unaffiliated individual (the "Buyer") for the sale of 100% equity ownership of Qufu Shengwang. Pursuant
to the Asset Transfer Agreement, the Buyer shall pay to Qufu Natural Green a total cash consideration of RMB8,000,000 (approximately $1,162,790) based on the estimated net book value as of July 30, 2019, payable in two installments of RMB5,000,000
(approximately $726,744) on July 30, 2019 and RMB3,000,000 (approximately $436,046) on September 30, 2019. The Buyer assumed all assets and liabilities of Qufu Shengwang including the amount of Qufu Shengwang owes to Qufu Natural Green of
approximately RMB26,000,000 (approximately $3,779,070), and Qufu Natural Green shall assist in completing all documents required for the equity transfer after confirming the receipt of the first payment. The Company received the first installment
of RMB5,000,000 on July 30, 2019.
Prior to July 30, 2019, Qufu Shangwang engaged in our Chinese medicine segment. In our Chinese medicine segment, we manufactured and sold traditional Chinese medicine formula extracts which are used
in products made for use by both humans and animals. As a result of the sale, Qufu Shengwang, our Chinese medicine segment is treated as a discontinued operation.
Pursuant to ASC Topic 205-20, Presentation of Financial Statements - Discontinued Operations, the results of operations from the Chinese medicine segment for the three months ended July 31, 2019 and
2018 have been classified as discontinue operations and included in the line caption of to the loss from discontinued operations line in the accompanying consolidated statements of operations and comprehensive loss presented herein. The assets and
liabilities also have been classified as discontinued operations under the line captions of current assets held for sale, non-current assets held for sale, current liabilities held for sale and non-current liabilities held for sale in the Company's
condensed consolidated balance sheets as of July 31, 2019 and April 30, 2019.
The assets and liabilities classified as discontinued operations in the Company's condensed consolidated financial statements as of July 31, 2019 and April 30, 2019 were set forth below.
|
July 31,
2019
|
April 30,
2019
|
||||||
Assets:
|
||||||||
Current assets:
|
||||||||
Cash
|
$
|
-
|
$
|
426,766
|
||||
Accounts receivable, net
|
-
|
322,902
|
||||||
Inventories, net
|
-
|
949,705
|
||||||
Due from related parties
|
-
|
2,308,159
|
||||||
Prepaid expenses and other
|
-
|
135,527
|
||||||
Total current assets
|
-
|
4,143,059
|
||||||
Property and equipment, net
|
-
|
985,630
|
||||||
Land use rights, net
|
-
|
1,795,362
|
||||||
Other long-term asset
|
-
|
144,714
|
||||||
Total assets
|
$
|
-
|
$
|
7,068,765
|
||||
Liabilities:
|
||||||||
Current liabilities:
|
||||||||
Accounts payable
|
$
|
-
|
$
|
389,521
|
||||
Accrued expenses and other liabilities
|
-
|
599,227
|
||||||
Total current liabilities
|
-
|
988,748
|
||||||
Long-term loans
|
-
|
947,445
|
||||||
Total liabilities *
|
$
|
-
|
$
|
1,936,193
|
* Not including intercompany loan of Qufu Shengwang payable to Qufu Natural Green in the amount of RMB27,354,608 (approximately $3,975,960) which was not reflected on the condensed consolidated
financial statements as of April 30, 2019 due to consolidation.
- 12 -
The following table presents the results of discontinued operations in the three months ended July 31, 2019 and 2018:
|
For the Three Months Ended July 31,
|
|||||||
|
2019
|
2018
|
||||||
|
||||||||
Revenues
|
$
|
733,441
|
$
|
836,166
|
||||
Cost of revenues
|
572,357
|
731,997
|
||||||
Gross profit
|
161,084
|
104,169
|
||||||
Operating expenses
|
172,142
|
192,484
|
||||||
Other income, net
|
8,958
|
520
|
||||||
Loss before income taxes
|
20,016
|
87,795
|
||||||
Income tax expense
|
-
|
-
|
||||||
|
||||||||
Loss from discontinued operations
|
20,016
|
87,795
|
||||||
Loss from disposal, net of taxes
|
233,415
|
-
|
||||||
Total loss from discontinued operations
|
$
|
253,431
|
$
|
87,795
|
For the three months ended July 31, 2019 and 2018, loss from discontinued operations amounted to $20,016 and $87,795. The Company realized a loss of $233,415 from the disposal of 100% equity of Qufu
Shengwang, which was reflected as loss from sale of discontinued operations on the condensed consolidated statement of operations for the three months ended July 31, 2019.
NOTE 4 - INVENTORIES
As of July 31, 2019 and April 30, 2019, inventories consisted of the following:
|
July 31, 2019
|
April 30, 2019
|
||||||
|
(unaudited)
|
|||||||
Raw materials
|
$
|
6,142,384
|
$
|
5,639,260
|
||||
Work in process
|
2,078,277
|
3,426,545
|
||||||
Finished goods
|
4,447,544
|
2,926,151
|
||||||
|
12,668,205
|
11,991,956
|
||||||
Less: reserve for obsolete inventory
|
-
|
-
|
||||||
|
$
|
12,668,205
|
$
|
11,991,956
|
NOTE 5 - PROPERTY AND EQUIPMENT
As of July 31, 2019 and April 30, 2019, property and equipment consisted of the following:
|
July 31, 2019
|
April 30, 2019
|
|||||||
Estimated Life
|
(unaudited)
|
||||||||
Office equipment
|
3-5 Years
|
$
|
77,174
|
$
|
77,738
|
||||
Auto and trucks
|
2-10 Years
|
598,454
|
599,154
|
||||||
Manufacturing equipment
|
2-10 Years
|
5,184,512
|
5,353,752
|
||||||
Buildings
|
5-30 Years
|
8,262,924
|
8,082,483
|
||||||
Construction in process
|
|
2,252,766
|
2,001,045
|
||||||
|
|
16,375,830
|
16,114,172
|
||||||
Less: accumulated depreciation
|
|
(7,144,726
|
)
|
(7,120,775
|
)
|
||||
|
|
$
|
9,231,104
|
$
|
8,993,397
|
For the three months ended July 31, 2019 and 2018, depreciation expense totaled $270,988 and $269,996, of which $232,587 and $230,658 were
included in cost of revenues, respectively, and of which $38,401 and $39,338 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.
