Docoh
Loading...

SUWN Sunwin Stevia International

Filed: 14 Sep 21, 12:01pm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 (Mark One)

 

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

 

For the quarterly period ended July 31, 2021

 

or

 

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

 

For the transition period from __________ to ___________

 

Commission file number: 000-53595

 

SUNWIN STEVIA INTERNATIONAL, INC.

(Exact name of registrant as specified in charter)

 

Nevada

56-2416925

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

 

6 Shengwang Ave., Qufu, Shandong, China

273100

(Address of principal executive offices)

(Zip Code)

 

(86) 537-4424999

(Registrant's telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 Trading Symbol (s)

Name of each exchange on which registered

None

 SUWN

Not applicable

 

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

 

Indicate by check mark whether the registrant has been submitted electronically and posted on its corporate Web site, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [ ]

 

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

 

Large accelerated filer  [  ]

Accelerated filer              [  ]

Non-accelerated filer    [  ]

Smaller reporting company  ☒

Emerging growth company [  ]

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided  pursuant  to Section 7(a)(2)(B) of the Securities Act.   

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] ☐ [X].

 

Indicate the number of shares outstanding of each of the issuer's classes of common equity as of the latest practicable date: As of September 14, 2021, there were 199,632,803 shares of the registrant's common stock issued and outstanding.


 

 

 

 

SUNWIN STEVIA INTERNATIONAL, INC. AND SUBSIDIARIES

FORM 10-Q

 QUARTERLY PERIOD ENDED JULY 31, 2021

 

INDEX

 

 

Page

PART I-FINANCIAL INFORMATION

 

 

 

Item 1.    Financial Statements

1

 

 

Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations

17

 

 

Item 3.    Quantitative and Qualitative Disclosures About Market Risk

24

 

 

Item 4.    Controls and Procedures

24

 

 

PART II-OTHER INFORMATION

 

 

Item 1.    Legal Proceedings

25

 

 

Item 1A.  Risk Factors

25

 

 

Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds

25

 

 

Item 3.     Defaults Upon Senior Securities

25

 

 

Item 4.     Mine Safety Disclosures

25

 

 

Item 5.     Other Information

26

 

 

Item 6.     Exhibits

26

 

i


 

 

 

FORWARD LOOKING STATEMENTS

 

This report contains forward-looking statements regarding our business, financial condition, results of operations and prospects. Words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates" and similar expressions or variations of such words are intended to identify forward-looking statements, but are not deemed to represent an all-inclusive means of identifying forward-looking statements as denoted in this report. Additionally, statements concerning future matters are forward-looking statements

 

Although forward-looking statements in this report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks and uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed in or anticipated by the forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include, without limitation, those specifically addressed under the headings "Risks Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our annual report on Form 10-K, in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this Form 10-Q and information contained in other reports that we file with the SEC. You are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this report

 

We file reports with the SEC. The SEC maintains a website (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including us. You can also read and copy any materials we file with the SEC at the SEC's Public Reference Room at 100 F Street, NE, Washington, DC 20549. You can obtain additional information about the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330

 

We undertake no obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this report, except as required by law. Readers are urged to carefully review and consider the various disclosures made throughout the entirety of this quarterly report, which are designed to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.

 

ii


 

 

 

INDEX OF CERTAIN DEFINED TERMS USED IN THIS REPORT

 

We are on a fiscal year ending April 30, as such the year ending April 30, 2022 is referred to as "fiscal 2022" and the year ended April 30, 2021 is referred to as "fiscal 2021".  Also, the three month period ended July 31, 2021 is our first quarter and is referred to as the "first quarter of fiscal 2022". Likewise, the three month period ended July 31, 2020 is referred to as the "first quarter of fiscal 2021".

 

When used in this report, the terms:

 

 

-

 

"Sunwin", "we", "us" and the "Company" refers to Sunwin Stevia International, Inc., a Nevada corporation formerly known as Sunwin Neutraceuticals International, Inc., and our subsidiaries;

 

-

 

"Sunwin Tech" refers to our wholly owned subsidiary Sunwin Tech Group, Inc., a Florida corporation, which was closed on April 30, 2018 and all of its assets and liabilities were transferred to the Company;

 

-

 

"Qufu Natural Green" refers to our wholly owned subsidiary Qufu Natural Green Engineering Co., Ltd., a Chinese limited liability company;

 

-

 

"Sunwin USA" refers to Sunwin USA, LLC, a Delaware limited liability company, a 100% owned subsidiary of Sunwin. Sunwin USA was previously Sunwin Stevia International Corp., a Florida corporation, it changed its name to Sunwin USA in May 2009;

 

-

 

"Qufu Shengwang" refers to Qufu Shengwang Stevia Biology and Science Co., Ltd., a Chinese limited liability company. Qufu Natural Green owns a 100% interest in Qufu Shengwang. On July 30, 2019, Qufu Natural Green sold its 100% interest of Qufu Shengwang to a third party; 

 

-

 

"Qufu Shengren" refers to Qufu Shengren Pharmaceutical Co., Ltd., a Chinese limited liability company, and a 100% owned subsidiary of Qufu Natural Green. On April 30, 2020, the Company increased the total amount of capital of Qufu Sheng through a series of debt transfer and conversion agreements with investors, ownership of Qufu Natural Green became 61%; and

 

-

 

“Qufu Shengren Import and Export" refers to Qufu Shengren Import and Export Co., Ltd., a Chinese limited liability company, a 100% owned subsidiary of Qufu Shengren.

 

 

 

 

  We also use the following terms when referring to certain related parties:

 

 

-

 

Mr. Laiwang Zhang, Chairman and a principal shareholder of our company;

 

-

 

"Pharmaceutical Corporation" refers to Shandong Shengwang Pharmaceutical Co., Ltd., a Chinese limited liability company which is controlled by Mr. Laiwang Zhang;

 

-

 

"Qufu Shengwang Import and Export" refers to Qufu Shengwang Import and Export Co., Ltd., a Chinese limited liability company, controlled by Mr. Zhang; and

 

-

 

Mr. Weidong Chai, a management member of Qufu Shengren Pharmaceutical Co., Ltd.

 

 The information which appears on our website at www.sunwininternational.com is not part of this report.

 

iii


 

 

 

ITEM I - FINANCIAL STATEMENTS

 

SUNWIN STEVIA INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

July 31,

2021

(Unaudited)

April 30,

2021

ASSETS

 

 

CURRENT ASSETS:

 

 

Cash and cash equivalents

$670,432  

$1,565,829  

Accounts receivable, net

2,037,930  

1,693,801  

Accounts receivable - related party

6,954,986  

5,999,791  

Inventories, net

11,947,698  

12,930,461  

Prepaid expenses and other current assets

2,089,381  

661,882  

Total Current Assets

23,700,427  

22,851,764  

Property and equipment, net

8,464,702  

9,217,115  

Land use rights, net

2,035,819  

 

Total Assets

$34,200,948  

$32,068,879  

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

CURRENT LIABILITIES:

 

 

Accounts payable and accrued expenses

$11,021,663  

$11,141,408  

Short-term loans

4,149,493  

2,955,304  

Due to related parties

11,641,345  

9,843,636  

Total Current Liabilities

26,812,501  

23,940,348  

Total Liabilities 

26,812,501  

23,940,348  

 

 

 

Commitments and Contingencies

 

 

 

 

 

STOCKHOLDERS' EQUITY:

 

 

Preferred stock, $0.001 par value; 1,000,000 shares authorized; no shares issued and outstanding

 

 

Common stock, $0.001 par value, 200,000,000 shares authorized; 199,632,803 and 199,632,803 shares issued and outstanding as of July 31, 2021 and April 30, 2021, respectively

199,633  

199,633  

Additional paid-in capital

47,732,350  

47,732,350  

Accumulated deficit

(43,817,401) 

(43,357,208) 

Accumulated other comprehensive income

5,199,853  

5,193,512  

Total Sunwin Stevia International, Inc. Stockholders' Equity

9,314,435  

9,768,287  

Noncontrolling interest

(1,925,988) 

(1,639,756) 

Total Stockholders' Equity

7,388,447  

8,128,531  

 

 

 

Total Liabilities and Stockholders' Equity

$34,200,948  

$32,068,879  

 

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

 

- 1 -


 

 

 

SUNWIN STEVIA INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(UNAUDITED)

 

 

 

For the Three Months Ended July 31,

2021

2020

Revenues

$3,881,832  

$5,287,855  

Revenues - related parties

2,386,628  

1,751,823  

Total revenues

6,268,460  

7,039,678  

Cost of revenues

2,768,062  

5,262,992  

Cost of revenues - related parties

2,617,569  

1,609,508  

Total cost of revenues

5,385,631  

6,872,500  

Gross profit

882,829  

167,178  

 

 

 

Operating expenses:

 

 

Selling expenses

368,812  

310,915  

General and administrative expenses

414,643  

473,176  

Research and development expenses

355,713  

361,438  

Total operating expenses, net

1,139,168  

1,145,529  

Loss from operations

(256,339) 

(978,351) 

 

 

 

Other income (expenses):

 

 

Other income (expenses)

(423,107) 

1,065  

Grant income

 

566  

Interest income

1,652  

231  

Interest expense - related party

(5,254) 

(16,807) 

Interest expense

(67,069) 

(62,531) 

Total other expenses

(493,778) 

(77,476) 

Loss operations before income taxes

(750,117) 

(1,055,827) 

Provision for income taxes

 

 

Net loss

$(750,117) 

$(1,055,827) 

Less: net loss attributable to noncontrolling interest

(289,924) 

(393,228) 

Net loss attributable to Sunwin Stevia International, Inc.

