Yew Bio-Pharm Group, Inc. - Quarter Report: 2013 September (Form 10-Q)

Unassociated Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(MARK ONE)

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

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2013

o 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 000-54701

YEW BIO-PHARM GROUP, INC.

(Exact name of registrant as specified in its charter)

Nevada		26-1579105
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

294 Powerbilt Avenue

Las Vegas, Nevada 89148

(Address of principal executive offices) (Zip Code)

(702) 487-6727

(Registrant’s telephone number, including area code)

N/A

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

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data 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 o

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

(Check one):

	Large accelerated filer	¨	Accelerated filer	¨
	Non-accelerated filer	¨	Smaller reporting company	x

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

As of November 5, 2013, there were 50,000,000 shares, $0.001 par value per share, of the registrant’s common stock outstanding.

YEW BIO-PHARM GROUP, INC.

FORM 10-Q

FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2013

TABLE OF CONTENTS

		Page Number

PART I. FINANCIAL INFORMATION

ITEM 1.	FINANCIAL STATEMENTS	4

	CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 2013 (UNAUDITED) AND DECEMBER 31, 2012	4

	CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED) FOR THE THREE-AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2013 AND SEPTEMBER 30, 2012	5

	CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2013 AND SEPTEMBER 30, 2012	6

	NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS	7

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	22

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	38

ITEM 4.	CONTROLS AND PROCEDURES	38

PART II. OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS	39

ITEM 1A.	RISK FACTORS	39

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	39

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	39

ITEM 4.	MINE SAFETY DISCLOSURES	39

ITEM 5.	OTHER INFORMATION	39

ITEM 6.	EXHIBITS	40

Forward-Looking Statements

This document contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical fact are “forward-looking statements”, including, but not limited to, any projections of earnings, revenue or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements concerning proposed new services or developments; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing.

Forward-looking statements may include the words “may,” “could,” “will,” “estimate,” “intend,” “continue,” “believe,” “expect” or “anticipate” or other similar words. These forward-looking statements present our estimates and assumptions only as of the date of this report. Except for our ongoing obligation to disclose material information as required by the federal securities laws, we do not intend, and undertake no obligation, to update any forward-looking statement.

Although we believe that the expectations reflected in any of our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any of our forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and inherent risks and uncertainties. Some of the key factors impacting these risks and uncertainties include, but are not limited to:

●	risks related to our ability to collect amounts owed to us by some of our largest customers;
●	our ability to continue to purchase yew cuttings from our various suppliers at relatively stable prices;
●	our dependence on a small number of customers for our yew raw materials, including a related party ;
●	our dependence on a small number of customers for our yew trees for reforestation;
●	our ability to market successfully yew raw materials used in the manufacture of traditional Chinese medicine (“TCM”);
●	industry-wide market factors and regulatory and other developments affecting our operations;
●	our ability to sustain revenues should the Chinese economy slow from its current rate of growth;
●	continued preferential tax treatment for the sale of yew trees and potted yew trees;
●	uncertainties about involvement of the Chinese government in business in the People’s Republic of China (the “PRC” or “China”) generally; and
●	any change in the rate of exchange of the Chinese Renminbi (“RMB”) to the U.S. dollar, which could affect currency translations of our results of operations, which are earned in RMB but reported in dollars;
●	industry-wide market factors and regulatory and other developments affecting our operations;
●	any impairment of any of our assets;
●	changes in the Chinese banking industry, including the availability of credit, which, among other things, could affect our ability to borrow funds or affect the ability of our customers to borrow funds and pay amounts owed to us on a timely basis;
●	The dependence of our largest purchaser of yew raw materials, Yew Pharmaceutical Co., Ltd. (“Yew Pharmaceutical”), on receiving payments from hospitals for the TCM it sells to them, in order to make payments to us for the yew raw materials Yew Pharmaceutical buys from us;
●	The dependence of our other purchasers of yew raw materials to be paid by their customers, in order for them to make payments to us for the yew raw materials they buy from us; and
●	risks related to changes in accounting interpretations.

For a detailed description of these and other factors that could cause actual results to differ materially from those expressed in any forward-looking statement, please see the section entitled “Risk Factors”, beginning on page 19 of our Annual Report on Form 10-K for the year ended December 31, 2012.

PART I

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

YEW BIO-PHARM GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

	September 30,		December 31,
	2013		2012
	(Unaudited)
ASSETS
CURRENT ASSETS:
Cash	$	1,110,025	$	386,821
Accounts receivable		1,027,690		722,598
Accounts receivable - related party		1,172,091		284,986
Inventories		1,447,980		991,234
Prepaid expenses and other assets		34,168		150
Prepaid expenses - related parties		40,832		60,245

Total Current Assets		4,832,786		2,446,034

LONG-TERM ASSETS:
Inventories, net of current portion		10,032,669		9,382,164
Property and equipment, net		977,824		885,969
Land use rights and yew forest assets, net		15,755,289		15,328,318

Total Long-term Assets		26,765,782		25,596,451

Total Assets	$	31,598,568	$	28,042,485

LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable	$	4,411	$	990
Accrued expenses and other payables		113,751		199,098
Taxes payable		4,851		5,722
Due to related parties		51,657		47,876

Total Current Liabilities		174,670		253,686

Total Liabilities		174,670		253,686

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY:
Preferred stock ($0.001 par value; 10,000,000 shares authorized, no shares
issued and outstanding at September 30, 2013 and December 31, 2012, respectively)		-		-
Common stock ($0.001 par value; 140,000,000 shares authorized; 50,000,000 shares
issued and outstanding at September 30, 2013 and December 31, 2012, respectively)		50,000		50,000
Additional paid-in capital		10,396,377		10,396,377
Retained earnings		15,728,008		13,182,032
Statutory reserves		2,490,750		2,179,494
Accumulated other comprehensive income - foreign currency translation adjustment		2,758,763		1,980,896

Total Shareholders' Equity		31,423,898		27,788,799

Total Liabilities and Shareholders' Equity	$	31,598,568	$	28,042,485

See notes to unaudited consolidated financial statements

YEW BIO-PHARM GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(UNAUDITED)

	For the Three Months Ended September 30,					For the Nine Months Ended September 30,
	2013		2012			2013		2012
REVENUES:
Revenues	$	1,455,621	$	930,557		$	4,040,492	$	4,230,631
Revenues - related party		88,706		442,467			1,409,141		602,159

Total Revenues		1,544,327		1,373,024			5,449,633		4,832,790

COST OF REVENUES:
Cost of revenues		618,059		146,409			1,320,028		726,957
Cost of revenues - related party		20,169		84,528			402,391		109,752

Total Cost of Revenues		638,228		230,937			1,722,419		836,709

GROSS PROFIT		906,099		1,142,087			3,727,214		3,996,081

OPERATING EXPENSES:
Selling		7,356		6,643			19,049		17,880
General and administrative		308,611		256,013			852,480		619,786

Total Operating Expenses		315,967		262,656			871,529		637,666

INCOME FROM OPERATIONS		590,132		879,431			2,855,685		3,358,415

OTHER INCOME (EXPENSES):
Interest income		161		474			245		2,062
Other income (expense)		1,919		(246	)		1,302		(607	)

Total Other Income (Expenses)		2,080		228			1,547		1,455

NET INCOME	$	592,212	$	879,659		$	2,857,232	$	3,359,870

COMPREHENSIVE INCOME:
NET INCOME	$	592,212	$	879,659		$	2,857,232	$	3,359,870

OTHER COMPREHENSIVE INCOME:
Foreign currency translation adjustment		180,344		(59,359	)		777,867		108,308

COMPREHENSIVE INCOME	$	772,556	$	820,300		$	3,635,099	$	3,468,178

NET INCOME PER COMMON SHARE:
Basic	$	0.01	$	0.02		$	0.06	$	0.07
Diluted	$	0.01	$	0.02		$	0.06	$	0.07
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic		50,000,000		50,000,000			50,000,000		47,052,920
Diluted		50,000,000		50,000,000			50,000,000		50,000,000

See notes to unaudited consolidated financial statements

YEW BIO-PHARM GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

	For the Nine Months Ended September 30,
	2013			2012
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	2,857,232		$	3,359,870
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		147,782			158,502
Amortization of land use rights and yew forest assets		271,580			259,221
Loss on disposal of fixed assets		421			-
Changes in operating assets and liabilities:
Accounts receivable		(282,524	)		(531,020	)
Accounts receivable - related party		(869,562	)		-
Prepaid expenses and other assets		(33,635	)		(13,812	)
Prepaid expenses - related parties		20,789			(67,361	)
Inventories		(594,434	)		(2,335,370	)
Accounts payable		3,357			(451,897	)
Accrued expenses and other payables		(88,148	)		(66,648	)
Due to related parties		3,688			27,247
Taxes payable		(1,010	)		7,081

NET CASH PROVIDED BY OPERATING ACTIVITIES		1,435,536			345,813

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment		(217,604	)		(208,524	)
Payments for land use rights and yew forest assets		(513,685	)		(65,749	)

NET CASH USED IN INVESTING ACTIVITIES		(731,289	)		(274,273	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments for related parties advances		-			(239,043	)

NET CASH USED IN FINANCING ACTIVITIES		-			(239,043	)

EFFECT OF EXCHANGE RATE ON CASH		18,957			2,930

NET INCREASE (DECREASE) IN CASH		723,204			(164,573	)

CASH - beginning of period		386,821			732,371

CASH - end of period	$	1,110,025		$	567,798

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Interest	$	-		$	-
Income taxes	$	-		$	-

Non-cash investing and financing activities
Shares issued for refundable common stock subscription	$	-		$	950,000

See notes to unaudited consolidated financial statements

YEW BIO-PHARM GROUP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2013

NOTE 1 – BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted as permitted by rules and regulations of the Securities and Exchange Commission (“SEC”). The condensed consolidated balance sheet as of December 31, 2012 was derived from the audited consolidated financial statements of Yew Bio-Pharm Group, Inc. (individually “YBP” and collectively with its subsidiaries and operating variable interest entity, the “Company”). The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the summary of significant accounting policies and notes to consolidated financial statements included in the Company’s annual report on Form 10-K for the year ended December 31, 2012.

In the opinion of management, all adjustments (which include normal recurring adjustments) necessary to present a fair statement of the financial position as of September 30, 2013, and the results of operations and cash flows for the nine-month period ended September 30, 2013 and 2012, have been made.

The preparation of consolidated financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company continually evaluates its estimates, including those related to bad debts, inventories, recovery of long-lived assets, income taxes, and the valuation of equity transactions. The Company bases its estimates on historical experience and on various other assumptions that it believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Any future changes to these estimates and assumptions could cause a material change to our reported amounts of revenues, expenses, assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions.

Details of the Company’s subsidiaries and variable interest entities (“VIE”) are as follows:

Name	Domicile and date of incorporation	Registered capital	Effective ownership	Principal activities
Heilongjiang Jinshangjing Bio-Technology Development Co., Limited (“JSJ”)	PRC October 29, 2009	USD $ 100,000	100%	Holding company

Yew Bio-Pharm Holdings Limited (“Yew Bio-Pharm (HK)”)	Hong Kong November 29, 2010	HK$ 10,000	100%	Holding company of JSJ

Harbin Yew Science and Technology Development Co., Ltd. (“HDS”)	PRC August 22, 1996	RMB 45,000,000	Contractual arrangements	Sales of yew tree components for use in pharmaceutical industry; sales of yew tree seedlings and potted yew trees; and the manufacture of yew tree wood handicrafts

NOTE 2 – PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the financial statements of YBP, its subsidiaries and operating VIE, in which the Company is the primary beneficiary. All significant intercompany balances and transactions have been eliminated on consolidation.

