Yew Bio-Pharm Group, Inc. - Quarter Report: 2018 June (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2018 

OR

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)

9460 Telstar Avenue, Suite 6

El Monte, California 91731

(Address of principal executive offices) (Zip Code)

(626) 401-9588

(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 ☒     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 ☒   No ☐

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Exchange Act. ☐

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

As of August 14, 2018, there were 52,075,000 shares, $0.001 par value per share, of the registrant’s common stock outstanding. 

YEW BIO-PHARM GROUP, INC.

FORM 10-Q

FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2018

TABLE OF CONTENTS

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:

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 15 of our Annual Report on Form 10-K for the year ended December 31, 2017 filed with the Securities & Exchange Commission (“SEC”) on April 2, 2018.

PART I

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

YEW BIO-PHARM GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

See notes to these unaudited consolidated financial statements.

YEW BIO-PHARM GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

See notes to these unaudited consolidated financial statements.

YEW BIO-PHARM GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

See notes to these unaudited consolidated financial statements.

YEW BIO-PHARM GROUP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2018

NOTE 1 - ORGANIZATION AND PRINCIPAL ACTIVITIES

The accompanying unaudited interim 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 consolidated balance sheet as of December 31, 2017 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 interim 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, 2017.

In the opinion of management, all adjustments (which include normal recurring adjustments) necessary to present a fair statement of the financial position as of June 30, 2018, and the results of operations and cash flows for the six-month periods ended June 30, 2018 and 2017, have been presented.

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, 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.

Certain amounts from prior period financial statements have been reclassified to conform to the current period presentation. This reclassification has resulted in no changes to the Company’s financial position or results of operations presented.

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

NOTE 2 - PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the financial statements of YBP, its subsidiaries and operating VIE and its subsidiary 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:

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.

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 June 30, 2018 and December 31, 2017, 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 and VIE’s subsidiary are as follows:

NOTE 3 - REVENUE RECOGNITION 

The Company accounts for revenue arising from contracts and customers in accordance with Accounting Standards Update (ASU or Update) No. 2014-09, Revenue from Contracts with Customers (“ASC 606”), which was adopted on January 1, 2018 using the full retrospective method. The adoption of ASC 606 did not impact the Company’s previously reported financial statements in any prior period nor did it result in a cumulative effect adjustment to retained earnings.

Under ASC 606, the Company recognizes revenue when its customer obtains control of promised goods, in an amount that reflects the consideration which the Company expects to receive in exchange for those goods. To determine revenue recognition for arrangements that the Company determines are within the scope of ASC 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that Company will collect the consideration it is entitled to in exchange for the goods it transfers to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods promised within each contract and determines those that are performance obligations and assesses whether each promised good is distinct. The Company then recognizes as revenue the amount of the transaction price, which is allocated to the respective performance obligation, when the performance obligation is satisfied. Generally, the Company’s performance obligations are satisfied when the customers take possession of the products, which normally occurs upon shipment or delivery depending on the terms of the contracts. 

In general, the Company's products within its segments are aligned according to the nature and economic characteristics of its products and provide meaningful disaggregation of each business segment's results of operations. Disaggregation of revenue by business segment are included in Note 11 - SEGMENT INFORMATION.  

NOTE 4 - INVENTORIES 

Inventories consisted of raw materials, finished goods including handicrafts, yew essential oil soap, complex cuspidate extract, composite northeast yew extract, yew candles and pine needle extracts, yew seedlings and other trees, which consist 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 June 30, 2018 and December 31, 2017, inventories consisted of the following:

Inventories as of June 30, 2018 and December 31, 2017 consisted of the inventory purchased from related parties are as follows:

NOTE 5 - TAXES

(a) Federal Income Tax and Enterprise Income Taxes 

The Company, YBP, registered in the state of Nevada, and its subsidiary, MC, registered in the State of California, are subject to the United States federal income tax at a tax rate of 21%. No provision for income taxes in the U.S. has been made as YBP and MC had no U.S. taxable income as of June 30, 2018 and December 31, 2017. 

The Company’s subsidiary, Yew Bio-Pharm (HK), is incorporated in Hong Kong and has no operating profit or tax liabilities during the years. Yew Bio-Pharm (HK) is subject to tax at 16.5% on the assessable profits arising in or derived from Hong Kong.

The Company’s subsidiary, JSJ, and VIE and its subsidiary, HYF and HDS, 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%. However, HDS has been named as a leading enterprise in the agricultural industry and awarded with a tax exemption through December 31, 2058 with an exception of sales of handicrafts, yew candle, pine needle extracts and yew essential oil soap which are not within the scope of agricultural area.

The table below summarizes the difference between the U.S. statutory federal tax rate and the Company’s effective tax rate for the six months ended June 30, 2018 and 2017:

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 June 30, 2018 and December 31, 2017, are as follows:

The U.S. Tax Cuts and Jobs Act (the “Tax Act”) was enacted on December 22, 2017. The Tax Act among other changes, reduces the U.S. federal corporate tax rate from 35% to 21%. The Company recognized provisional tax impacts related to the revaluation of deferred tax assets and liabilities and corresponding valuation allowances in its consolidated financial statements for the six months ended June 30, 2018. There was no impact of the revaluation to the current net income because it was fully offset by the valuation allowance that was recorded against the deferred tax asset. In addition, the Tax Act implements a modified territorial tax system that includes a one-time transition tax on deemed repatriation of previously untaxed accumulated earnings and profits of certain foreign subsidiaries, and creates new taxes on certain foreign-sourced earnings. In connection with the Tax Act, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 118 (“SAB 118”) that allows companies to record provisional estimates of the effects of the legislative change, and a one-year measurement period to finalize the accounting of those effects.

The Company’s management is in the process of gathering information and evaluating the amount of the one-time transition tax mandated by the Tax Act. As of June 30, 2018, the Company is not yet able to calculate a reasonable estimate for the impact of the one-time transition tax on the Company’s equity investment due to the complexity of calculating accumulated foreign earnings and profits, foreign tax paid, and other tax components involved in foreign tax credit calculations for applicable years after 1986. As such, no provision of the one-time transition tax was made for the year end December 31, 2017 or the six months ended June 30, 2018. The Company will continue to calculate the impact of the Tax Act and will record any resulting tax adjustments during year 2018.

NOTE 6 - SHORT-TERM BORROWINGS

In May 2016, HDS entered into a line of credit agreement with Harbin Rongtong Branch of Bank of Communications (“BOCOM”) for the period from May 3, 2016 through May 3, 2018, pursuant to which the Company obtained a bank loan in the amount of RMB10,000,000 (approximately $1,471,000) on June 13, 2017, payable on June 12, 2018. Under this credit agreement. The loan carries an interest rate of 5.873% per annum and is payable quarterly. Heilongjiang Zishan Technology Co., Ltd. (“ZTC”), a related party controlled by Zhiguo Wang and his wife Madame Qi, collateralized its buildings and land use right with BOCOM to secure the loans under this credit agreement. In addition, ZTC, Heilongjiang Yew Pharmaceutical Co., Ltd. (“Yew Pharmaceutical”), a related party of the Company, Zhiguo Wang, Madame Qi, Yicheng Wang, the son of Zhiguo Wang and Yuqi Mao, the former family member of Yicheng Wang, provided guarantees to the loan. HDS paid off the loan in full on June 11, 2018.

On November 15, 2017, HDS entered into a loan agreement with Shanghai Pudong Development Bank (“SPD Bank”) Harbin Branch, pursuant to which the Company obtained a bank loan in the amount of RMB10,000,000 (approximately $1,509,000), payable on October 20, 2018. The loan carries an interest rate of 4.100% per annum and is payable at maturity. The proceeds of the loan were used by the Company to purchase raw materials. Madam Qi has secured the loan with her personal assets. In addition, Yew Pharmaceutical, Zhiguo Wang, Yicheng Wang, and Yuqi Mao, the former family member of Yicheng Wang provided guarantees to the loan.

