The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
SUNWIN STEVIA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2020
NOTE 1 - ORGANIZATION AND OPERATIONS
DESCRIPTION OF BUSINESS
Sunwin Stevia International, Inc. ("Sunwin Stevia International"), a Nevada corporation, and its subsidiaries are referred to in this report as "we", "us", "our", "Sunwin" or the "Company".
We sell stevioside, a natural sweetener, and other pharmaceutical productions. Substantially all of our operations are located in the People's Republic of China (the "PRC"). We have built an
integrated company with the sourcing and production capabilities designed to meet the needs of our customers. Our operations are organized into two operating segments related to our product lines:
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-
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Stevioside; and
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-
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Corporate and other.
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For the nine months ended January 31, 2020 and fiscal year 2019, our subsidiaries included in continuing operations and discontinued operations consisted of the following:
- Sunwin Stevia International;
- Qufu Natural Green Engineering Co., Ltd. ("Qufu Natural Green"), wholly owned by Sunwin Stevia International;
- Qufu Shengren Pharmaceutical Co., Ltd. ("Qufu Shengren"), wholly owned by Qufu Natural Green;
- Qufu Shengwang Stevia Biology and Science Co., Ltd. ("Qufu Shengwang"), wholly owned by Qufu Natural Green;
- Sunwin USA, LLC ("Sunwin USA"), wholly owned by Sunwin Stevia International; and
- Qufu Shengren Import and Export Co., Ltd. (“Qufu Shengren Import and Export”), wholly owned subsidiary of Qufu Shengren.
Qufu Shengren
In fiscal 2009, Qufu Natural Green acquired Qufu Shengren for $3,097,242. The purchase price was equal to the value of the assets of Qufu Shengren as determined by an independent asset appraisal in
accordance with asset appraisal principles in the PRC. Prior to being acquired by us, Qufu Shengren was engaged in the production and distribution of bulk drugs and pharmaceuticals. Subsequent to the acquisition, Qufu Shengren produces and
distributes steviosides with a full range of grades from rebaudioside-A 10 to 99.
Since fiscal 2018 we invested in a new production line for Metformin as one of the new product markets we intend to branch into. Metformin is the raw material of Metformin hydrochloride tablets.
Metformin is the first-line medication for the treatment of type 2 diabetes, particularly in people who are not satisfied with simple diet control, especially those with obesity and hyperinsulinemia. This drug not only has a hypoglycemic effect, but
also may have the effect of reducing body weight and hyperinsulinemia. It can be effective in patients with poor efficacy of certain sulfonylureas, such as sulfonylureas, intestinal glycosidase inhibitors or thiazolidinedione hypoglycemic agents,
which are more effective than single use. It can also be used in patients with insulin therapy to reduce insulin consumption. On July 10, 2019, the Company entered into the Metformin Production Line Operation Management Agreement with an unaffiliated
individual to operate the Metformin production line (see Note 8).
Sunwin USA
In fiscal year 2009, we entered into a distribution agreement with WILD Flavors to assist our 55% owned subsidiary, Sunwin USA, in the marketing and worldwide distribution of our
stevioside-based sweetener products and issued WILD Flavors a 45% interest in Sunwin USA. In August 2012, the Company entered into an Exchange Agreement with WILD Flavors pursuant to which it purchased its 45% membership interest in Sunwin USA for
an aggregate consideration of $1,625,874, which includes the issuance of 7,666,666 shares of our common stock valued at $1,533,333 and a cash payment of $92,541; the purchase included the product development and supply chain for OnlySweet.
Qufu Shengwang
In fiscal 2009, Qufu Natural Green acquired a 60% interest in Qufu Shengwang from its shareholder, Shandong Group, for $4,026,851. The purchase price represented 60% of the value of the net tangible
assets of Qufu Shengwang as of April 30, 2008. Shandong Group is owned by Laiwang Zhang, our President and Chairman of the Board of Directors. Qufu Shengwang manufactures and sells stevia - based fertilizers and feed additives.
On September 30, 2011, Qufu Shengwang purchased the 40% equity interest in Qufu Shengwang owned by our Korean partner, Korea Stevia Company, Limited, for $626,125 in cash, and as a result of this
repurchase transaction we now own 100% equity interest in all of the net assets of our subsidiary Qufu Shengwang. Therefore, the non-controlling interest of $2,109,028 in our balance sheet as of April 30, 2012 has been eliminated to reflect our 100%
interest in Qufu Shengwang.
On July 1, 2012, Qufu Shengwang entered into a Cooperation Agreement with Hegeng (Beijing) Organic Farm Technology Co, Ltd. ("Hegeng"), a Chinese manufacturer and distributor of bio-fertilizers and
pesticides, to jointly develop bio-bacterial fertilizers based on the residues from our stevia extraction. Under the Cooperation Agreement, Hegeng provides strain and formula that we apply to the stevia residues to produce bio-bacterial fertilizers
in the current facility of Qufu Shengwang. The bio-bacterial fertilizers will be distributed under Qufu Shengwang's name. No additional investment in the facility would be required. During the third quarter of fiscal year 2014, we decided to suspend
the agreement with Hegeng due to a lack of sales since the reaction to the products was lower than anticipated in fertilizer market.
On July 30, 2019, Qufu Shengwang was sold to an unaffiliated individual (see Note 3).
Qufu Shengren Import and Export
On October 9, 2019, Qufu Shengren invested RMB2,000,000 (approximately $288,322) in a new entity, Qufu Shengren Import and Export Co., Ltd., (“Qufu Shengren Import and Export”), a Chinese limited
liability company, a 100% owned subsidiary of Qufu Shengren. Qufu Shengren Import and Export focuses on the export of our Stevia products, and the import and export of technology and other relevant products; we
expect to increase operations in this subsidiary in the near future.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements include the accounts of Sunwin and all our wholly-owned subsidiaries and have been prepared in accordance with accounting
principles generally accepted in the United States of America ("U.S. GAAP") and pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC") for interim financial reporting. The accompanying unaudited condensed
consolidated financial statements for the interim periods presented are unaudited and reflect all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the
financial position and operating results for the periods presented. Certain financial statement amounts relating to prior periods have been reclassified to conform to the current period presentation. All intercompany accounts and transactions have
been eliminated in consolidation.
These unaudited condensed consolidated interim financial statements should be read in conjunction with the financial statements and footnotes for the year ended April 30, 2019 included in our Form
10-K as filed with the SEC. The results of operations and cash flows for the nine months ended January 31, 2020 are not necessarily indicative of the results of operations or cash flows which may be reported for future periods or the full fiscal
year.
The condensed consolidated balance sheet as of April 30, 2019 contained herein has been derived from the audited consolidated financial statements as of April 30, 2019, but do not include all
disclosures required by the U.S. GAAP.
Our unaudited condensed consolidated financial statements include the accounts of Sunwin and all our wholly-owned subsidiaries included in continuing operations and discontinued operations. All
intercompany accounts and transactions have been eliminated in consolidation. Qufu Shengwang is the subsidiary of discontinued operations and our subsidiaries for continuing operations include the following:
- Qufu Natural Green;
- Qufu Shengren;
- Sunwin USA; and
- Qufu Shengren Import and Export
USE OF ESTIMATES
The preparation of unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets
and liabilities and the disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates
include the allowance for doubtful accounts, the allowance for obsolete inventory, the useful life of property and equipment and intangible assets, assumptions used in assessing impairment of long-term assets and valuation of deferred tax assets, and
the value of stock-based compensation. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
We consider all highly liquid investments with maturities of nine months or less at the time of purchase to be cash and equivalents. As of January 31, 2020, we held $72,958 of our cash and cash
equivalents with commercial banking institutions in the PRC, and $83,551 with banks in the United States. As of April 30, 2019, we held $205,693 of our cash and cash equivalents with commercial banking institution in PRC, and $88,506 in the United
States. In China, there is no equivalent federal deposit insurance as in the United States, so the amounts held in banks in China are not insured. We have not experienced any losses in such bank accounts through January 31, 2020.
ACCOUNTS RECEIVABLE
Accounts receivable and other receivable are reported at net realizable value. We have established an allowance for doubtful accounts based upon factors pertaining to the credit risk of specific
customers, historical trends, and other information. Delinquent accounts are written off when it is determined that the amounts are uncollectible after exhaustive efforts on collection. As of January 31, 2020 and April 30, 2019, the allowance for
doubtful accounts was $75,874 and $78,159, respectively.
INVENTORIES
Inventories, consisting of raw materials, work in process, and finished goods related to our products, are stated at the lower of cost and net realizable value that can be estimated utilizing the
weighted average method. A reserve is established when management determines that certain slow-moving inventories may be sold at below book value. These reserves are recorded based on estimates. If inventory costs exceed expected market value due to
obsolescence or quantities in excess of expected demand, the Company will record reserves for the difference between the cost or estimated net realizable value. As of January 31, 2020 and April 30, 2019, the Company did not record a reserve for
obsolete or slow-moving inventories. If inventory costs exceed expected market value due to obsolescence or quantities in excess of expected demand, the Company will record a write down of inventories for the difference between the lower of cost or
estimated net realizable value. As of January 31, 2020 and April 30, 2019, the Company wrote down inventories in the amount of $93,640 and $999,548, respectively.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization are provided using the straight line method over the estimated economic lives of the assets, which range from three to twenty
years. Expenditures for major renewals and betterments that extend the useful lives of property and equipment are capitalized. Expenditures for maintenance and repairs are charged to expense as incurred. In accordance with paragraph 360-10-35-17 of
the Financial Accounting Standards Board (FASB) Accounting Standards Codification ("ASC"), we examine the possibility of decreases in the value of fixed assets when events or changes in circumstances reflect the fact that their recorded value may not
be recoverable.
Included in property and equipment is construction-in-progress which consisted of factory improvements and machinery pending installation and included the costs of construction, machinery and
equipment, and or any interest charges arising from borrowings used to finance these assets during the period of construction or installation of the assets if applicable. No provision for depreciation is made on construction-in-progress until such
time as the relevant assets are completed and ready for their intended use.
LONG-LIVED ASSETS
In accordance with ASC 360, we review and evaluate our long-lived assets, including property and equipment, intangible assets, and land use rights, for
impairment or when events or changes in circumstances indicate that the related carrying amounts may not be recoverable. An impairment is considered to exist if the total estimated future cash flows on an undiscounted basis are less than the carrying
amount of the assets, including goodwill, if any. An impairment loss is measured and recorded based on discounted estimated future cash flows. In estimating future cash flows, assets are grouped at the lowest level for which there is identifiable
cash flows that are largely independent of future cash flows from other asset groups. Our estimates of future cash flows are based on numerous assumptions and it is possible that actual future cash flows will be significantly different than the
estimates. Based on our evaluation, we have determined certain long-lived assets that are no longer useful for our operations, and we recorded a loss on disposition of property and equipment of $49,476 and $0 at January 31, 2020 and April 30, 2019,
respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
We adopted ASC Section 820-10-35-37 to measure the fair value of our financial instruments. ASC Section 820-10-35-37 establishes a common definition for fair value to be applied to existing generally
accepted accounting principles that require the use of fair value measurements, establishes a framework for measuring fair value, and expands disclosure about such fair value measurements. The adoption of ASC Section 820-10-35-37 did not have an
impact on our financial position or operating results, but did expand certain disclosures.
ASC Section 820-10-35-37 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the
measurement date. Additionally, ASC Section 820-10-35-37 requires the use of valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized below:
Level 1:
|
Observable inputs such as quoted market prices in active markets for identical assets or liabilities
|
Level 2:
|
Observable market-based inputs or unobservable inputs that are corroborated by market data
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Level 3:
|
Unobservable inputs for which there is little or no market data, which require the use of the reporting entity's own assumptions.
|
The carrying amounts of our financial assets and liabilities, such as cash, accounts receivable, notes receivable, prepayments and other current assets, accounts payable, taxes payable and accrued
expenses, approximate their fair values because of the short maturity of these instruments.
TAXES PAYABLE
We are required to charge for and to collect value added taxes (VAT) on our sales on behalf of the PRC tax authority. We record VAT that we billed our customers as VAT payable. In addition, we are
required to pay value added taxes on our primary purchases. We record VAT that is charged by our vendors as VAT receivable. We are required to file VAT return on a monthly basis with the PRC tax authority, in which we are entitled to claim the VAT
that we charged by vendors as VAT credit and these credits can be applied to our VAT payable that we billed our customers. Accordingly, these VAT payable and receivable are presented as net amounts for financial statement purposes. Taxes payable as
of January 31, 2020 and April 30, 2019 amounted to $170,216 and $125,854, respectively, and consisted primarily of VAT taxes.
REVENUE RECOGNITION
Pursuant to the guidance of ASC 606, we record revenue when persuasive evidence of an arrangement exists, product delivery has occurred, the sales price to the customer is fixed or determinable, and
collectability is reasonably assured. The adoption of this guidance did not have a material impact on our condensed consolidated financial statements.
In accordance with ASC 606, we recognize revenues from the sale of stevia and other productions upon shipment and transfer of title based on the trade terms. All product sales with customer specific
acceptance provisions are recognized upon customer acceptance and the delivery of the products. We report revenues net of applicable sales taxes and related surcharges.
The Company is also a lessor, which is an entity that is lease underlying asset to the third party, The Company’s lease revenue is recognized under ASC Topic 842, Leases, (“ASC 842”), which was
adopted on January 1, 2019. In general, the Company commences rental revenue recognition when the tenant takes possession of the leased space and the leased space is substantially ready for its intended use. The Company’s lease has been accounted for
as operating lease. Rental revenue is recognized on a straight-line basis over the terms of the lease of five years. Actual amounts billed in accordance with the lease during any given period may have been higher or lower than the amount of rental
revenue recognized for the period. The difference by which straight-line rental revenue exceeded rents billed in accordance with lease agreements is recorded as “accounts receivable”. The difference by which rents billed in accordance with lease
agreements exceeded straight-line rental revenue is recorded as “advances from customer”. The Company does not offset lease income and lease expense.