Pursuant to a restructuring plan intended to ensure compliance with applicable PRC laws and regulations (the “Second Restructure”), on November 5, 2010, JSJ entered into a series of contractual arrangements (the “Contractual Arrangements”) with HDS and/or Zhiguo Wang, his wife Guifang Qi and Xingming Han (collectively with Mr. Wang and Madame Qi, the “HDS Shareholders”), as described below:

●

Exclusive Business Cooperation Agreement. Pursuant to the Exclusive Business Cooperation Agreement between JSJ and HDS (the “Business Cooperation Agreement”), JSJ has the exclusive right to provide to HDS general business operation services, including advice and strategic planning, as well as consulting services related to technology, research and development, human resources, marketing and other services deemed necessary (collectively, the “Services”). Under the Business Cooperation Agreement, JSJ has exclusive and proprietary rights and interests in all rights, ownership, interests and intellectual properties arising out of or created during the performance of the Business Cooperation Agreement, including but not limited to copyrights, patents, patent applications, software and trade secrets. HDS shall pay to JSJ a monthly consulting service fee (the “Service Fee”) in RMB that is equal to 100% of the monthly net income of HDS. Upon the prior written consent by JSJ, the rate of Service Fee may be adjusted pursuant to the operational needs of HDS. Within 30 days after the end of each month, HDS shall (a) deliver to JSJ the management accounts and operating statistics of HDS for such month, including the net income of HDS during such month (the “Monthly Net Income”), and (b) pay 80% of such Monthly Net Income to JSJ (each such payment, a “Monthly Payment”). Within ninety (90) days after the end of each fiscal year, HDS shall (a) deliver to JSJ financial statements of HDS for such fiscal year, which shall be audited and certified by an independent certified public accountant approved by JSJ, and (b) pay an amount to JSJ equal to the shortfall, if any, of the aggregate net income of HDS for such fiscal year, as shown in such audited financial statements, as compared to the aggregate amount of the Monthly Payments paid by HDS to JSJ in such fiscal year. HDS also granted an irrevocable and exclusive option to JSJ to purchase any and all of the assets of HDS, to the extent permitted under PRC law, at the lowest price permitted by PRC law. Unless earlier terminated in accordance with the provisions of the Business Cooperation Agreement or other agreements separately executed between JSJ and HDS, the Business Cooperation Agreement is for a term of ten years and expires on November 5, 2020; however, the term of the Business Cooperation Agreement may be extended if confirmed in writing by JSJ prior to the expiration of the term thereof. The period of the extended term shall be determined exclusively by JSJ and HDS shall accept such extended term unconditionally. Unless JSJ commits gross negligence, or a fraudulent act, against HDS, HDS shall not terminate the Business Cooperation Agreement prior to the expiration of the term, including any extended term. Notwithstanding the foregoing, JSJ shall have the right to terminate the Business Cooperation Agreement at any time upon giving 30 days’ prior written notice to HDS.

●

Exclusive Option Agreement. Under an Exclusive Option Agreement among JSJ, HDS and each HDS Shareholder (individually, an “Option Agreement”), the terms of which are substantively identical to each other, each HDS Shareholder has granted JSJ or its designee the irrevocable and exclusive right to purchase, to the extent permitted under PRC law, all or any part of the HDS Shareholder’s equity interests in HDS (the “Equity Interest Purchase Option”) for RMB 10. If an appraisal is required by PRC laws at the time when and if JSJ exercises the Equity Interest Purchase Option, the parties shall negotiate in good faith and, based upon the appraisal, make a necessary adjustment to the purchase price so that it complies with any and all then applicable PRC laws. Without the consent of JSJ, the HDS Shareholders shall not sell, transfer, mortgage or dispose of their respective shares of HDS stock. Additionally, without the prior consent of JSJ, the HDS Shareholders shall not in any manner supplement, change or amend the articles of association and bylaws of HDS, increase or decrease its registered capital, change the structure of its registered capital in any other manner, or engage in any transactions that could materially affect HDS’ assets, liabilities, rights or operations, including, without limitation, the incurrence or assumption of any indebtedness except incurred in the ordinary course of business, execute any major contract over RMB 500,000, sell or purchase any assets or rights, incur of any encumbrance on any of its assets or intellectual property rights in favor of a third party or transfer of any agreements relating to its business operation to any third party. The term of each Option Agreement is ten years commencing on November 5, 2020 and may be extended at the sole election of JSJ.

●

Equity Interest Pledge Agreement. In order to guarantee HDS’s performance of its obligations under the Business Cooperation Agreement, each HDS Shareholder, JSJ and HDS entered into an Equity Interest Pledge Agreement (individually, a “Pledge Agreement”), the terms of which are substantially similar to each other. Pursuant to the Pledge Agreement, each HDS Shareholder pledged all of his or her equity interest in HDS to JSJ. If HDS or the HDS Shareholders breach their respective contractual obligations and such breach is not remedied to the satisfaction of JSJ within 20 days after the giving of notice of breach, JSJ, as pledgee, will be entitled to exercise certain rights, including the right to foreclose upon and sell the pledged equity interests. During the term of the Pledge Agreement, the HDS Shareholder shall not transfer his or her equity interest in HDS or place or otherwise permit any other security interest of other encumbrance to be placed on such equity interest. Upon the full payment of the Service Fee under the Business Cooperation Agreement and upon the termination of HDS’s obligations thereunder, the Pledge Agreement shall be terminated.

●

Power of Attorney. Under the Power of Attorney executed by each HDS Shareholder (each, a “Power of Attorney”), the terms of which are substantially similar to each other, JSJ has been granted an exclusive, irrevocable power of attorney to take actions in the place and stead of the HDS Shareholders, to act on behalf of the HDS Shareholder as his or her exclusive agent and attorney with respect to all matters concerning the HDS Shareholder’s equity interests in HDS, including without limitation, the right to: 1) attend shareholders’ meetings of HDS; 2) exercise all the HDS Shareholders’ rights, including voting rights under PRC laws and HDS’s Articles of Association, including but not limited to the sale or transfer or pledge or disposition of the HDS Shareholder’s equity interests in HDS in whole or in part; and 3) designate and appoint on behalf of the HDS Shareholders the legal representative, executive director, supervisor, manager and other senior management of HDS.

To the extent that the Contractual Arrangements are enforceable under PRC law, as from time to time interpreted by relevant state agencies, they constitute the valid and binding obligations of each of the parties to each such agreement.

The Company believes that HDS is considered a VIE under ASC 810 “Consolidation”, because the equity investors in HDS no longer have the characteristics of a controlling financial interest, and the Company, through JSJ, is the primary beneficiary of HDS and controls HDS’s operations. Accordingly, HDS has been consolidated as a deemed subsidiary into YBP as a reporting company under ASC 810.

As required by ASC 810-10, the Company performs a qualitative assessment to determine whether the Company is the primary beneficiary of HDS which is identified as a VIE of the Company. A quality assessment begins with an understanding of the nature of the risks in the entity as well as the nature of the entity’s activities including terms of the contracts entered into by the entity, ownership interests issued by the entity and the parties involved in the design of the entity. The Company’s assessment on the involvement with HDS reveals that the Company has the absolute power to direct the most significant activities that impact the economic performance of HDS. JSJ is obligated to absorb a majority of the risk of loss from HDS activities and entitles JSJ to receive a majority of HDS’s expected residual returns. In addition, HDS’s shareholders have pledged their equity interest in HDS to JSJ, irrevocably granted JSJ an exclusive option to purchase, to the extent permitted under PRC Law, all or part of the equity interests in HDS and agreed to entrust all the rights to exercise their voting power to the person(s) appointed by JSJ. Under the accounting guidance, the Company is deemed to be the primary beneficiary of HDS and the results of HDS are consolidated in the Company’s consolidated financial statements for financial reporting purposes. Accordingly, as a VIE, HDS’s sales are included in the Company’s total sales, its income from operations is consolidated with the Company’s and the Company’s net income includes all of HDS’s net income. The Company does not have any non-controlling interest and, accordingly, did not subtract any net income in calculating the net income attributable to the Company. Because of the Contractual Arrangements, YBP has a pecuniary interest in HDS that requires consolidation of HDS’s financial statements with those of the Company.

Additionally, pursuant to ASC 805, as YBP and HDS are under the common control of the HDS Shareholders, the Second Restructure was accounted for in a manner similar to a pooling of interests. As a result, the Company’s historical amounts in the accompanying consolidated financial statements give retrospective effect to the Second Restructure, whereby the assets and liabilities of the Company are reflected at the historical carrying values and their operations are presented as if they were consolidated for all periods presented, with the results of the Company being consolidated from the date of the Second Transfer Agreement. The accounts of HDS are consolidated in the accompanying financial statements.

As of September 30, 2013, JSJ has agreed to waive all management fees to be payable by HDS and the Company expects to waive such management fees in the near future due to a need of working capital in HDS to expand HDS’s operations.

The Company is principally engaged in (1) processing and selling yew raw materials used in the manufacture of traditional Chinese medicine (“TCM”); (2) growing and selling yew tree seedlings and mature trees, including potted miniature yew trees; and (3) manufacturing and selling furniture and handicrafts made of yew tree timber. The Company is located in Harbin, Heilongjiang Province, China.

YBP has no direct or indirect legal or equity ownership interest in HDS. However, through the Contractual Arrangements, the stockholders of HDS have assigned all their rights as stockholders, including voting rights and disposition rights of their equity interests in HDS to JSJ, our indirect, wholly-owned subsidiary. YBP is deemed to be the primary beneficiary of HDS and the financial statements of HDS are consolidated in the Company’s consolidated financial statements. At September 30, 2013 and December 31, 2012, the carrying amount and classification of the assets and liabilities in the Company’s balance sheets that relate to the Company’s variable interest in the VIE was as follows:

Assets	September 30, 2013		December 31, 2012
Cash	$	1,091,749	$	343,990
Accounts receivable		1,027,690		722,598
Accounts receivable – related party		1,172,091		284,986
Inventories (current and long-term)		11,480,650		10,373,398
Prepaid expenses and other assets		34,018		-
Prepaid expenses - related parties		39,613		57,870
Property and equipment, net		903,235		790,563
Land use rights and yew forest assets, net		15,755,289		15,328,318
Total assets of VIE	$	31,504,335	$	27,901,723
Liabilities
Accounts payable	$	4,411	$	990
Accrued expenses and other payables		70,687		79,981
Taxes payable		3,813		6,305
Due to YBP and JSJ		1,706,144		1,939,720
Due to related parties		5,682		1,900
Total liabilities of VIE	$	1,790,737	$	2,028,896

The assets and liabilities in the table above are held in HDS, the VIE. The creditors of HDS have legal recourse only to the assets of HDS and do not have such recourse to the Company. In addition, HDS’ assets are generally restricted only to pay such liabilities. Thus, the Company’s maximum legal exposure to loss related to the VIE is significantly less than the carrying value of the HDS assets due to outstanding intercompany liabilities. Restricted net assets of the VIE shall mean that amount of our proportionate share of net assets of HDS (after intercompany eliminations) which as of the end of the most recent fiscal year and most recent reporting balance sheet date may not be transferred to the parent company by the VIE in the form of loans, advances or cash dividends without the consent of a third party (e.g. lender, regulatory agency, foreign government).

Reclassifications

Certain prior period amounts have been reclassified to conform to the current year presentation. These reclassifications have no effect on the previously reported financial position, results of operations and cash flows.

NOTE 3 – INVENTORIES

Inventories consisted of raw materials, work-in-progress, finished goods-handicrafts, yew seedlings and other trees (consisting of larix, spruce and poplar trees). The Company classifies its inventories based on its historical and anticipated levels of sales; any inventory in excess of its normal operating cycle of one year is classified as long-term on its consolidated balance sheets. As of September 30, 2013 and December 31, 2012, inventories consisted of the following:

	September 30, 2013						December 31, 2012
	Current portion		Long-term portion		Total		Current portion		Long-term portion		Total
Raw materials	$	354,500	$	2,742,112	$	3,096,612	$	284,628	$	2,734,896	$	3,019,524
Work-in-process		88,749		-		88,749		22,523		-		22,523
Finished goods - handicrafts		196,647		626,737		823,384		153,578		695,426		849,004
Yew seedlings		796,715		3,527,843		4,324,558		530,505		3,622,991		4,153,496
Other trees		11,369		3,135,977		3,147,346		-		2,328,851		2,328,851
Total	$	1,447,980	$	10,032,669	$	11,480,649	$	991,234	$	9,382,164	$	10,373,398

NOTE 4 – TAXES

(a) Federal Income Tax and Enterprise Income Taxes

The Company is registered in the State of Nevada and is subject to the United States federal income tax at a tax rate of 34%. No provision for income taxes in the U.S. has been made as the Company had no U.S. taxable income as of September 30, 2013 and December 31, 2012.

The Company’s subsidiary and VIE, JSJ and HDS, respectively, being incorporated in the PRC, are subject to PRC’s Enterprise Income Tax. Pursuant to the PRC Income Tax Laws, Enterprise Income Taxes (“EIT”) is generally imposed at 25%.

The table below summarizes the difference between the U.S. statutory federal tax rate and the Company’s effective tax rate for the nine months ended September 30, 2013 and 2012:

	Nine Months Ended September 30,
	2013			2012
U.S. federal income tax rate		34	%		34	%
Foreign income not recognized in the U.S.		(34	%)		(34	%)
PRC EIT rate		25	%		25	%
PRC tax exemption and reduction		(25	%)		(25	%)
Total provision for income taxes		-			-

Income before income tax expenses of $592,212 and $879,659 for the three months ended September 30, 2013 and 2012, respectively, and $2,857,232 and $3,359,870 for the nine months ended September 30, 2013 and 2012, respectively, was attributed to subsidiaries with operations in China. HDS and JSJ recorded no income tax expense for the nine months ended September 30, 2013 and 2012 due to the fact that HDS has been granted a tax exemption and has loss carry-forwards from previous years to offset income tax liability generated for handicraft sales and JSJ has been incurring net losses.