On December 22, 2016, HDS entered into a credit agreement with China Everbright Bank (“CEB”) which agreed to provide credit line of RMB20,000,000 (approximately $2,880,000) to the Company for the period of three years. During the six months ended June 30, 2018 and 2017, the Company obtained short-term loans from CEB in the total amount of $3,156,000 and $5,030,000, respectively, under this credit agreement and paid off in the total amount of $2,870,000 and $2,160,000, respectively. As of June 30, 2018 and December 31, 2017, the balance of loans borrowed from CEB was $3,156,000 and $2,870,000, respectively. These loans carry interest rates ranging from 4.30% to 4.60% per annum and the interests are payable monthly. The loans with CEB are secured by properties and land use rights of Yew Pharmaceutical. In addition, Zhiguo Wang, Madame Qi, Yew Pharmaceutical, and ZTC provided guarantees to the loans.

NOTE 7 - STOCKHOLDERS’ EQUITY

Stock option activities for the six months ended June 30, 2018 and 2017 were summarized in the following table.

On May 20, 2018 the Board approved to extend the expiration date of 5,000,000 options issued to Zhiguo Wang and 2,488,737 options issued to Guifang Qi from June 30, 2018 to December 31, 2019. The Company treated this extension as a modification of the award upon the directors’ extraordinary services rendered to the Company and recognized incremental compensation cost. The Company measured the incremental compensation cost as the excess of the fair value of the modified award over the fair value of the original award immediately before its terms were modified. As a result of these modifications, the Company recognized incremental compensation cost of $1,059,987 in stock-based compensation expense during the six months ended June 30, 2018, and the weighted average remaining contractual life was changed to 1.5 years.

The following table summarizes the shares of the Company’s common stock issuable upon exercise of options outstanding at June 30, 2018:

The Company’s outstanding stock options and exercisable stock options had intrinsic value in the amount of $283,262, based upon the Company’s closing stock price of $0.25 as of June 30, 2018. Stock option expense recognized during the six months ended June 30, 2018 and 2017 amounted to $1,065,000 and $67,348, respectively. The value of options was calculated using Black Scholes Option Pricing Model based upon the following assumptions: dividend yield of 0%, volatility of 91%-212%, risk free rate of 0.14%-2.58%, and expected term of 0.12-3.03 years.

NOTE 8 - EARNINGS PER SHARE

Under the provisions of ASC 260, “Earnings Per Share”, basic income per common share is computed by dividing net income attributable to common shareholders by the weighted average number of shares of common stock outstanding for the periods presented. Diluted income per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that would then share in the income of the company, subject to anti-dilution limitations.

The following table presents a reconciliation of basic and diluted net income per share for the three and six months ended June 30, 2018 and 2017:

Diluted net income per share is computed using the weighted average number of common shares and dilutive potential common shares outstanding during the respective periods. The potentially dilutive securities that were not included in the calculation of diluted net income per share in the periods presented where their inclusion would be anti-dilutive included options to purchase common shares of 0 and 1,961,436 on a weighted average basis for the three months ended June 30, 2018 and 2017, respectively; and option to purchase common shares of 0 and 241,436 on a weighted average basis for the six months ended June 30, 2018 and 2017, respectively.

NOTE 9 - CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS

Customers

For the six months ended June 30, 2018 and 2017, customers accounting for 10% or more of the Company’s revenue were as follows:

* Less than 10%

The two largest customers accounted for 97.6% and 99.3% of the Company’s total outstanding accounts receivable as of June 30, 2018 and December 31, 2017, respectively, of which Yew Pharmaceutical, a related party, accounted for 82.9% and 68.3% of the total outstanding accounts receivable, respectively; customer B accounted for 31.0% of total outstanding accounts receivable at December 31, 2017 and Heilongjiang Pingshan Hongdoushan Development Co., Ltd., a related party, accounted for 14.7% of the total outstanding accounts receivable at June 30, 2018.

Suppliers

For the six months ended June 30, 2018 and 2017, suppliers accounting for 10% or more of the Company’s purchase were as follows:

Accounts payable to supplier D, a related party, supplier K, and supplier J accounted for 60.2%, 11.6% and 13.4%, respectively, of the Company’s total accounts payable at December 31, 2017.

Accounts payable to supplier K, supplier J and supplier R accounted for 35.3%, 40.7% and 11.5%, respectively, of the Company’s total accounts payable at June 30, 2018.

NOTE 10 - RELATED PARTY TRANSACTIONS

In addition to several of the Company’s officers and directors, the Company conducted transactions with the following related parties:

Land use rights and yew forest assets purchased from related parties

Yew forest assets purchased from related parties which are included in land use rights and yew forest assets as of June 30, 2018 and December 31, 2017 are as follows:

Transactions with Yew Pharmaceutical

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 that will be used by Yew Pharmaceutical to make traditional Chinese medicines and other pharmaceutical products, at price of RMB 1,000,000 (approximately $158,000) per metric ton. In addition, the Company entered into a series of wood ear mushroom selling agreements with Yew Pharmaceuticals, pursuant to which the Company sells wood ear mushroom collected from local peasants to Yew Pharmaceuticals for manufacturing of wood ear mushroom products. Furthermore, the Company entered into a series of yew candles, yew essential oil soaps, complex taxus cuspidate extract, composite northeast yew extract and pine needle extracts purchase agreements with Yew Pharmaceuticals, pursuant to which the Company purchases yew candles and pine needle extracts as finished goods and then sells to third party and related party.

For the six months ended June 30, 2018 and 2017, total revenues to Yew Pharmaceutical under the above agreement amounted to $12,863,894 and $14,071,047, and corresponding cost of revenues amounted to $9,594,338 and $3,010,134, respectively. At June 30, 2018 and December 31, 2017, the Company had $10,243,926 and $21,647,828 accounts receivable from Yew Pharmaceutical, respectively.

For the six months ended June 30, 2018 and 2017, the total purchase of yew candles, pine needle extracts, composite northeast yew extract and mixed essential oil from Yew Pharmaceutical amounted to $10,432,872 and $10,826,411, respectively. For the six months ended June 30, 2018 and 2017, the products HDS purchased from Yew Pharmaceutical in the amount of $2,879,960 and $9,258,553 were sold and included in the total cost of revenues of $14,018,654 and $12,370,197, respectively.

For the six months ended June 30, 2018 and 2017, HYF did not purchase any wood ear mushroom from Yew Pharmaceutical. For the six months ended June 30, 2018 and 2017, the products HYF purchased from Yew Pharmaceutical in the amount of $493 and $20,491 were sold and included in the total cost of revenues of $14,018,654 and $12,370,197, respectively. HYF had accounts payable of $0 and $50,318 to Yew Pharmaceutical at June 30, 2018 and December 31, 2017, respectively.

At June 30, 2018 and December 31, 2017, HYF had $0 and $39,974, respectively, due to Yew Pharmaceutical, which represents an unsecured loan bearing no interest and payable on demand and was included in due to related parties in the accompanying consolidated balance sheets.

Transactions with HBP

For the six months ended June 30, 2018 and 2017, HBP paid off operation expense on behalf of HYF in the amount of $4,555 and $27,015, respectively. As of June 30, 2018 and December 31, 2017, HYF had due to HBP in the amount of $104,347 and $101,697, respectively, which was included in due to related parties in the accompanying consolidated balance sheets.

Transactions with HDS Development

For the six months ended June 30, 2018 and 2017, total revenues to HDS Development amounted to $1,884,836 and $0, and corresponding cost of revenues amounted to $1,422,969 and $0, respectively. At June 30, 2018 and December 31, 2017, the Company had $1,812,935 and $0 accounts receivable from HDS Development, respectively.

Transactions with Wonder Genesis Global Ltd.

For the six months ended June 30, 2018 and 2017, total revenues to Wonder Genesis Global Ltd. amounted to $2,651,562 and $0, and the corresponding cost of revenues amounted to $2,634,021 and $0, respectively. As of June 30, 2018 and December 31, 2017, the Company had $0 and $199,905 accounts receivable from Wonder Genesis Global Ltd., respectively.