GRANT INCOME
Grants received from PRC government agencies are recognized as deferred grant income and recognized in the condensed consolidated statements of operations and comprehensive loss as and when they are
earned for the specific research and development projects for which these grants are designated for.
INCOME TAXES
The Company has adopted Accounting Standards Codification subtopic 740-10, Income Taxes ("ASC 740-10") which requires the recognition of deferred tax
liabilities and assets for the expected future tax consequences of events that have been included in the financial statement or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between
financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Valuation allowances are recorded to reduce the deferred tax assets to an amount that it
is more likely than not be realized.
We file federal and state income tax returns in the United States for our corporate operations pursuant to the U.S. Internal Revenue Code of 1986, as amended, and file separate foreign tax returns
for our Chinese subsidiaries pursuant to the China's Unified Corporate Income Tax Law.
We apply the provisions of ASC 740-10-50, "Accounting for Uncertainty in Income Taxes", which provides clarification related to the process associated with accounting for uncertain tax positions
recognized in our consolidated financial statements. Audit periods remain open for review until the statute of limitations has passed. The completion of review or the expiration of the statute of limitations for a given audit period could result in
an adjustment to the Company's liability for income taxes. Any such adjustment could be material to the Company's results of operations for any given quarterly or annual period based, in part, upon the results of operations for the given period. As
of January 31, 2020, the Company had no uncertain tax positions, and will continue to evaluate for uncertain positions in the future.
BASIC AND DILUTED EARNINGS PER SHARE
Pursuant to ASC Section 260-10-45, basic loss per common share is computed by dividing loss available to common shareholders by the weighted average number of shares of common stock outstanding for
the periods presented. Diluted loss per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that would
then share in the income of ours, subject to anti-dilution limitations. The following table presents a reconciliation of basic and diluted net income per common share:
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Three Months Ended
January 31,
|
|
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Nine Months Ended
January 31,
|
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Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Net loss attributable to Sunwin Stevia International, Inc.
|
|
$
|
(1,181,872
|
)
|
|
$
|
(1,018,730
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)
|
|
$
|
(1,373,216
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)
|
|
$
|
(3,314,410
|
)
|
Net loss from continuing operations
|
|
$
|
(1,181,872
|
)
|
|
$
|
(1,012,851
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)
|
|
$
|
(1,119,785
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)
|
|
$
|
(3,191,724
|
)
|
Net loss from discontinued operation
|
|
|
-
|
|
|
|
(5,879
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)
|
|
|
(253,431
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)
|
|
|
(122,686
|
)
|
Denominator:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per share - weighted average number of common shares outstanding
|
|
|
199,632,803
|
|
|
|
199,632,803
|
|
|
|
199,632,803
|
|
|
|
199,632,803
|
|
Stock awards, options, and warrants
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Denominator for diluted earnings per share - adjusted weighted average outstanding average number of common shares outstanding
|
|
|
199,632,803
|
|
|
|
199,632,803
|
|
|
|
199,632,803
|
|
|
|
199,632,803
|
|
Basic and diluted loss per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations - basic and diluted
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.02
|
)
|
Net loss from discontinued operations - basic and diluted
|
|
|
0.00
|
|
|
|
(0.00
|
)
|
|
|
(0.00
|
)
|
|
|
(0.00
|
)
|
Net loss per common share - basic and diluted
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.02
|
)
|
FOREIGN CURRENCY TRANSLATION
Transactions and balances originally denominated in U.S. dollars are presented at their original amounts. Transactions and balances in other currencies are converted into U.S. dollars in accordance
with ASC Section 830-20-35 and are included in determining net income or loss.
The reporting currency of the Company is the U.S. dollar. The functional currency of the parent company is the U.S. dollar and the functional currency of the Company's operating subsidiaries is the
Chinese Renminbi ("RMB"). In accordance with ASC 830-20-35, the consolidated financial statements were translated into United States dollars using balance sheet date rates of exchange for assets and liabilities, and average rates of exchange for the
period for the income statements and cash flows. Equity accounts were stated at their historical rate. Net gains and losses resulting from foreign exchange transactions are included in the consolidated statements of operations. Translation
adjustments resulting from the process of translating the local currency financial statements into U.S. dollars are included in other comprehensive income or loss.
RMB is not a fully convertible currency. All foreign exchange transactions involving RMB must take place either through the People's Bank of China (the "PBOC") or other institutions authorized to buy
and sell foreign exchange. The exchange rate adopted for the foreign exchange transactions are the rates of exchange quoted by the PBOC, which are determined largely by supply and demand. Translation of amounts from RMB into United States dollars
("$") was made at the following exchange rates for the respective periods:
As of January 31, 2020
|
RMB 6.94 to $1.00
|
As of April 30, 2019
|
RMB 6.73 to $1.00
|
|
|
Nine months ended January 31, 2020
|
RMB 6.99 to $1.00
|
Nine months ended January 31, 2019
|
RMB 6.76 to $1.00
|
COMPREHENSIVE LOSS
Comprehensive loss is comprised of net loss and all changes to the statements of stockholders' equity, except those due
to investments by stockholders, changes in paid-in capital and distributions to stockholders. For the Company, comprehensive loss for the three and nine months ended January 31, 2020 and 2019 included net loss and unrealized gains (losses) from
foreign currency translation adjustments.
CONCENTRATIONS OF CREDIT RISK
Substantially all of our operations are carried out in the PRC. Accordingly, our business, financial condition and results of operations may be influenced by the political, economic and legal
environment in the PRC, and by the general state of the PRC's economy. Our operations in the PRC are subject to specific considerations and significant risks not typically associated with companies in North America. Our results may be adversely
affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.
Financial instruments which potentially subject us to concentrations of credit risk consist principally of cash and trade accounts receivable. We place our cash with high credit quality financial
institutions in the United States and China. As of January 31, 2020, we had $72,958 of cash balance held in PRC banks, which is not insured. We have not experienced any losses in such accounts through January 31, 2020.
Almost all of our sales are credit sales which are primarily to customers whose ability to pay is dependent upon the industry economics prevailing in these areas; however, we believe that the
concentration of credit risk with respect to trade accounts receivable is limited due to generally short payment terms. We also perform ongoing credit evaluations of our customers to help further reduce potential credit risk.
STOCK BASED COMPENSATION
Stock-based compensation is accounted for based on the requirements of the Share-Based Payment topic of ASC 718 which requires recognition in the financial statements of the cost of employee and
director services received in exchange for an award of equity instruments over the period the employee or director is required to perform the services in exchange for the award (presumptively, the vesting period). ASC 718 also requires measurement of
the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred and are included in general and administrative expenses in the accompanying statements of operations. Research and development costs are
incurred on a project specific basis. Research and development costs were $633,668 and $317,876 for the three months ended January 31, 2020 and 2019, and $1,279,620 and $699,533 for the nine months ended January 31, 2020 and 2019, respectively.
SHIPPING COSTS
Shipping costs are included in selling expenses and totaled $27,547 and $50,579 for the three months ended January 31, 2020 and 2019, and $75,642 and $155,902 for the nine months ended January 31,
2020 and 2019, respectively.
ADVERTISING
Advertising is expensed as incurred and is included in selling expenses and totaled $50,500 and $181,336 for the three months ended January 31, 2020 and 2019, $298,750 and
$235,309 for the nine months ended January 31, 2020 and 2019, respectively.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current period presentation for amounts related to the discontinue operations (see Note 3). These reclassifications had no impact
on net earnings and financial position.
SEGMENT REPORTING
The Company uses the "management approach" in determining reportable operating segments. The management approach considers the internal organization and reporting used by the Company's chief
operating decision maker for making operating decisions and assessing performance as the source for determining the Company's reportable segments. The Company's chief operating decision maker has been identified as the chief executive officer of the
Company who reviews financial information of separate operating segments based on U.S. GAAP. The chief operating decision maker now reviews results analyzed by customer. This analysis is only presented at the revenue level with no allocation of
direct or indirect costs. Consequently, the Company has determined that it has only one operating segment.
RECENT ACCOUNTING PRONOUNCEMENTS
In May 2014, the FASB issued ASU 2014-09, "Revenue from contracts with Customers (Topic 606)". Under ASU 2014-09, revenue is recognized when a customer
obtains control of promised goods or services and is recognized in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. In addition, the standard requires disclosure of the nature,
amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. This standard, which is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2017. The guidance permits two
methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (modified
retrospective method). The Company adopted this standard effective May 1, 2018 by using the full retrospective method to restate prior reporting period presented. The Company has identified its revenue streams and assessed each for the impacts. The
Company completed its analysis and concluded that the adoption of Topic 606 did not have a material impact in the timing or amount of revenue recognized, including the presentation of revenues in the Company's consolidated statements of income and
comprehensive loss.
In February 2018, the FASB issued ASU 2018-02, "Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income".
These amendments provide financial statement preparers with an option to reclassify stranded tax effects within accumulated other comprehensive income to retained earnings in each period in which the effect of the change in the U.S. federal corporate
income tax rate in the Tax Cuts and Jobs Act (or portion thereof) is recorded. The amendments in this ASU are effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption
of ASU 2018-02 is permitted, including adoption in any interim period for the public business entities for reporting periods for which financial statements have not yet been issued. The amendments in this ASU should be applied either in the period of
adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized. The Company has adopted this guidance in fiscal 2019.
In March 2018, the FASB issued ASU 2018-05, "Income Taxes (Topic 740) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118". The amendments in this ASU add SEC paragraphs
pursuant to the SEC Staff Accounting Bulletin No. 118, which expresses the view of the staff regarding application of Topic 740, Income Taxes, in the reporting period that includes December 22, 2017 - the date on which the Tax Cuts and Jobs Act was
signed into law. The amendments are effective upon addition to the FASB Accounting Standards Codification. The adoption of this guidance did not have a material impact on our condensed consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13, "Fair Value Measurement (Topic 820)," which removes, modifies and adds various disclosure requirements around the topic in order to clarify and improve
the cost-benefit nature of disclosures. For example, disclosures around transfers between fair value hierarchy levels will be removed and further detail around changes in unrealized gains and losses for the period and unobservable inputs determining
level 3 fair value measurements will be added. This standard is effective for interim and annual reporting periods beginning after December 15, 2019, and early adoption is permitted. The Company is currently evaluating the impact of the new standard
will have on its condensed consolidated financial statements.
In August 2018, the FASB issued ASU 2018-14, "Compensation – Retirement Benefits – Defined Benefit Plans – General (Subtopic 715-20)," which removes, modifies and adds various disclosure requirements around the topic in order to
clarify and improve the cost-benefit nature of disclosures. For example, disclosures around the effect of a one-percentage-point change in assumed health care costs will be removed and an explanation of the reasons for significant gains and losses
related to changes in the benefit obligation for the period will be added. This standard is effective for fiscal years ending after December 15, 2020, and early adoption is permitted. These amendments must be applied on a retrospective basis for all
periods presented. The Company is currently evaluating the impact of the new standard will have on its condensed consolidated financial statements.
A variety of proposed or otherwise potential accounting standards are currently under study by standard setting organizations and various regulatory agencies. Due to the tentative and preliminary
nature of those proposed standards, we have not determined whether implementation of such proposed standards would be material to our condensed consolidated financial statements.
GOING CONCERN
Our unaudited condensed consolidated financial statements have been prepared assuming we will continue as a going concern. The Company has incurred net loss of approximately $1,182,000 and
$1,120,000 for the three and nine months ended January 31, 2020 on continued operations and has a significant accumulated deficit of $39.9 million as of January 31, 2020. The Company's cash balance and revenues generated are not currently sufficient
and cannot be projected to cover operating expenses for the next twelve months from the date of this report. These factors raise doubt as to the ability of the Company to continue as a going concern. Management's plans include attempting to improve
its business profitability, its ability to generate sufficient cash flow from its operations to meet its operating needs on a timely basis, obtain additional working capital funds through debt and equity financings, and restructure on-going
operations to eliminate inefficiencies to raise cash balance in order to meet its anticipated cash requirements for the next twelve months from the date of this report. Management intends to make every effort to improve its current sales force as to
further develop and expand the international markets for its new products as well as continuing with the current sources of funds to meet working capital needs on as needed basis. There can be no assurance that these plans and arrangements will be
successful.
The ability of the Company to continue as a going concern is dependent upon its ability to achieve profitable operations and raise additional capital. The accompanying unaudited condensed
consolidated financial statements do not include any adjustments related to the recoverability or classification of asset-carrying amount or the amounts and classification of liabilities that may result should the Company be unable to continue as a
going concern.
NOTE 3 - DISCONTINUED OPERATIONS
On July 30, 2019, Qufu Natural Green entered into an Asset Transfer Agreement with Na Li, an unaffiliated individual (the "Buyer") for the sale of 100% equity ownership of Qufu Shengwang. Pursuant
to the Asset Transfer Agreement, the Buyer shall pay to Qufu Natural Green a total cash consideration of RMB8,000,000 (approximately $1,162,790) based on the estimated net book value as of July 30, 2019, payable in two installments of RMB5,000,000
(approximately $726,744) on July 30, 2019 and RMB3,000,000 (approximately $436,046) on September 30, 2019. The Buyer assumed all assets and liabilities of Qufu Shengwang including the amount Qufu Shengwang owes to Qufu Natural Green of
approximately RMB26,000,000 (approximately $3,779,070), and Qufu Natural Green shall assist in completing all documents required for the equity transfer after confirming the receipt of the first payment. The Company received the first installment
of RMB5,000,000 on July 30, 2019, and received the second installment of RMB3,000,000 on August 20, 2019. The Buyer settled all liabilities of Qufu Shengwang due to Natural Green by assuming the liabilities on behalf of Qufu Shengren in the amount
of approximately RMB 26,000,000 (approximately $3,779,070) due to another third party.
Prior to July 30, 2019, Qufu Shangwang engaged in our Chinese medicine segment. In our Chinese medicine segment, we manufactured and sold traditional Chinese medicine formula extracts which are used
in products made for use by both humans and animals. As a result of the sale of Qufu Shengwang, our Chinese medicine segment is treated as a discontinued operation.
Pursuant to ASC Topic 205-20, Presentation of Financial Statements - Discontinued Operations, the results of operations from the Chinese medicine segment for the three and nine months ended January
31, 2020 and 2019 have been classified as discontinued operations and is included in the line caption of the loss from discontinued operations line in the accompanying consolidated statements of operations and comprehensive loss presented herein. The
assets and liabilities also have been classified as discontinued operations under the line captions of current assets held for sale, non-current assets held for sale, current liabilities held for sale and non-current liabilities held for sale in the
Company's condensed consolidated balance sheets as of January 31, 2020 and April 30, 2019.
The assets and liabilities classified as discontinued operations in the Company's condensed consolidated financial statements as of January 31, 2020 and April 30, 2019 were set forth below.
|
|
January 31,
2020
|
|
|
April 30,
2019
|
|
Assets:
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
Cash
|
|
$
|
-
|
|
|
$
|
426,766
|
|
Accounts receivable, net
|
|
|
-
|
|
|
|
322,902
|
|
Inventories, net
|
|
|
-
|
|
|
|
949,705
|
|
Due from related parties
|
|
|
-
|
|
|
|
2,308,159
|
|
Prepaid expenses and other
|
|
|
-
|
|
|
|
135,527
|
|
Total current assets
|
|
|
-
|
|
|
|
4,143,059
|
|
Property and equipment, net
|
|
|
-
|
|
|
|
985,630
|
|
Land use rights, net
|
|
|
-
|
|
|
|
1,795,362
|
|
Other long-term asset
|
|
|
-
|
|
|
|
144,714
|
|
Total assets
|
|
$
|
-
|
|
|
$
|
7,068,765
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
-
|
|
|
$
|
389,521
|
|
Accrued expenses and other liabilities
|
|
|
-
|
|
|
|
599,227
|
|
Total current liabilities
|
|
|
-
|
|
|
|
988,748
|
|
Long-term loans
|
|
|
-
|
|
|
|
947,445
|
|
Total liabilities *
|
|
$
|
-
|
|
|
$
|
1,936,193
|
|
* Not including intercompany loan of Qufu Shengwang payable to Qufu Natural Green in the amount of RMB27,354,608 (approximately $3,975,960) which was not reflected on the condensed consolidated
financial statements as of April 30, 2019 due to consolidation.
The following table presents the results of discontinued operations in the three and nine months ended January 31, 2020 and 2019:
|
|
Three Months Ended January 31,
|
|
|
Nine Months Ended January 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
-
|
|
|
$
|
719,322
|
|
|
$
|
733,441
|
|
|
$
|
2,031,396
|
|
Cost of revenues
|
|
|
-
|
|
|
|
539,455
|
|
|
|
572,357
|
|
|
|
1,618,822
|
|
Gross profit
|
|
|
-
|
|
|
|
179,867
|
|
|
|
161,084
|
|
|
|
412,574
|
|
Operating expenses
|
|
|
-
|
|
|
|
186,448
|
|
|
|
172,142
|
|
|
|
538,159
|
|
Other income (expenses), net
|
|
|
-
|
|
|
|
702
|
|
|
|
(8,958
|
)
|
|
|
2,899
|
|
Loss before income taxes
|
|
|
-
|
|
|
|
5,879
|
|
|
|
20,016
|
|
|
|
122,686
|
|
Income tax expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Loss from discontinued operations
|
|
|
-
|
|
|
|
5,879
|
|
|
|
20,016
|
|
|
|
122,686
|
|
Loss from disposal, net of taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
960
|
|
|
|
-
|
|
Loss from sales of subsidiary
|
|
|
-
|
|
|
|
-
|
|
|
|
232,455
|
|
|
|
-
|
|
Total loss from discontinued operations
|
|
$
|
-
|
|
|
$
|
5,879
|
|
|
$
|
253,431
|
|
|
$
|
122,686
|
|
For the three months ended January 31, 2020 and 2019, loss from discontinued operations amounted to $0 and $5,879. For the nine months ended January 31, 2020 and 2019, loss from discontinued
operations amounted to $253,431 and $122,686. The Company realized a loss of $233,415 from the disposal of 100% equity of Qufu Shengwang, which was reflected as loss from sale of discontinued operations on the condensed consolidated statement of
operations for the nine months ended January 31, 2020.
NOTE 4 - INVENTORIES
As of January 31, 2020 and April 30, 2019, inventories consisted of the following:
|
|
January 31, 2020
|
|
|
April 30, 2019
|
|
|
|
(unaudited)
|
|
|
|
|
Raw materials
|
|
$
|
6,166,752
|
|
|
$
|
5,639,260
|
|
Work in process
|
|
|
3,098,863
|
|
|
|
3,426,545
|
|
Finished goods
|
|
|
3,549,358
|
|
|
|
2,926,151
|
|
|
|
|
12,814,973
|
|
|
|
11,991,956
|
|
Less: reserve for obsolete inventory
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
12, 814,973
|
|
|
$
|
11,991,956
|
|
NOTE 5 - PROPERTY AND EQUIPMENT
As of January 31, 2020 and April 30, 2019, property and equipment consisted of the following:
|
|
January 31, 2020
|
|
|
April 30, 2019
|
|
Estimated Life
|
|
(unaudited)
|
|
|
|
|
Office equipment
|
3-5 Years
|
|
$
|
400,397
|
|
|
$
|
77,738
|
|
Auto and trucks
|
2-10 Years
|
|
|
595,857
|
|
|
|
599,154
|
|
Manufacturing equipment
|
2-10 Years
|
|
|
6,503,889
|
|
|
|
5,353,752
|
|
Buildings
|
5-30 Years
|
|
|
9,397,949
|
|
|
|
8,082,483
|
|
Construction in process
|
|
|
|
4,757
|
|
|
|
2,001,045
|
|
|
|
|
|
16,902,849
|
|
|
|
16,114,172
|
|
Less: accumulated depreciation
|
|
|
|
(7,714,380
|
)
|
|
|
(7,120,775
|
)
|
|
|
|
$
|
9,188,469
|
|
|
$
|
8,993,397
|
|
For the three months ended January 31, 2020 and 2019, depreciation expense totaled $333,339 and $290,386, of which $223,228 and $238,102 were included in cost of revenues, respectively, and of which
$110,111 and $52,283 were included in general and administrative expenses, respectively. For the nine months ended January 31, 2020 and 2019, depreciation expense totaled $901,684 and $824,360, of which $720,560 and $700,618 was included in cost of
revenues, respectively, and of which $181,124 and $123,741 were included in general and administrative expenses, respectively. Depreciation is not taken during the period of construction or equipment installation. Upon completion of the installation
of manufacturing equipment or any construction in progress, construction in progress balances will be classified to their respective property and equipment category.
NOTE 6 - RELATED PARTY TRANSACTIONS
Accounts receivable - related party and revenue - related party
As of January 31, 2020 and April 30, 2019, $2,644,820 and $2,477,659 in accounts receivable - related party, respectively, were related to sales of products to Qufu Shengwang Import and Export Co.,
Ltd. ("Qufu Shengwang Import and Export"), a Chinese entity owned by our Chairman, Mr. Laiwang Zhang. For the three months ended January 31, 2020 and 2019, we recorded revenue - related party and cost of revenue – related party of $1,784,135 and
$1,081,379, $1,955,319 and $1,124,137, respectively, from Qufu Shengwang Import and Export. For the nine months ended January 31, 2020 and 2019, we recorded revenue - related party and cost of revenue – related party of $5,882,694 and $3,195,115,
$5,671,819 and $3,022,288, respectively, from Qufu Shengwang Import and Export.
Due to (from) related parties
From time to time, we receive advances from related parties and advance funds to related parties for working capital purposes. In the nine months ended January 31, 2020 and 2019, we received advances
from related parties for working capital that totaled $4,980,422 and $3,589,014, respectively, and we repaid to related parties a total of $6,215,431 and $666,121, respectively.
In the three months ended January 31, 2020 and 2019, interest expense related to due to related parties amounted to $32,023 and $35,855, and nine months ended January 31, 2020 and 2019, interest
expense related to due to related parties amounted to $96,123 and $101,546, respectively, which were included in interest expense - related parties in the accompanying unaudited condensed consolidated statements of operations and comprehensive loss,
and in connection with the advances of $715,738 (RMB5,000,000) and $1,145,180 (RMB8,000,000) from Shangdong Shengwang Pharmaceutical Co., Ltd. ("Pharmaceutical Corporation"), a Chinese entity owned by our Chairman, Mr. Laiwang Zhang. These advances
bear interest at the rate of 7.0% and 6.3% per annum, respectively. On December 12, 2019, we repaid $1,149,394 including the above advance of $1,145,180 (RMB8,000,000) and its accrued interest. The other advances bear no interest and are payable on
demand.
As of January 31, 2020, the balance we owed Pharmaceutical Corporation, Qufu Shengwang Import and Export and Mr. Weidong Chai, a management member of Qufu Shengren Pharmaceutical Co., Ltd., amounted
to $4,447,574, $357,891 and $188,159, respectively. On April 30, 2019, the balances we owed to Pharmaceutical Corporation, Qufu Shengwang Import and Export and Mr. Weidong Chai amounted to $5,669,776, $557,976 and $180,769, respectively.
As of January 31, 2020 and April 30, 2019, balances due to (from) related party activities consisted of the following:
|
|
Shandong Shengwang Pharmaceutical
Co., Ltd.
|
|
|
Qufu
Shengwang
Import and Export Co., Ltd.
|
|
|
Mr. Wedong Chai
|
|
|
Total
|
|
Balance due to related parties, April 30, 2019
|
|
$
|
5,669,776
|
|
|
$
|
557,976
|
|
|
$
|
180,769
|
|
|
$
|
6,408,521
|
|
Working capital advances from related parties
|
|
|
3,843,443
|
|
|
|
1,095,764
|
|
|
|
41,215
|
|
|
|
4,980,422
|
|
Repayments
|
|
|
(4,908,085
|
)
|
|
|
(1,278,716
|
)
|
|
|
(28,630
|
)
|
|
|
(6,215,431
|
)
|
Effect of foreign currency exchange
|
|
|
(157,560
|
)
|
|
|
(17,133
|
)
|
|
|
(5,195
|
)
|
|
|
(179,888
|
)
|
Balance due to related parties, January 31, 2020
|
|
$
|
4,447,574
|
|
|
$
|
357,891
|
|
|
$
|
188,159
|
|
|
$
|
4,993,624
|
|
NOTE 7 - PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets as of January 31, 2020 and April 30, 2019 totaled $1,408,253 and $1,676,347, respectively. As of January 31, 2020, prepaid expenses and other current assets
includes $1,200,557 prepayments to suppliers for merchandise that had not been shipped to us and services that had not been provided to us and $207,696 for business related employees' advances. As of April 30, 2019, prepaid expenses and other current
assets includes $1,389,963 prepayments to suppliers for merchandise that had not been shipped to us and services that had not been provided to us, $14,850 for security deposit and $271,534 for business related employees' advances.
NOTE 8 - OPERATING LEASE
On July 10, 2019, we entered into the Metformin Production Line Operation Management Agreement (the “Agreement”) with Ru Yuan, an unaffiliated individual, to contract out the Metformin production
line which was built by the Company. Under the terms of this agreement, Ru Yuan's (“lessee”) lease includes the the fixed assets of Metformin production line including buildings, manufacturing equipment and construction in process. The lessee will
pay to Qufu Shengren an annual contract fee of RMB3,000,000 (approximately $436,047) in July every year. On August 1, 2019, the Company (“lessor”) signed an addendum for Agreement with lessee to clarify the term of lease for five years, with
conditional renewal options and the Company has the right to monitor operating and provide maintenance service for the underlying assets of the Metformin production line. The Company also has the right to terminate the Agreement if lessee fails to
make payment timely. Under our analysis with the new lease standard, this lease agreement classified as a cancellable operating lease. The Company received a total amount of RMB2,500,000 in July 2019, including the lease deposit of RMB1,000,000 as
guarantee and RMB1,500,000 of the semiannual lease payment for the first year. The Company received the RMB1,500,000 for the remaining balance of the first year lease payment in August 2019. The Company recorded a revenue of $210,760 from this
operating lease for the period from July 10, 2019 to January 31, 2020.
NOTE 9 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses included the following as of January 31, 2020 and April 30, 2019:
Account
|
|
January 31,
2019
|
|
|
April 30,
2019
|
|
|
|
(unaudited)
|
|
|
|
|
Accounts payable
|
|
$
|
4,891,610
|
|
|
$
|
5,298,580
|
|
Advanced from customers
|
|
|
208,478
|
|
|
|
26,921
|
|
Accrued salary payable
|
|
|
94,798
|
|
|
|
284,671
|
|
Tax payable
|
|
|
170,216
|
|
|
|
125,854
|
|
Deferred revenue
|
|
|
13,283
|
|
|
|
13,683
|
|
Other payable*
|
|
|
2,469,105
|
|
|
|
1,803,972
|
|
Total accounts payable and accrued expenses
|
|
$
|
7,847,490
|
|
|
$
|
7,680,049
|
|
* As of January 31, 2020, other payables consists of general liability, worker's compensation, and medical insurance payable of $410,091, consulting fee payable of $122,507, union and education fees
payable of $127,838, interest payables for short-term loans of $650,708, advances from employees of $397,943, security deposit for the operating lease contractor of $144,161 and other advances from third parties of $615,857. As of April 30, 2019,
other payables consists of general liability, worker's compensation, and medical insurance payable of $448,528, consulting fee payable of $136,770, union and education fees payable of $131,688, interest payables for short-term loans of $765,061,
advances from employees of $221,081 and other miscellaneous payables of $100,844.
NOTE 10 - LOAN PAYABLE
Short-term loans are obtained from various individual lenders that are due within one year for working capital purpose. These loans are unsecured and can be renewed with 10 days advance notice prior
to maturity date. As of January 31, 2020 and April 30, 2019, short-term loans totaled in the amounts of $10,874,551 and $6,079,983, respectively.
Long-term loans are obtained from various individual lenders that are due more than one year for working capital purpose. These loans are unsecured and can be renewed with one month advance notice
prior to maturity date. As of January 31, 2020 and April 30, 2019, long-term loans totaled in the amounts of $1,556,936 and $9,845,706, respectively.
As of January 31, 2020 and April 30, 2019, loan payable, including short-term loans and long-term loans consisted of the following:
|
|
January 31,
2020
|
|
|
April 30,
2019
|
|
|
|
(unaudited)
|
|
|
|
|
Loan from Min Wu, an employee of Qufu Shengren, due on October 5, 2020, with an annual interest rate of 10%, renewed at October 6, 2019.
|
|
$
|
31,715
|
|
|
$
|
32,671
|
|
Loans from Jianjun Yan, non-related individual, due on October 6, 2020, with an annual interest rate of 10%, renewed at October 7, 2019 and accrued interest converted into debt principal of RMB849,500 ($123,434).
|
|
|
1,276,904
|
|
|
|
1,189,207
|
|
Loan from Jianjun Yan, non-related individual, due on March 31, 2020, with annual interest rate of 4%, renewed at April 1, 2019.
|
|
|
1,175,429
|
|
|
|
1,210,829
|
|
Loan from Junzhen Zhang, non-related individual, due on October 5, 2020, with an annual interest rate of 10%, renewed at October 6, 2019.
|
|
|
23,066
|
|
|
|
23,760
|
|
Loan from Jian Chen, non-related individual, due on January 27, 2021 and April 11, 2020, bearing an annual interest rate of 10%, with the principal amount of RMB770,000 ($111,004) and RMB330,000 ($47,573), renewed on January 28, 2020 and
April 11, 2019, respectively.
|
|
|
158,577
|
|
|
|
163,353
|
|
Loan from Qing Kong, non-related individual, due on March 6, 2020, with an annual interest rate of 10%, renewed on March 7, 2019.
|
|
|
76,751
|
|
|
|
79,063
|
|
Loan from Qing Kong, non-related individual, due on January 8, 2021, with an annual interest rate of 10%, renewed on January 9, 2020.
|
|
|
34,887
|
|
|
|
32,671
|
|
Loan from Guihai Chen, non-related individual, due on March 9, 2020, with an annual interest rate of 10%, renewed on March 10, 2019.
|
|
|
19,029
|
|
|
|
19,602
|
|
Loan from Guihai Chen, non-related individual, due on September 20, 2020, with an annual interest rate of 10%, renewed at September 21, 2019 and accrued interest converted into debt principal of RMB20,000 ($2,906).
|
|
|
31,715
|
|
|
|
29,700
|
|
Loan Weifeng Kong, non-related individual, due on November 28, 2020, with an annual interest rate of 10%, renewed on November 29, 2019.
|
|
|
28,832
|
|
|
|
29,700
|
|
Loan Shidong Wang, non-related individual, due on March 8, 2020, with an annual interest rate of 4%, renewed on March 9, 2019.
|
|
|
1,559,244
|
|
|
|
1,606,200
|
|
Loan from Huagui Yong, non-related individual, due on April 8, 2020, with an annual interest rate of 6.3% at April 9, 2019.
|
|
|
72,080
|
|
|
|
74,251
|
|
Loan from Xuxu Gu, non-related individual, due on September 27, 2019, with an annual interest rate of 4% at September 28, 2017.
|
|
|
-
|
|
|
|
1,588,976
|
|
Loan from Xuxu Gu, non-related individual, due on March 8, 2019, with an annual interest rate of 4% at March 9, 2017, extended another two years on March 9, 2019.
|
|
|
-
|
|
|
|
1,603,825
|
|
Loan Xuxu Gu, non-related individual, due on August 15, 2020, with an annual interest rate of 4% at August 16, 2018.
|
|
|
-
|
|
|
|
504,908
|
|
Loan Xuxu Gu, non-related individual, due on July 13, 2020, with an annual interest rate of 4% at July 14, 2018.
|
|
|
418,066
|
|
|
|
430,657
|
|
Loan Yuehu Zhou, non-related individual, due on June 12, 2020, with an annual interest rate of 4% at June 13, 2018.
|
|
|
1,297,447
|
|
|
|
1,336,521
|
|
Loan Mingbang Ma, non-related individual, due on May 22, 2020, with an annual interest rate of 4% at May 23, 2018.
|
|
|
288,322
|
|
|
|
297,005
|
|
Loan Weiwei Lian, non-related individual, due on May 29, 2020, with an annual interest rate of 4% at May 30, 2018.
|
|
|
1,441,608
|
|
|
|
1,485,024
|
|
Loan Guanghua Xia, non-related individual, due on June 8, 2020, with an annual interest rate of 4% at June 9, 2018.
|
|
|
1,297,447
|
|
|
|
1,336,521
|
|
Loan Guanghua Xia, non-related individual, due on December 31, 2020, with an annual interest rate of 4% at January 1, 2019.
|
|
|
403,650
|
|
|
|
415,807
|
|
Loan Guanghua Xia, non-related individual, due on January 10, 2021, with an annual interest rate of 4% at January 11, 2019.
|
|
|
807,300
|
|
|
|
831,613
|
|
Loan from Dadong Mei, non-related individual, due on March 8, 2021, with an annual interest rate of 4%, renewed on March 9, 2019.
|
|
|
1,556,936
|
|
|
|
1,603,825
|
|
Loan Lufeng Li, non-related individual, due on October 20, 2020, with an annual interest rate of 4% at October 21, 2019.
|
|
|
432,482
|
|
|
|
-
|
|
Total
|
|
$
|
12,431,487
|
|
|
$
|
15,925,689
|
|
For the three and nine months ended January 31, 2020 and 2019, interest expense related to short-term loans and long-term loans amounted to $208,942 and $171,705, and $446,288 and $488,641,
respectively, which were included in interest expense in the accompanying unaudited condensed consolidated statements of operations and comprehensive loss.
NOTE 11 - SEGMENT INFORMATION
The following information is presented in accordance with ASC Topic 280, "Segment Reporting", for the three and nine months ended January 31, 2020 and 2019; we accounted for two reportable business
segments - (1) natural sweetener (stevioside), and (2) corporate and other pharmaceutical. Our reportable segments are strategic business units that offer different products and are managed separately based on the fundamental differences in their
operations. Condensed financial information with respect to these reportable business segments for the three and nine months ended January 31, 2020 and 2019 is as follows:
|
|
Three Months Ended January 31,
|
|
|
Nine Months Ended January 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stevioside - third parties
|
|
$
|
3,320,723
|
|
|
|
3,944,899
|
|
|
|
12,617,001
|
|
|
|
10,254,028
|
|
Stevioside - related parties
|
|
|
1,784,135
|
|
|
|
1,081,378
|
|
|
|
5,882,694
|
|
|
|
3,195,115
|
|
Total Stevioside
|
|
|
5,104,858
|
|
|
|
5,026,277
|
|
|
|
18,499,695
|
|
|
|
13,449,143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and other – third party
|
|
|
98,571
|
|
|
|
622,411
|
|
|
|
755,390
|
|
|
|
2,082,405
|
|
Corporate and other – related party
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total Corporate and other
|
|
|
98,571
|
|
|
|
622,411
|
|
|
|
755,390
|
|
|
|
2,082,405
|
|
Total segment and consolidated revenues
|
|
$
|
5,203,429
|
|
|
|
5,648,688
|
|
|
|
19,255,085
|
|
|
|
15,531,548
|
|
|
|
Three Months Ended January 31,
|
|
|
Nine Months Ended January 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Interest (expense) income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stevioside
|
|
$
|
(240,684
|
)
|
|
$
|
(207,474
|
)
|
|
$
|
(541,862
|
)
|
|
$
|
(589,969
|
)
|
Corporate and other
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total segment and consolidated interest expense
|
|
$
|
(240,684
|
)
|
|
$
|
(207,474
|
)
|
|
$
|
(541,862
|
)
|
|
$
|
(589,969
|
)
|
Depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stevioside
|
|
$
|
275,906
|
|
|
$
|
290,386
|
|
|
$
|
763,429
|
|
|
$
|
824,360
|
|
Corporate and other
|
|
|
57,433
|
|
|
|
-
|
|
|
|
138,255
|
|
|
|
-
|
|
Total segment and consolidated depreciation and amortization
|
|
$
|
333,339
|
|
|
$
|
290,386
|
|
|
$
|
901,684
|
|
|
$
|
824,360
|
|
Income (loss) before income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stevioside
|
|
$
|
(1,273,854
|
)
|
|
$
|
(1,056,344
|
)
|
|
$
|
(1,235,259
|
)
|
|
$
|
(2,558,358
|
)
|
Corporate and other
|
|
|
91,982
|
|
|
|
43,493
|
|
|
|
115,474
|
|
|
|
(633,366
|
)
|
Total consolidated loss before income taxes
|
|
$
|
(1,181,872
|
)
|
|
$
|
(1,012,851
|
)
|
|
$
|
(1,119,785
|
)
|
|
$
|
(3,191,724
|
)
|
|
January 31,
2020
|
|
April 30,
2019
|
|
Segment property and equipment:
|
|
|
|
|
Stevioside
|
|
$
|
7,692,613
|
|
|
$
|
7,796,314
|
|
Corporate and other
|
|
|
1,495,856
|
|
|
|
1,197,083
|
|
Total property and equipment
|
|
$
|
9,188,469
|
|
|
$
|
8,993,397
|
|
NOTE 12 - CONCENTRATIONS AND CREDIT RISK
(i) Customer Concentrations
For the three and nine months ended January 31, 2020 and 2019, customers accounting for 10% or more of the Company's revenue were as follows:
|
|
For the three months ended January 31,
|
|
|
For the nine months ended January 31,
|
|
Customer
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
A (1)
|
|
|
34.3
|
%
|
|
|
19.1
|
%
|
|
|
30.6
|
%
|
|
|
20.6
|
%
|
B
|
|
|
11.4
|
%
|
|
|
*
|
|
|
|
*
|
|
|
|
*
|
|
C
|
|
|
10.7
|
%
|
|
|
|
|
|
|
*
|
|
|
|
|
|
(1) Qufu Shengwang Import and Export Co., Ltd is a related party.
(ii) Vendor Concentrations
For the three and nine months ended January 31, 2020 and 2019, suppliers accounting for 10% or more of the Company's purchase were as follows:
|
|
For the three months ended January 31,
|
|
|
For the nine months ended January 31,
|
|
Supplier
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
A
|
|
|
*
|
|
|
|
20.5
|
%
|
|
|
10.9
|
%
|
|
|
30.0
|
%
|
B
|
|
|
15.5
|
%
|
|
|
31.1
|
%
|
|
|
17.0
|
%
|
|
|
14.0
|
%
|
C
|
|
|
-
|
|
|
|
-
|
|
|
|
10.6
|
%
|
|
|
*
|
|
D
|
|
|
-
|
|
|
|
10.2
|
%
|
|
|
-
|
|
|
|
*
|
|
E
|
|
|
40.7
|
%
|
|
|
-
|
|
|
|
27.7
|
%
|
|
|
*
|
|
F
|
|
|
12.1
|
%
|
|
|
-
|
|
|
|
*
|
|
|
|
-
|
|
* Less than 10%.
(iii) Credit Risk
Financial instruments which potentially subject us to concentrations of credit risk consist principally of cash and trade accounts receivable. We place our cash with high credit quality financial
institutions in the United States and the PRC. As of January 31, 2020, we had $72,958 of cash balance held in PRC banks, where there is no equivalent of federal deposit insurance as in the United States. As a result, cash held in PRC financial
institutions is not insured. We have not experienced any losses in such accounts through January 31, 2020. Our cash position by geographic area was as follows:
Country:
|
|
January 31, 2020
|
|
|
April 30, 2019
|
|
United States
|
|
$
|
83,551
|
|
|
|
53.4
|
%
|
|
$
|
88,506
|
|
|
|
30.1
|
%
|
China
|
|
|
72,958
|
|
|
|
46.6
|
%
|
|
|
205,693
|
|
|
|
69.9
|
%
|
Total cash and cash equivalents
|
|
$
|
156,509
|
|
|
|
100.00
|
%
|
|
$
|
294,199
|
|
|
|
100.00
|
%
|
Almost all of our sales are credit sales which are primarily to customers whose ability to pay is dependent upon the industry economics prevailing in these areas; however, we believe that the
concentration of credit risk with respect to trade accounts receivable is limited due to generally short payment terms. We also perform ongoing credit evaluations of our customers to help further reduce potential credit risk.
NOTE 13 - SUBSEQUENT EVENTS
The Company evaluated subsequent events through March 16, 2020, the date the financial statements were available to issue, and concluded that no subsequent events have occurred that would require recognition in the
consolidated financial statements or disclosure in the notes to the consolidated financial statements.