$(460,193) 

$(662,599) 

 

 

 

Comprehensive loss:

 

 

Net loss

$(460,193) 

$(662,599) 

Foreign currency translation adjustment

10,033  

131,176  

Total comprehensive loss

$(450,160) 

$(531,423) 

Less: comprehensive gain attributable to noncontrolling interest

3,692  

48,529  

Comprehensive loss attributable to Sunwin Stevia International, Inc.

$(453,852) 

(579,952) 

 

 

 

Earnings per common share attributable to Sunwin Stevia International, Inc.:

 

 

Net loss per common share attributable to Sunwin Stevia International, Inc. - basic and diluted

$(0.00) 

$(0.00) 

 

 

 

Weighted average common shares outstanding - basic and diluted

199,632,803  

199,632,803  

 

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

 

- 2 -


 

 

SUNWIN STEVIA INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

 

  

For the Three Months Ended July 31,

2021

2020

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

Net loss

$(750,117) 

$(1,055,827) 

Adjustments to reconcile net loss to net cash (used in) provided by operating activities:

 

 

Depreciation expense

384,261  

304,440  

Loss on disposition of property and equipment

394,967  

 

Provisions for obsolete inventories

187,704  

 

Changes in operating assets and liabilities:

 

 

Accounts receivable and notes receivable

(338,982) 

595,967  

Accounts receivable - related party

(952,712) 

1,217,425  

Inventories

808,811  

(189,149) 

Prepaid expenses and other current assets

(1,435,530) 

(290,138) 

Accounts payable and accrued expenses

(128,715) 

2,229,074  

Taxes payable

(704) 

(64,602) 

NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES

(1,831,017) 

2,747,190  

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

Purchases of property and equipment

(584) 

(137,776) 

Purchases of land use rights

(2,057,268) 

 

NET CASH USED IN INVESTING ACTIVITIES

(2,057,852) 

(137,776) 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

Proceeds from short term loans

1,194,966  

 

Repayment of short term loans

 

(666,667) 

Advance from related parties

5,265,725  

3,055,118  

Repayment of related party advances

(3,476,199) 

(5,268,237) 

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES

2,984,492  

(2,879,786) 

 

 

 

EFFECT OF EXCHANGE RATE ON CASH

8,980  

8,084  

NET DECREASE IN CASH

(895,397) 

(262,288) 

 

 

 

Cash at the beginning of period

1,565,829  

1,137,920  

Cash at the end of period

670,432  

875,632  

 

 

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:

 

 

Cash paid for income taxes

$ 

$ 

Cash paid for interest

$ 

$16,782  

 

 

 

NON-CASH INVESTING AND FINANCING ACTIVITIES:

 

 

Property and equipment acquired on credit as payable

$ 

$1,362  

Accrued interest payable to related party

$5,254  

$4,356  

 

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

 

- 3 -


 

 

SUNWIN STEVIA INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(UNAUDITED)

 

 

 

For the Three Months Ended July 31,

2021

2020

Total shareholders’ equity, beginning balances

$8,128,531  

$12,371,487  

 

 

 

Common stock and additional paid-in capital:

 

 

Beginning balances

47,931,983  

47,931,983  

Common stock issued

 

 

Liability converted to additional paid-in capital

 

 

Ending balances

47,931,983  

47,931,983  

 

 

 

Retained Earnings

 

 

Beginning balances

(43,357,208) 

(40,118,394) 

Net loss

(460,193) 

(662,599) 

Ending balances

(43,817,401) 

(40,780,993) 

 

 

 

Accumulated other comprehensive income(loss):

 

 

Beginning balances

5,193,512  

4,557,898  

Foreign currency translation adjustment

6,341  

82,647  

Ending balances

5,199,853  

4,640,545  

 

 

 

Noncontrolling Interest:

 

 

Beginning balances

(1,639,756) 

 

Net loss

(289,924) 

(393,228) 

Accumulated other comprehensive income(loss)

3,693  

48,529  

Ending balances

(1,925,988) 

(344,699) 

 

 

 

Total shareholders’ equity, ending balances

$7,388,447  

$11,446,836  

 

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

 

 

- 4 -


 

 

SUNWIN STEVIA INTERNATIONAL, INC. AND SUBSIDIARIES

 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JULY 31, 2021

 

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, such as Metformin. Substantially all of our operations are located in the People's Republic of China (the "PRC"). We have built an integrated company with the sourcing and production capabilities designed to meet the needs of our customers. Our operations are organized into two operating segments related to our product lines:

 

 

-

 

Stevioside; and

 

-

 

Corporate and other.

 

For the three months ended July 31, 2021 and fiscal year 2022, 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"), 61% owned by Qufu Natural;

-   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. 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 7).

 

Qufu Shengren Import and Export

 

On October 9, 2019, Qufu Shengren invested RMB2,000,000 (approximately $288,000) 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.

 

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.

 

- 5 -


 

 

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, 2021 included in our Form 10-K as filed with the SEC. The results of operations and cash flows for the three months ended July 31, 2021 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, 2021 contained herein has been derived from the audited consolidated financial statements as of April 30, 2021, 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 with 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 three months or less at the time of purchase to be cash and equivalents. As of July 31, 2021, we held $489,079 of our cash and cash equivalents with commercial banking institutions in the PRC, and $181,353 with banks in the United States. As of April 30, 2021, we held $1,403,969 of our cash and cash equivalents with commercial banking institution in PRC, and $161,860 in the United States. PRC banks protect consumers against loss if their bank or thrift institution fails, and each of our PRC bank account is insured up to RMB500,000 (approximately $77,000), As a result, cash held in PRC financial institutions of $256,746 and $1,224,263 is not insured as of July 31, 2021 and April 30, 2021, respectively. We have not experienced any losses in such bank accounts through July 31, 2021.

 

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. We had none of allowance for doubtful accounts as of July 31, 2021 and April 30, 2021.

 

- 6 -


 

INVENTORIES

 

Inventories, consisting of raw materials, work in process, and finished goods related to our products, are stated at the lower of cost or estimated net realizable value that can be estimated utilizing the weighted moving 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.  As of July 31, 2021, the Company did not record a reserve for slow-moving inventories. If inventory costs exceed expected market value due to obsolescence or quantities in excess of expected demand, the Company will record a write down of inventories for the difference between the lower of cost or estimated net realizable value. As of July 31, 2021 and April 30, 2021, the Company wrote down inventories of $187,704 and $1,276,893, 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 two to thirty 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 $394,967 and $nil on July 31, 2021 and April 30, 2021, respectively.

 

LAND USE RIGHTS

 

According to the law of PRC, the government owns all the land in the PRC. Companies or individuals are authorized to possess and use the land only through land use rights granted by the Chinese government for a specified period of time. Land use rights are being amortized using the straight-line method over the periods the rights are granted.

 

FAIR VALUE OF FINANCIAL INSTRUMENTS

 

We adopted ASC Section 820-10-35-37 to measure the fair value of our financial instruments. ASC Section 820-10-35-37 establishes a common definition for fair value to be applied to existing generally accepted accounting principles that require the use of fair value measurements, establishes a framework for measuring fair value, and expands disclosure about such fair value measurements. The adoption of ASC Section 820-10-35-37 did not have an impact on our financial position or operating results, but did expand certain disclosures.

 

ASC Section 820-10-35-37 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Additionally, ASC Section 820-10-35-37 requires the use of valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized below:

 

Level 1:

Observable inputs such as quoted market prices in active markets for identical assets or liabilities

Level 2:

Observable market-based inputs or unobservable inputs that are corroborated by market data

Level 3:

Unobservable inputs for which there is little or no market data, which require the use of the reporting entity's own assumptions.

 

- 7 -


 

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 are charged by vendors as VAT credit and these credits can be applied to our VAT payable that we billed our customers. Accordingly, these VAT payable and receivable are presented as net amounts for financial statement purposes. Taxes payable as of July 31, 2021 and April 30, 2021 amounted to $330,318 and $330,738, respectively, consisted primarily of VAT taxes.

 

REVENUE RECOGNITION

 

Pursuant to the guidance of ASC 606, we record revenue when persuasive evidence of an arrangement exists, product delivery has occurred, the sales price to the customer is fixed or determinable, and collectability is reasonably assured. The adoption of this guidance did not have a material impact on our unaudited 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 determines revenue recognition through the following steps:

 

 

Identify the contract with a customer;

 

 

Identify the performance obligations in the contract;

 

 

Determine the transaction price;

 

 

Allocate the transaction price to the performance obligations in the contract; and

 

 

Recognize revenue when (or as) the entity satisfies a performance obligation.