Transactions with Lifeforfun Limited

For the six months ended June 30, 2018 and 2017, total revenues to Lifeforfun Limited amounted to $249,462 and $0, and the corresponding cost of revenues amounted to $245,939 and $0, respectively. As of June 30, 2018 and December 31, 2017, the Company had $239,946 and $0 accounts receivable from Lifeforfun Limited, respectively.

Transactions with ZTC

During the six months ended June 30, 2018 and 2017, HDS purchased yew forest assets from ZTC in the amount of $5,745,955 and $0, respectively. At June 30, 2018 and December 31, 2017, the Company had zero balance payable to ZTC.

Transactions with Xinlin

During the six months ended June 30, 2018 and 2017, HDS purchased yew forest assets from Xinlin in the amount of $2,683,065 and $0, respectively. At June 30, 2018 and December 31, 2017, the Company had zero balance payable to Xinlin.

Transactions with Changzhi Du

During the six months ended June 30, 2018 and 2017, HDS purchased yew forest assets from Changzhi Du in the amount of $937,706 and purchased yew seedlings from Changzhi Du in the amount of $762,259, respectively. As of June 30, 2018 and December 31, 2017, the Company had zero balance payable to Changzhi Du.

Transactions with Jinguo Wang

During the six months ended June 30, 2018 and 2017, HDS purchased yew forest assets from Jinguo Wang in the amount of $1,459,840 and purchased yew seedlings from Jinguo Wang in the amount of $25,675, respectively. As of June 30, 2018 and December 31, 2017, the Company had zero balance payable to Jinguo Wang.

Transactions with Guifang Qi

During the six months ended June 30, 2018 and 2017, HDS purchased yew forest assets from Guifang Qi in the amount of $1,869,130 and $0, respectively. As of June 30, 2018 and December 31, 2017, the Company had zero balance payable to Guifang Qi.

Transactions with Zhiguo Wang

During the six months ended June 30, 2018 and 2017, HDS purchased yew forest assets from Zhiguo Wang in the amount of $1,319,386 and $0, respectively. As of June 30, 2018 and December 31, 2017, the Company had zero balance payable to Zhiguo Wang.

Transactions with Others

During the six months ended June 30, 2018 and 2017, HDS purchased yew forest from others in the amount of $4,729,149 and purchased yew seedlings from others in the amount of $2,496,254, respectively. As of June 30, 2018 and December 31, 2017, the Company had accounts payable to others in the amount of $0 and $307,390, respectively, which was included in the accounts payable-related parties in the accompanying consolidated balance sheets.

During the six months ended June 30, 2018 and 2017, HDS prepaid $357,904 and $0 to others for purchase of yew forests, respectively, which was included in the long-term prepaid expenses-related party in the accompanying consolidated balance sheets.

For the six months ended June 30, 2018 and 2017, total revenues to others amounted to $27,082 and $0, and the corresponding cost of revenues amounted to $19,144 and $0, respectively. As of June 30, 2018 and December 31, 2017, the Company had no accounts receivable from others.  

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 leased 361 mu of land from ZTC for a period of 30 years, expiring on March 24, 2035. Annual payments under the ZTC Lease are RMB162,450 (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 six months ended June 30, 2018 and 2017, rent expense related to the ZTC Lease amounted to $12,758 and $11,816, respectively. At June 30, 2018 and December 31, 2017, prepaid rent to ZTC amounted to $42,950 and $56,177, respectively, which was included in prepaid expenses-related parties in the accompanying consolidated balance sheets.

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 RMB15,000 (approximately $2,000) are due for each of the term. The term of the Office Lease is 15 years and expires on December 31, 2025. For the six months ended June 30, 2018 and 2017, rent expense related to the Office Lease amounted to $1,178 and $1,091, respectively. As of June 30, 2018 and December 31, 2017, the unpaid rent was $2,982 and $1,881, respectively, which was included in due to related parties in the accompanying consolidated balance sheets.

On July 1, 2012, the Company entered into a lease for office space with Zhiguo Wang (the “JSJ Lease”). Pursuant to the JSJ Lease, JSJ leases approximately 30 square meter of office space from Zhiguo Wang in Harbin. Rent under the JSJ Lease is RMB10,000 (approximately $1,600) annually. The term of the JSJ Lease is three years and expires on June 30, 2015. On July 1, 2015, the Company and Mr. Wang renewed the JSJ Lease. The renewed lease expires on June 30, 2018. For the six months ended June 30, 2018 and 2017, rent expense related to the JSJ Lease amounted to $785 and $727, respectively. As of June 30, 2018 and December 31, 2017, the unpaid rent was $6,043 and $5,380, respectively, which was included in due to related parties in the accompanying consolidated balance sheets.

On January 1, 2015, HYF entered into an lease agreement with HBP, pursuant to which HBP leases a warehouse, with an area of 225 square meters, and a workshop, with an area of 50 square meters, both of which are located at No.1 Zisan Road, Shangzhi economic development district, Shangzhi City, Heilongjiang Province, to HYF in exchange for no consideration for the period from January 1, 2015 to December 31, 2020.

The Company leased office space from HDS Development in the A’cheng district in Harbin (the “A’cheng Lease”) on March 20, 2002. The A’cheng Lease is for a term of 23 years and expires on March 19, 2025. Pursuant to the A’cheng Lease, lease payment shall be made as follows:

For the six months ended June 30, 2018 and 2017, rent expense related to the A’cheng Lease amounted $1,963 and $1,739, respectively. At June 30, 2018 and December 31, 2017, the unpaid rent was $3,777 and $1,921, respectively, which was included in due to related parties in the accompanying consolidated balance sheets.

The Company leased an apartment in the Nangang district (the “Jixing Lease”) in Harbin from Ms. Qi on October 1, 2016. The term of Jixing Lease is one year. On October 1, 2017, the Company and Ms. Qi renewed the Jixing Lease. The renewed lease expires on September 30, 2018. For the six months ended June 30, 2018 and 2017, rent expense related to the Jixing Lease amounted $785 and $606, respectively. As of June 30, 2018 and December 31, 2017, the prepaid rent to Ms. Qi amounted to $252 and $1,025, respectively, which was included in prepaid expenses-related parties in the accompanying consolidated balance sheets. 

Due to Related Parties

The Company’s officers, directors and other related parties, from time to time, provided advances to the Company for working capital purpose. These advances are usually short-term in nature, non-interest bearing, unsecured and payable on demand. Due to Zhiguo Wang and Madam Qi, excluding the unpaid rents disclosed above and the borrowings from Madame Qi as disclosed below, amounted to $41,051 at June 30, 2018 and December 31, 2017, which was included in due to related parties in the accompanying consolidated balance sheets.

On May 15, 2015, the Company borrowed $648,000 from Madame Qi through the issuance of a subordinated promissory note. The note bears 2% interest per annum and shall be payable on or before November 15, 2015 (“Due Date”). Interest payment shall be made with principal on Due Date. On September 28, 2015, Madame Qi and the Company agreed to extend the Due Date to January 31, 2016, with the remaining terms of the note unchanged. On January 15, 2016, 2017 and 2018, the Company and Madame Qi entered into agreements to further extend the Due Date of the note to December 31, 2016, 2017 and 2018, respectively. During the six months ended June 30, 2018 and 2017, the Company made repayments of $0 and $75,875 to Madame Qi, respectively. As of June 30, 2018 and December 31, 2017, the total borrowings including the interest were $428,095, which was included in due to related parties in the accompanying consolidated balance sheets.

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 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 RMB200,000 (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, we 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 June 30, 2018, Kairun has not yet completed the services provided for in the Technology Agreement and, therefore, no payment was made to Kairun.

NOTE 11 - 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.