The combined effects of the income tax expense exemptions and tax reductions available to the Company for the three and nine months ended September 30, 2013 and 2012 are as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Tax exemption effect	$	156,812		$	252,051		$	778,923		$	904,032
Tax reduction due to loss carry-forward		-			3,851			-			5,516
Gain (loss) not subject to income tax		1,786			(1,041	)		(3,883	)		(3,186	)
Basic net income per share effect	$	(0.00	)	$	(0.01	)	$	(0.02	)	$	(0.02	)
Diluted net income per share effect	$	(0.00	)	$	(0.01	)	$	(0.02	)	$	(0.02	)

The deferred income tax assets or liabilities calculated pursuant to the EIT is not material due to the fact that the Company has been granted EIT exemption with respect to its yew raw materials and yew tree segments and is only subject to tax under the EIT for its handicrafts segment, which only represents a small portion of net revenues.

The Company has incurred net operating loss for income tax purposes for the three and nine months ended September 30, 2013 and 2012. The net operating loss carry-forwards for U.S. income tax purposes amounted to $1,205,716 and $962,787 at September 30, 2013 and December 31, 2012, respectively, which may be available to reduce future years’ taxable income. These carry forwards will expire, if not utilized, through 2033. Management believes that the realization of the benefits arising from this loss appear to be uncertain due to the Company’s limited operating history and continuing losses for United States income tax purposes. Accordingly, the Company has provided a 100% valuation allowance on the deferred tax asset to reduce the asset to zero at September 30, 2013 and December 31, 2012. The valuation allowance at September 30, 2013 and December 31, 2012 was $409,943 and $327,348, respectively. The net change in the valuation allowance was an increase of $14,340 and $47,527 during the three months ended September 30, 2013 and 2012, respectively. The net change in the valuation allowance was an increase of $82,595 and $90,297 during the nine months ended September 30, 2013 and 2012, respectively, and management will review this valuation allowance periodically and make adjustments as necessary.

Deferred tax assets and liabilities are provided for significant income and expense items recognized in different years for income tax and financial reporting purposes. Temporary differences, which give rise to a net deferred tax asset for the Company as of September 30, 2013 and December 31, 2012, are as follows:

	September 30, 2013			December 31, 2012
U.S. tax benefit of net operating loss carry forward	$	409,943		$	327,348
Valuation allowance		(409,943	)		(327,348	)
Net deferred tax assets	$	-		$	-

For U.S. income tax purposes, the Company has cumulative undistributed earnings of foreign subsidiary and VIE of approximately $19.2 million and $16.4 million as of September 30, 2013 and December 31, 2012, respectively, which are included in consolidated retained earnings and will continue to be indefinitely reinvested in overseas operations. Accordingly, no provision has been made for U.S. deferred taxes related to future repatriation of these earnings, nor is it practicable to estimate the amount of income taxes that would have to be provided if we concluded that such earnings will be remitted to the U.S. in the future.

The Company did not have uncertainty tax positions or events leading to uncertainty tax position within the next 12 months. The Company’s 2010, 2011 and 2012 U.S. corporation income tax returns are subject to Internal Revenue Service examination. The Company’s 2009, 2010, 2011 and 2012 China corporate income tax returns are subject to China State Administration of Taxation examination.

(b) Value Added Taxes (“VAT”)

The applicable VAT tax rate is 13% for agricultural products and 17% for handicrafts sold in the PRC. In accordance with VAT regulations in the PRC, the Company is exempt from paying VAT on its yew raw materials and yew trees sales as an agricultural corps cultivating company up to December 31, 2016. VAT payable in the PRC is charged on an aggregated basis at the applicable rate on the full price collected for the goods sold or taxable services provided and less any deductible VAT already paid by the taxpayer on purchases of goods in the same fiscal year.

NOTE 5 – STOCKHOLDERS’ EQUITY

Stock Options

On December 13, 2012, the Company’s shareholders approved the issuance of stock purchase options (“Founders’ Options”) to the Company’s directors/officers (collectively, the “Founders”) and the Company issued the Founders’ Options to the Founders following such approval. The terms of each Founder’s Option are identical to each other except for the name of the optionee and the number of shares of the Company’s common stock subject to each Founder’s Option. The principal terms of the Founders’ Options include the following:

●	Each Founder’s Option is fully vested upon issuance;

●	Each Founder’s Option is exercisable for a period of five years from the date of issuance;

●	Each Founder’s Option is exercisable at $0.22 per share; and

●

Each Founder’s Option has a cashless exercise feature, pursuant to which, at the optionee’s election, he or she may choose to deliver previously-owned shares of YBP common stock in payment of the exercise price or not pay the exercise price of the Founder’s Option and receive instead a reduced number of shares of YBP common stock reflecting the value of the number of shares of YBP common stock equal to the difference, if any, between the aggregate fair market value of the shares issuable upon exercise of the Founder’s Option and the exercise price of the Founder’s Option.

The number of shares of the Company’s common stock subject to each Founder’s Option is as follows:

Name of Optionee	Number of Shares Subject to Founder's Option
Zhiguo Wang		20,103,475
Guifang Qi		2,488,737
Xingming Han		213,300
Total		22,805,512

There were no stock warrants issued, terminated/forfeited and exercised during the nine months ended September 30, 2013.

The following table summarizes the shares of the Company's common stock issuable upon exercise of options outstanding at September 30, 2013:

Stock Options Outstanding								Stock Options Exercisable
Range of Exercise Price		Number Outstanding at September 30, 2013		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price		Number Exercisable at September 30, 2013		Weighted Average Exercise Price
$	0.22		22,805,512		4.20	$	0.22		22,805,512	$	0.22

The intrinsic value of options at September 30, 2013 is zero since the estimated market value of the Company’s common stock as of September 30, 2013 is lower than the exercise price of the options.

NOTE 6 – EARNINGS PER SHARE

ASC 260 “Earnings per Share,” requires dual presentation of basic and diluted earnings per share (“EPS”) with a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. Basic EPS excludes dilution. Diluted EPS 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 then shared in the earnings of the entity.

Basic net income per share is computed by dividing net income available to common shareholders by the weighted average number of shares of common stock outstanding during the period. Diluted income per share is computed by dividing net income by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during each period. Potentially dilutive common shares consist of common shares issuable upon the confirmation of subscriptions for shares and common stock options (using the treasury stock method).

The following table presents a reconciliation of basic and diluted net income per share for the three and nine months ended September 30, 2013 and 2012:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
Net income available to common stockholders for basic and diluted net income per share of common stock	$	592,212	$	879,659	$	2,857,232	$	3,359,870
Weighted average common stock outstanding – basic		50,000,000		50,000,000		50,000,000		47,052,920
Effect of dilutive securities:
Subscribed common shares issuable		-		-		-		2,947,080
Stock options issued to directors/officers		-		-		-		-
Weighted average common stock outstanding – diluted		50,000,000		50,000,000		50,000,000		50,000,000
Net income per common share – basic	$	0.01	$	0.02	$	0.06	$	0.07
Net income per common share – diluted	$	0.01	$	0.02	$	0.06	$	0.07

The Company's aggregate common stock equivalents at September 30, 2013 and December 31, 2012 included the following:

	September 30, 2013		December 31, 2012
Stock options		22,805,512		22,805,512
Total		22,805,512		22,805,512

NOTE 7 – CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS

Customers

For the three and nine months ended September 30, 2013 and 2012, customers accounting for 10% or more of the Company’s revenue were as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
Customer	2013		2012		2013		2012
A	16	%	20	%	10	%	16	%
B	*		*		*		13	%
C	*		13	%	*		14	%
D	*		17	%	*		14	%
E	*		*		*		11	%
F	*		*		24	%	*
G (Yew Pharmaceutical, a related party)	*		32	%	26	%	12	%

*	Less than 10%

The three largest customers accounted for 88.6% of the Company’s total outstanding accounts receivable at September 30, 2013, of which Yew Pharmaceutical, a related party, accounted for 53.3%. Three customers accounted for 100% of the Company’s total outstanding accounts receivable at December 31, 2012, of which Yew Pharmaceutical accounted for 28.3%.

Suppliers

For the three and nine months ended September 30, 2013 and 2012, suppliers accounting for 10% or more of the Company’s purchase were as follows:

	Three Months Ended September 30,			Nine Months Ended September 30,
Supplier	2013	2012		2013		2012
A	*	*		62	%	*
B	*	*		38	%	*
C	*	100	%	*		95	%

*	Less than 10%

For the three months ended September 30, 2013, the Company did not make any significant purchases. For the nine months ended September 30, 2013, two suppliers accounted for 100% of the Company’s purchases and the Company did not have any payable with these suppliers at September 30, 2013.

For the three and nine months ended September 30, 2012, the Company did not make any purchases of yew seedlings. In connection with an agreement to acquire a land use right in July 2012 (the “Fuye Field Agreement”), the Company acquired more than 80,000 trees - which are not yew trees - for approximately $2.2 million (the amount was included in the land use right agreement as part of the purchase price) from an individual. For the three and nine months ended September 30, 2012, this purchase accounted for 100% and 95%, respectively, of the Company’s purchase of yew seedlings and other trees and a third party supplier accounted for 100% of the Company’s accounts payable at December 31, 2012.

NOTE 8 – RELATED PARTY TRANSACTIONS

The Company conducted transactions with certain of the Company’s officers and directors, as well as with the following related parties:

Company		Ownership
Heilongjiang Zishan Technology Stock Co., Ltd. (“ZTC”)		18% owned by Heilongjiang Hongdoushan Ecology Forest Stock Co., Ltd., 39% owned by Zhiguo Wang, Chairman and Chief Executive Officer, 31% owned by Guifang Qi, the wife of Mr. Wang and Director of the Company, and 12% owned by third parties.
Heilongjiang Yew Pharmaceuticals, Co., Ltd. (“Yew Pharmaceutical”)		95% owned by Heilongjiang Hongdoushan Ecology Forest Stock Co., Ltd., and 5% owned by Madame Qi.
Shanghai Kairun Bio-Pharmaceutical Co., Ltd. (“Kairun”)		60% owned by Heilongjiang Zishan Technology Co., Ltd., 20% owned by Heilongjiang Hongdoushan Ecology Forest Stock Co., Ltd., and 20% owned by Mr. Wang.
Heilongjiang Hongdoushan Ecology Forest Stock Co., Ltd. (“HEFS”)		63% owned by Mr. Wang, 34% owned by Madame Qi, and 3% owned by third parties.

Cooperation and Development Agreement and Revenues from Related Party

On January 9, 2010, the Company entered into a Cooperation and Development Agreement (the “Development Agreement”) with Yew Pharmaceutical. Pursuant to the Development Agreement, for a period of ten years expiring on January 9, 2020, the Company shall supply cultivated yew raw materials to Yew Pharmaceutical, which will be used by Yew Pharmaceutical to make traditional Chinese medicines and other pharmaceutical products, at a price of RMB 1,000,000 (approximately $161,000) per metric ton.

For the three months ended September 30, 2013 and 2012, sales to Yew Pharmaceutical under the Development Agreement amounted to $88,706 and $442,467, respectively. For the nine months ended September 30, 2013 and 2012, sales to Yew Pharmaceutical under the Development Agreement amounted to $1,409,141 and $600,556, respectively. Additionally, for the three months ended September 30, 2013 and 2012, the Company did not record any revenue from the sale of yew handicrafts to Yew Pharmaceutical. For the nine months ended September 30, 2013 and 2012, the Company recorded revenues from the sale of yew handicrafts to Yew Pharmaceutical of $0 and $1,603, respectively. In summary, for the three and nine months ended September 30, 2013 and 2012, the Company recorded revenues from the following related party:

	Three Months Ended September 30,				Nine Months Ended September 30,
Name of related party	2013		2012		2013		2012
Yew Pharmaceutical	$	88,706	$	442,467	$	1,409,141	$	602,159
Total	$	88,706	$	442,467	$	1,409,141	$	602,159

At September 30, 2013 and December 31, 2012, the Company had accounts receivable from Yew Pharmaceutical of $1,172,091 and $284,986, respectively, which was included in accounts receivable–related party on the accompanying consolidated balance sheets.

Purchases

For the three and nine months ended September 30, 2013 and 2012, the Company did not make any material purchases from its related party companies.