 

 

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 May 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 unaudited 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.

 

- 8 -


 

 

We apply the provisions of ASC 740-10-50, "Accounting for Uncertainty in Income Taxes", which provides clarification related to the process associated with accounting for uncertain tax positions recognized in our consolidated financial statements. Audit periods remain open for review until the statute of limitations has passed. The completion of review or the expiration of the statute of limitations for a given audit period could result in an adjustment to the Company's liability for income taxes. Any such adjustment could be material to the Company's results of operations for any given quarterly or annual period based, in part, upon the results of operations for the given period. As of July 31, 2021, 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:

 

 

For Three Months Ended July 31,

 

2021

2020

Numerator:

 

 

Net Loss attributable to Sunwin Stevia International, Inc.

$(460,193) 

$(662,599) 

Denominator:

 

 

Denominator for basic earnings per share - weighted average number of common shares outstanding

199,632,803  

199,632,803  

Stock awards, options, and warrants

 

 

Denominator for diluted earnings per share - weighted average number of common shares outstanding

199,632,803  

199,632,803  

Basic and diluted loss per common share attributable to Sunwin Stevia International, Inc.:

 

 

Net loss per common share - basic and diluted

$(0.00) 

(0.00) 

 

FOREIGN CURRENCY TRANSLATION

 

Transactions and balances originally denominated in U.S. dollars are presented at their original amounts. Transactions and balances in other currencies are converted into U.S. dollars in accordance with ASC Section 830-20-35 and are included in determining net income or loss.

 

The reporting currency of the Company is the U.S. dollar. The functional currency of the parent company is the U.S. dollar and the functional currency of the Company's operating subsidiaries is the Chinese Renminbi ("RMB").  In accordance with ASC 830-20-35, the consolidated financial statements were translated into United States dollars using balance sheet date rates of exchange for assets and liabilities, and average rates of exchange for the period for the income statements and cash flows. Equity accounts were stated at their historical rate. Net gains and losses resulting from foreign exchange transactions are included in the consolidated statements of operations.  Translation adjustments resulting from the process of translating the local currency financial statements into U.S. dollars are included in other comprehensive income or loss.

 

RMB is not a fully convertible currency. All foreign exchange transactions involving RMB must take place either through the People's Bank of China (the "PBOC") or other institutions authorized to buy and sell foreign exchange. The exchange rate adopted for the foreign exchange transactions are the rates of exchange quoted by the PBOC, which are determined largely by supply and demand. Translation of amounts from RMB into United States dollars ("$") was made at the following exchange rates for the respective periods:

 

As of July 31, 2021

RMB 6.46 to $1.00

As of April 30, 2021

RMB 6.47 to $1.00

 

 

Three months ended July 31, 2021

RMB 6.44 to $1.00

Three months ended July 31, 2020

RMB 7.07 to $1.00

 

- 9 -


 

COMPREHENSIVE LOSS

 

   Comprehensive loss is comprised of net loss and all changes to the statements of stockholders' equity, except those due to investments by stockholders, changes in paid-in capital and distributions to stockholders. For the Company, comprehensive loss for the three months ended July 31, 2021 and 2020 included net loss and unrealized gains from foreign currency translation adjustments. 

 

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 $355,713 and $361,438 for the three months ended July 31, 2021 and 2020, respectively.

 

SHIPPING COSTS

 

Shipping costs are included in selling expenses and totaled $20,161 and $16,516 for the three months ended July 31, 2021 and 2020, respectively.

 

ADVERTISING

 

              Advertising is expensed as incurred and is included in selling expenses and totaled $0 and $14,433 for the three months ended July 31, 2021 and 2020, respectively.

 

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 December 2019, the FASB issued ASU 2019-12 - Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This ASU provides an exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. This update also (1) requires an entity to recognize a franchise tax (or similar tax) that is partially based on income as an income-based tax and account for any incremental amount incurred as a non-income-based tax, (2) requires an entity to evaluate when a step-up in the tax basis of goodwill should be considered part of the business combination in which goodwill was originally recognized for accounting purposes and when it should be considered a separate transaction, and (3) requires that an entity reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. The standard is effective for the Company for fiscal years beginning after December 15, 2020, with early adoption permitted. The Company is currently in the process of evaluating the impact of the adoption on its consolidated financial statements.

 

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. ASU 2016-13 is effective for annual reporting periods, and interim periods within those years, beginning after December 15, 2019, excluding entities eligible to be smaller reporting company. For all other entities, the requirements are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. ASU 2016-13 has been amended by ASU 2019-04, ASU 2019-05, and ASU 2019-11. For entities that have not yet adopted ASU No. 2016-13, the effective dates and transition methodology for ASU 2019-04, ASU 2019-05, and ASU 2019-11 are the same as the effective dates and transition methodology in ASU 2016-13. The Company did not adopt this standard yet due to the status of smaller reporting company. We plan to adopt this standard for the year beginning May 1, 2023. We do not expect the adoption of this standard will have material impact on our consolidated financial statements.

 

- 10 -


 

 

A variety of proposed or otherwise potential accounting standards are currently under study by standard setting organizations and various regulatory agencies. Due to the tentative and preliminary nature of those proposed standards, we have not determined whether implementation of such proposed standards would be material to our consolidated financial statements.

 

GOING CONCERN

 

Our unaudited condensed consolidated financial statements have been prepared assuming we will continue as a going concern.  The Company has incurred recurring losses with a net loss of approximately $750,000 for the three months ended July 31, 2021 and has a significant accumulated deficit of $43.8 million as of July 31, 2021. 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 identify and develop sources of funds.  The outcome of these matters cannot be predicted at this time.  There can be no assurance that any additional financings will be available to the Company on satisfactory terms and conditions, if at all.

 

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 - NONCONTROLLING INTEREST

 

Noncontrolling interest on the consolidated balance sheets resulted from the consolidation of Shengren, a 61.3% owned subsidiary starting from April 30, 2021. An individual investor and Shandong Yulong Mining Group Co., Ltd. (“Yulong”) hold 38.4% and 0.3% of the equity interest in Shengren effective at the end of date, April 30, 2021, respectively, pursuant to a series of debt transfer and conversion agreements entered into on April 30, 2020 between seven individual creditors and three suppliers, an individual investor with Yulong and Qufu Shengren. Noncontrolling interest amounted to a deficit of $1,925,988 and $1,639,756 as of July 31, 2021 and April 30, 2021.

 

NOTE 4 - INVENTORIES

 

As of July 31, 2021 and April 30, 2021, inventories consisted of the following:

  

 

July 31, 2021

(unaudited)

April 30, 2021

 

 

 

Raw materials

$4,266,529 

$5,850,859 

Work in process

3,572,399 

3,220,583 

Finished goods

4,108,770 

3,859,019 

Inventories, gross

11,947,698 

12,930,461 

Less: reserve for obsolete inventory

- 

- 

Inventories, net 

$11,947,698 

$12,930,461 

 

In the three months ended July 31, 2021 and 2020, the Company wrote down the obsolete inventories of $187,704 and $nil, respectively.

 

NOTE 5 - PREPAID EXPENSES AND OTHER CURRENT ASSETS

 

Prepaid expenses and other current assets as of July 31, 2021 and April 30, 2021 totaled $2,089,381 and $661,882, respectively. As of July 31, 2021, prepaid expenses and other current assets includes $1,804,579 prepayments to suppliers for merchandise that had not been shipped to us and services that had not been provided to us, and $284,802 for business related employees' advances. As of April 30, 2021, prepaid expenses and other current assets includes $435,006 prepayments to suppliers for merchandise that had not been shipped to us and services that had not been provided to us and $226,876 for business related employees' advances.

 

- 11 -


 

NOTE 6 - PROPERTY AND EQUIPMENT

 

As of July 31, 2021 and April 30, 2021, property and equipment consisted of the following:

 

July 31, 2021

(unaudited)

April 30, 2021

 

 

 

Office equipment (3-15 Years)

$424,928  

$429,478  

Auto and trucks (2-10 Years)

594,981  

646,606  

Manufacturing equipment (2-15 Years)

6,618,242  

7,646,765  

Buildings (5-30 Years)

9,597,965  

10,476,629  

Construction in process 

17,537  

17,522  

Property and equipment, gross

17,253,653  

19,217,000  

Less: accumulated depreciation 

(8,788,951) 

(9,999,885) 

Property and equipment, net 

$8,464,702  

$9,217,115  

 

For the three months ended July 31, 2021 and 2020, depreciation expense totaled $368,436 and $304,440, of which $313,733 and $282,725 were included in cost of revenues, respectively, and remainder was included in operating expenses. 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 7 – LAND USE RIGHTS

 

The Company acquired the land use rights for Qufu Shengren factory in cash. Qufu Shengren owns and operates a stevia facility with an annual production capable of 500 metric tons per year on 44,486 square meters (478,843 square feet) of land located in Qufu city, Shandong. The Company occupies this land pursuant to an asset acquisition agreement entered into with Pharmaceutical Corporation, a related party, to acquire the land use rights for this facility. The land use right was transferred from Pharmaceutical Corporation to Qufu Shengren, and the Company received Real Property Certificate issued by local government on May 18, 2021. The land use right expires in March 2054. The initial cost of this land use rights is RMB13,256,420 (approximately $2,052,000). We use the straight-line method for amortization over a period 33 years. During the first quarter of fiscal 2022, amortization expense amounted to $15,825.  Land use right with net book value of $2,035,819 as of July 31, 2021.  