For the six months ended June 30, 2018 and 2017, the Company operated in four reportable business segments: (1) the TCM raw materials segment, consisting of the production and sale of yew raw materials or yew tree extracts used in the manufacture of TCM; (2) the yew tree segment, consisting of the growth and sale of yew tree seedlings and mature trees; (3) the handicrafts segment, consisting of the manufacture and sale of handicrafts and furniture made of yew timber; and (4) Others segment, consisting of the sales of yew candles, pine needle extracts, yew essential oil soap, complex taxus cuspidate extract, and composite northeast yew extract. 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 including the sales of yew candles, pine needle extracts, yew essential oil soap, complex taxus cuspidate extract and composite northeast yew extract are conducted in the PRC.

Information with respect to these reportable business segments for the six months ended June 30, 2018 and 2017 was as follows:

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 12 - COMMITMENTS AND CONTINGENCIES

Operating Lease

On February 1, 2015, the Company entered into a lease for its U.S. principal office space in California. Pursuant to the office lease, the monthly payment of $3,039 is due on the first day of each month of the first year, $3,150 for each month of the second year and $3,261 for each month of the third year. The term of the lease is for 3 years and expires on January 31, 2018. On February 1, 2018, the Company renewed the lease and the lease expires on January 31, 2020. Pursuant to the renewed lease agreement, the monthly payment is $3,521 from February 1, 2018 to January 1, 2019, and $3,669 from February 1, 2019 to January 31, 2020. For the six months ended June 30, 2018 and 2017, rent expense related to the U.S. principal office lease amounted to $22,458 and $20,232, respectively.

On May 1, 2017, the Company entered into a lease for product exhibition and promotion space in California. The lease is on month by month basis and the monthly rent is $2,800. For the six months ended June 30, 2018 and 2017, the related rent expense amounted to $16,500 and $5,600, respectively. 

On April 30, 2018, the Company entered into a lease for product sales space in California. The lease term is from May 11, 2018 to April 30, 2019. The lease includes a monthly base rent payment, due on the first day of each calendar month, and contingent rent, based on a percentage of sales in excess of specified target amounts. Pursuant to the lease agreement, the monthly base rent payment is $1,761 from May 11, 2018 to May 31, 2018, $2,600 from June 1, 2018 to October 30, 2018 and from January 1, 2019 to April 30, 2019, and $4,600 from November 1, 2018 to December 31, 2018. The contingent rent is recognized as rent expense when achievement of the specified sales that triggers the contingent rent is probable. For the six months ended June 30, 2018, the related rent expense amounted to $6,961, and no contingent rent expense was incurred.

See Note 10 for related party operating lease commitments.

Seedling Purchase and Sale Long-Term Cooperation Agreement

On November 25, 2010, HDS entered into a Seedling Purchase and Sale Long-Term Cooperation Agreement (the “Seedling Agreement”) with Wuchang City Xinlin Foresty Co., Ltd (“Xinlin”), pursuant to which HDS will sell yew seedlings to Xinlin at a price equal to 90% of HDS’s publicly-published wholesale prices. Xinlin has agreed to purchase from the Company 10,000 yew seedlings annually. For the six months ended June 30, 2018 and 2017, the Company didn’t make any sales under the Seedling Agreement.

NOTE 13 – RECENT ACCOUNTING PRONOUCEMENTS

In June 2018, the FASB issued ASU 2018-07, “Compensation — Stock Compensation (Topic 718) - Improvements to Nonemployee Share-Based Payment Accounting”, which expands the scope of Topic 718 to include all share-based payment transactions for acquiring goods and services from nonemployees. These amendments align the accounting for share-based payment transactions with non-employees with accounting for share-based payment transactions with employees. An entity should only remeasure liability-classified awards that have not been settled by the date of adoption and equity-classified awards for which a measurement date has not been established through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. Upon transition, the entity is required to measure these nonemployee awards at fair value as of the adoption date. The entity must not remeasure assets that are completed. This standard will be effective for public business entities for fiscal years beginning after December 15, 2018 including interim periods within those fiscal years. Early adoption is permitted, but no earlier than an entity’s adoption date of Topic 606. The Company is currently evaluating the impact of the adoption of ASU No. 2018-07 on its consolidated financial statements.

In July 2018, the FASB issued ASU 2018-09, “Codification Improvements”, which affects a wide variety of Topics in the Codification and applies to all reporting entities within the scope of the affected accounting guidance. These amendments represent changes to clarify, correct errors in, or make minor improvements to the Codification, eliminating inconsistencies and providing clarifications in current guidance. Some of the amendments do not require transition guidance and will be effective upon issuance. However, many of the amendments do have transition guidance with effective dates for annual periods beginning after December 15, 2018, for public business entities. The Company is currently evaluating the impact of the adoption of ASU No. 2018-09 on its consolidated financial statements.

In July 2018, the FASB issued ASU 2018-10, “Codification Improvements to Topic 842, Leases”. These amendments affect narrow aspects of the guidance issued in the amendments in ASU 2016-02 including those regarding residual value guarantees, rate implicit in the lease, lessee reassessment of lease classification, lessor reassessment of lease term and purchase option, variable lease payments that depend on an index or a rate, investment tax credits, lease term and purchase option, transition guidance for amounts previously recognized in business combinations, certain transition adjustments, transition guidance for leases previously classified as capital leases under Topic 840, transition guidance for modifications to leases previously classified as direct financing or sales-type leases under Topic 840, transition guidance for sale and leaseback transactions, impairment of net investment in the lease, unguaranteed residual asset, effect of initial direct costs on rate implicit in the lease, and failed sale and leaseback transactions. For entities that early adopted Topic 842, the amendments are effective upon issuance of ASU 2018-10, and the transition requirements are the same as those in Topic 842. For entities that have not adopted Topic 842, the effective date and transition requirements will be the same as the effective date and transition requirements in Topic 842. The Company is currently evaluating the impact of the adoption of ASU No. 2018-10 on its consolidated financial statements.

In July 2018, the FASB issued ASU 2018-11, “Leases (Topic 842): Targeted Improvements”. The amendments in this ASU affect the guidance issued in ASU 2016-02, Leases (Topic 842), which is not yet effective. The amendments provide entities with an additional (and optional) transition method to adopt the new leases standard. Under this new transition method, an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The amendments also provide lessors with a practical expedient to not separate non-lease components from the associated lease component and, instead, to account for those components as a single component in certain circumstances. For the entities that have not adopted Topic 842, the effective date for this ASU are the same as those for ASU 2016-02, which is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. The Company is currently evaluating the impact of the adoption of ASU No. 2018-11 on its consolidated financial statements.

NOTE 14 – JOINT VENTURE AGREEMENT FOR PLANTING OF YEW TREES

On June 14, 2018, HDS entered into a Joint Venture Planting Agreement (the “Joint Venture Agreement”) with Qing’An National Forestry Administration (“Qing’An Forestry”), pursuant to which the Qing’An Forestry has given HDS access to 10,729.5 mu of forest land located in Qing’An County, Suihua City, Heilongjiang Province to develop yew tree forests and produce yew seedlings. The Company is required to plant yew trees on this land from June 14, 2018 to June 13, 2038. Any gross revenues from the planting of yew tree shall be distributed 80% to the Company and 20% to the Qing’An Forestry. The Company accounts for this Joint Venture Agreement as a collaborative arrangement under ASC 808, “Collaborative Arrangements” and related topics and will record revenue on a gross basis as the prime contractor. For the six months ended June 30, 2018, the Company has not generated any revenues or activities on this land.

NOTE 15 – SUBSEQUENT EVENTS

On July 1, 2018, the Company renewed JSJ Lease for three years (See Note 10), which will now expire on June 30, 2021. Pursuant to the renewed lease agreement, the annual payment will be RMB 10,000 (approximately $1,600).

On July 20, 2018, the Company issued 200,000 shares of common stock to Xuehai Wu, a director, for the exercise of the stock options with an exercise price of $0.20 granted to him pursuant to the stock option agreement entered into on July 18, 2014. The Company received the proceeds in the amount of $40,000 on July 19, 2018.

On July 27, 2018, the Company’s Board of Directors was granted the discretionary authority to make a reverse split of its common stock between 1-for-6 and 1-for-10 by June 30, 2019. As of the filing date, the Company has not executed the reverse stock split.