Operating Leases

On March 25, 2005, the Company entered into an Agreement for the Lease of Seedling Land with ZTC (the “ZTC Lease”). Pursuant to the ZTC Lease, the Company leases 361 mu (approximately 60 acres) of land from ZTC for a period of 30 years, expiring on March 24, 2035. Annual payments under the ZTC Lease are RMB 162,450 (approximately $26,000). The payment for the first five years of the ZTC Lease was due prior to December 31, 2010 and beginning in 2011, the Company is required to make full payment for the land use rights in advance for each subsequent five-year period. For the three months ended September 30, 2013 and 2012, rent expense related to the ZTC Lease amounted to $6,583 and $6,414, respectively. For the nine months ended September 30, 2013 and 2012, rent expense related to the ZTC Lease amounted to $19,583 and $19,255, respectively. At September 30, 2013 and December 31, 2012, prepaid rent to ZTC amounted to $39,613 and $57,870, respectively, which was included in prepaid expenses–related parties on the accompanying consolidated balance sheets.

On December 3, 2008, the Company entered into a lease for retail space in Harbin with Madame Qi (the “Store Lease”). Pursuant to the Store Lease, no payment was due for the first year and an annual payment of RMB 12,000 (approximately $2,000) is due for each of the second and third years thereof. The term of the Store Lease was three years and it expired on December 3, 2011. On November 15, 2011, the Company renewed the Store Lease. Pursuant to the renewed Store Lease, the annual rent is RMB 15,600 (approximately $2,500) and the annual payment is due by May 30 of each year. The term of the renewed Store Lease is 3 years and expires on December 1, 2014. For the three months ended September 30, 2013 and 2012, rent expense related to the Store Lease amounted to $633 and $616, respectively. For the nine months ended September 30, 2013 and 2012, rent expense related to the Store Lease amounted to $1,881 and $1,849, respectively. Since December 2012, the premises subject to the Store Lease have been used as warehouse and exhibition space rather than retail space.

On January 1, 2010, the Company entered into a lease for office space with Mr. Wang (the “Office Lease”). Pursuant to the Office Lease, annual payments of RMB 15,000 (approximately $2,400) are due for each year of the term. The term of the Office Lease is 15 years and expires on December 31, 2025. For the three months ended September 30, 2013 and 2012, rent expense related to the Office Lease amounted $608 and $592, respectively. For the nine months ended September 30, 2013 and 2012, rent expense related to the Office Lease amounted $1,808 and $1,778, respectively.

On July 1, 2012, JSJ entered into a lease for office space with Mr. Wang (the “JSJ Lease”). Pursuant to the JSJ Lease, JSJ leases approximately 320 square feet of office space from Mr. Wang in Harbin. Rent under the JSJ Lease is RMB 10,000 (approximately $1,600) annually. The term of the JSJ Lease is three years and expires on June 30, 2015. For the three months ended September 30, 2013 and 2012, rent expense related to the JSJ Lease amounted to $405 and $395, respectively. For the nine months ended September 30, 2013 and 2012, rent expense related to the JSJ Lease amounted to $1,205 and $395, respectively. At September 30, 2013 and December 31, 2012, prepaid rent to Mr. Wang amounted to $1,219 and $2,375, respectively, which was included in prepaid expenses-related parties on the accompanying consolidated balance sheets.

The principal executive offices of YBP are located at 294 Powerbilt Avenue, Las Vegas, Nevada, a property owned by the Company’s President, Zhiguo Wang, which he provides rent-free to the Company. However, the Company pays utilities, property insurance, real estate tax, association dues and certain other expenses on the property to third parties, which, in the three months ended September 30, 2013 and 2012, aggregated approximately $3,762 and $3,684, respectively, and in the nine months ended September 30, 2013 and 2012, aggregated approximately $11,112 and $8,754, respectively. The space provided by Mr. Wang to use as principal executive offices is less than 500 square feet and a significant portion of the property is used by Mr. Wang for his personal use. The Company estimates that the market value of a gross and full service lease for an equivalent executive office rent in the same geographic area is approximately $800 to $1,000 per month. The landlord of a gross and full service lease typically would be responsible for paying utilities, property tax and insurance and other expenses associated with maintaining the property. However, the Company pays these expenses, as well as association dues, on behalf of Mr. Wang, to third parties in lieu of making rent payments. The Company believes that the difference between the annual market rent for the space used by the Company and the amount of $3,762 and $3,684 for the three months ended September 30, 2013 and 2012, respectively, and the amount of $11,112 and $8,754 for the nine months ended September 30, 2013 and 2012, respectively, that the Company paid to third parties for expenses related to the property in the three and nine months ended September 30, 2013 and 2012, is not material.

At September 30, 2013 and December 31, 2012, the total prepaid rent for the above operating leases with related parties amounted to $40,832 and $60,245, respectively, which amount was included in prepaid expenses-related parties on the accompanying consolidated balance sheets.

Amounts Due to Related Parties

Certain of the Company’s officers and directors, from time to time, have provided advances to the Company for working capital purpose. These advances are short-term in nature, non-interest bearing, unsecured and payable on demand. The due to related parties amount at September 30, 2013 and December 31, 2012 was as follows:

Name of related parties	September 30, 2013		December 31, 2012
Zhiguo Wang	$	47,804	$	45,976
Guifang Qi		3,853		1,900
Total	$	51,657	$	47,876

Research and Development Agreement

The Company entered into a Technology Development Service Agreement dated January 1, 2010 (the “Technology Agreement”) with Kairun. The term of the Technology Agreement was initially two years. Under the Technology Agreement, Kairun provides the Company with testing and technologies regarding utilization of yew trees to extract taxol and develop higher concentration of taxol in the yew trees the Company grow and cultivate. For these services, the Company agreed to pay Kairun RMB 200,000 (approximately $32,000) after the technologies developed by Kairun are tested and approved by the Company. The Company will retain all intellectual property rights in connection with the technologies developed by Kairun. Kairun may not provide similar services to any other party without the Company’s prior written consent. In February 2012, the Company entered into a supplemental agreement with Kairun, extending the term of the Technology Agreement indefinitely until project results specified in the original Technology Agreement have been achieved. Kairun is owned directly and indirectly primarily by Mr. Wang and Madame Qi. As of September 30, 2013, Kairun has not yet completed the services provided for in the Technology Agreement and, therefore, no payment was made to Kairun.

NOTE 9 – STATUTORY RESERVES

The Company is required to make appropriations to reserve funds, comprising the statutory surplus reserve and discretionary surplus reserve, based on after-tax net income determined in accordance with generally accepted accounting principles of the PRC (“PRC GAAP”). Appropriation to the statutory surplus reserve is required to be at least 10% of the after tax net income determined in accordance with PRC GAAP until the reserve is equal to 50% of the entities’ registered capital. Appropriations to the discretionary surplus reserve are made at the discretion of the Board of Directors.

The statutory surplus reserve fund is non-distributable other than during liquidation and can be used to fund previous years’ losses, if any, and may be utilized for business expansion or converted into share capital by issuing new shares to existing shareholders in proportion to their shareholding or by increasing the par value of the shares currently held by them, provided that the remaining reserve balance after such issue is not less than 25% of the registered capital. For the three months ended September 30, 2013 and 2012, the Company appropriated to statutory reserve the amount of $63,772 and $102,361, respectively. For the nine months ended September 30, 2013 and 2012, the Company appropriated to statutory reserve the amount of $311,256 and $363,819, respectively. The accumulated balance of the statutory reserve of the Company as of September 30, 2013 and December 31, 2012 was $2,490,750 and $2,179,494, respectively.

NOTE 10 – SEGMENT INFORMATION

ASC 280 requires use of the “management approach” model for segment reporting. The management approach model is based on the way a company’s management organizes segments within the company for making operating decisions and assessing performance. Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company.

During the three and nine months ended September 30, 2013 and 2012, the Company operated in three reportable business segments: (1) the TCM raw materials segment, consisting of the production and sale of yew raw materials used in the manufacture of TCM; (2) the yew tree segment, consisting of the growth and sale of yew tree seedlings and mature trees, including potted miniature yew trees; and (3) the handicrafts segment, consisting of the manufacture and sale of handicrafts and furniture made of yew timber. The Company’s reportable segments are strategic business units that offer different products. They are managed separately based on the fundamental differences in their operations. All of the Company’s operations are conducted in the PRC.

Information with respect to these reportable business segments for the three and nine months ended September 30, 2013 and 2012 was as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Revenues:
TCM raw materials	$	1,005,323		$	893,909		$	3,171,814		$	2,860,552
Yew trees		448,810			396,416			2,102,417			1,853,504
Handicrafts		90,194			82,699			175,402			118,734
		1,544,327			1,373,024			5,449,633			4,832,790
Cost of revenues:
TCM raw materials		226,616			158,354			841,667			446,436
Yew trees		348,040			21,395			753,718			320,410
Handicrafts		63,572			51,188			127,034			69,863
		638,228			230,937			1,722,419			836,709
Depreciation and amortization
TCM raw materials		92,764			84,334			271,581			253,157
Yew trees		8,723			14,573			25,949			41,638
Handicrafts		7,795			7,428			23,358			23,532
Other		28,309			36,017			98,474			99,396
		137,591			142,352			419,362			417,723

Net income (loss)
TCM raw materials		778,707			735,555			2,330,147			2,414,116
Yew trees		100,770			375,021			1,348,699			1,533,094
Handicrafts		26,622			31,511			48,368			48,871
Other		(313,887	)		(262,428	)		(869,982	)		(636,211	)
	$	592,212		$	879,659		$	2,857,232		$	3,359,870

Information with respect to identifiable long-lived assets, net, as of September 30, 2013 and December 31, 2012 was as follows:

	September 30, 2013		December 31, 2012
TCM raw materials	$	15,755,289	$	14,983,045
Yew trees		3,900,951		4,357,203
Handicrafts		913,414		817,917
Other		6,196,128		5,438,286
	$	26,765,782	$	25,596,451

Information with respect to expenditures for segment assets for the nine months ended September 30, 2013 and 2012 was as follows:

	Nine Months Ended September 30,
	2013		2012
TCM raw materials	$	513,685	$	65,749
Yew trees		183,235		83,098
Handicrafts		-		-
Other		34,369		125,426
	$	731,289	$	274,273

The Company does not allocate any selling, general and administrative expenses, other income/expenses to its reportable segments because these activities are managed at a corporate level. In addition, the specified amounts for interest expense and income tax expense are not included in the measure of segment profit or loss reviewed by the chief operating decision maker and these specified amounts are not regularly provided to the chief operating decision maker. Therefore, the Company has not disclosed interest expense and income tax expense for each reportable segment.

Asset information by reportable segment is not reported to or reviewed by the chief operating decision maker and, therefore, the Company has not disclosed asset information for each reportable segment. The Company’s operations are located in the PRC. All revenues are derived from customers in the PRC. All of the Company’s operating assets are located in the PRC.

NOTE 11 – RECENT ACCOUNTING PRONOUNCEMENTS

In March 2013, the FASB issued ASU 2013-05 “Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity.” ASU 2013-05 addresses the accounting for the cumulative translation adjustment when a parent either sells part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business within a foreign entity. For public entities, the ASU is effective prospectively for fiscal years, and interim periods, within those years, beginning after December 15, 2013. Early adoption is permitted. The adoption of ASU 2013-05 is not expected to have a material impact on the Company’s consolidated financial statements.

In July 2013, the FASB issued ASU 2013-11, “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists”. These amendments provide that an unrecognized tax benefit, or a portion thereof, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except to the extent that a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date to settle any additional income taxes that would result from disallowance of a tax position, or the tax law does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, then the unrecognized tax benefit should be presented as a liability. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The adoption of ASU 2013-11 is not expected to have a material impact on the Company’s consolidated financial statements.

Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption.

NOTE 12 - SUBSEQUENT EVENTS

The Company has evaluated all other subsequent events through November 12, 2013, the date these consolidated financial statements were issued, and determined that there were no other subsequent events or transactions that require recognition or disclosures in the financial statements.

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

The following discussion of our consolidated results of operations for the three and nine months ended September 30, 2013 and 2012, and cash flows for the nine months ended September 30, 2013 and 2012, and consolidated financial conditions as of September 30, 2013 and December 31, 2012 should be read in conjunction with our unaudited consolidated financial statements and the related notes included elsewhere in this document.

Overview

We are a major grower and seller of yew trees and manufacturer of products made from yew trees, including potted yew trees for display in homes and offices, and handicrafts. We also sell branches and leaves of yew trees for the manufacture of TCM containing taxol, which TCM has been approved in the PRC for use as a secondary treatment of certain cancers, meaning it must be administered in combination with other pharmaceutical drugs. The yew industry is highly regulated in the PRC because the Northeast yew tree is considered an endangered species.

For the three and nine months ended September 30, 2013 and 2012, we operated in three reportable business segments: (1) the TCM raw materials segment, consisting of the production and sale of yew raw materials used in the manufacture of TCM; (2) the yew tree segment, consisting of the growth and sale of yew tree seedlings and mature trees, including potted miniature yew trees; and (3) the handicrafts segment, consisting of the manufacture and sale of furniture and handicrafts made of yew timber. Our reportable segments are strategic business units that offer different products. They are managed separately based on the fundamental differences in their operations. All of our operations are conducted in the PRC. We are located in Harbin, Heilongjiang Province, China.

For the three and nine months ended September 30, 2013 and 2012, revenue by segment as a percentage of consolidated revenues is summarized as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
TCM raw materials		65.1	%		65.1	%		58.2	%		59.2	%
Yew trees		29.1	%		28.9	%		38.6	%		38.3	%
Handicrafts		5.8	%		6.0	%		3.2	%		2.5	%
Total		100.0	%		100.0	%		100.0	%		100.0	%

For the three and nine months ended September 30, 2013 and 2012, revenue by segment as a percentage of consolidated revenues is summarized by third party and related party revenues as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
TCM raw materials - Total		65.1	%		65.1	%		58.2	%		59.2	%
TCM raw materials – third parties		59.4	%		32.9	%		32.3	%		46.8	%
TCM raw materials – related party		5.7	%		32.2	%		25.9	%		12.4	%

Handicrafts - Total		5.8	%		6.0	%		3.2	%		2.5	%
Handicrafts– third parties		5.8	%		6.0	%		3.2	%		2.4	%
Handicrafts – related party		-			-			-			0.1	%

All of our revenues were generated by HDS and in the PRC. Other than expenses (approximately $243,000 and $182,000 for the nine months ended September 30, 2013 and 2012, respectively) incurred primarily related to meeting its reporting requirements in the U.S., YBP has no other significant business operations. At September 30, 2013, YBP has approximately $15,000 in cash and holds the 100% equity interests in its subsidiaries Yew HK and JSJ. Yew HK itself has no business operations or assets other than holding of equity interests in JSJ. JSJ has no business operations and assets with a book value of approximately $11,000, including approximately $3,000 in cash at September 30, 2013. JSJ also holds the VIE interests in HDS through the contractual arrangements (the “Contractual Arrangements”) described in Note 2 of Notes to Consolidated Financial Statements. In the event that we are unable to enforce the Contractual Agreements, we may not be able to exert effective control over HDS, and our ability to conduct our business may be materially and adversely affected. If the applicable PRC authorities invalidate our Contractual Agreements for any violation of PRC laws, rules and regulations, we would lose control of the VIE resulting in its deconsolidation in financial reporting and severe loss in our market valuation.

Results of Operations

The following tables set forth key components of our results of operations for the periods indicated and key components of our revenue for the periods indicated, in dollars. The discussion following the table is based on these results.

	Three Months Ended September 30,					Nine Months Ended September 30,
	2013		2012			2013		2012
Revenues - third parties	$	1,455,621	$	930,557		$	4,040,492	$	4,230,631
Revenues - related party		88,706		442,467			1,409,141		602,159
Total revenues		1,544,327		1,373,024			5,449,633		4,832,790
Cost of revenues - third parties		618,059		146,409			1,320,028		726,957
Cost of revenues - related party		20,169		84,528			402,391		109,752
Total cost of revenues		638,228		230,937			1,722,419		836,709
Gross profit		906,099		1,142,087			3,727,214		3,996,081
Operating expenses		315,967		262,656			871,529		637,666
Income from operations		590,132		879,431			2,855,685		3,358,415
Other income (expenses)		2,080		228			1,547		1,455
Net income		592,212		879,659			2,857,232		3,359,870
Other comprehensive income:
Foreign currency translation adjustment		180,344		(59,359	)		777,867		108,308
Comprehensive income	$	772,556	$	820,300		$	3,635,099	$	3,468,178

Three and Nine Months Ended September 30, 2013 Compared to Three and Nine Months Ended September 30, 2012

Revenues

For the three months ended September 30, 2013, we had total revenues of $1,544,327, as compared to $1,373,024 for the three months ended September 30, 2012, an increase of $171,303 or 12.5%. For the nine months ended September 30, 2013, we had total revenues of $5,449,633, as compared to $4,832,790 for the nine months ended September 30, 2012, an increase of $616,843 or 12.8%. As more fully described in segment financial data below, the increase in total revenue was attributable to an increase in revenues from all three of our business segments.

Total revenue is summarized as follows:

	Three Months Ended September 30,
	2013		2012		Increase		Percentage Change
TCM raw materials	$	1,005,323	$	893,909	$	111,414		12.5	%
Yew trees		448,810		396,416		52,394		13.2	%
Handicrafts		90,194		82,699		7,495		9.1	%
Total	$	1,544,327	$	1,373,024	$	171,303		12.5	%

	Nine Months Ended September 30,
	2013		2012		Increase		Percentage Change
TCM raw materials	$	3,171,814	$	2,860,552	$	311,262		10.9	%
Yew trees		2,102,417		1,853,504		248,913		13.4	%
Handicrafts		175,402		118,734		56,668		47.7	%
Total	$	5,449,633	$	4,832,790	$	616,843		12.8	%

During the nine months ended September 30, 2013, Yew Pharmaceutical, an affiliate, has been our single largest customer. For the three months ended September 30, 2013 and 2012, we had revenue from the sale of TCM raw materials of $88,706, or 5.7% of consolidated revenue, and $442,467, or 32.2% of consolidated revenue, respectively, from Yew Pharmaceutical, a related party, a decrease of $353,761. Additionally, for the nine months ended September 30, 2013 and 2012, we had revenue from the sale of TCM raw materials of $1,409,141, or 25.9% of consolidated revenues, and $600,556, or 12.5% of consolidated revenues, respectively, to Yew Pharmaceutical, an increase of $808,585.

As more fully described in segment information below, revenue from TCM raw materials and the allocation of sales between related and third parties may fluctuate from period to period depending upon the then current inventory and other purchasing needs of our third-party customers and Yew Pharmaceutical. Accordingly, in some periods we may have more sales to Yew Pharmaceutical and in other periods we may have more sales to third-party customers. During the three months ended September 30, 2013, Yew Pharmaceutical had sufficient inventory of yew raw materials for the production of Zi Shan and did not make significant purchases from us. Revenue generated from Yew Pharmaceutical increased during the nine months ended September 30, 2013 because Yew Pharmaceutical needed to replenish its inventory of yew raw materials in connection with its manufacture of Zi Shan. The sale of TCM raw materials to third party customers increased during the three months ended September 30, 2013 because our customers indicated to us that they needed additional inventory of yew raw materials to sell to their customers. The sale of TCM raw materials to third party customers decreased during the nine months ended September 30, 2013 because our customers indicated to us that they had sufficient inventory of yew raw materials to sell to their customers. We expect that, as a percentage of revenue, sales of TCM raw materials will increase to third party customers and decrease to Yew Pharmaceutical during the remainder of 2013; however, the purchasing requirements of our customers could change.

Because TCM raw materials is our largest business segment, any fluctuation in revenue from TCM raw materials may have a significant impact on net income in such periods. Currently, we are largely dependent on Yew Pharmaceutical and a small number of larger, third party customers of TCM raw materials, although we are attempting to expand our sales and marketing efforts to new customers as well. To date, sales of yew raw materials to new customers have been smaller in amount and we expect this situation to continue at least for the remainder of this year.

We currently have significant accounts receivable from Yew Pharmaceutical and certain of our third party customers of TCM raw materials. See “Liquidity and Capital Resources” below. Subject to Yew Pharmaceutical’s paying down a significant portion of amounts it owes to us, we expect sales of TCM raw materials to Yew Pharmaceutical to recommence in the fourth quarter of 2013.

Cost of Revenues

Our cost of revenues principally consists of the cost of raw materials such as wood plates and yews, amortization of land use rights and yew forest assets, labor, utilities, manufacturing costs, manufacturing related depreciation, machinery maintenance costs, purchasing and receiving costs, inspection costs, and other fixed costs.

As more fully described in segment information below:

●	For the three months ended September 30, 2013, total cost of revenues amounted to $638,228 as compared to $230,937 for the three months ended September 30, 2012, an increase of $407,291 or 176.4%.
●	For the nine months ended September 30, 2013, total cost of revenues amounted to $1,722,419 as compared to $836,709 for the nine months ended September 30, 2012, an increase of $885,710 or 105.9%.

●	For the three months ended September 30, 2013, total cost of revenues accounted for 41.3% of total revenues compared to 16.8% of total revenues for the three months ended September 30, 2012.

●	For the nine months ended September 30, 2013, total cost of revenues accounted for 31.6% of total revenues compared to 17.3 % of total revenues for the nine months ended September 30, 2012.

Cost of revenues by product categories was as follows:

	Three Months Ended September 30,
	2013		2012		Increase		Percentage Change

TCM raw materials	$	226,616	$	158,354	$	68,262		43.1	%
Yew trees		348,040		21,395		326,645		1,526.7	%
Handicrafts		63,572		51,188		12,384		24.2	%
Total	$	638,228	$	230,937	$	407,291		176.4	%

	Nine Months Ended September 30,
	2013		2012		Increase		Percentage Change
TCM raw materials	$	841,667	$	446,436	$	395,231		88.5	%
Yew trees		753,718		320,410		433,308		135.2	%
Handicrafts		127,034		69,863		57,171		81.8	%
Total	$	1,722,419	$	836,709	$	885,710		105.9	%

Gross Profit

For the three months ended September 30, 2013, gross profit was $906,099 as compared to $1,142,087 for the three months ended September 30, 2012, representing gross margins of 58.7% and 83.2%, respectively. For the nine months ended September 30, 2013, gross profit was $3,727,214 as compared to $3,996,081 for the nine months ended September 30, 2012, representing gross margins of 68.4% and 82.7%, respectively.

Gross profit margins by product categories were as follows:

	Three Months Ended September 30,									Nine Months Ended September 30,
	2013			2012			(Decrease)			2013			2012			(Decrease)
TCM raw materials		77.5	%		82.3	%		(4.8	)%		73.5	%		84.4	%		(10.9	)%
Yew trees		22.5	%		94.6	%		(72.1	)%		64.1	%		82.7	%		(18.6	)%
Handicrafts		29.5	%		38.1	%		(8.6	)%		27.6	%		41.2	%		(13.6	)%
Total		58.7	%		83.2	%		(24.5	)%		68.4	%		82.7	%		(14.3	)%

As more fully described in segment information below:

●

For the three months ended September 30, 2013, our gross margin percentage related to the sale of TCM raw materials decreased as compared to the three months ended September 30, 2012. The decrease was primarily attributable to an increase in the average unit cost of TCM raw materials, and partially offset by an increase in the average unit selling price for our TCM raw materials. For the nine months ended September 30, 2013, our gross margin percentage related to the sale of TCM raw materials decrease as compared to the nine months ended September 30, 2012. The decrease was mainly attributable to a decrease in the average unit selling price for our TCM raw materials and an increase in the average unit cost of TCM raw materials, which contributed to the lower gross profit margin in the 2013 period. During the 2013 and 2012 periods, we sold TCM raw materials to Yew Pharmaceutical, a related party, at a fixed price of RMB 1,000,000 (approximately $161,000) per metric ton pursuant to the Development Agreement, and we sold TCM raw materials to other customers at a price of approximately RMB 1,100,000 (approximately $177,000) per metric ton. During the three and nine months ended September 30, 2013, revenue from sales of TCM raw materials to Yew Pharmaceutical amounted to $8.8% and 44.4% of TCM raw materials revenue as compared to 49.5%, and 21.0% f or the comparable periods in 2012, respectively. Accordingly, our average unit selling price may fluctuate from period to period depending on the allocation of sales between related and third parties. We currently expect that, as a percentage of revenue, sales of TCM raw materials will increase to third party customers and decrease to Yew Pharmaceutical during the remainder of 2013; however, the purchasing requirements of our customers could change.

●

For the three and nine months ended September 30, 2013, our gross margin percentages related to the sale of yew trees and seedlings decreased as compared to the comparable periods in the prior year. The decrease in these gross margin percentages was primarily attributable to a decrease in the average unit selling price for our yew trees and seedlings and an increase in the average unit cost of yew trees and seedlings, which contributed to the lower gross profit margin in the 2013 periods.

●

The decrease in our gross margin percentages related to the sale of handicrafts for the three and nine months ended September 30, 2013 was mainly due to the different sales revenue mix with different gross profit margins. During the three and nine months ended September 30, 2013, we sold fewer lower-priced handicrafts with higher profit margin and sold more higher-priced handicrafts, which generally have lower profit margins compared to lower-priced handicrafts. Therefore, our gross margin percentages related to the sale of handicrafts for the 2013 periods decreased. Additionally, during the nine months ended September 30, 2013, we sold two handicraft products with revenue of approximately $15,000 with a corresponding cost of revenue of $39,000. Accordingly, during the nine months ended September 30, 2013, we recognized a negative gross profit of approximately $24,000 from the transaction. The two handicraft products sold at a negative were observed as having some breakage and cracks, and accordingly, management decided to sell these products at a selling price that was lower than cost.

Selling Expenses

Selling expenses consisted of the following:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
Salary and related benefit	$	5,417	$	4,016	$	13,536	$	11,718
Shipping and handling		817		303		1,528		696
Other		1,122		2,324		3,985		5,466
Total	$	7,356	$	6,643	$	19,049	$	17,880

For the three months ended September 30, 2013, selling expenses were $7,356 as compared to $6,643 for the three months ended September 30, 2012, an increase of $713, or 10.7%. For the nine months ended September 30, 2013, selling expenses were $19,049 as compared to $17,880 for the nine months ended September 30, 2012, an increase of $1,169, or 6.5%. The increase in our selling expenses for the three and nine months ended September 30, 2013 was primarily attributable to an increase in salary and related benefit and shipping and handling expenses, partially offset by a decrease in other miscellaneous selling expenses.

General and Administrative Expenses

For the three months ended September 30, 2013, general and administrative expenses amounted to $308,611, as compared to $256,013 for the three months ended September 30, 2012, an increase of $52,598, or 20.5%. For the nine months ended September 30, 2013, general and administrative expenses amounted to $852,480, as compared to $619,786 for the nine months ended September 30, 2012, an increase of $232,694, or 37.5%. General and administrative expenses consisted of the following:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
Compensation and related benefits	$	82,214	$	76,056	$	221,913	$	224,061
Depreciation		35,781		48,634		120,870		137,624
Travel and entertainment		17,057		27,819		64,819		68,120
Professional fees		108,591		74,374		281,272		111,628
Other		64,968		29,130		163,606		78,353
Total	$	308,611	$	256,013	$	852,480	$	619,786

The increase in our general and administrative expenses for the three and nine months ended September 30, 2013, as compared to the three and nine months ended September 30, 2012, was primarily attributable to the increase in professional fees and other miscellaneous general and administrative expenses, offset by the decrease in depreciation expense and travel and entertainment expense.

The changes in general and administrative expenses for the three and nine months ended September 30, 2013, as compared to the three and nine months ended September 30, 2012, consisted of the following:

●

For the three months ended September 30, 2013, compensation and related benefits increased by $6,158, or 8.1%, as compared to the three months ended September 30, 2012, which was mainly attributable to an increase in salaries paid to our management and other administrative staff resulting from our expanded business during the third quarter of 2013. For the nine months ended September 30, 2013, compensation and related benefits decreased by $2,148, or 1.0%, as compared to the nine months ended September 30, 2012.

●

For the three months ended September 30, 2013, depreciation decreased by $12,853, or 26.4%, as compared to the three months ended September 30, 2012. For the nine months ended September 30, 2013, depreciation decreased by $16,754, or 12.2%, as compared to the nine months ended September 30, 2012. The decreases were primarily attributable to a decrease in depreciable assets.

●

For the three months ended September 30, 2013, travel and entertainment decreased by $10,762 or 38.7%, as compared to the three months ended September 30, 2012. For the nine months ended September 30, 2013, travel and entertainment decreased by $3,301 or 4.8%, as compared to the nine months ended September 30, 2012. These decreases for the periods shown were primarily attributable to a decrease in travel activities.

●

Professional fees consisted primarily of legal, accounting, investor relations fees, investment banking fees and other fees associated with the cost of being a public company in the United States. For the three months ended September 30, 2013, professional fees increased by $34,217, or 46.0%, as compared to the three months ended September 30, 2012. The increase was primarily attributable to an increase in fees incurred and paid for investor relations service and investment banking fees in the aggregate amount of approximately $36,000, offset by a decrease in other miscellaneous professional fees of approximately $2,000 in the third quarter of fiscal 2013. For the nine months ended September 30, 2013, professional fees increased by $169,644, or 152.0%, as compared to the nine months ended September 30, 2012. The increase was mainly attributable to an increase in fees for investor relations, investment banking fees and consulting services of approximately $106,000, an increase in fees incurred for the Company’s 2013 Shareholders’ Meeting of approximately $19,000, an increase in fees related to SEC filing service of approximately $10,000, an increase in press release publication service charge of approximately $8,000, an increase in fees related to quarterly review and tax return preparation of approximately $14,000, and an increase in fees incurred for DTC advisory service of approximately $12,000.

●

For the three months ended September 30, 2013, other miscellaneous general and administrative expense increased by $35,838, or 123.0%, as compared to the three months ended September 30, 2012. The increase was primarily due to an increase in research and development expense of approximately $6,000, an increase in non-capitalized maintenance expenses of approximately $27,000 and an increase in other miscellaneous items of approximately $3,000. For the nine months ended September 30, 2013, other miscellaneous general and administrative expense increased by $85,253, or 108.8%, as compared to the nine months ended September 30, 2012. The increase was primarily due to an increase in vehicle expenses of approximately $32,000, an increase in U.S. tax interest and penalties of approximately $11,000, an increase in office expense of approximately $6,000, an increase in research and development expense of approximately $9,000 and an increase in non-capitalized maintenance expenses of approximately $27,000.

Income from Operations

For the three months ended September 30, 2013, income from operations was $590,132, as compared to income from operations of $879,431 for the three months ended September 30, 2012, a decrease of $289,299, or 32.9%. For the nine months ended September 30, 2013, income from operations was $2,855,685, as compared to income from operations of $3,358,415 for the nine months ended September 30, 2012, a decrease of $502,730, or 15.0%. These decreases for the periods shown were primarily attributable to a decrease in overall gross profit and an increase in general and administrative expenses.

Other Income (Expenses)

For the three months ended September 30, 2013, total other income was $2,080, as compared to total other income of $228 for the three months ended September 30, 2012. For the nine months ended September 30, 2013, total other income was $1,547, as compared to total other income of $1,455 for the nine months ended September 30, 2012.

Net Income

As a result of the factors described above, our net income was $592,212 or $0.01 per share (basic and diluted), for the three months ended September 30, 2013, as compared to net income of $879,659, or $0.02 per share (basic and diluted), for the three months ended September 30, 2012. Our net income was $2,857,232 or $0.06 per share (basic and diluted), for the nine months ended September 30, 2013, as compared to net income of $3,359,870, or $0.07 per share (basic and diluted), for the nine months ended September 30, 2012.

Foreign Currency Translation Adjustment

For the three months ended September 30, 2013, we reported an unrealized gain on foreign currency translation of $180,344, as compared to an unrealized loss of $59,359 for the three months ended September 30, 2012. For the nine months ended September 30, 2013, we reported an unrealized gain on foreign currency translation of $777,867, as compared to an unrealized gain of $108,308 for the nine months ended September 30, 2012. The change reflects the effect of the value of the U.S. dollar in relation to the RMB. These gains (loss) are non-cash items. As described elsewhere herein, the functional currency of our subsidiary, JSJ, and our VIE, HDS, is the RMB. The accompanying consolidated financial statements have been translated and presented in U.S. dollars using period end rates of exchange for assets and liabilities, and average rates of exchange for the period for net revenues, costs, and expenses. Net gains or losses resulting from foreign exchange transactions, if any, are included in the consolidated statements of income.

Comprehensive Income

For the three months ended September 30, 2013, comprehensive income of $772,556 was derived from the sum of our net income of $592,212 plus a foreign currency translation gain of $180,344. For the three months ended September 30, 2012, comprehensive income of $820,300 was derived from the sum of our net income of $879,659, partially offset by a foreign currency translation loss of $59,359.

For the nine months ended September 30, 2013, comprehensive income of $3,635,099 was derived from the sum of our net income of $2,857,232 plus a foreign currency translation gain of $777,867. For the nine months ended September 30, 2012, comprehensive income of $3,468,178 was derived from the sum of our net income of $3,359,870 plus a foreign currency translation gain of $108,308.

Segment Information

Overview

Information with respect to these reportable business segments for the three months ended September 30, 2013 and 2012 was as follows:

	For the three months ended September 30, 2013						For the three months ended September 30, 2012
	Revenues- third parties		Revenues – related party		Total		Revenues- third parties		Revenues – related party		Total
Revenues:
TCM raw materials	$	916,617	$	88,706	$	1,005,323	$	451,442	$	442,467	$	893,909
Yew trees		448,810		-		448,810		396,416		-		396,416
Handicrafts		90,194		-		90,194		82,699		-		82,699
Total revenues	$	1,455,621	$	88,706	$	1,544,327	$	930,557	$	442,467	$	1,373,024

Cost of revenues:
TCM raw materials	$	206,447	$	20,169	$	226,616	$	73,826	$	84,528	$	158,354
Yew trees		348,040		-		348,040		21,395		-		21,395
Handicrafts		63,572		-		63,572		51,188		-		51,188
Total cost of revenues	$	618,059	$	20,169	$	638,228	$	146,409	$	84,528	$	230,937

Information with respect to these reportable business segments for the nine months ended September 30, 2013 and 2012 was as follows:

	For the nine months ended September 30, 2013						For the nine months ended September 30, 2012
	Revenues-third parties		Revenues – related party		Total		Revenues-third parties		Revenues – related party		Total
Revenues:
TCM raw materials	$	1,762,673	$	1,409,141	$	3,171,814	$	2,259,996	$	600,556	$	2,860,552
Yew trees		2,102,417		-		2,102,417		1,853,504		-		1,853,504
Handicrafts		175,402		-		175,402		117,131		1,603		118,734
Total revenues	$	4,040,492	$	1,409,141	$	5,449,633	$	4,230,631	$	602,159	$	4,832,790

Cost of revenues:
TCM raw materials	$	439,276	$	402,391	$	841,667	$	337,549	$	108,887	$	446,436
Yew trees		753,718		-		753,718		320,410		-		320,410
Handicrafts		127,034		-		127,034		68,998		865		69,863
Total cost of revenues	$	1,320,028	$	402,391	$	1,722,419	$	726,957	$	109,752	$	836,709

TCM raw materials

In February 2010, we began selling yew branches and leaves that are used in the production of TCM. On January 9, 2010, we entered into the Development Agreement with Yew Pharmaceutical, a related party, for the development, production and sale of yew-based TCM. Pursuant to the Development Agreement, we sell yew branches and leaves to Yew Pharmaceutical. Yew Pharmaceutical manufactures TCM at its own facilities in Harbin in accordance with the requirements of the Heilongjiang Food and Drug Administration (the “HFDA”). Yew Pharmaceutical is also responsible for producing the finished product in accordance with GMP requirements. In this regard, Yew Pharmaceutical received a GMP certificate in November 2009, and has filed all applications with, and obtained all approvals from, the HFDA. Using our TCM raw materials, Yew Pharmaceutical manufactures Zi Shan, a TCM secondary cancer treatment drug. Zi Shan is an HFDA approved TCM secondary cancer treatment drug, is also recognized for the treatment of liver diseases, menstrual disorders, and other ailments and is available over the counter (OTC) and with a prescription. Zi Shan is marketed and sold exclusively through Yew Pharmaceutical, under the Development Agreement. Yew Pharmaceutical is a major purchaser of our yew raw materials used in the production of TCM and is owned directly and indirectly primarily by Mr. Wang and Madame Qi. For the three months ended September 30, 2013 and 2012, we had revenue of $88,706 and $442,467, respectively, from the sale of TCM raw materials to Yew Pharmaceutical and for the nine months ended September 30, 2013 and 2012, we had revenue of $1,409,141 and $600,556, respectively, from the sale of TCM raw materials to Yew Pharmaceutical, pursuant to the Development Agreement.

TCM that is produced by manufacturers who buy yew raw material from us is marketed and sold by them to third party users, including hospitals. For the three months ended September 30, 2013 and 2012, revenue from the sale of TCM raw materials to third parties amounted to $916,617 and $451,442, respectively. For the nine months ended September 30, 2013 and 2012, revenue from the sale of TCM raw materials to third parties amounted to $1,762,673 and $2,259,996, respectively.

Such purchases are cyclical in nature. When our customers, who themselves are manufacturers, require raw materials to increase production, our sales of yew raw materials increase. When those customers have sufficient raw materials on hand or their own end-user customers have sufficient inventory of finished TCM product on hand, our sales of yew raw materials decrease. Additionally, the allocation of sales between Yew Pharmaceutical, our largest customer and an affiliate, and third party purchasers of yew raw materials changes from period to period based on the purchasing needs of our purchasers. Yew Pharmaceutical purchases yew raw materials from us which it uses to manufacture Zi Shan. Zi Shan is sold by Yew Pharmaceutical to hospitals. Third party purchasers of yew raw materials manufacture TCM which they sell to various customers of their own.

Revenue generated from Yew Pharmaceutical decreased during the three months ended September 30, 2013 because Yew Pharmaceutical had adequate inventory to manufacture Zi Shan and increased during the nine months ended September 30, 2013 because Yew Pharmaceutical needed to replenish its inventory of yew raw materials used in the manufacture of Zi Shan. The sale of TCM raw materials to third party customers increased during the three months ended September 30, 2013 because they indicated that they needed to replenish its inventory of yew raw materials used in the manufacture of TCM and decreased during the nine months ended September 30, 2013 because they indicated to us that they had sufficient inventory from purchases of yew raw materials in prior periods.

During the nine months ended September 30, 2013, Yew Pharmaceutical has been our single largest customer of yew raw materials. For the three months ended September 30, 2013 and 2012, revenue from sales of TCM raw materials to Yew Pharmaceutical amounted to $88,706, or 8.8%, of TCM raw materials revenue and $442,467, or 49.5%, of TCM raw materials revenue, respectively. For the nine months ended September 30, 2013 and 2012, revenue from sales of TCM raw materials to Yew Pharmaceutical amounted to $1,409,141, or 44.4%, of TCM raw materials revenue and $600,556, or 21.0%, of TCM raw materials revenue, respectively. We currently expect that, as a percentage of revenue, sales of TCM raw materials will increase to third party customers and decrease to Yew Pharmaceutical during the remainder of 2013; however, the purchasing requirements of our customers could change.

Revenue from TCM raw materials and the allocation of sales between related and third parties may fluctuate from period to period depending upon the then current needs of our third-party customers and Yew Pharmaceutical. Because yew raw materials is our largest business segment, any fluctuation in revenue from TCM raw materials may have a significant impact on in net income in such periods. Currently, we are largely dependent on Yew Pharmaceutical and a small number of larger, third party customers of TCM raw materials, although we are attempting to expand our sales and marketing efforts to new customers as well. To date, sales of yew raw materials to new customers have been smaller in amount and we expect this situation to continue at least for the remainder of this year. Subject to Yew Pharmaceutical’s paying down a significant portion of amounts it owes to us, we expect sales of TCM raw materials to Yew Pharmaceutical to recommence in the fourth quarter of 2013.

We currently have significant accounts receivable from Yew Pharmaceutical and certain of our third party customers of TCM raw materials. See “Liquidity and Capital Resources” below.

During the three months ended September 30, 2013, we sold 5,681 kg of TCM raw materials as compared to 5,400 kg of TCM raw materials during the three months ended September 30, 2012, an 5.2% increase in sales volume due primarily to increased sales to third party customers, with a 6.9% increase in our average unit selling price which was attributable to an increase in the percentage of total TCM raw materials sales made to third party customers offset by a decrease in the percentage of the total TCM raw materials sold to Yew Pharmaceutical. We sold TCM raw materials to Yew Pharmaceutical, a related party, at a fixed price of RMB 1,000,000 (approximately $161,000) per metric ton pursuant to the Development Agreement, and we sold TCM raw materials to other customers at a price of approximately RMB 1,100,000 (approximately $177,000) per metric ton.

During the nine months ended September 30, 2013, we sold 18,888 kg of TCM raw materials as compared to 16,800 kg of TCM raw materials during the nine months ended September 30, 2012, a 12.4% increase in sales volume due primarily to increased sales to Yew Pharmaceutical, with a 1.4% decrease in our average unit selling price which was attributable to a decrease in the percentage of total TCM raw materials sales made to third party customers and an increase in the percentage of the total TCM raw materials sold to Yew Pharmaceutical.

Sales volume was summarized as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
Sales volume - third parties (kg)		5,164		2,600		10,121		13,000
Sales volume - related party (kg)		517		2,800		8,767		3,800
Total sales volume		5,681		5,400		18,888		16,800

The increase in our cost of revenues in the TCM raw materials segment for the three and nine months ended September 30, 2013, as compared to the three and nine months ended September 30, 2012, was attributable to the increase in our revenues in the TCM raw materials segment as well a higher average unit cost for our TCM raw materials.

Unit cost of yew raw materials can fluctuate from period to period based on a number of variable factors, many of which we cannot control, including without limitation, weather, the relative difficulty in harvesting the branches and leaves from trees, and whether an entire tree is felled and processed (such as when the tree has died).

Due to the factors discussed above, we had a decrease in our gross profit margin for the TCM raw materials segment for the three and nine months ended September 30, 2013, as compared to the three and nine months ended September 30, 2012.

Yew trees

During the three months ended September 30, 2013, we sold approximately 144,000 pieces of yew seedlings and trees as compared to approximately 42,000 pieces of yew seedlings and trees in the three months ended September 30, 2012, an increase in volume of 246.6% with a 67.3% decrease in the average unit selling price of yew seedlings and trees. During the nine months ended September 30, 2013, we sold approximately 362,000 pieces of yew seedlings and trees, as compared to approximately 227,000 pieces of yew seedlings and trees in the nine months ended September 30, 2012, an increase in volume of 59.9%. We saw a decrease in the average unit selling price of yew seedlings and trees of 29.0% for the nine months ended September 30, 2013 as compared to the nine months ended September 30, 2012. The decrease in our average unit selling price for yew seedlings and trees was primarily attributable to a different sales revenue mix with varying unit selling prices. The selling price of yew trees is dependent on many factors, including without limitation the age, size, shape and variety of the seedling or tree. For example, generally speaking, smaller, less developed and younger yew trees sell for less than more mature, better developed and more aesthetically pleasing seedlings or trees. Based primarily on customer demand, we sold fewer mature and larger yew trees as a percentage of total yew trees sales during the three and nine months ended September 30, 2013 as compared to the three and nine months ended September 30, 2012. Additionally, costs of production increased. Therefore, the average unit selling price of yew trees decreased in the three and nine months ended September 30, 2013. The decrease in our gross margin percentage related to the sale of yew trees for the three and nine months ended September 30, 2013, as compared to the three and nine months ended September 30, 2012, was because we sold fewer mature yew trees in the three and nine months ended September 30, 2013 and we had higher profit margin on those more mature yew trees. As a result, we saw a lower gross margin in our yew trees segment for the three and nine months ended September 30, 2013.

The increases in our cost of revenues in the yew trees segment for the three and nine months ended September 30, 2013, as compared to the three and nine months ended September 30, 2012, were attributable to the increases in our revenues in the yew trees segment and a higher average unit cost for our yew trees due to the increased cost of cultivating yew trees in the 2013 periods. We sold approximately 144,000 pieces of yew seedlings and trees in the three months ended September 30, 2013, as compared to approximately 42,000 pieces of yew seedlings and trees in the three months ended September 30, 2012. The average cost per yew tree was approximately $2.41 for the three months ended September 30, 2013, as compared to $0.51 per yew tree for the three months ended September 30, 2012. We sold approximately 362,000 pieces of yew seedlings and trees in the nine months ended September 30, 2013, as compared to approximately 227,000 pieces of yew seedlings and trees in the nine months ended September 30, 2012. The average cost per yew tree was approximately $2.08 for the nine months ended September 30, 2013, as compared to $1.41 per yew tree for the nine months ended September 30, 2012.

In connection with our entering into the Fuye Field Agreement in July 2012, we acquired more than 80,000 trees which are not yew trees – located on that property. These trees consist of approximately 20,000 larix, 56,700 spruce and 3,700 poplar trees. Larix trees are used primarily in landscaping and we currently anticipate that we will begin selling larix trees to customers during the next twelve months. Spruce and poplar trees are used primarily as building materials and we currently anticipate that we will begin selling these trees to customers in later periods, when these trees reach maturity in several years.

Handicrafts

During the three months ended September 30, 2013 and 2012, revenue from the sale of handicrafts made from yew timber amounted to $90,194 and $82,699, respectively, an increase of $7,495 or 9.1%. During the nine months ended September 30, 2013 and 2012, revenue from the sale of handicrafts made from yew timber amounted to $175,402 and $118,734, including sales to a related party of $0 and $1,603, respectively, an increase of $56,668 or 47.7%.

The decrease in our gross margin percentage related to the sale of handicrafts for the three and nine months ended September 30, 2013 was mainly due to a different sales revenue mix with different gross profit margins. During the three and nine months ended September 30, 2013, we sold fewer lower-priced handicrafts with higher profit margin and sold more higher-priced handicrafts, which generally have lower profit margins compared to lower-priced handicrafts. Additionally, we sold certain damaged handicrafts at close to or below cost. Therefore, our gross margin percentage related to the sale of handicrafts for the 2013 periods decreased.

In August 2012, we began to more actively market our handicraft products. Specific steps taken to market our handicraft products include:

●

We began to engage first tier distributors to distribute our handicraft products in provincial capital cities in 10 provinces; each first tier distributor is required to reach minimal annual sales volume of 2,000,000 RMB. First tier distributors will be able to purchase handicrafts from us at a price below the price that basic distributors pay for the handicraft products. In addition to the discounted first tier distributor pricing provided, we will also provide approximately 3%-5% commission (payable in yew seedling products) to these first tier distributors.

●	We engaged second tier distributors in smaller cities. Each second tier distributor is required to reach minimal annual sales volume of 1,000,000 RMB. These distributors will also be offered beneficial pricing off the price that basic distributors pay. We will also provide approximately 2%-3% commission (payable in yew seedling products) to the second tier distributors.
●	We have instructed our sales representatives to make frequent visits to our distributors to promote our handicraft products.

Starting in January 2013, we also began selling some of our more moderately-priced handicrafts on a television shopping program that is broadcast in Heilongjiang Province, of which Harbin is the capital. These programs ran during the three months ended September 30, 2013 but no sales of handicrafts were generated from such programs; therefore, we do not currently expect these programs to run during the fourth quarter of the year.

We have also recently produced some new handicraft products, including a tea table, with a number of pre-sales of this product. We began to sell this new product in the third quarter and expect sales to continue in future periods.

We are continuing to evaluate the effectiveness and design of our selling efforts in the handicrafts segment, including the right sales volume quotas to establish with our distributors, in light of continued slower than desired sales of handicrafts.

Liquidity and Capital Resources

Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations and otherwise operate on an ongoing basis. At September 30, 2013 and December 31, 2012, we had cash balances of $1,110,025 and $386,821, respectively. These funds are primarily located in various financial institutions located in China. Our primary uses of cash have been for the purchase of yew trees, land use rights and yew forest assets. Additionally, we use cash for employee compensation and working capital.

We intend to meet our liquidity requirements through cash flow provided by operations, including new sales and collection of outstanding accounts receivables from various customers. At September 30, 2013, we had accounts receivable of $2,199,781, as compared to accounts receivable of $1,007,584 at December 31, 2012, an increase of $1,192,197. Of the total receivable, $1,172,091 was from Yew Pharmaceutical, a related party, at September 30, 2013, as compared to $284,986 at December 31, 2012, an increase of $887,105. The receivable from Yew Pharmaceutical was our single largest receivable at September 30, 2013.

We believe that our relationship with these customers is good and that our accounts receivable are fully collectible. The nature of our relationship with some of our TCM raw materials customers, a number of which are of long duration, is that they themselves have long collection cycles for the TCM they sell to their customers, including hospitals. Non-hospital purchasers of yew raw materials can take between three and six months to pay us as part of their normal payment cycles, whereas hospitals can have a collection cycle of more than one year and therefore Yew Pharmaceutical can take significantly longer to pay us as part of its normal payment cycle. In part because of their own long collection cycles, our customers may experience periodic liquidity issues in the normal operation of their businesses. From time to time, those liquidity issues make it more difficult for our customers to pay us and our accounts receivable increase.

We have set up a collection plan with Yew Pharmaceutical and our third party customers with whom we have significant accounts receivable as follows. During the third quarter, they were required to pay down a significant portion of the receivable we have from them. They will be required to pay down a significant portion of the receivable we have from them during the fourth quarter of the year. Additionally, future sales of TCM raw materials to them will depend upon their ability to fulfill their obligations under the payment plan and they may be required to pay for new purchases on a cash-and-carry basis, at least temporarily. During the three months ended September 30, 2013, accounts receivable were reduced from $3,253,773 (at June 30, 2013) to $2,199,781, a decrease of $1,053,992. Of the accounts receivable outstanding at September 30, 2013, $1,172,091 was owed to us by Yew Pharmaceutical and $1,027,690 was owed to us by approximately nine third party customers. We currently believe that Yew Pharmaceutical will reduce its account receivable with us during the remainder of 2013 but will not eliminate it before the end of the year. We also expect accounts receivable from third party customers to continue to decrease during the remainder of 2013.

We believe that we will have sufficient cash flow from operations to satisfy our working capital needs and to fund our operations for at least the next 12 months. However, any significant delay in the collection of the outstanding accounts receivable could have an adverse effect on our ability to fund our working capital requirements.

The following table sets forth information as to the principal changes in the components of our working capital from December 31, 2012 to September 30, 2013:

					December 31, 2012 to September 30, 2013
Category	September 30, 2013		December 31, 2012		Change			Percentage change
Current assets:
Cash	$	1,110,025	$	386,821	$	723,204			187.0	%
Accounts receivable		1,027,690		722,598		305,092			42.2	%
Accounts receivable – related party		1,172,091		284,986		887,105			311.3	%
Inventories		1,447,980		991,234		456,746			46.1	%
Prepaid expenses and other assets		34,168		150		34,018			*
Prepaid expenses – related parties		40,832		60,245		(19,413	)		(32.2	)%
Current liabilities:
Accounts payable		4,411		990		3,421			345.6	%
Accrued expenses and other payables		113,751		199,098		(85,347	)		(42.9	)%
Taxes payable		4,851		5,722		(871	)		(15.2	)%
Due to related parties		51,657		47,876		3,781			7.9	%
Working capital:
Total current assets	$	4,832,786	$	2,446,034	$	2,386,752			97.6	%
Total current liabilities		174,670		253,686		(79,016	)		(31.1	)%
Working capital	$	4,658,116	$	2,192,348	$	2,465,768			112.5	%

* not meaningful

Our working capital increased $2,465,768 to $4,658,116 at September 30, 2013, from working capital of $2,192,348 at December 31, 2012. This increase in working capital is primarily attributable to:

●	an increase in cash of approximately $723,000;

●	an increase in accounts receivable of approximately $305,000;

●	an increase in accounts receivable–related party of approximately $887,000 due to the increase in sales revenue from related party; and

●	an increase in inventories of approximately $457,000;

For the nine months ended September 30, 2013, net cash flow provided by operating activities was $1,435,536, as compared to net cash flow provided by operating activities of $345,813 for the nine months ended September 30, 2012, an increase of $1,089,723. Because the exchange rate conversion is different for the balance sheet and the statements of cash flows, the changes in assets and liabilities reflected on the statements of cash flows are not necessarily identical with the comparable changes reflected on the balance sheets.

For the nine months ended September 30, 2013, net cash flow provided by operating activities of $1,435,536 was primarily attributable to:

●	net income of approximately $2,857,000 adjusted for the add-back of non-cash items, such as depreciation of approximately $148,000 and amortization of land use rights and yew forest assets of approximately $272,000, and
●	the receipt of cash from operations from changes in operating assets and liabilities, such as: a decrease in prepaid expenses–related parties of approximately $21,000;

partially offset by:

●

the use of cash from changes in operating assets and liabilities, such as an increase in accounts receivable of approximately $283,000, and an increase in accounts receivable–related party of approximately $870,000, an increase in prepaid expenses and other assets of approximately $34,000, an increase in inventories of approximately $594,000 and a decrease in accrued expenses and other payables of approximately $88,000.

For the nine months ended September 30, 2012, net cash flow provided by operating activities of $345,813 was primarily attributable to:

●	net income of approximately $3,360,000 adjusted for the add-back of non-cash items, such as: depreciation of approximately $159,000, and amortization of land use rights and yew forest assets of approximately $259,000, and
●	the receipt of cash from operations from changes in operating assets and liabilities of approximately $34,000,

partially offset by:

●

the use of cash from changes in operating assets and liabilities, such as: an increase in accounts receivable of approximately $531,000, an increase in inventories of approximately $2,335,000 mainly due to the acquired trees from Fuye Field Agreement, an increase in prepaid rent – related parties of approximately $67,000, a decrease in accounts payable of approximately $452,000 and a decrease in accrued expenses and other payables of approximately $67,000.

Net cash flow used in investing activities was approximately $731,000 for the nine months ended September 30, 2013. During the nine months ended September 30, 2013, we spent approximately $218,000 on purchase of property and equipment and made payments for land use rights and yew forest assets of approximately $514,000. During the nine months ended September 30, 2012, we spent approximately $208,000 on purchase of property and equipment and spent approximately $66,000 on purchase of land use rights and yew forest assets.

During the nine months ended September 30, 2013, we did not have any financing activity. During the nine months ended September 30, 2012, we made repayments to a related party of approximately $239,000.

We have historically financed our operations and capital expenditures through cash flows from operations, bank loans and advances from related parties. From March 2008 to September 2009, we received approximately $2.9 million of proceeds in the aggregate from a series of offerings and sales of our common stock. Except for the portion used to pay for professional and other expenses in the United States, substantial portions of the proceeds we received through sales of our common stock were retained in the PRC and used to fund our working capital requirements. As the PRC government imposes controls on PRC companies’ ability to convert RMB into foreign currencies and the remittance of currency out of China, from time to time, in order to fund our corporate activities in the United States, Zhiguo Wang, our President and CEO, advanced funds to us in the United States and we repaid the amounts owed to him in RMB in the PRC.

It is management’s intention to expand our operations as quickly as reasonably practicable to capitalize on the demand opportunity for our products. We regularly review our cash funding requirements and attempt to meet those requirements through a combination of cash on hand, cash provided by operations and any potential available bank borrowings. We believe that we can continue meeting our cash funding requirements for our business in this manner over at least the next twelve months. The majority of our funds are maintained in RMB in bank accounts in China. We receive all of our revenue in the PRC. Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and expenditures from trade related transactions, can be made in foreign currencies by complying with certain procedural requirements. However, approval from China’s State Administration of Foreign Exchange (“SAFE”) or its local counterparts is required where RMB is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies. The PRC government may also, at its discretion, restrict access to foreign currencies for current account transactions. As of September 30, 2013 and December 31, 2012, approximately $29.6 million and $25.7 million, respectively, of our net assets are located in the PRC. If the foreign exchange control system in the PRC prevents us from obtaining sufficient foreign currency to satisfy our currency demands, we may not be able to transfer funds deposited within the PRC to fund working capital requirements in the U.S. or pay any dividends in currencies other than the RMB, to our shareholders.

Contractual Obligations and Off-Balance Sheet Arrangements

We have certain potential commitments that include future estimated payments. Changes in our business needs, cancellation provisions, changing interest rates and other factors may result in actual payments differing from the estimates. We cannot provide certainty regarding the timing and amounts of payments. We have presented below a summary of the most significant assumptions used in our determination of amounts presented in the tables, in order to assist in the review of this information within the context of our consolidated financial position, results of operations and cash flows.

The following tables summarize our contractual obligations as of September 30, 2013, and the effect these obligations are expected to have on our liquidity and cash flows in future periods:

Contractual obligations:	Total		1 year		1-3 years		3-5 years		5+ years
Operating leases	$	605,712	$	6,526	$	137,000	$	24,914	$	437,272
Total	$	605,712	$	6,526	$	137,000	$	24,914	$	437,272

Off-Balance Sheet Arrangements

We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as shareholder’s equity or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.

Recently Enacted JOBS Act

We qualify as an “emerging growth company” under the recently enacted Jumpstart Our Business Start-Ups Act of 2012 (the “JOBS Act”). As a result, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements. For so long as we are an emerging growth company, among other things, we will not be required to:

●	have an auditor report on our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act;
●	submit certain executive compensation matters to shareholder advisory votes, such as “say-on-pay” and “say-on-frequency”
●	obtain shareholder approval of any golden parachute payments not previously approved; and
●	disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the Chief Executive’s compensation to median employee compensation.

In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the benefits of this extended transition period. Our financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards.

We will remain an “emerging growth company” for up to five years, or until the earliest of (i) the last day of the first fiscal year in which our total annual gross revenues exceed $1 billion; (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, which would occur if the market value of our ordinary shares that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter or (iii) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three-year period.

Until such time, however, because the JOBS Act has only recently been enacted, we cannot predict whether investors will find our stock less attractive because of the more limited disclosure requirements that we may be entitled to follow and other exemptions on which we are relying while we are an “emerging growth company”. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Foreign Currency Exchange Rates Risk

Substantially all of our operating revenues and expenses are denominated in RMB. We operate using RMB and the effects of foreign currency fluctuations are largely mitigated because local expenses in the PRC are also denominated in the same currency. We do not believe that we currently have any significant direct foreign exchange risk and have not hedged exposures denominated in foreign currencies or any other derivative financial instruments. Because we generally receive cash flows denominated in RMB, our exposure to foreign exchange risks should be limited.

Our assets and liabilities, of which the functional currency is the RMB, are translated into USD using the exchange rates in effect at the balance sheet date, resulting in translation adjustments that are reflected as cumulative translation adjustment in the shareholders’ equity section on our consolidated balance sheets. A portion of our net assets are impacted by changes in foreign currencies translation rates in relation to the U.S. dollar. We recorded a foreign currency translation gain of $777,867 and $108,308 for the nine months ended September 30, 2013 and 2012, respectively, to reflect the impact of the fluctuation of the RMB against the U.S. dollar.

The value of the RMB against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in China’s political and economic conditions. The conversion of the RMB into foreign currencies, including U.S. dollars, has been based on rates set by the People’s Bank of China.

To the extent that we decide to convert RMB denominated cash amounts into U.S. dollars for the purpose of making any dividend payments, which we have not declared but may declare in the future, or for other business purposes, appreciation of the U.S. dollar against the RMB would have a negative effect on the U.S. dollar amount available to us. Conversely, if we need to convert U.S. dollars into RMB for operations, appreciation of the RMB against the U.S. dollar would have an adverse effect on the RMB amount it received from the conversion. We have not used, and do not currently expect to use in the future, any forward contracts or currency borrowings to hedge exposure to foreign currency exchange risk.

Interest Rate Risk

We have not been, nor do we currently anticipate being, exposed to material risks due to changes in interest rates because we do not have any consolidated debt.

ITEM 4. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures.

The Company’s management has evaluated, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were not effective as of the end of the period covered by this report.

(b) Changes in Internal Control over Financial Reporting.

There have not been any changes in the Company’s internal control over financial reporting that occurred during the Company’s fiscal quarter ended September 30, 2013 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II.

OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are not currently a party to any lawsuit or proceeding which, in the opinion of management, is likely to have a material adverse effect on us or our business.

ITEM 1A. RISK FACTORS

We are highly dependent upon naturally occurring long collection cycles experienced by some of our purchasers of yew raw materials, which could mean that at certain times our accounts receivable grow and our cash on hand decreases.

Yew raw materials is currently our single largest business segment. Our purchasers of yew raw materials are themselves manufacturers of TCM. Yew Pharmaceuticals, an affiliate, is licensed to produce Zi Shan from yew raw materials, which it sells to hospitals. Other purchasers of yew raw materials produce TCM and sell that TCM to other distributors. Some of our purchasers of yew raw materials experience naturally occurring long collection cycles from their own customers before they pay us. For example, hospitals may take one year or longer to pay Yew Pharmaceuticals, which in turn results in delays in payments made by Yew Pharmaceuticals to us. Other distributors and purchasers of TCM may take several months to pay our other purchasers of yew raw materials, which in turn also results in delays in payments made by them to us. Therefore, our accounts receivable can fluctuate significantly, growing in some periods and being reduced in other periods. At times when our accounts receivable are growing or remain large, our cash on hand may be reduced significantly. Such reductions in cash on hand could impede our ability to execute on our business model, including making expenditures for operations and investing in capital assets.

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

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

Effective May 28, 2013, the Financial Industry Regulatory Authority (FINRA) approved the Company's common stock for quotation on the Over-the-Counter Bulletin Board under the symbol “YEWB”.

Shares of the Company’s common stock received electronic eligibility status from The Depository Trust Corporation (“DTC”), effective as of July 12, 2013. As a result, the Company’s stock can be electronically cleared and settled by brokers through the facilities of DTC.

ITEM 6. EXHIBITS

The following exhibits are attached hereto and filed herewith:

31.1*		Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934.

31.2*		Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934.

32*		Certification of Periodic Financial Report by the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS**		XBRL Instance Document

101.SCH**		XBRL Taxonomy Extension Schema Document

101.CAL**		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF**		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB**		XBRL Taxonomy Extension Label Linkbase Document

101.PRE**		XBRL Taxonomy Extension Presentation Linkbase Document

*Filed herewith.

** Furnished herewith. XBRL (eXtensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

SIGNATURE

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.

	YEW BIO-PHARM GROUP, INC.

	By:	/s/ ADAM WASSERMAN
		Adam Wasserman
		Chief Financial Officer

Date: November 12, 2013

EXHIBIT INDEX

Exhibit Number		Description of Exhibit
31.1*		Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934.

31.2*		Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934.

32*		Certification of Periodic Financial Report by the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS**		XBRL Instance Document

101.SCH**		XBRL Taxonomy Extension Schema Document

101.CAL**		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF**		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB**		XBRL Taxonomy Extension Label Linkbase Document

101.PRE**		XBRL Taxonomy Extension Presentation Linkbase Document

*Filed herewith.