 

NOTE 8 - RELATED PARTY TRANSACTIONS

 

Accounts receivable - related party and revenue - related party

 

As of July 31, 2021 and April 30, 2021, $6,954,986 and $5,999,791 in accounts receivable - related party, respectively, were related to sales of products to Qufu Shengwang Import and Export Co., Ltd. ("Qufu Shengwang Import and Export"), a Chinese entity owned by our Chairman, Mr. Laiwang Zhang. For the three months ended July 31, 2021 and 2020, we recorded revenue - related party and cost of revenue – related party of $2,386,628and $151,823, and $2,617,569 and $1,609,508, respectively, from Qufu Shengwang Import and Export.

 

Due to (from) related parties

 

From time to time, we receive advances from related parties and advance funds to related parties for working capital purposes. In the three months ended July 31, 2021 and 2020, we received advances from related parties for working capital that totaled $5,265,725 and $3,055,118, respectively, and we repaid to related parties a total of $3,476,199 and $5,268,237, respectively.

 

In the three months ended July 31, 2021 and 2020, interest expense related to due to related parties amounted to $5,254 and $16,807, respectively, which were included in interest expense in the accompanying condensed consolidated statements of operations and comprehensive loss, and in connection with the advances of RMB5,000,000 (approximately $774,000) from Shangdong Shengwang Pharmaceutical Co., Ltd. ("Pharmaceutical Corporation"), a Chinese entity owned by our Chairman, Mr. Laiwang Zhang. This advance bears interest at the rate of 7.0% per annum. On July 27, 2020, we repaid in full amount of the above advance of RMB5,000,000 with accrued interest.

 

On September 23, 2019, the Company borrowed a one-year loan of RMB1,221,000 (approximately $189,000) from Weidong Cai, a management member of Qufu Shengren, bearing an annual interest rate of 10%. On September 23, 2020, the parties extended the loan for another year, under the same terms and conditions, reclassified unpaid interest payable to the principal of this loan, resulting in an increase of principal from RMB1,221,000 (approximately $189,000) to RMB1,343,100 (approximately $208,000).

 

- 12 -


 

 

As of July 31, 2021, the balance we owed Pharmaceutical Corporation, Qufu Shengwang Import and Export and Mr. Weidong Chai amounted to $4,724,432, $6,686,795 and $230,118, respectively. On April 30, 2021, the balance we owed to Pharmaceutical Corporation, Qufu Shengwang Import and Export and Mr. Weidong Chai amounted to $3,484,266, $6,140,404, and $218,966, respectively.

 

As of July 31, 2021 and April 30, 2021, balance 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, 2021

$3,484,266  

$6,140,404  

$218,966 

$9,843,636  

Working capital advances from related parties

3,631,725  

1,629,499  

9,755 

5,270,979  

Repayments

(2,389,867) 

(1,086,332) 

- 

(3,476,199) 

Effect of foreign currency exchange

(1,692) 

3,224  

1,397 

2,929  

Balance due to related parties, July 31, 2021

$4,724,432  

$6,686,795  

$230,118 

$11,641,345  

  

NOTE 9 - 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 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 $436,000) 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 is classified as a cancellable operating lease. The Company received two year release payment in a total amount of RMB6,000,000 and the lease deposit of RMB1,000,000 as guarantee. The Company recorded a revenue of $106,782 and $97,392 from this operating lease for the first quarter of fiscal 2022 and 2021, respectively.

  

NOTE 10 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES

 

Accounts payable and accrued expenses included the following as of July 31, 2021 and April 30, 2021:

 

Account

July 31,

2021

(unaudited)

April 30,

2021

Accounts payable

$7,720,609 

$8,155,842 

Advanced from customers

79,803 

143,695 

Accrued salary payable

286,064 

155,071 

Tax payable

330,318 

330,738 

Other payable*

2,604,869 

2,356,062 

Total accounts payable and accrued expenses

$11,021,663 

$11,141,408 

 

* As of on July 31, 2021, other payables consists of general liability, worker's compensation, and medical insurance payable of $396,419, consulting fee payable of $257,359, union and education fees payable of $137,239, interest payables for short-term loans of $214,443, safety production fund payable of $307,980, advances from the employees of $209,928, security deposit for sub-contractor of $154,763 and other miscellaneous payables of $926,738. As of April 30, 2021, other payables consists of general liability, worker's compensation, and medical insurance payable of $412,328, consulting and service fee payable of $209,871, union and education fees payable of $137,123, interest payables for short-term loans of $147,433, safety production fund payable of $262,449, advances from the employees of $159,909, deposit for operating lease of $154,631 and other miscellaneous payables of $872,318.

 

- 13 -


 

NOTE 11 -LOAN PAYABLE

 

Short-term loan payable

 

Short-term loans are obtained from various individual lenders that are due within one year for working capital purpose. These loans are unsecured and can be renewed with 10 days advance notice prior to maturity date. As of July 31, 2021 and April 30, 2021, short-term loans consisted of the following:

 

 

July 31,

2021

(unaudited)

April 30,

2021

Loan from Min Wu, an employee of Qufu Shengren, due on October 5, 2021, with an annual interest rate of 10%, renewed on October 6, 2020.

$34,048 

$34,019 

Loans from Jianjun Yan, non-related individual, due on October 6, 2021, with an annual interest rate of 10%, renewed at on October 7, 2020.

1,507,892 

1,506,610 

Loan from Jianjun Yan, due on March 31, 2022, with annual interest rate of 4%, renewed on April 1, 2021.

807,398 

806,711 

Loan from Jianjun Yan, due from May 13, 2022 to July 27, 2022, with annual interest rate of 12%, sign on period from May 14, 2021 to July 28, 2021.

1,114,292 

- 

Loan from Junzhen Zhang, non-related individual, due on October 5, 2021, with an annual interest rate of 12%, renewed on October 6, 2020.

27,238 

27,215 

Loan from Junzhen Zhang, non-related individual, due on November 30, 2021, with an annual interest rate of 10%, signed on December 1, 2020.

21,667 

21,648 

Loan from Jian Chen, non-related individual, due on May 20, 2022, with an annual interest rate of 10%, signed on May 21, 2021.

77,381 

- 

Loan from Qing Kong, non-related individual, due on March 6, 2022, with an annual interest rate of 10%, renewed on March 7, 2021.

98,739 

98,655 

Loan from Qing Kong, non-related individual, due on January 8, 2022, with an annual interest rate of 10%, renewed on January 9, 2021.

41,198 

41,163 

Loan from Guihai Chen, non-related individual, due on March 9, 2022, with an annual interest rate of 10%, renewed on March 10, 2021.

24,685 

24,664 

Loan from Guihai Chen, non-related individual, due on September 20, 2021, with an annual interest rate of 10%, renewed on September 21, 2020, and accrued interest converted into debt principal.

37,453 

37,421 

Loan from Weifeng Kong, non-related individual, due on November 28, 2021, with an annual interest rate of 10%, renewed on November 29, 2020.

30,953 

30,926 

Loan from Huagui Yong, non-related individual, due on April 8, 2022, with an annual interest rate of 6.3%, renewed on April 9, 2021.

77,381 

77,316 

Loan from Guohui Zhang, non-related individual, due on January 16, 2022, with an annual interest rate of 4% signed on January 17, 2021.

249,168 

248,956 

Total short-term loan payable

$4,149,493 

$2,955,304 

 

 

For the three months ended July 31, 2021 and 2020, interest expense related to short-term loans amounted to $67,069 and $62,531, respectively, which were included in interest expense in the accompanying unaudited condensed consolidated statements of operations and comprehensive loss.