On August 6, 2018, HDS entered into a loan agreement with Bank of Yingkou Harbin Branch (“Yingkou Bank”), pursuant to which HDS obtained a bank loan in the amount of RMB15,000,000 (approximately $2,192,000), payable on August 5, 2019. The loan carries an interest rate of 5.4375% per annum and is payable monthly. Heilongjiang Zishan Technology Co., Ltd. (“ZTC”), a related party controlled by Zhiguo Wang and his wife Madame Qi, collateralized its buildings and land use right with Yingkou Bank to secure the loan. 

On August 8, 2018, the Company repaid loans from CEB in the amount of $720,000.

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

The following discussion of our consolidated results of operations and cash flows for the six months ended June 30, 2018 and 2017, and consolidated financial conditions as of June 30, 2018 and December 31, 2017 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 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 six months ended June 30, 2018 and 2017, we operated in four reportable business segments: (1) the TCM raw materials segment, consisting of the production and sale of yew raw materials or yew tree extracts used in the manufacture of TCM; (2) the yew tree segment, consisting of the growth and sale of yew tree seedlings and mature trees; (3) the handicrafts segment, consisting of the manufacture and sale of handicrafts and furniture made of yew timber; and (4) the “Others” segment, consisting of the sales of yew candles, yew essence oil soaps, pine needle extracts, complex taxus cuspidate extract, and composite northeast yew extract. Our reportable segments are strategic business units that offer different products. The four business segments are managed separately based on the fundamental differences in their operations. All of the Company’s operations including sales of yew candles, pine needle extracts and yew essential oil soap are conducted in the PRC for the three and six months ended June 30, 2018.

For the six months ended June 30, 2018, revenues from the sales of TCM raw materials represented approximately 82.62% of consolidated revenue (including 82.62% of consolidated revenues from related parties); sales of yew trees represented approximately 0.18% of consolidated revenue (including 0.15% of consolidated revenue from a related party); sales of handicrafts represented approximately 0.01% of consolidated revenue; and the sales of others represented approximately 17.19% of consolidated revenue (including 16.25% of consolidated revenue from related parties). For the six months ended June 30, 2017, revenues from the sales of TCM raw materials represented approximately 59.93% of consolidated revenue (including 59.93% of consolidated revenues from a related party); sales of yew trees represented approximately 0.00% of consolidated revenue; sales of handicrafts represented approximately 0.01% of consolidated revenue; and the sales of others represented approximately 40.06% of consolidated revenue.

For the three months ended June 30, 2018, revenues from the sales of TCM raw materials represented approximately 88.08% of consolidated revenue (including 88.08% of consolidated revenues from related parties); sales of yew trees represented approximately 0.22% of consolidated revenue (including 0.18% of consolidated revenue from a related party); sales of handicrafts represented approximately 0.00% of consolidated revenue; and the sales of others represented approximately 11.70% of consolidated revenue (including 10.78% of consolidated revenue from related parties). For the three months ended June 30, 2017, revenues from the sales of TCM raw materials represented approximately 73.39% of consolidated revenue (including 73.39% of consolidated revenues from a related party); sales of yew trees represented approximately 0.00% of consolidated revenue; sales of handicrafts represented approximately 0.01% of consolidated revenue; and the sales of others represented approximately 26.06% of consolidated revenue.

YBP’s revenues were mostly generated by HDS and in the PRC. The expenses ($1,357,451 and $318,308 for the six months ended June 30, 2018 and 2017, respectively) incurred in the U.S. were primarily related to fulfilling the reporting requirements of public listed company, stock-based compensation, office daily operations and other costs. As of June 30, 2018, YBP had $772,769 in cash and held 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 $2,885, including approximately $2,885 in cash at June 30, 2018. JSJ also holds the VIE interests in HDS through the contractual arrangements (the “Contractual Arrangements”) described in Notes to Consolidated Financial Statements. On November 4, 2014, HDS established a new subsidiary, Harbin Yew Food Co. LTD. (“HYF”), to develop and cultivate wood ear mushroom. As of June 30, 2018, HYF had started pilot production with limited amount of sales. In the event that we are unable to enforce the Contractual Agreements, we may not be able to exert effective control over HDS and HYF, 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 and its subsidiary resulting in its deconsolidation in financial reporting and severe loss in our market valuation. On June 8, 2016, YBP established a new subsidiary, MC Commerce Holding Inc. (MC), to sales the Company’s yew products in American market. MC had limited operation activities for the six months ended June 30, 2018.

Critical accounting policies and estimates

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We continually evaluate our estimates, including those related to bad debts, allowance for obsolete inventory, and the classification of short and long-term inventory, the useful life of property and equipment and intangible assets, recovery of long-lived assets, income taxes, write-down in value of inventory, and the valuation of equity transactions. We base our estimates on historical experience and on various other assumptions that we 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. We believe the following critical accounting policies affect our significant judgments and estimates used in the preparation of the financial statements.

Variable interest entities

Pursuant to ASC 810 and related subtopics related to the consolidation of variable interest entities, we are required to include in our consolidated financial statements the financial statements of VIEs. The accounting standards require a VIE to be consolidated by a company if that company is subject to the risk of loss for the VIE or is entitled to receive the VIE’s residual returns. VIEs are those entities in which we, through contractual arrangements, bear the risk of, and enjoy the rewards normally associated with ownership of the entity, and therefore we are the primary beneficiary of the entity. HDS is considered a VIE, and we are the primary beneficiary. We entered into agreements with HDS pursuant to which we shall receive 100% of HDS’s net income. In accordance with these agreements, HDS shall pay consulting fees equal to 100% of its net income to our wholly-owned subsidiary, JSJ. JSJ shall supply the technology and administrative services needed to service the HDS.

The accounts of HDS are consolidated in the accompanying financial statements. As a VIE, HDS’ sales are included in our total sales, its income from operations is consolidated with ours, and our net income includes all of HDS’ net income, and their assets and liabilities are included in our consolidated balance sheets. The VIEs do not have any non-controlling interest and, accordingly, we did not subtract any net income in calculating the net income attributable to us. Because of the contractual arrangements, we have pecuniary interest in HDS that requires consolidation of HDS’ financial statements with our financial statements.

As required by ASC 810-10, we perform a qualitative assessment to determine whether we are the primary beneficiary of HDS which is identified as a VIE of us. 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 significant terms of the agreements between us and HDS are discussed above in the “Corporate Structure and Recapitalization - Second Restructure” section. Our assessment on the involvement with HDS reveals that we have the absolute power to direct the most significant activities that impact the economic performance of HDS. JSJ, our wholly own subsidiary, is obligated to absorb a majority of the risk of loss from HDS activities and is entitled to receive a majority of HDS’s expected residual returns. In addition, HDS’ 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, we are deemed to be the primary beneficiary of HDS and the results of HDS’ operation are consolidated in our consolidated financial statements for financial reporting purposes.

Accordingly, as a VIE, HDS’ sales are included in our total sales, its income from operations is consolidated with our income from operations and our net income includes all of HDS’ net income. All the equity (net assets) and profits (losses) of HDS are attributed to us. Therefore, no non-controlling interest in HDS is presented in our consolidated financial statements. As we do not have any non-controlling interest and, accordingly, did not subtract any net income in calculating the net income attributable to us. Because of the Contractual Arrangements, YBP has a pecuniary interest in HDS that requires consolidation of HDS’ financial statements with those of ours.

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, our historical amounts in the accompanying consolidated financial statements give retrospective effect to the Second Restructure, whereby our assets and liabilities are reflected at the historical carrying values and their operations are presented as if they were consolidated for all periods presented, with our results of operations being consolidated from the date of the Second Transfer Agreement. The accounts of HDS are consolidated in the accompanying financial statements.