- 13 -
NOTE 6 - RELATED PARTY TRANSACTIONS
Accounts receivable - related party and revenue - related party
As of July 31, 2019 and April 30, 2019, $2,514,069 and $2,477,659 in accounts receivable - related party, respectively, were 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, 2019 and 2018, we recorded revenue - related party and cost of revenue – related party of $1,783,893 and $1,399,580,
$1,648,239 and $1,214,610, 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, 2019 and 2018, we received advances
from related parties for working capital that totaled $663,686 and $1,312,916, respectively, and we repaid to related parties a total of $947,046 and $682,451, respectively.
In the three months ended July 31, 2019 and 2018, interest expense related to due to related parties amounted to $35,741 and $35,718, respectively, which were
included in interest expense in the accompanying consolidated statements of operations and comprehensive loss, and in connection with the advances of $742,512 (RMB5,000,000) and $1,188,019 (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 7.0% and 6.3% per annum, respectively. The other advances bear no interest and are payable on demand.
As of July 31, 2019, the balance we owed Pharmaceutical Corporation, Qufu Shengwang Import and Export and Mr. Weidong Chai, a management member of Qufu Shengren Pharmaceutical Co., Ltd., amounted to
$5,243,619, $574,592 and $180,939, respectively. On April 30, 2019, the balances we owed to Pharmaceutical Corporation, Qufu Shengwang Import and Export and Mr. Weidong Chai amounted to $5,669,776, $557,976 and $180,769, respectively.
As of July 31, 2019 and April 30, 2019, balances 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 to related parties, April 30, 2019
|
$
|
5,669,776
|
$
|
557,976
|
$
|
180,769
|
$
|
6,408,521
|
||||||||
Working capital advances from related parties
|
559,829
|
99,790
|
4,067
|
663,686
|
||||||||||||
Repayments
|
(876,724
|
)
|
(70,322
|
)
|
-
|
(947,046
|
)
|
|||||||||
Effect of foreign currency exchange
|
(109,262
|
)
|
(12,852
|
)
|
(3,897
|
)
|
(126,011
|
)
|
||||||||
Balance due to related parties, July 31, 2019
|
$
|
5,243,619
|
$
|
574,592
|
$
|
180,939
|
$
|
5,999,150
|
- 14 -
NOTE 7 - PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets as of July 31, 2019 and April 30, 2019 totaled $2,318,291 and $1,676,347, respectively. As of July 31, 2019, prepaid expenses and other current assets
includes $1,611,011 prepayments to suppliers for merchandise that had not been shipped to us and services that had not been provided to us, $14,530 for security deposit and $692,750 for business related employees' advances. As of April 30, 2019,
prepaid expenses and other current assets includes $1,389,963 prepayments to suppliers for merchandise that had not been shipped to us and services that had not been provided to us, $14,850 for security deposit and $271,534 for business related
employees' advances.
NOTE 8 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses included the following as of July 31, 2019 and April 30, 2019:
Account
|
July 31,
2019
|
April 30,
2019
|
||||||
|
(unaudited)
|
|||||||
Accounts payable
|
$
|
6,756,099
|
$
|
5,298,580
|
||||
Advanced from customers
|
229,340
|
26,921
|
||||||
Accrued salary payable
|
242,010
|
284,671
|
||||||
Tax payable
|
100,099
|
125,854
|
||||||
Deferred revenue
|
13,388
|
13,683
|
||||||
Other payable*
|
2,086,273
|
1,803,972
|
||||||
Total accounts payable and accrued expenses
|
$
|
9,427,209
|
$
|
7,680,049
|
* As of on July 31, 2019, other payables consists of general liability, worker's compensation, and medical insurance payable of $510,793, consulting fee payable of $276,423, union and education fees
payable of $128,849, interest payables for short-term loans of $502,435, advances from the employees of $403,625, security deposit for sub-contractor of $145,302 and other miscellaneous payables of $118,846. As of April 30, 2019, other payables
consists of general liability, worker's compensation, and medical insurance payable of $448,528, consulting fee payable of $136,770, union and education fees payable of $131,688, interest payables for short-term loans of $765,061, advances from the
employees of $221,081 and other miscellaneous payables of $100,844.
NOTE 9 -LOAN PAYABLE
Short-term loan payable
Short-term loans are 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. As of July 31, 2019 and April 30, 2019, short-term loans consisted of the following:
- 15 -
|
July 31,
2019
|
April 30,
2019
|
||||||
(unaudited)
|
||||||||
Loan from Min Wu, an employee of Qufu Shengren, due on October 5, 2019, with an annual interest rate of 10%, renewed at October 6, 2018.
|
$
|
31,967
|
$
|
32,671
|
||||
Loans from Jianjun Yan, non-related individual, due on October 6, 2019, with an annual interest rate of 10% at October 7, 2017, renewed at on October 7, 2018.
|
1,163,581
|
1,189,207
|
||||||
Loan from Jianjun Yan, non-related individual, due on March 31, 2020, with annual interest rate of 4%, renewed at April 1, 2019.
|
1,184,737
|
1,210,829
|
||||||
Loan from Junzhen Zhang, non-related individual, due on October 5, 2019, with an annual interest rate of 10%, renewed at October 6, 2018.