 

NOTE 12 - SEGMENT INFORMATION

 

The following information is presented in accordance with ASC Topic 280, "Segment Reporting", for the three months ended July 31, 2021 and 2020; we accounted for two reportable business segments - (1) natural sweetener (stevioside), and (2) corporate and other pharmaceutical. Our reportable segments are strategic business units that offer different products and are managed separately based on the fundamental differences in their operations. Condensed financial information with respect to these reportable business segments for the three months ended July 31, 2021 and 2020 is as follows: 

 

- 14 -


 

 

 

 

Three Months Ended July 31,

 

2021

31, 2020

Revenues:

 

 

Stevioside - third party

$3,775,050  

$5,190,463  

Stevioside - related party

2,386,628  

1,751,823  

Total Stevioside

6,161,678  

6,942,286  

 

Corporate and other – third party

106,782  

97,392  

Corporate and other – related party

 

 

Total Corporate and other

106,782  

97,392  

Total segment and consolidated revenues

$6,268,460  

$7,039,678  

 

 

 

Interest expense:

 

 

Stevioside

$70,671  

$79,107  

Corporate and other

 

 

Total segment and consolidated interest expense

$70,671  

$79,107  

 

 

 

Depreciation and amortization:

 

 

Stevioside

$311,843  

$253,776  

Corporate and other

56,593  

50,664  

Total segment and consolidated depreciation and amortization

$368,436  

$304,440  

 

 

 

Income (loss) from continuing operations before income taxes:

 

 

Stevioside

$(812,243) 

$(1,064,253) 

Corporate and other

62,120  

8,426  

Total loss from continuing operations before income taxes

$(750,117) 

$(1,055,827) 

 

 

July 31,
2021

April 30,
2021

Segment property and equipment:

 

 

  Stevioside

$6,657,133 

$7,354,695 

  Corporate and other

1,807,569 

1,862,420 

    Total property and equipment

$8,464,702 

$9,217,115 

 

NOTE 13 - CONCENTRATIONS AND CREDIT RISK

 

(i)    Customer Concentrations

 

For the three months ended July 31, 2021 and 2020, customers accounting for 10% or more of the Company's revenue were as follows:

 

 

Three Months Ended July 31,

Customer

2021

2020

A (1)

38.1% 

24.9% 

B

-   

37.1% 

 

(1) Qufu Shengwang Import and Export Co., Ltd is a related party. 

 

- 15 -


 

(ii)    Vendor Concentrations

 

For the three months ended July 31, 2021 and 2020, suppliers accounting for 10% or more of the Company's purchase were as follows:

 

 

Three Months Ended July 31,

Supplier

2021

2020

A

-   

27.2% 

B

-   

18.0% 

C

38.4% 

10.1% 

D

15.7% 

-   

E

-   

10.8% 

 

(iii)    Credit Risk

 

Financial instruments which potentially subject us to concentrations of credit risk consist principally of cash and trade accounts receivable. We place our cash with high credit quality financial institutions in the United States and the PRC. As of July 31, 2021 and April 30, 2021, we had $820,149 and $1,054,090 of cash balance held in PRC banks, respectively. PRC banks protect consumers against loss if their bank or thrift institution fails, and each of our PRC bank account is insured up to RMB500,000 (approximately $71,000). As a result, cash held in PRC financial institutions of $721,996 and $946,274 are not insured as of July 31, 2021 and April 30, 2021. We have not experienced any losses in such accounts through July 31, 2021. Our cash position by geographic area was as follows: 

 

Country:

July 31, 2021

April 30, 2021

United States

$181,353 

27.1% 

$161,860 

10.3% 

China

489,079 

72.9% 

1,403,969 

89.7% 

Total cash and cash equivalents

$670,432 

100.00% 

$1,565,829 

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 14 - SUBSEQUENT EVENTS

 

September 7, 2021, Mr. Laiwang Zhang and Ms. Dongdong Lin resigned their position as Directors of the Company due to health and personal reasons. Mr. Zhang's and Ms. Lin’s resignation is not due to any disagreement with the Company on any matter related to operations, policies, or practices. After careful consideration and discussion with the Company’s management, the Board of Directors appoints Mr. Jianjun Yan, effective September 7, 2021, and Mr. Yuyi Liu Lai as a Director of the Company, Mr. Yan’s and Mr. Liu’s responsibility and compensation shall be reasonable and in accordance with their employment agreement.

 

- 16 -


 

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

 

The following discussion should be read in conjunction with the information contained in the preceding unaudited condensed consolidated financial statements and footnotes and our 2021 Annual Report on Form 10-K for fiscal year ended April 30, 2021.

 

OVERVIEW

 

We sell stevioside, a natural sweetener. Stevioside is a natural zero calorie sweetener extracted from the leaf of the stevia plants. Substantially all of our operations are located in the PRC. We have built an integrated company with the production and distribution capabilities designed to meet the needs of our customers.

 

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

 

 

-

 

Stevioside, and

 

-

 

Corporate and other.

 

Going Concern

 

The accompanying unaudited condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company has a significant accumulated deficit and incurred recurring losses. The Company's cash balance and revenues generated are not currently sufficient and cannot be projected to cover operating expenses for the next twelve months from the date of this report. These factors raise doubt as to the ability of the Company to continue as a going concern. Management's plans include attempting to improve its business profitability, its ability to generate sufficient cash flow from its operations to meet its operating needs on a timely basis, obtain additional working capital funds through debt and equity financings, and restructure on-going operations to eliminate inefficiencies to raise cash balance in order to meet its anticipated cash requirements for the next twelve months from the date of this report. Management intends to make every effort to improve its current sales forecast to further develop and expand the international markets for its new products as well as continuing with the current sources of funds to meet working capitals needs on as needed basis.  There can be no assurance that these plans and arrangements will be successful.

 

The ability of the Company to continue as a going concern is dependent upon its ability to achieve profitable operations and raise additional capital. The accompanying unaudited condensed consolidated financial statements do not include any adjustments related to the recoverability or classification of asset-carrying amount or the amounts and classification of liabilities that may result should the Company be unable to continue as a going concern.

 

Recent Developments

 

Consequently, the COVID-19 pandemic may adversely affect the Company’s business operations, financial condition and operating results for 2021 and 2022, including but not limited to material negative impact to the Company’s total revenues, production capability, ability to conduct marketing and sales, and slower collection of accounts receivables. We are able to maintain certain income from previous existing orders and finished products, however, we believe the effect of the COVID-19 pandemic will be most significant in our raw material purchasing and our sales. Due to the effect of the global COVID-19 pandemic, we expect the sourcing and availability of stevia raw material will have increased difficulties and costs for fiscal 2022.

 

We are monitoring the global outbreak and spread of COVID-19 and taking steps in an effort to identify and mitigate the adverse impacts on, and risks to, our business posed by its spread and the governmental and community reactions thereto. We continue to assess and update our business continuity plans in the context of this pandemic, including taking steps in an effort to help keep our workforces healthy and safe. We are also working with our suppliers to understand the existing and future negative impacts, and to take actions in an effort to mitigate such impacts. Due to the speed with which the COVID-19 pandemic is developing, the global breadth of its spread and the range of governmental and community reactions thereto, there is uncertainty around its duration and ultimate impact; therefore, any negative impact on our overall financial and operating results (including without limitation our liquidity) cannot be reasonably estimated at this time, but the pandemic could lead to extended disruption of economic activity and the impact on our financial and operating results.

 

- 17 -


 

OUR PERFORMANCE

 

 Our revenues totaled approximately $6,268,000 during the three months ended July 31, 2021, a decrease of 11.0%, as compared with the same period in 2020, and our gross margin increased to 14.1% from 2.4%. Our total operating expenses in the three months ended July 31, 2021 decreased by approximately $6,000, or 0.6% compared to the same period in 2020 primarily due to a decrease of approximately $59,000, or 12.4% in general and administrative expense and a decrease of approximately $6,000, or 1.6% in research and development expenses, offset by an increase of approximately $58,000, or 18.6% in selling expense. Our net loss for the three months ended July 31, 2021 was approximately $750,000, compared to a net loss $1,056,000 in the same period in fiscal 2021.

 

While we have broadened our stevia product offerings to include a number of higher quality stevia grades needed in new product formulations we are developing to introduce to the U.S. and European food and beverage industry, the demand for higher grade stevia products has yet to materialize to the degree we had anticipated, and we hope that our sales volume in higher grade stevia products will increase in fiscal 2022 as demand resumes and increases after the effects of the global pandemic. Stevia has become more widely accepted by the food industry and many new stevia manufacturers have entered this industry in the past few years; recently we have introduced a new product line. We are now focusing on new types of stevia products, including tablets, liquid, High A products, and others. We expect to consistently increase our sales of our new products; however, we cannot quantify this increase and its effects on future periods.

 

Our Outlook

 

We believe that there are significant opportunities for worldwide growth in our Stevioside segment, not only in the U.S. and EU markets but also in our domestic market. For the fiscal year ended April 30, 2021 and beyond, we will continue to focus on our core business of producing and selling stevioside series products.

 

Currently there is a world-wide movement of lowering sugar intake, and more and more consumers are becoming aware of the health benefits associated with reduction of sugar intake. According to research data, 40% of Chinese consumers stated that they "will not mind paying more for food and beverages with more natural ingredients" and 80% of the interview consumers express a goal of "having a healthier diet". We believe that, in this search of a more natural and healthy diet and lifestyle, natural sweeteners such as stevia will become the mainstream sweetener in the food and beverage markets.