Accounts receivable

Accounts receivable are presented net of an allowance for doubtful accounts. We maintain allowances for doubtful accounts for estimated losses. We review the accounts receivable balance on a periodic basis and make general and specific allowances when there is doubt as to the collectability of individual balances. In evaluating the collectability of individual receivable balances, we consider many factors, including the age of the balance, a customer’s historical payment history, its current credit-worthiness and current economic trends. Accounts are written off after exhaustive efforts at collection. We recognize the probability of the collection for each customer and believe the amount of the balance as of June 30, 2018 could be collected and accordingly, based on a review of our outstanding balances, we did not record any allowance for doubtful accounts.

Inventories

Inventories consisted of raw materials, finished goods including handicrafts, yew essential oil soap, complex cuspidate extract, composite northeast yew extract, yew candles and pine needle extracts, yew seedlings and other trees, which consist of larix, spruce and poplar trees. We classify our inventories based on our historical and anticipated levels of sales; any inventory in excess of its normal operating cycle of one year is classified as long-term on our consolidated balance sheets. Inventories are stated at the lower of cost or market value utilizing the weighted average method. Raw materials primarily include yew timber used in the production of products such as handicrafts, furniture and other products containing yew timber. Finished goods-handicraft and yew seedlings include direct materials and direct labor.

We estimate the amount of the excess inventories by comparing inventory on hand with the estimated sales that can be sold within our normal operating cycle of one year. Any inventory in excess of our current requirements based on historical and anticipated levels of sales is classified as long-term on our consolidated balance sheets. Our classification of long-term inventory requires us to estimate the portion of inventory that can be realized over the next 12 months.

To estimate the amount of slow-moving or obsolete inventories, we analyze movement of our products, monitor competing products and technologies and evaluate acceptance of our products. Periodically, we identify inventories that cannot be sold at all or can only be sold at deeply discounted prices. An allowance will be established if management determines that certain inventories may not be saleable. If inventory costs exceed expected market value due to obsolescence or quantities in excess of expected demand, we will record reserves for the difference between the carrying cost and the estimated market value.

Our handicraft and yew furniture products are hand-made by traditional Chinese artisans.

In accordance with ASC 905, “Agriculture”, our costs of growing yew seedlings are accumulated until the time of harvest and are reported at the lower of cost or market.

Property and equipment

Property and equipment are carried at cost and are depreciated on a straight-line basis (after taking into account their respective estimated residual value) over the estimated useful lives of the assets. The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in income in the year of disposition. We examine the possibility of decreases in the value of fixed assets when events or changes in circumstances reflect the fact that their recorded value may not be recoverable. The estimated useful lives are as follows:

Land use rights and yew forest assets

All land in the PRC is owned by the PRC government and cannot be sold to any individual or company. We have recorded the amounts paid to the PRC government to acquire long-term interests to utilize land and yew forests as land use rights and yew forest assets. This type of arrangement is common for the use of land in the PRC. Yew trees on land containing yew tree forests are used to supply raw materials such as branches, leaves and fruit to us that will be used to manufacture our products. We amortize these land and yew forest use rights over the term of the respective land and yew forest use right, which ranges from 45 to 50 years. The lease agreements do not have any renewal option and we have no further obligations to the lessor. We record the amortization of these land and forest use rights as part of our cost of revenues.

Revenue recognition

We generate our revenue from sales of yew seedling products, sales of yew raw materials for medical application, sales of yew handicraft products, sales of “Others” including yew candles, yew essential oil soap, pine needle extract, complex taxus cuspidate extract, and composite northeast yew extract. Pursuant to the guidance of ASC 606, we recognize revenue when obligations under the terms of a contract with customer are satisfied; generally this occurs with the transfer of control of the products sold. Transfer of control to the customer is based on the standardized shipping terms in the contract as this determines when we has the right to payment, the customer has legal title to the asset and the customer has the risks of ownership. 

Income taxes

We are governed by the Income Tax Law of the PRC, Hong Kong and the United States. We account for income tax using the liability method prescribed by ASC 740, “Income Taxes”. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the year in which the differences are expected to reverse. We record a valuation allowance to offset deferred tax assets if based on the weight of available evidence; it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is recognized as income or loss in the period that includes the enactment date.

We apply the provisions of ASC 740-10-50, “Accounting for Uncertainty in Income Taxes”, which provides clarification related to the process associated with accounting for uncertain tax positions recognized in our financial statements. Audit periods remain open for review until the statute of limitations has passed. The completion of review or the expiration of the statute of limitations for a given audit period could result in an adjustment to our liability for income taxes. Any such adjustment could be material to our results of operations for any given quarterly or annual period based, in part, upon the results of operations for the given period. Currently, we have no uncertain tax positions, and will continue to evaluate for uncertain positions in the future.

Stock-based compensation

Stock based compensation is accounted for based on the requirements of the Share-Based Payment topic of ASC 718 which requires recognition in the financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the period the employee or director is required to perform the services in exchange for the award. The Accounting Standards Codification also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award.

Pursuant to ASC 505-50, for share-based payments to consultants and other third-parties, compensation expense is determined at the “measurement date.” The expense is recognized over the period of services or the vesting period, whichever is applicable. Until the measurement date is reached, the total amount of compensation expense remains uncertain. We record compensation expense based on the fair value of the award at the reporting date. The awards to consultants and other third-parties are then revalued, or the total compensation is recalculated based on the then current fair value, at each subsequent reporting date.

Recent accounting pronouncements

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (ASC 606)”. Under ASU 2014-09, revenue is recognized when a customer obtains control of promised goods or services and is recognized in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The guidance permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (modified retrospective method).

On January 1, 2018, we adopted this new standard using the full retrospective method to restate each prior reporting period presented. We have identified its revenue streams and assessed each for the impacts. The new standard does not change the timing of when we recognize revenue as the majority of our revenue arises from contracts with customers in which the sale of goods is the main performance obligation. We recognize revenue when obligations under the terms of a contract with its customer are satisfied; generally this occurs with the transfer of control of the products sold. Transfer of control to the customer is based on the standardized shipping terms in the contract as this determines when we have the right to payment, the customer has legal title to the asset and the customer has the risks of ownership. Payment terms are defined in the contract and the contracts do not have a significant financing component.

The adoption did not have any impact on our consolidated financial statements and as a result, no changes were made to prior reporting periods presented

In June 2018, the FASB issued ASU 2018-07, “Compensation — Stock Compensation (Topic 718) - Improvements to Nonemployee Share-Based Payment Accounting”, which expands the scope of Topic 718 to include all share-based payment transactions for acquiring goods and services from nonemployees. These amendments align the accounting for share-based payment transactions with non-employees with accounting for share-based payment transactions with employees. An entity should only remeasure liability-classified awards that have not been settled by the date of adoption and equity-classified awards for which a measurement date has not been established through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. Upon transition, the entity is required to measure these nonemployee awards at fair value as of the adoption date. The entity must not remeasure assets that are completed. This standard will be effective for public business entities for fiscal years beginning after December 15, 2018 including interim periods within those fiscal years. Early adoption is permitted, but no earlier than an entity’s adoption date of Topic 606. The Company is currently evaluating the impact of the adoption of ASU No. 2018-07 on its consolidated financial statements.

In July 2018, the FASB issued ASU 2018-09, “Codification Improvements”, which affects a wide variety of Topics in the Codification and applies to all reporting entities within the scope of the affected accounting guidance. These amendments represent changes to clarify, correct errors in, or make minor improvements to the Codification, eliminating inconsistencies and providing clarifications in current guidance. Some of the amendments do not require transition guidance and will be effective upon issuance. However, many of the amendments do have transition guidance with effective dates for annual periods beginning after December 15, 2018, for public business entities. The Company is currently evaluating the impact of the adoption of ASU No. 2018-09 on its consolidated financial statements.