|
23,248
|
23,760
|
||||||
Loan from Jian Chen, non-related individual, due on January 27, 2020 and April 11, 2020, bearing an annual interest rate of 10%, with the principle amount of RMB770,000 ($114,347) and RMB330,000 ($49,006), renewed on January 27, 2019 and
April 11, 2019, respectively.
|
159,833
|
163,353
|
||||||
Loan from Qing Kong, non-related individual, due on March 6, 2020, with an annual interest rate of 10%, renewed on March 7, 2019.
|
77,359
|
79,063
|
||||||
Loan from Qing Kong, non-related individual, due on January 8, 2020, with an annual interest rate of 10%, renewed on January 9, 2019.
|
31,967
|
32,671
|
||||||
Loan from Guihai Chen, non-related individual, due on March 9, 2020, with an annual interest rate of 10%, renewed on March 10, 2019.
|
19,180
|
19,602
|
||||||
Loan from Guihai Chen, non-related individual, due on September 20, 2019, with an annual interest rate of 10%, renewed at September 21, 2018.
|
29,060
|
29,700
|
||||||
Loan Weifeng Kong, non-related individual, due on November 28, 2019, with an annual interest rate of 10%, renewed on November 29, 2018.
|
29,060
|
29,700
|
||||||
Loan Shidong Wang, non-related individual, due on March 8, 2020, with an annual interest rate of 4%, renewed on March 9, 2019.
|
1,571,590
|
1,606,200
|
||||||
Loan from Huagui Yong, non-related individual, due on April 8, 2020, with an annual interest rate of 6.3% at April 9, 2019.
|
72,651
|
74,251
|
||||||
Loan from Xuxu Gu, non-related individual, due on September 27, 2019, with an annual interest rate of 4% at September 28, 2017.
|
-
|
1,588,976
|
||||||
Loan Xuxu Gu, non-related individual, due on July 13, 2020, with an annual interest rate of 4% at July 14, 2018. *
|
421,377
|
-
|
||||||
Loan Yuehu Zhou, non-related individual, due on June 12, 2020, with an annual interest rate of 4% at June 13, 2018. *
|
1,307,722
|
-
|
||||||
Loan Mingbang Ma, non-related individual, due on May 22, 2020, with an annual interest rate of 4% at May 23, 2018. *
|
290,605
|
-
|
||||||
Loan Weiwei Lian, non-related individual, due on May 29, 2020, with an annual interest rate of 4% at May 30, 2018. *
|
1,453,024
|
-
|
||||||
Loan Guanghua Xia, non-related individual, due on June 8, 2020, with an annual interest rate of 4% at June 9, 2018. *
|
1,307,722
|
-
|
||||||
Total
|
$
|
9,174,683
|
$
|
6,079,983
|
* The Company recorded these loans as long-term loans as of April 30, 2019.
- 16 -
Long-term loan payable
Long-term loans are 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. As of July 31, 2019 and April 30, 2019, long-term loans consisted of the following:
|
July 31,
2019 |
April 30, 2019
|
||||||
(unaudited)
|
||||||||
Loan from Xuxu Gu, non-related individual, due on March 8, 2019, with an annual interest rate of 4% at March 9, 2017, extended another two years at on March 9, 2019.
|
$
|
-
|
$
|
1,603,825
|
||||
Loan Xuxu Gu, non-related individual, due on July 13, 2020, with an annual interest rate of 4% at July 14, 2018. #
|
-
|
430,657
|
||||||
Loan Xuxu Gu, non-related individual, due on August 15, 2020, with an annual interest rate of 4% at August 16, 2018.
|
-
|
504,908
|
||||||
Loan from Dadong Mei, non-related individual, due on March 8, 2021, with an annual interest rate of 4%, renewed on March 9, 2019.
|
1,569,266
|
1,603,825
|
||||||
Loan Mingbang Ma, non-related individual, due on May 22, 2020, with an annual interest rate of 4% at May 23, 2018. #
|
-
|
297,005
|
||||||
Loan Weiwei Lian, non-related individual, due on May 29, 2020, with an annual interest rate of 4% at May 30, 2018. #
|
-
|
1,485,024
|
||||||
Loan Guanghua Xia, non-related individual, due on June 8, 2020, with an annual interest rate of 4% at June 9, 2018. #
|
-
|
1,336,521
|
||||||
Loan Guanghua Xia, non-related individual, due on December 31, 2020, with an annual interest rate of 4% at January 1, 2019.
|
406,847
|
415,807
|
||||||
Loan Guanghua Xia, non-related individual, due on January 10, 2021, with an annual interest rate of 4% at January 11, 2019.
|
813,693
|
831,613
|
||||||
Loan Yuehu Zhou, non-related individual, due on June 12, 2020, with an annual interest rate of 4% at June 13, 2018. #
|
-
|
1,336,521
|
||||||
Total:
|
$
|
2,789,806
|
$
|
9,845,706
|
* The Company recorded these loans as short-term loans as of July 31, 2019.
For the three months ended July 31, 2019 and 2018, interest expense related to short-term loans and long-term loans amounted to $144,787 and $149,351,
respectively, which were included in interest expense in the accompanying unaudited condensed consolidated statements of operations and comprehensive loss.