 

Some of the recent favorable observations related to the stevia markets in fiscal 2020 include:

 

 

-

 

Chinese domestic food and beverages, particularly herbal tea manufacturers and the pharmaceutical industry, have increased the use of steviosides, and new health awareness trends have also resulted in some new governing laws supporting the growth of this industry;

 

-

 

Southeast and South Asia have renewed and increased their interest in stevia, particularly high grade stevia;

 

-

 

New global product launches mentioning stevia have increased 13% per year on average from 2014 to 2018; and 

 

-

 

Stevia has been growing in popularity in the last 10 years throughout all the global markets.

 

Meanwhile, we are also facing challenges in competitive pricing and raw materials for the fiscal years ended April 30, 2021 and 2020, as well as negative impact from the global COVID-19 pandemic. During the fiscal years ended April 30, 2021, the market prices of stevioside products continue to be impacted by strong price competition among Chinese manufacturers. With this being a product gaining large market shares in China, in the recent years we have seen many competitors entering the market. These new competitors use lower pricing as their effort to gain market share as they initially entering the market, thus driving down the average prices for stevia products. We expect the pressure from pricing competition to continue in fiscal 2022. We anticipate the price of stevia leaves, the raw material used to produce our stevioside series products, will also continue to increase in fiscal 2022 since the demand for raw material may increase as the market grows, while the production of the raw material experiences negative impact due to the global pandemic.

 

We intend to make adjustments internally in order to better operate in this market; our goal is to increase sales and develop new client bases through our marketing effort, decrease our production expenses while maintaining the stability and quality of our products, and decrease our overall expenditures. We believe while there are challenges and risks in this market, our high quality high grade product and the formulations developed by our internal research and development team differentiates us from other competitors and our efforts will lead to sustainable growth in the future.

 

- 18 -


 

RESULTS OF OPERATIONS

 

The following table summarizes our results from operations for the three month periods ended July 31, 2021 and 2020. The percentages represent each line item as a percent of revenues: 

 

For the Three Months ended July 31, 2021

 

Stevioside

Corporate and Other

Consolidated

Revenues

$6,161,678  

100.0% 

$106,782 

100.0% 

$6,268,460  

100.0% 

Cost of goods sold

5,340,969  

86.7% 

44,662 

41.8% 

5,385,631  

85.9% 

Gross profit

820,709  

13.3% 

62,120 

58.2% 

882,829  

14.1% 

Selling expenses

368,812  

6.0% 

- 

-   

368,812  

5.9% 

General and administrative expenses

414,643  

6.7% 

- 

-   

414,643  

6.6% 

Research and development expenses

355,713  

5.8% 

- 

-   

355,713  

5.7% 

(Loss) income from operations

(318,459) 

(5.2)% 

62,120 

58.2% 

(256,339) 

(4.1)% 

Other expenses

(493,778) 

(8.0)% 

- 

-   

(493,778) 

(7.9)% 

(Loss) income from continuing operations before income taxes

$(812,243) 

(13.2)% 

$62,120 

58.2% 

$(750,117) 

(12.0)% 

 

For the Three Months ended July 31, 2020

 

Stevioside 

Corporate and Other

Consolidated 

Revenues

$6,942,286  

100.0% 

$97,392 

100.0% 

$7,039,678  

100.0% 

Cost of goods sold

6,820,399  

98.2% 

52,101 

53.5% 

6,872,500  

97.6% 

Gross profit

121,887  

1.8% 

45,291 

46.5% 

167,178  

2.4% 

Selling expenses

310,915  

4.5% 

- 

-   

310,915  

4.4% 

General and administrative expenses

436,311  

6.3% 

36,865 

37.9% 

473,176  

6.7% 

Research and development expenses

361,438  

5.2% 

- 

-   

361,438  

5.1% 

(Loss) income from operations

(986,777) 

(14.2)% 

8,426 

8.7% 

(978,351) 

(13.9)% 

Other expenses

(77,476) 

(1.1)% 

- 

-   

(77,476) 

(1.1)% 

(Loss) income from continuing operations before income taxes

$(1,064,253) 

(15.3)% 

$8,426 

8.7% 

$(1,055,827) 

(15.0)% 

 

Revenues

 

Total revenues in the three months ended July 31, 2021 decreased by approximately 11.0%, as compared to the same period in 2020. Stevioside revenues, which accounts for 98.3% and 98.6% of our total revenues in the three months ended July 31, 2021 and 2020, respectively, decreased by approximately 11.2%, but we sold 214 metric tons and 180 metric tons of stevioside for the three months ended July 31, 2021 and 2020, respectively. Our Stevioside segment, revenues from sales to third parties decreased by 27.3%, from 74.8% to 61.3% of total revenue of Stevioside segment in the three months ended July 31, 2021, as compared to the same period in 2020, primarily due to a decreasing demand from domestic markets after COVID-19 pandemic. Our sales to the related party increased by 36.2%, from 24.9% to 38.1% of total revenue in the three months ended July 31, 2021, as compared to the same period in 2020, primarily due to an increasing demand from the oversea market and the results of our effort to develop sales in the international market. Since we do not have the authorization to export products from China, we outsourced our exporting business to a related party, Qufu Shengwang Import and Export Corporation, which has authorizations to export.

 

Our products including enzyme treated stevia have been well accepted by the market, especially in the U.S..  We generated approximately $1,690,000 and $1,340,000 in revenue from producing over 55 metric tons and 40 metric tons of the customized orders for restructuring by enzyme based on our Stevioside products which accounted for approximately 28% and 19% of our total revenues of Sativoside segment in the three months ended July 31, 2021 and 2020, respectively.

 

Our unit sale price fluctuated from month to month in the three months ended July 31, 2021, which was mainly affected by the market environment; the average unit sales price of our stevia products has decreased because of our effort to stay ahead of competition and to gain market share for the three months ended July 31, 2021, as compared to the same period in 2020. We are facing challenges in competitive pricing and sourcing of raw materials, and the market prices of stevioside products were impacted by strong price competition among Chinese manufacturers. We also anticipate the price of stevia leaves, the raw material used to produce our stevioside series products, to continue to increase in the near future. With the restructuring of our product line, we also continue to increase the sales of our low grade stevia products. In the three months ended July 31, 2021, some of our stevia products, such as A3-95, A3-80, A3-60, and A3-50, were sold for a loss in order to avoid further losses resulting from spoilage of overstocked inventory.   

 

- 19 -


 

Cost of Revenues and Gross Margin

 

Cost of revenues in the three months ended July 31, 2021 decreased by 21.6%, compared to the same period in 2020. Cost of revenues as a percentage of revenues increased from 97.6% to 85.9% during the three months ended July 31, 2021 compared to the same period in 2020. Gross margin in Stevioside segment increased from 1.8% to 13.3% for the three months ended by July 31, 2021, compared the same period in 2020. Our consolidated gross margin for the three months ended by July 31, 2021 was 14.1%, as compared to 2.4% in the same period in 2020, which was primarily due to the epidemic of the novel strain of coronavirus COVID-19 pandemic adversely affected businesses and economic activities in 2021.   

 

We believe the effect of the COVID-19 pandemic is the most significant in our raw material purchasing and our sales. Due to the effect of the global COVID-19 pandemic, we expect the sourcing and availability of stevia raw material will have increased difficulties and costs for fiscal 2022. February to March is normally the nursing period for stevia plants; as a result of COVID-19 related gathering laws, farmers are not able to have the same amount of nursery workers as previous years, resulting in a decrease of stevia plants, and relevant safety measures also resulted in an increase of general planting costs. We expect this to cause a shortage of stevia leaves harvest this year and along with the effect of the rain seasons, we expect to see an increase in our cost of raw material. After we resumed production, the effect of the COVID-19 pandemic on transportation has also made it difficult for us to efficiently procure our raw materials.

 

Selling Expenses

 

For the three months ended July 31, 2021, we had an increase of approximately $58,000, or 18.6% in selling expenses, as compared to the same period in 2020. The increase was primarily due to the approximately $18,000 increase in local sales taxes, $15,000 increase in commission expenses, $18,000 increase in office expenses, $13,000 increase in travel expense, $13,000 increase in promotion expense, $4,000 increase in shipping and freight, offset by $14,000 decrease in advertising expenses, $5,000 decrease in salary and $4,000 decrease in miscellaneous expense in the three months ended July 31, 2021.

 

General and Administrative Expenses

 

Our general and administrative expenses for the three months ended July 31, 2021 decreased by approximately $59,000, or 12.4% from the same period in 2020. The decrease was primarily due to a decrease of approximately $98,000 in repairs and maintenance fees, $13,000 decrease in auto expenses, $3,000 decrease in safety production fund, $26,000 decrease in hospitality expenses, and $76,000 decrease in miscellaneous expense, offset by an increase of approximately $43,000 in depreciation and amortization expenses, $66,000 increase in salary and wage expenses and $48,000 increase in service and consulting fee.

 

Research and Development Expense

 

For the three months ended July 31, 2021, our research and development expenses amounted to approximately $355,000, as compared to $361,000 for the same period in 2020. The decrease of $6,000 was primarily due to the decrease in spending for third party technical consulting fees in the three months ended July 31, 2021.