In July 2018, the FASB issued ASU 2018-10, “Codification Improvements to Topic 842, Leases”. These amendments affect narrow aspects of the guidance issued in the amendments in ASU 2016-02 including those regarding residual value guarantees, rate implicit in the lease, lessee reassessment of lease classification, lessor reassessment of lease term and purchase option, variable lease payments that depend on an index or a rate, investment tax credits, lease term and purchase option, transition guidance for amounts previously recognized in business combinations, certain transition adjustments, transition guidance for leases previously classified as capital leases under Topic 840, transition guidance for modifications to leases previously classified as direct financing or sales-type leases under Topic 840, transition guidance for sale and leaseback transactions, impairment of net investment in the lease, unguaranteed residual asset, effect of initial direct costs on rate implicit in the lease, and failed sale and leaseback transactions. For entities that early adopted Topic 842, the amendments are effective upon issuance of ASU 2018-10, and the transition requirements are the same as those in Topic 842. For entities that have not adopted Topic 842, the effective date and transition requirements will be the same as the effective date and transition requirements in Topic 842. The Company is currently evaluating the impact of the adoption of ASU No. 2018-10 on its consolidated financial statements.

In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements. The amendments in this ASU affect the guidance issued in ASU 2016-02, Leases (Topic 842), which is not yet effective. The amendments provide entities with an additional (and optional) transition method to adopt the new leases standard. Under this new transition method, an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The amendments also provide lessors with a practical expedient to not separate non-lease components from the associated lease component and, instead, to account for those components as a single component in certain circumstances. For the entities that have not adopted Topic 842, the effective date for this ASU are the same as those for ASU 2016-02, which is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. The Company is currently evaluating the impact of the adoption of ASU No. 2018-11 on its consolidated financial statements.

Currency exchange rates

Our functional currency is the U.S. dollar, and the functional currency of our operating subsidiaries and VIE is the RMB. All of our sales are denominated in RMB. As a result, changes in the relative values of U.S. dollars and RMB affect our reported levels of revenues and profitability as the results of our operations are translated into U.S. dollars for reporting purposes. In particular, fluctuations in currency exchange rates could have a significant impact on our financial stability due to a mismatch among various foreign currency-denominated sales and costs. Fluctuations in exchange rates between the U.S. dollar and RMB affect our gross and net profit margins and could result in foreign exchange and operating losses.

Our exposure to foreign exchange risk primarily relates to currency gains or losses resulting from timing differences between signing of sales contracts and settling of these contracts. Furthermore, we translate monetary assets and liabilities denominated in other currencies into RMB, the functional currency of our operating subsidiaries. Our results of operations and cash flow are translated at average exchange rates during the period, and assets and liabilities are translated at the unified exchange rate at the end of the period. Translation adjustments resulting from this process are included in accumulated other comprehensive income in our statement of shareholders’ equity. We have not used any forward contracts, currency options or borrowings to hedge our exposure to foreign currency exchange risk. We cannot predict the impact of future exchange rate fluctuations on our results of operations and may incur net foreign currency losses in the future.

Our financial statements are expressed in U.S. dollars, which is the functional currency of our parent company. The functional currency of our operating subsidiaries and affiliates is RMB. To the extent we hold assets denominated in U.S. dollars, any appreciation of the RMB against the U.S. dollar could result in a charge in our statement of operations and a reduction in the value of our U.S. dollar denominated assets. On the other hand, a decline in the value of RMB against the U.S. dollar could reduce the U.S. dollar equivalent amounts of our financial results.

Recently enacted JOBS Act

We qualify as an “emerging growth company” under the recently enacted 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:

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.

Results of Operations

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

Three and Six Months Ended June 30, 2018 Compared to Three and Six Months Ended June 30, 2017

Revenues

For the three months ended June 30, 2018, we had total revenues of $14,820,368, as compared to $15,604,376 for the three months ended June 30, 2017, a decrease of $784,008 or 5.02%. The decrease in total revenue was attributable to the decrease in revenues from handicrafts and “Others” segments, partially offset by increase in revenues from sales of TCM raw materials and yew trees to related parties.

For the six months ended June 30, 2018, we had total revenues of $17,851,506, as compared to $23,479,840 for the six months ended June 30, 2017, a decrease of $5,628,334 or 23.97%. The decrease in total revenue was attributable to the decrease in revenues from “Others” segments and handicrafts, partially offset by increase in revenues from sales of TCM raw materials and yew trees to related parties.

Total revenue is summarized as follows:

For the three months ended June 30, 2018 compared to June 30, 2017, the increase in revenue of TCM raw material was mainly attributable to the increase in demand from our related parties, Yew Pharmaceutical and HDS Development. The decrease in revenue of handicrafts was mainly attributable to the decrease in market demand. The decrease in revenue of others was mainly attributable to lower demand in export market.

For the six months ended June 30, 2018 compared to June 30, 2017, the increase in revenue of TCM raw material was mainly attributable to the increase in demand from our related parties, Yew Pharmaceutical and HDS Development. The decrease in revenue of handicrafts was mainly attributable to the decrease in market demand. The decrease in revenue of others was mainly attributable to the decrease in demand of yew candles, pine needle extracts and handmade essential oil soaps.

Cost of Revenues

For the three months ended June 30, 2018, cost of revenues amounted to $11,466,811 as compared to $5,014,713 for the three months ended June 30, 2017, an increase of $6,452,098 or 128.66%. For the three months ended June 30, 2018, cost of revenues accounted for 77.37% of total revenues compared to 32.14% of total revenues for the three months ended June 30, 2017.

For the six months ended June 30, 2018, cost of revenues amounted to $14,018,654 as compared to $12,370,197 for the six months ended June 30, 2017, an increase of $1,648,457 or 13.33%. For the six months ended June 30, 2018, cost of revenues accounted for 78.53% of total revenues compared to 52.68% of total revenues for the six months ended June 30, 2017.

Cost of revenues by product categories is as follows:

The increase in our cost of revenues for the three months ended June 30, 2018 as compared to the three months ended June 30, 2017 was primarily a result of the increase in cost of revenue in TCM raw materials, partially offset by the decrease in the “Others” segments. The increase in our cost of revenues for the six months ended June 30, 2018 as compared to the six months ended June 30, 2017 was primarily a result of the increase in cost of revenue in TCM raw materials, partially offset by decrease in costs of revenue in the “Others” segments.

The increase in cost of revenue in TCM raw material segment was primarily attributable to the increase in the unit cost of TCM raw materials and increase of sales to our related parties, Yew Pharmaceutical and HDS Development. Usually we obtained yew foliage by picking the leaves from the grown yew trees. The unit cost of the TCM raw material only consisted of the picking labor cost and amortization. However, in the second quarter of 2018, the demand for TCM raw material increased due to the increased demand from our related parties, Yew Pharmaceutical and HDS Development. We did not have enough leaves to be picked from the grown yew trees. Thus, the Company cut down certain whole grown yew to produce TCM raw material, which led to significantly increase in the unit price due to the fact that the cost consisted of the unit price of the grown tree. But in the second quarter of 2017, we have had enough leaves to pick and sale without cutting down the grown trees and our unit cost was lower.

The decrease in cost of revenue in “Others” segment for the three months ended June 30, 2018 as compared to the three months ended June 30, 2017 was primarily due to the decreased sales of yew candles, pine needle extracts and essential oil soaps, which was in line with the decrease in revenue.

The decrease in cost of revenue in “Others” segment for the six months ended June 30, 2018 as compared to the six months ended June 30, 2017 was primarily due to the decreased sales of yew candles, pine needle extracts and essential oil soaps, which was in line with the decrease in revenue.

Gross Profit

For the three months ended June 30, 2018, gross profit was $3,353,557 as compared to $10,589,663 for the three months ended June 30, 2017, representing gross profit margins of 22.6% and 67.9%, respectively. For the six months ended June 30, 2018, gross profit was $3,832,852 as compared to $11,109,643 for the six months ended June 30, 2017, representing gross profit margins of 21.5% and 47.3%, respectively. Gross profit margins by categories are as follows:

The decrease in our overall gross profit margin for the three and six month ended June 30, 2018 as compared to the three and six months ended June 30, 2017 were primarily attributable to the lower gross margin yields of TCM raw materials.