NOTE 10 - SEGMENT INFORMATION
The following information is presented in accordance with ASC Topic 280, "Segment Reporting", for the three months ended July 31, 2019 and 2018; we accounted for two reportable business segments -
(1) natural sweetener (stevioside), and (2) corporate and other pharmaceutical. 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, 2019 and 2018 is as follows:
- 17 -
|
Three Months Ended July 31,
|
|||||||
|
2019
|
2018
|
||||||
Revenues:
|
||||||||
Stevioside - third party
|
$
|
4,527,666
|
$
|
2,807,351
|
||||
Stevioside - related party
|
1,783,893
|
1,399,580
|
||||||
Total Stevioside
|
6,311,559
|
4,206,931
|
||||||
Corporate and other – third party
|
578,516
|
790,229
|
||||||
Corporate and other – related party
|
-
|
-
|
||||||
Total Corporate and other
|
578,516
|
790,229
|
||||||
Total segment and consolidated revenues
|
$
|
6,890,075
|
$
|
4,997,160
|
||||
|
||||||||
Interest expense:
|
||||||||
Stevioside
|
$
|
180,444
|
$
|
184,994
|
||||
Corporate and other
|
-
|
-
|
||||||
Total segment and consolidated interest expense
|
$
|
180,444
|
$
|
184,994
|
||||
|
||||||||
Depreciation and amortization:
|
||||||||
Stevioside
|
$
|
199,222
|
$
|
269,996
|
||||
Corporate and other
|
71,766
|
-
|
||||||
Total segment and consolidated depreciation and amortization
|
$
|
270,988
|
$
|
269,996
|
||||
|
||||||||
Income (loss) from continuing operations before income taxes:
|
||||||||
Stevioside
|
$
|
(165,071
|
)
|
$
|
(692,904
|
)
|
||
Corporate and other
|
35,267
|
(409,638
|
)
|
|||||
Total loss from continuing operations before income taxes
|
$
|
(129,804
|
)
|
$
|
(1,102,542
|
)
|
|
July 31,
2019 |
April 30,
2019 |
||||||
Segment property and equipment:
|
||||||||
Stevioside
|
$
|
8,091,286
|
$
|
7,796,314
|
||||
Corporate and other
|
1,139,818
|
1,197,083
|
||||||
Total property and equipment
|
$
|
9,231,104
|
$
|
8,993,397
|
NOTE 11 - CONCENTRATIONS AND CREDIT RISK
(i) Customer Concentrations
For the three months ended July 31, 2019 and 2018, customers accounting for 10% or more of the Company's revenue were as follows:
|
|
Three Months Ended July 31,
|
|
|||||
Customer
|
|
2019
|
|
|
2018
|
|
||
A (1)
|
|
|
25.9
|
%
|
|
|
28.0
|
%
|
B
|
21.6
|
%
|
-
|
(1) Qufu Shengwang Import and Export Co., Ltd is a related party.
- 18 -
(ii) Vendor Concentrations
For the three months ended July 31, 2019 and 2018, suppliers accounting for 10% or more of the Company's purchase were as follows:
|
|
Three Months Ended July 31,
|
|
|||||
Supplier
|
|
2019
|
|
|
2018
|
|
||
A
|
|
|
*
|
|
|
|
18.7
|
%
|
B
|
|
|
10.8
|
%
|
|
|
45.2
|
%
|
C
|
|
|
18.6
|
%
|
|
|
*
|
|
D
|
|
|
18.0
|
%
|
|
|
*
|
|
*Less than 10%.
|
|
|
|
|
|
|
|
|
(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. As of July 31, 2019, we had $684,127 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, 2019. Our cash position by geographic area was as follows:
Country:
|
July 31, 2019
|
April 30, 2019
|
||||||||||||||
United States
|
$
|
101,256
|
12.9
|
%
|
$
|
88,506
|
30.1
|
%
|
||||||||
China
|
684,127
|
87.1
|
%
|
205,693
|
69.9
|
%
|
||||||||||
Total cash and cash equivalents
|
$
|
785,383
|
100.00
|
%
|
$
|
294,199
|
100.00
|
%
|
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 12 - 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 disclosures to the accompanying unaudited condensed consolidated financial statements.
- 19 -
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 2019 Annual Report
on Form 10-K for fiscal year ended April 30, 2019.
OVERVIEW
We sell stevioside, a natural sweetener. Stevioside is a natural zero calorie sweetener extracted from the leaf of the stevia plants.. 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
|
|
-
|
|
Corporate and other.
|
Going Concern
The accompanying unaudited condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company has a significant accumulated deficit
and incurred recurring losses. The Company's cash balance and revenues generated are not currently sufficient and cannot be projected to cover operating expenses for the next twelve months from the date of this report. These factors raise doubt as to
the ability of the Company to continue as a going concern. Management's plans include attempting to improve its business profitability, its ability to generate sufficient cash flow from its operations to meet its operating needs on a timely basis,
obtain additional working capital funds through debt and equity financings, and restructure on-going operations to eliminate inefficiencies to raise cash balance in order to meet its anticipated cash requirements for the next twelve months from the
date of this report. Management intends to make every effort to improve its current sales forecast to further develop and expand the international markets for its new products as well as continuing with the current sources of funds to meet working
capitals needs on as needed basis. There can be no assurance that these plans and arrangements will be successful.
The ability of the Company to continue as a going concern is dependent upon its ability to achieve profitable operations and raise additional capital. The accompanying unaudited condensed
consolidated financial statements do not include any adjustments related to the recoverability or classification of asset-carrying amount or the amounts and classification of liabilities that may result should the Company be unable to continue as a
going concern.
Recent Developments
Sunwin Stevia has approximately 1,200 metric tons of manufacturing capacity per year to produce high-grade stevia extract. With these manufacturing facilities, Sunwin Stevia is able to deliver stevia
products containing Rebaudioside A in a range of 50% to 99% with a format of powder, granular, or tablet. We are planning to start building a new facility with annual capacity of 500 metric tons in order to meet substantially increased demand for our
high-grade stevia products.
Since fiscal year 2018, we invested in a new production line for Metformin as one of the new product markets we intend to branch into. Metformin is the raw material of Metformin hydrochloride
tablets. Metformin is the first-line medication for the treatment of type 2 diabetes, particularly in people who are not satisfied with simple diet control, especially those with obesity and hyperinsulinemia. This drug not only has hypoglycemic
effect, but also may have the effect of reducing body weight and hyperinsulinemia. It can be effective in patients with poor efficacy of certain sulfonylureas, such as sulfonylureas, intestinal glycosidase inhibitors or thiazolidinedione hypoglycemic
agents. It can also be used in patients with insulin therapy to reduce insulin consumption.
While we were able to market and sale our Metformin products, with our current overhead and associated expenses, its profit margin has not been as lucrative as we had projected, our Metformin
production line has been operating at a net loss in fiscal 2019. On July 10, 2019, we entered into a management agreement with Ru Yuan, an unaffiliated individual, to contract out the Metformin production line for 30 years. Under the terms of this
agreement, Ms. Yuan will operate the Metformin production line independently from Sunwin assuming all of its profits and liabilities, including employee payroll, benefits, utilities and etc., and will pay to Qufu Shengren an annual contract fee of
RMB3,000,000 (approximately $436,047).
- 20 -
On July 30, 2019, Qufu Natural Green entered into an Asset Transfer Agreement with Na Li, an unaffiliated individual (the "Buyer") for the sale of 100% equity ownership of Qufu Shengwang. Pursuant
to the Asset Transfer Agreement, the Buyer shall pay to Qufu Natural Green a total cash consideration of RMB8,000,000 (approximately $1,162,790) based on the estimated net book value as of July 30, 2019, payable in two installments of RMB5,000,000
(approximately $726,744) on July 30, 2019 and RMB3,000,000 (approximately $436,046) on September 30, 2019. The Buyer assumed all assets and liabilities of Qufu Shengwang including the amount of Qufu Shengwang's debt to Qufu Natural Green of
approximately RMB26,000,000 (approximately $3,779,070), and Qufu Natural Green shall assist in completing all documents required for the equity transfer after confirming receipt of the first payment. The Company received the first installment of
RMB5,000,000 on July 30, 2019.
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 9001:2015 Certification and ISO 22000:2005 Food Safety Certification. We obtained these certifications in October 2015.
OUR PERFORMANCE
Our revenues totaled approximately $6,890,000 during the three months ended July 31, 2019, an increase of 37.9%, as compared with the same period in 2018, and our gross margin increased to 16.3%
from 11.3%. Our total operating expenses in the three months ended July 31, 2019 decreased by approximately $398,000, or 26.9% compared to the same period in 2018 primarily due to a decrease of approximately $113,000, or 23.2% in selling expense and
a decrease of approximately $359,000, or 47.2% in general and administrative expense, offset by an increase of approximately $75,000, or 32.3% in research and development expenses. Our net loss from continuing operations for the three months ended
July 31, 2019 was approximately $123,000, compared to $1,103,000 in the same period in 2018.
Our operating performance for the three months ended July 31, 2019 was primarily driven by an increase of 50.0% in sales revenue of from stevia products, including a 61.3% increase in sales to third
parties, and an increase in sales to related party customers of approximately 27.5%.
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 we hope that our sales volume in higher grade stevia products will increase in fiscal 2020 as the demands
increase. Stevia has become more widely accepted by the food industry and many new stevia manufacturers have entered this industry in the past few years; recently we have 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.
- 21 -
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 2020 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 2020 include:
|
-
|
|
Chinese domestic food and beverages, particularly herbal tea manufacturers and the pharmaceutical industry, have increased the use of steviosides, and new health awareness trends have also resulted in some new governing laws supporting the
growth of this industry;
|
|
-
|
|
Southeast and South Asia have renewed and increased their interest in stevia, particularly high grade stevia;
|
|
-
|
|
Comparing 2018 to 2011, the usages of stevia in food products shows a 25.6% growth, and in beverage products shows a 34.6% growth; and
|
|
-
|
|
Stevia has been growing in popularity in the last 10 years throughout all the global markets.
|
Meanwhile, we are also facing challenges in competitive pricing and raw materials for fiscal 2020. During fiscal 2019, 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 2020. We anticipate the price of stevia leaves, the raw material used to produce our stevioside series products, to increase in fiscal
2020.
RESULTS OF OPERATIONS
The following table summarizes our results from operations for the three month periods ended July 31, 2019 and 2018. The percentages represent each line item as a percent of revenues:
For the Three Months ended July 31, 2019
|
||||||||||||||||||||||||
|
Stevioside
|
Corporate and Other
|
Consolidated
|
|||||||||||||||||||||
Revenues
|
$
|
6,311,559
|
100.0
|
%
|
$
|
578,516
|
100.0
|
%
|
$
|
6,890,075
|
100.0
|
%
|
||||||||||||
Cost of goods sold
|
5,390,466
|
85.5
|
%
|
378,402
|
65.4
|
%
|
5,768,868
|
83.7
|
%
|
|||||||||||||||
Gross profit
|
921,093
|
14.5
|
%
|
200,114
|
34.6
|
%
|
1,121,207
|
16.3
|
%
|
|||||||||||||||
Selling expenses
|
352,384
|
5.6
|
%
|
22,048
|
3.8
|
%
|
374,432
|
5.4
|
%
|
|||||||||||||||
General and administrative expenses
|
261,211
|
4.1
|
%
|
141,151
|
24.4
|
%
|
402,362
|
5.8
|
%
|
|||||||||||||||
Research and development expenses
|
304,903
|
4.8
|
%
|
1,648
|
0.3
|
%
|
306,551
|
4.4
|
%
|
|||||||||||||||
Income from operations
|
2,595
|
0.1
|
%
|
35,267
|
6.1
|
%
|
37,862
|
0.5
|
%
|
|||||||||||||||
Other expenses
|
(167,666
|
)
|
(2.7
|
)%
|
-
|
-
|
(167,666
|
)
|
(2.4
|
)%
|
||||||||||||||
(Loss) income from continuing operation before income taxes
|
$
|
(165,071
|
)
|
(2.6
|
)%
|
$
|
35,267
|
6.1
|
%
|
$
|
(129,804
|
)
|
(1.9
|
)%
|
For the Three Months ended July 31, 2018
|
||||||||||||||||||||||||
|
Stevioside
|
Corporate and Other
|
Consolidated
|
|||||||||||||||||||||
Revenues
|
$
|
4,206,931
|
100.0
|
%
|
$
|
790,229
|
100.0
|
%
|
$
|
4,997,160
|
100.0
|
%
|
||||||||||||
Cost of goods sold
|
3,698,154
|
87.9
|
%
|
734,555
|
93.0
|
%
|
4,432,709
|
88.7
|
%
|
|||||||||||||||
Gross profit
|
508,777
|
12.1
|
%
|
55,674
|
7.0
|
%
|
564,451
|
11.3
|
%
|
|||||||||||||||
Selling expenses
|
430,793
|
10.2
|
%
|
56,862
|
7.2
|
%
|
487,655
|
9.8
|
%
|
|||||||||||||||
General and administrative expenses
|
375,978
|
8.9
|
%
|
385,854
|
48.8
|
%
|
761,832
|
15.2
|
%
|
|||||||||||||||
Research and development expenses
|
209,170
|
5.0
|
%
|
22,596
|
2.9
|
%
|
231,766
|
4.6
|
%
|
|||||||||||||||
Loss from operations
|
(507,164
|
)
|
(12.1
|
)%
|
(409,638
|
)
|
(51.8
|
)%
|
(916,802
|
)
|
(18.3
|
)%
|
||||||||||||
Other expenses
|
(185,740
|
)
|
(4.4
|
)%
|
-
|
-
|
(185,740
|
)
|
(3.7
|
)%
|
||||||||||||||
Loss from continuing operation before income taxes
|
$
|
(692,904
|
)
|
(16.5
|
)%
|
$
|
(409,638
|
)
|
(51.8
|
)%
|
$
|
(1,102,542
|
)
|
(22.1
|
)%
|
- 22 -
Revenues
Total revenues in the three months ended July 31, 2019 increased by approximately 37.9%, as compared to the same period in 2018. Stevioside revenues, which accounts for 91.6% and 84.2% of our total
revenues in the three months ended July 31, 2019 and 2018, respectively, increased by approximately 50.0%, while Metformin revenues decreased by approximately $212,000 or 26.8%.
Within our Stevioside segment, revenues from sales to third parties increased by 61.3% and sales to the related party increased by 27.5% in the three months ended July 31, 2019, as compared to the
same period in 2018, primarily due to an increasing demand from the domestic market and the results of our effort to develop sales in the domestic market. We have been trying to develop our domestic and international market in the past fiscal year.
Since we do not have the authorization to export products from China, we outsourced 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. While the adoption rate for stevia in the food and beverage sector has been slower than expected, we sold 180 metric tons and 120 metric tons of stevioside for the three
months ended July 31, 2019 and 2018, respectively. We generated approximately $403,000 and $544,000 in revenue from producing over 7.5 metric tons and 7.0 metric tons of A3-99 in the three months ended July 31, 2019 and 2018, respectively. We also
generated approximately $1,306,000 and $526,000 in revenue from producing over 35.0 metric tons and 9.2 metric tons of the customized orders for restructuring by enzyme based on our Stevioside products. A3-99 and restructuring by enzyme based on our
Stevioside products accounted for approximately 27.1% and 18.4% in the three months ended July 31, 2019 and 2018, respectively, of our total Stevioside segment revenues. Additionally, we also continue to generate revenue from the sale of our new
products, Metformin, that were developed in the prior year.
Our unit sale price fluctuated from month to month in the three months ended July 31, 2019, which was mainly affected by the market environment; the average unit sale price decreased by approximately
6.5% compared to the same period in 2018. We face challenges due to competitive pricing and difficulties sourcing raw materials for in the three months ended July 31, 2019, the market prices of stevioside products were impacted by strong price
competition among Chinese manufacturers. We also anticipate the price of stevia leaves, the raw material used to produce our stevioside series products, to increase in the near future. With the restructuring of our product line, we also continue to
increase the sales of our low grade stevia products. Our low grade stevia and A3-97 products generated more than 35.6% and 16.4% of total revenue of our Stevioside segment, respectively.
Cost of Revenues and Gross Margin
Cost of revenues in the three months ended July 31, 2019 increased by 30.1%, compared to the same period in 2018. Cost of revenues as a percentage of revenues decreased from 88.7% to 83.7% during the
three months ended 2019 compared to the same period in 2018. Gross margin in Stevioside segment increased from 12.1% to 14.6% for the three months ended by July 31, 2019, compared the same period in 2018, which was primarily due to the improvements
in efficiency of our production line to offset the higher raw material costs. 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, 2019 was 16.3%, as compared to 11.3% in the same period in 2018.
Selling Expenses
For the three months ended July 31, 2019, we had a decrease of approximately $113,000, or 23.2% in selling expenses, as compared to the same period in 2018. The decrease was primarily due to the
approximately $162,000 decrease in promotion expense, $59,000 decrease in office expense, $14,000 decrease in shipping and freight, offset by approximately $94,000 increase in advertising expenses, $4,000 increase in salary, $2,000 increase in
commission, $2,000 increase in local taxes and $20,000 increase in miscellaneous expense in the three months ended July 31, 2019.
General and Administrative Expenses
Our general and administrative expenses for the three months ended July 31, 2019 decreased by approximately $359,000, or 47.2% from the same period in 2018. The decrease was primarily due to a
decrease of approximately $307,000 in stock based compensation to employees, $75,000 decrease in marketing expense, $32,000 decrease in office expense, $22,000 decrease in other tax expense, $22,000 decrease in meals and entertainment expenses,
$12,000 decrease in travel expense, offset by $31,000 increase in service and consulting fee, $51,000 increase in salary and wage expenses, and $29,000 increase in miscellaneous expense.
- 23 -
Research and Development Expense
For the three months ended July 31, 2019, our research and development expenses amounted to approximately $307,000, as compared to $232,000 for the same period in 2018. The increase of $75,000 was
primarily due to the increase in spendings for third party technical consulting fees in the three months ended July 31, 2019.
Other Income (Expenses)
For the three months ended July 31, 2019, other expense, net of other income, amounted to approximately $168,000, a decrease of $18,000 as compared to the other expense, net of other income, amounted
to approximately $186,000 for the three months ended July 31, 2018. The decrease of other expenses was primarily attributable to a decrease of interest expense of $5,000, an increase of grant income of $14,000 and offset by an increase in other
expenses of $1,000.
Loss from Continuing Operations
As a result of the foregoing, our loss from continuing operations was $130,000, or $(0.00) per share (basic and diluted), for the three months ended July 31, 2019, as compared with loss from
continuing operations of $1,103,000, or $(0.01) per share (basic and diluted), for the three months ended July 31, 2018, a change of $973,000, or 88.2%.
Loss from Discontinued Operation
Our loss from discontinued operations amounted to $20,000 and $88,000 for the three months ended July 31, 2019 and 2018. In additional, the Company recorded a loss from disposal discontinued
operations of approximately $233,000 at July 31, 2019. Our total loss from discontinued operations amounted to $253,000 or $0.00 per share (basic and diluted) for the three months ended July 2019, as compared with loss from discontinued operations of
$88,000, or $(0.00) per share (basic and diluted), at the same period in 2018, a change of $166,000 or 188.7%.
The summarized operating result of discontinued operations included in our consolidated statements of operations is as follows:
|
For the Three Months Ended July 31,
|
|||||||
|
2019
|
2018
|
||||||
|
||||||||
Revenues
|
$
|
733,441
|
$
|
836,166
|
||||
Cost of revenues
|
572,357
|
731,997
|
||||||
Gross profit
|
161,084
|
104,169
|
||||||
Operating expenses
|
172,142
|
192,484
|
||||||
Other income, net
|
8,958
|
520
|
||||||
Loss before income taxes
|
20,016
|
87,795
|
||||||
Income tax expense
|
-
|
-
|
||||||
|
||||||||
Loss from discontinued operations
|
20,016
|
87,795
|
||||||
Loss from disposal, net of taxes
|
233,415
|
-
|
||||||
Total loss from discontinued operations
|
$
|
253,431
|
$
|
87,795
|
Net Loss
Net loss in the three months ended July 31, 2019 was approximately $383,000, compared to $1,190,000 in the three months ended July 31, 2018. The decrease was primarily due to higher revenue with
higher gross profit and a decrease in operating expenses and other expenses in the three months ended July 31, 2019.
- 24 -
Foreign Currency Translation (Loss) or Gain
The functional currency of our subsidiaries and variable interest entities operating in the PRC is the Chinese Yuan or Renminbi ("RMB"). The financial statements of our subsidiaries are translated to
U.S. 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 translations are included in the
Comprehensive income on the consolidated statements of operations. As a result of foreign currency translations, which are a non-cash adjustment, we reported a foreign currency translation gain of $269,000 for the three months ended July 31, 2019, as
compared to a foreign currency translation loss of $637,000 for the three months ended July 31, 2018. This non-cash loss had the effect of increasing our reported comprehensive loss.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is the ability of a company to generate sufficient cash to meet its operational cash requirements.
At July 31, 2019, we had working capital deficit of approximately $3,019,000, including cash of approximately $785,000, as compared to working capital of approximately $2,411,000, including cash of
approximately $294,000 at April 30, 2019. The approximate $491,000 increase in our cash at July 31, 2019 from April 30, 2019 is primarily attributable to net cash used in operating activities and net cash used in investing activities for the purchase
of property and equipment to improve our productivity offset by net cash provided by financing activities from loans. The Company's cash balance and revenues generated are not currently sufficient and cannot be projected to cover operating expenses
for the next twelve months from the date of this report. These factors raise doubt as to the ability of the Company to continue as a going concern. Management's plans include attempting to improve its business profitability, its ability to generate
sufficient cash flow from its operations to meet its operating needs on a timely basis, obtain additional working capital funds through debt and equity financings, and restructure on-going operations to eliminate inefficiencies to raise cash balance
in order to meet its anticipated cash requirements for the next twelve months from the date of this report. Management intends to make every effort to improve its current sales force as to further develop and expand the international markets for its
new products as well as continuing with the current sources of funds to meet working capital needs on as needed basis. There can be no assurance that these plans and arrangements will be successful.
Accounts receivable, net of allowance for doubtful accounts, including accounts receivable from related parties, increased by approximately $347,000 during the three months ended July 31, 2019, as a
result of the increase in both accounts receivable from the third parties and accounts receivable from related party as of July 31, 2019. The days for sales outstanding in accounts receivable decreased to 75 days as of July 31, 2019, as compared to
24 days as of April 30, 2019. The days for sales outstanding in accounts receivable for third party sales increased to 56 days as of July 31, 2019, as compared to 17 days as of April 30, 2019. 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 2020.
Inventories at July 31, 2019, net of reserve for obsolescence, totaled approximately $12,668,000, as compared to $11,992,000 as of April 30, 2019. The increase is primarily due to our increase in
procurements of raw materials in order to meet our anticipated higher sales volume during the fiscal year ended April 30, 2019. These inventories have not yet been sold due to the market demands not raising as much as we predicted; however, the
current inventory level will prepare us for our anticipated upcoming increase in demands.
Our accounts payable and accrued expenses were approximately $9,427,000 at July 31, 2019, an increase of approximately $1,747,000 from April 30, 2019. The increase is primarily due to our increase in
procurements of raw material as a result of the raising sales of such materials during the three months ended July 31, 2019.
Loans payable at July 31, 2019 and April 30, 2019 totaled approximately $11,964,000 and $15,926,000, respectively. These loans payable consisted of short-term loans and long-term loans from multiple
non-related individuals, which bear annual interest rates of 4% - 10%. The maturity dates of the loans payable at July 31, 2019 range from October 5, 2019 to March 8, 2021. During the three months ended July 31, 2019, loan amount of approximately
$3,621,000 was assumed by the buyer of discontinued operation, Qufu Shengwang.
- 25 -
Due to related parties at July 31, 2019 and April 30, 2019 totaled approximately $5,999,000 and $6,409,000, respectively. The decrease was primarily due to our partial repayment to Pharmaceutical
Corporation during the three months ended July 31, 2019. On July 31, 2019, the balances we owed to Pharmaceutical Corporation, Qufu Shengwang Import and Export and Mr. Weidong Chai, a management member of Qufu Shengren Pharmaceutical Co., Ltd.,
approximately amounted $5,244,000, $575,000 and $181,000, respectively. On April 30, 2019, the balances we owed to Pharmaceutical Corporation, Qufu Shengwang Import and Export, and Mr. Weidong Chai approximately amounted to $5,670,000, $558,000 and
$181,000, respectively.
Cash Flows Analysis
NET CASH FLOW PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net cash provided by operating activities from continuing operations was approximately $711,000 (total of $4,332,000 including net cash provided by discontinued operations of $3,621,000) for the
three months ended July 31, 2019, primarily due to a net loss of approximately $130,000 adjusted by loss from discontinued operations of $253,000 and offset by non-cash working capital that primarily included depreciation expense of $271,000 and a
loss on disposition of property and equipment of $20,000. The increase in net cash from operating activities was also primarily due to an increase in accounts payable and accrued expenses of approximately $2,652,000 and offset by an increase of
approximately $234,000 in accounts receivable and note receivable from a third party, an increase of approximately $90,000 in accounts receivable - related party, an increase of approximately $935,000 in inventories, an increase of approximately
$820,000 in prepaid expenses and other current assets and a decrease of approximately $23,000 in taxes payable.
Net cash used in operating activities from continuing operation was approximately $5,070,000 (total of $4,251,000 including net cash provided by discontinued operations of $819,000) during the three
months ended July 31, 2018, primarily due to a net loss of approximately $1,190,000 adjusted by loss from discontinued operations of $88,000 and offset by non-cash items such as depreciation and amortization expenses of approximately $270,000, and
stock issued for employees' compensation of $307,000. The decrease in net cash from operating activities was also primarily due to an increase of approximately $192,000 in accounts receivable-related party, an increase of approximately $839,000 in
inventories, an increase of approximately $2,234,000 in prepaid expense and other current assets, a decrease of approximately $1,661,000 in accounts payable and accrued expenses and a decrease of approximately $111,000 decrease in taxes payable,
offset by $493,000 decrease in accounts receivable.
NET CASH FLOW PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Net cash provided by investing activities from continuing operations amounted to $67,000 in investment activities, including the proceeds received from disposal of discontinued subsidiary of
approximately $727,000 and a proceed received from disposal of equipment of $6,000, offset by approximately $665,000 in purchases of property and equipment in the three months ended July 31, 2019. Net cash used in investing activities from continuing
operations amounted to approximately $634,000 during the three months ended July 31, 2018 due to capital expenditures for property and equipment. Net cash used in investing activities from discontinued operations amounted to $0 and $1,000 in three
months ended July 31, 2019 and 2018, respectively.
NET CASH FLOW (USED IN) PROVIDED BY FINANCING ACTIVITIES:
Net cash used in financing activities from continuing operations amounted to approximately $283,000 in the three months ended July 31, 2019, primarily due to repayment of related party advances of
approximately $947,000 and offset by advances received from related parties of approximately $664,000. Net cash used in financing activities from discontinued operations amounted to $3,621,000 in in the three months ended July 31, 2019.
Net cash provided by financing activities from continuing operations amounted to approximately $5,431,000 in the three months ended July 31, 2018, primarily consisted of proceeds from multiple
non-related individual short-term and long-term loans of $5,046,000 and advances received from related parties of approximately $1,313,000, offset by repayment of short-term loans of $245,000 and repayment of related party advances of approximately
$682,000. Net cash used in financing activities from discontinued operations amounted to $454,000 in in the three months ended July 31, 2018.
- 26 -
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, 2019.
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:
Country:
|
July 31, 2019
|
April 30, 2019
|
||||||||||||||
United States
|
$
|
101,256
|
12.9
|
%
|
$
|
88,506
|
30.1
|
%
|
||||||||
China
|
684,127
|
87.1
|
%
|
205,693
|
69.9
|
%
|
||||||||||
Total cash and cash equivalents
|
$
|
785,383
|
100.00
|
%
|
$
|
294,199
|
100.00
|
%
|
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").
CRITICAL ACCOUNTING POLICIES
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.
- 27 -
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.
Our 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, 2019.
Based on this evaluation our management concluded that our disclosure controls and procedures were not effective as of July 31, 2019 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, 2019, management assessed the effectiveness of our internal control over financial reporting as of April 30, 2019 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, 2019.
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, 2019. 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, 2019
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,
2019 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 three months ended July 31, 2019 that have
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
- 28 -
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 1 A. RISK FACTORS.
Risk factors describing the major risks to our business can be found under Item 1A, "Risk Factors", in our fiscal 2019 Annual Report on Form 10-K. There has been no material change in our risk
factors from those previously discussed in the fiscal 2019 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. 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 shall be deemed "furnished" and not "filed".
- 29 -
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 16, 2019
|
By: /s/ Dongdong Lin
|
|
Dongdong Lin,
|
|
Chief Executive Officer
|
|
|
|
|
Dated: September 16, 2019
|
By: /s/ Fanjun Wu
|
|
Fanjun Wu,
|
|
Chief Financial Officer
|
- 30 -