 

 Other Income (Expenses)

 

For the three months ended July 31, 2021, other expense, net of other income, amounted to approximately $493,000, an increase of $416,000 as compared to the other expense, net of other income, amounted to approximately $77,000 for the three months ended July 31, 2020. The increase of other expenses was primarily attributable to an increase in other expenses of $424,000 attributable to a loss on disposition of property and equipment in the three months ended July 31, 2021, and an increase of $5,000 in interest expense to third parties, offset by a decrease of $12,000 in interest expenses to related parties.

 

Net Loss

 

As a result of the foregoing, our loss was $750,000 for the three months ended July 31, 2021, as compared with loss from continuing operations of $1,056,000 for the three months ended July 31, 2020, a change of $306,000, or 29.0%. The decrease in net loss was primarily due to increased gross profit and decreased operating expenses, offset by increased other expenses in the three months ended July 31, 2021, compared to the three months ended July 31, 2020.

 

Net Loss Attributable to Sunwin Sunwin Stevia International, Inc.

 

Our net loss attributable to Sunwin Sunwin Stevia International, Inc. in the three months ended July 31, 2021 was approximately $460,000, or $(0.00) per share (basic and diluted), compared to $663,000, or $(0.00) per share (basic and diluted), in the three months ended July 31, 2020.

 

- 20 -


 

 

Net Loss Attributable to Noncontrolling Interest

 

Noncontrolling interest represents the ownership interests an individual investor and Shangdong Yulong Mining Group Co., Ltd. ("Yulong") hold in Qufu Shengren. The amount recorded as noncontrolling interest in our unaudited condensed consolidated statements of loss and comprehensive loss is computed by multiplying the after-tax loss by 38.7%, the percentage ownership in Qufu Shengren not directly attributable to us.  Net loss attributable to noncontrolling interest amounted to $290,000 and $393,000 for the three months ended July 31, 2021 and 2020.

 

Foreign Currency Translation Gain

 

The functional currency of our subsidiaries and variable interest entities operating in the PRC is the Chinese Yuan or Renminbi ("RMB"). The financial statements of our subsidiaries are translated to U.S. dollars using period end rates of exchange for assets and liabilities, and average rates of exchange (for the period) for revenues, costs, and expenses. Net gains and losses resulting from foreign exchange translations are included in the Comprehensive loss on the unaudited condensed consolidated statements of operations and comprehensive loss. As a result of foreign currency translations, which are a non-cash adjustment, we reported a foreign currency translation gain of $10,000 and $131,000 for the three months ended July 31, 2021 and 2020, respectively. This non-cash gain had the effect of reducing our reported comprehensive loss. 

 

LIQUIDITY AND CAPITAL RESOURCES

 

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

 

On July 31, 2021, we had working capital deficit of approximately $3,112,000, including cash of approximately $670,000, as compared to working deficit of $1,089,000, including cash of approximately $1,566,000 at April 30, 2021. The approximate $895,000 decrease in our cash at July 31, 2021 from April 30, 2021 is primarily attributable to net cash provided by operating activities of approximately $1,831,000 and net cash used in investing activities of approximately $2,058,000, offset by net cash provided by financing activities of approximately $2,984,000 during the three months ended July 31, 2021. 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 COVID-19 Pandemic. On January 30, 2020, the World Health Organization declared the coronavirus outbreak a "Public Health Emergency of International Concern" and on March 10, 2020, declared it to be a pandemic. Actions taken around the world to help mitigate the spread of the coronavirus include restrictions on travel, quarantines in certain areas, and forced closures for certain types of public places and businesses. The coronavirus and actions taken to mitigate it have had and are expected to continue to have an adverse impact on the economies and financial markets of many countries, including the geographical areas in China in which the Company operates. Consequently, the COVID-19 pandemic may adversely affect the Company’s business operations, financial condition and operating results for 2020, including but not limited to material negative impact to the Company’s total revenues, slower collection of accounts receivables and significant impairment to the Company’s equity investments. Due to the high uncertainty of the evolving situation, the Company has limited visibility on the full impact brought upon by the COVID-19 pandemic and the related financial impact cannot be estimated at this time.

 

- 21 -


 

Capital Resources

 

The following table provides certain selected balance sheets comparisons as of July 31, 2021 and April 30, 2021:

 

 

July 31, 2021

April 30, 2021

Increase (Decrease)

%

 

 

 

 

 

Cash and cash equivalents

$670,432 

$1,565,829 

$(895,397) 

(57.2)% 

Accounts receivable, net

2,037,930 

1,693,801 

(344,129) 

20.3% 

Accounts receivable - related party

6,954,986 

5,999,791 

955,195  

15.9% 

Inventories, net

11,947,698 

12,930,461 

(982,763) 

(7.6)% 

Prepaid expenses and other current assets

2,089,381 

661,882 

1,427,499  

215.7% 

Total current assets

23,700,427 

22,851,764 

848,663  

3.7% 

Property and equipment, net

8,464,702 

9,217,115 

(752,413) 

(8.2)% 

Land use rights

2,035,819 

- 

2,035,819  

100% 

Total assets

$34,200,948 

$32,068,879 

$2,132,069  

6.6% 

 

 

 

 

 

Accounts payable and accrued expenses

$11,021,663 

$11,141,408 

$(119,745) 

(1.1)% 

Short-term loans

4,149,493 

2,955,304 

1,194,189  

40.4% 

Due to related parties

11,641,345 

9,843,636 

1,797,709  

18.3% 

Total current liabilities

26,812,501 

23,940,348 

2,872,153  

12.0% 

Total liabilities

$26,812,501 

$23,940,348 

$2,872,153  

12.0% 

    

We maintain cash and cash equivalents in China and United States. On July 31, 2021 and April 30, 2021, bank deposits were as follows:

 

Country

July 31, 2021

April 30, 2021

United States

$181,353 

$161,860 

China

489,079 

1,403,969 

Total

$670,432 

$1,565,829 

  

The majority of our cash balances on July 31, 2021 are in the form of RMB stored in bank account of China. Cash held in banks in the PRC is not insured. The value of cash on deposit in mainland China of $489,079 as of July 31, 2021 has been converted based on the exchange rate as of July 31, 2021. In 1996, the Chinese government introduced regulations, which relaxed restrictions on the conversion of the RMB; however, restrictions still remain, including but not limited to restrictions on foreign invested entities. Foreign invested entities may only buy, sell or remit foreign currencies after providing valid commercial documents at only those banks authorized to conduct foreign exchanges. Furthermore, the conversion of RMB for capital account items, including direct investments and loans, is subject to PRC government approval. Chinese entities are required to establish and maintain separate foreign exchange accounts for capital account items. We cannot be certain Chinese regulatory authorities will not impose more stringent restrictions on the convertibility of the RMB, especially with respect to foreign exchange transactions. Accordingly, cash on deposit in banks in the PRC is not readily deployable by us for use outside of China.

 

Accounts receivable, net of allowance for doubtful accounts, including accounts receivable from related parties, increased by approximately $1,299,000 during the three months ended July 31, 2021, as a result of the increase in both accounts receivable from the third parties and accounts receivable from related party as of July 31, 2021. The days for sales outstanding in accounts receivable increased to 121 days as of July 31, 2021, as compared to 24 days as of April 30, 2021. Accounts receivable, net of allowance for doubtful accounts, excluding accounts receivable from the related parties, increased by approximately $344,000 during the three months ended July 31, 2021. The days for sales outstanding in accounts receivable for third party sales increased to 44 days as of July 31, 2021, as compared to 12 days as of April 30, 2021. We will reevaluate and categorize accounts receivable for sales and will target to improve our collection effort in accounts receivable for related party sales and accounts receivable for third party sales in fiscal 2021.

 

Inventories on July 31, 2021, net of reserve for obsolescence, totaled approximately $11,948,000, as compared to $12,930,000 as of April 30, 2021. The decrease is primarily due to our decrease in procurements of raw materials in order to meet our anticipated lower sales volume during the fiscal year ended April 30, 2021. These inventories have not yet been sold due to the market demands not raising as much as we predicted; meanwhile, we did impairment and price adjustment on the inventories.

 

- 22 -


 

 

Our accounts payable and accrued expenses were approximately $11,022,000 on July 31, 2021, a decrease of approximately $120,000 from April 30, 2021. The decrease is primarily due to our decrease in procurements of raw material as a result of the raising sales of such materials during the three months ended July 31, 2021.

 

Loans payable on July 31, 2021 and April 30, 2021 totaled approximately $4,149,000 and $2,955,000, respectively. These loans payable consisted of short-term loans from multiple non-related individuals, which bear annual interest rates of 4% - 12%.  Range of maturity dates of the loans payable was from September 20, 2021 to July 27, 2022.  During the three months ended July 31, 2021, the Company borrowed new short term loans and received proceeds in a total amount of approximately $1,195,000 in cash.

 

Due to related parties on July 31, 2021 and April 30, 2021 totaled approximately $11,641,000 and $9,844,000, respectively. The increase was a result of our borrowing from related parties more than our repayment to them during the three months ended July 31, 2021. As of July 31, 2021, the balance we owed Pharmaceutical Corporation, Qufu Shengwang Import and Export and Mr. Weidong Chai amounted to $4,724,432, $6,686,795 and $230,118, respectively. On April 30, 2021, the balance we owed to Pharmaceutical Corporation, Qufu Shengwang Import and Export and Mr. Weidong Chai, a management member of Qufu Shengren Pharmaceutical Co., Ltd., approximately amounted to $3,484,000, $6,140,000 and $219,000, respectively.

 

Cash Flows Analysis

 

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

 

Net cash used in operating activities was approximately $1,831,000 for the three months ended July 31, 2021, primarily due to a net loss of approximately $750,000 adjusted by non-cash working capital, depreciation expense of $384,000, provision for obsolete inventories of $188,000 and loss on disposition of property and equipment of $395,000. Changes in operating assets and liabilities include an increase of approximately $339,000 in accounts receivable and note receivable from a third party, an increase of approximately $953,000 in accounts receivable - related party, an increase of approximately $1,436,000 in prepaid expenses and other current assets,  a decrease in accounts payable and accrued expenses of approximately $129,000 and a decrease of approximately $1,000 in taxes payable, offset by a decrease of approximately $809,000 in inventories.

 

Net cash provided by operating activities was approximately $2,747,000 for the three months ended July 31, 2020, primarily due to a decrease of approximately $596,000 in accounts receivable and note receivable from a third party, a decrease of approximately $1,217,000 in accounts receivable - related party  and an  increase in accounts payable and accrued expenses of approximately $2,229,000, offset by an increase of approximately $189,000 in inventories, an increase of approximately $290,000 in prepaid expenses and other current assets, a decrease of approximately $65,000 in taxes payable, and a net loss of approximately $1,056,000 adjusted by non-cash working capital, depreciation expense of $304,000.

 

NET CASH FLOW USED IN INVESTING ACTIVITIES:

 

Net cash used in investing activities from operations amounted to approximately $2,058,000 during the three months ended July 31, 2021 due to capital expenditures for property and equipment of approximately $1,000 and land use rights of approximately $2,057,000.

 

Net cash used in investing activities from operations amounted to approximately $138,000 during the three months ended July 31, 2020 due to capital expenditures for property and equipment.

 

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

 

Net cash provided by financing activities from operations amounted to approximately $2,984,000 in the three months ended July 31, 2021, primarily due to proceeds from short term loans in a total amount of $1,195,000 and advances received from related parties of approximately $5,266,000, offset by repayment of related party advances of approximately $ 3,476,000.

 

Net cash used in financing activities from operations amounted to approximately $2,880,000 in the three months ended July 31, 2020, primarily due to repayment of short term loans in a total amount of approximately $667,000 and repayment of related party advances of approximately $5,268,000 and offset by advances received from related parties of approximately $3,055,000.

 

- 23 -


 

Off Balance Sheet Arrangements

 

Under SEC regulations, we are required to disclose our off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, such as changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. An off-balance sheet arrangement means a transaction, agreement or contractual arrangement to which any entity that is not consolidated with us as a party, under which we have:

 

 

-

 

Any obligation under certain guarantee contracts,

 

-

 

Any retained or contingent interest in assets transferred to an unconsolidated entity or similar arrangement that serves as credit, liquidity or market risk support to that entity for such assets,

 

-

 

Any obligation under a contract that would be accounted for as a derivative instrument, except that it is both indexed to our stock and classified in stockholder's equity in our statement of financial position, and

 

-

 

Any obligation arising out of a material variable interest held by us in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to us, or engages in leasing, hedging or research and development services with us.

 

We do not have any off-balance sheet arrangements that we are required to disclose pursuant to these regulations. In the ordinary course of business, we enter into operating lease commitments, purchase commitments and other contractual obligations. These transactions are recognized in our financial statements in accordance with accepted accounting principles generally accepted in the U.S. ("U.S. GAAP").

 

CRITICAL ACCOUNTING POLICIES

 

The preparation of financial statements in conformity with U.S. GAAP requires estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities in the consolidated financial statements and accompanying notes. The SEC has defined a company's critical accounting policies as the ones that are most important to the portrayal of the company's financial condition and results of operations, and which require the company to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Based on this definition, we have identified the critical accounting policies and judgments addressed below. We also have other key accounting policies, which involve the use of estimates, judgments and assumptions that are significant to understanding our results, which are described in Note 2 to our unaudited condensed consolidated financial statements. Although we believe that our estimates, assumptions and judgments are reasonable, they are based upon information presently available. Actual results may differ significantly from these estimates under different assumptions, judgments or conditions.  

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable to smaller reporting company.

 

ITEM 4. CONTROLS AND PROCEDURES.

 

Evaluation of Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act") that are designed to ensure that information required to be disclosed by us in reports that we file under the Exchange Act is recorded, processed, summarized and reported as specified in the SEC's rules and forms and that such information required to be disclosed by us in reports that we file under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer ("CEO"), and our Chief Financial Officer ("CFO"), to allow timely decisions regarding required disclosure.

 

Our management, with the participation of our CEO and CFO, performed an evaluation of the effectiveness of our disclosure controls and procedures as of July 31, 2021.  

 

Based on this evaluation our management concluded that our disclosure controls and procedures were not effective as of July 31, 2021 such that the information relating to our company, required to be disclosed in our Securities and Exchange Commission reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and (ii) is accumulated and communicated to our management, including our CEO, to allow timely decisions regarding required disclosure.

 

- 24 -


 

Management's Report on Internal Control over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act. Our management is also required to assess and report on the effectiveness of our internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 ("Section 404"). As reported in our Form 10-K for the year ended April 30, 2021, management assessed the effectiveness of our internal control over financial reporting as of April 30, 2021 and, during our assessment, management identified significant deficiencies related to (i) the U.S. GAAP expertise of our internal accounting staff, (ii) our internal audit functions and (iii) a lack of segregation of duties within accounting functions. Although management believes that these deficiencies do not amount to a material weakness, our internal controls over financial reporting were not effective at April 30, 2021.

 

Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. As a result, we have not been able to take steps to improve our internal controls over financial reporting during the three months ended July 31, 2021. However, to the extent possible, we will implement procedures to assure that the initiation of transactions, the custody of assets and the recording of transactions will be performed by separate individuals.

 

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

 

In light of this significant deficiency, we performed additional analyses and procedures in order to conclude that our consolidated financial statements for the three months ended July 31, 2021 included in this quarterly report on Form 10-Q were fairly stated in accordance with the U.S. GAAP. Accordingly, management believes that despite our significant deficiency, our consolidated financial statements for the three months ended July 31, 2021 are fairly stated, in all material respects, in accordance with the U.S. GAAP.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting identified in connection with the evaluation of our controls performed during the three months ended July 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

PART II - OTHER INFORMATION

 

ITEM 1.  LEGAL PROCEEDINGS.

 

None.

 

ITEM 1 A. RISK FACTORS.

 

Risk factors describing the major risks to our business can be found under Item 1A, "Risk Factors", in our fiscal 2020 Annual Report on Form 10-K. There has been no material change in our risk factors from those previously discussed in the fiscal 2020 Annual Report on Form 10-K.

 

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

 

None.

 

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES.

 

None.

 

ITEM 4.  MINE SAFETY DISCLOSURE.

 

None.

 

- 25 -


 

ITEM 5. OTHER INFORMATION.

 

None.

 

ITEM 6.  EXHIBITS

 

Exhibit No.

 

Description of Exhibit

31.1

 

Section 302 Certificate of Chief Executive Officer.*

31.2

 

Section 302 Certificate of Chief Financial Officer.*

32.1

 

Section 906 Certificate of Chief Executive Officer and Chief Financial Officer.*

101.INS

 

XBRL INSTANCE DOCUMENT**

101.SCH

 

XBRL TAXONOMY EXTENSION SCHEMA**

101.CAL

 

XBRL TAXONOMY EXTENSION CALCULATION LINKBASE**

101.DEF

 

XBRL TAXONOMY EXTENSION DEFINITION LINKBASE**

101.LAB

 

XBRL TAXONOMY EXTENSION LABEL LINKBASE**

101.PRE

 

XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE**

 

* - Filed herewith.

** - In accordance with Regulation S-T, the XBRL-formatted interactive data files that comprise Exhibit 101 to this Quarterly Report on Form 10-Q shall be deemed "furnished" and not "filed".

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

SUNWIN STEVIA INTERNATIONAL, INC.

 

 

 

 

Dated: September 14, 2021

By: /s/ Dongdong Lin

 

Dongdong Lin,

 

Chief Executive Officer

 

 

 

 

Dated: September 14, 2021

By: /s/ Fanjun Wu 

 

Fanjun Wu, 

 

Chief Financial Officer 

 

- 26 -