The decrease in our gross margin percentage related to the sale of TCM raw materials for the three and six months ended June 30, 2018 as compared to the three and six months ended June 30, 2017 was primarily attributable to the significant increase in the cost of revenue of TCM raw materials for the three and six months ended June 30, 2018.

Selling Expenses 

Selling expenses consisted of the following: 

For the three months ended June 30, 2018, selling expense was $6,989 as compared to $66 for the three months ended June 30, 2017. For the six months ended June 30, 2018, selling expense was $7,829 as compared to $331 for the six months ended June 30, 2017.

General and Administrative Expenses  

For the three months ended June 30, 2018, general and administrative expenses amounted to $1,280,311, as compared to $299,849 for the three months ended June 30, 2017, an increase of $980,462, or 326.99%. For the six months ended June 30, 2018, general and administrative expenses amounted to $1,539,343, as compared to $597,987 for the six months ended June 30, 2017, an increase of $941,356, or 157.42%.  

General and administrative expenses consisted of the following: 

The increase in our general and administrative expenses for the three and six months ended June 30, 2018, as compared to the three and six months ended June 30, 2017 was primarily attributable to the increase in our stock-based compensation.  

Income from Operations

For the three months ended June 30, 2018, income from operations was $2,066,257, as compared to income from operations of $10,289,748 for the three months ended June 30, 2017, a decrease of $8,223,491, or 79.92%. The decrease was primarily attributable to the decrease in gross profit from TCM raw materials.

For the six months ended June 30, 2018, income from operations was $2,285,680, as compared to income from operations of $10,511,325 for the six months ended June 30, 2017, a decrease of $8,225,645, or 78.26%. The decrease was primarily attributable to the decrease in gross profit from TCM raw materials.

Other Expenses

For the three months ended June 30, 2018, total other expense was $453,069 as compared to total other expense of $34,235 for the three months ended June 30, 2017. The increase was primarily attributable to the increase in government subsidy.

For the six months ended June 30, 2018, total other expense was $523,486 as compared to total other expense of $85,908 for the six months ended June 30, 2017. The increase was primarily attributable to the increase in government subsidy.

Net Income

As a result of the factors described above, our net income was $1,613,188 or $0.03 (basic and diluted), for the three months ended June 30, 2018, as compared to net income of $10,254,909 or $0.20 and $0.19 (basic and diluted, respectively), for the three months ended June 30, 2017. As a result of the factors described above, our net income was $1,762,194 or $0.03 (basic and diluted), for the six months ended June 30, 2018, as compared to net income of $10,424,813 or $0.20 and $0.19 (basic and diluted, respectively), for the six months ended June 30, 2017.

Foreign Currency Translation Adjustment

For the three months ended June 30, 2018, we reported an unrealized loss on foreign currency translation of $2,400,809, as compared to a gain of $775,601 for the three months ended June 30, 2017. For the six months ended June 30, 2017, we reported an unrealized loss on foreign currency translation of $844,005, as compared to a gain of $1,079,481 for the six months ended June 30, 2017. The change reflects the effect of the value of the U.S. dollar in relation to the RMB. These gains and 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 resulting from foreign exchange transactions, if any, are included in the consolidated statements of income and comprehensive income.

Comprehensive Income 

For the three months ended June 30, 2018, comprehensive loss of $787,621 was derived from the sum of our net income of $1,613,188 with foreign currency translation loss of $2,400,809. For the three months ended June 30, 2017, comprehensive income of $11,030,510 was derived from the sum of our net income of $10,254,909 with foreign currency translation gain of $775,601.

For the six months ended June 30, 2018, comprehensive income of $918,189 was derived from the sum of our net income of $1,762,194 with foreign currency translation loss of $844,005. For the six months ended June 30, 2017, comprehensive income of $11,504,294 was derived from the sum of our net income of $10,424,813 with foreign currency translation gain of $1,079,481.

Segment Information

For the three and six months ended June 30, 2018 as compared to the three and six months ended June 30, 2017, we operated in four reportable business segments: (1) the TCM raw materials segment, consisting of the production and sale of yew raw materials and yew tree extracts used in the manufacture of TCM; (2) the yew tree segment, consisting of the growth and sale of yew tree seedlings and mature trees; (3) the handicrafts segment, consisting of the manufacture and sale of furniture and handicrafts made of yew timber; and (4) the “Others” segment, consisting of the sales of yew candles, pine needle extracts, yew essential oil soaps, complex taxus cuspidate extract, and composite northeast yew extract. Our reportable segments are strategic business units that offer different products. The four business segments are managed separately based on the fundamental differences in their operations. All of the Company’s operations including the sales of export commodities are conducted in the PRC.

Information with respect to these reportable business segments for the three months ended June 30, 2018 and 2017 was as follows:

Information with respect to these reportable business segments for the six months ended June 30, 2018 and 2017 was as follows:

TCM raw materials

During the three months ended June 30, 2018, we sold 60,869 kg of TCM raw materials as compared to 48,506 kg of TCM raw materials during the three months ended June 30, 2017, a 25.49% increase in sales volume primarily attributable to increase in sales volume to our related parties, Yew Pharmaceutical and HDS Development.

During the six months ended June 30, 2018, we sold 73,999 kg of TCM raw materials as compared to 65,481 kg of TCM raw materials during the six months ended June 30, 2016, a 13.01% increase in sales volume primarily attributable to increase in sales volume to our related parties, Yew Pharmaceutical and HDS Development.

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.

For the three months ended June 30, 2018 and 2017, we had revenue of $13,053,333 and $11,536,786, respectively, from the sale of TCM raw materials to Yew Pharmaceutical and HDS Development. For the three months ended June 30, 2018 and 2017, we had no revenue from the sale of TCM raw materials to third parties.

For the six months ended June 30, 2018 and 2017, we had revenue of $14,748,730 and $14,071,047, respectively, from the sale of TCM raw materials to Yew Pharmaceutical and HDS Development. For the six months ended June 30, 2018 and 2017, we had no revenue from the sale of TCM raw materials to third parties.

Sales volume was summarized as follows:

Additionally, in order to ensure the sustainability of our yew forests, we closely monitor the growth rate of our yew trees. The amount of TCM raw materials we can sell is limited by the seasonal growth rate of our yew trees that are available for cutting branches and leaves. Over time, as more yew trees reach maturity, these limits may be increased.

Others

During the three months ended June 30, 2018, we sold approximately 20,040 yew candles in amount of $1,597,541 to related party. During the six months ended June 30, 2018, we sold approximately 38,040 yew candles in the amount of $2,901,024 to related party.

During the three months ended June 30, 2017, we sold approximately 37,200 yew candles, and 1,170 kilograms pine needle extracts in amount of $4,066,586 to third party. During the six months ended June 30, 2017, we sold approximately 171,540 yew candles, and 3,090 kilograms pine needle extracts in the amount of $9,406,425 to third party.

Handicrafts

During the three months ended June 30, 2018 and 2017, revenue from the sale of handicrafts made from yew timber to third parties amounted to $206 and $1,004, respectively, decrease of $798, or 79.48%. During the six months ended June 30, 2018 and 2017, revenue from the sale of handicrafts made from yew timber to third parties amounted to $1,308 and $2,368, respectively, decrease of $1,060, or 44.76%. The decrease in revenues of handicrafts was mainly due to the Company’s strategy of stopping producing and selling of handicrafts due to bad market situation in recent years.

Yew trees

During the three months ended June 30, 2018, we sold 575 pieces of yew trees in amount of $5,419 to third party and 4,209 pieces of yew trees in amount of $27,082 to related party. During the six months ended June 30, 2018, we sold 575 pieces of yew trees in amount of $5,419 to third party and 4,209 pieces of yew trees in amount of $27,082 to related party. During the three and six months ended June 30, 2017, we did not sell any yew trees.

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 June 30, 2018 and December 31, 2017, we had cash balances of $772,769 and $859,830, 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.

The following table sets forth information as to the principal changes in the components of our working capital from December 31, 2017 to June 30, 2018: