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.
The COVID-19 Pandemic
Consequently, the COVID-19 pandemic may adversely affect the Company's business
operations, financial condition and operating results for 2021, 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 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 experienced difficulty in the delivery of our products, the ability to ship
through ground transportation was very limited, if any, across provinces in
China and in air shipments internationally was also very limited, if any, this
caused us to be unable to timely deliver our products even if sales were made.
In 2020 and 2021, China slowly resumed normal, however, as the global situation
worsen, many of our international clients are pausing their operations and no
longer making new orders. We expect this low demand and difficulty in
transportation situation to remain in fiscal 2022.
Reduction of Carbon Emission
China issued plans to reduce the carbon intensity of its economy 60%-65% per
unit of GDP by 2030, compared with 2005 levels. In order to reach this goal by
2030, China will need to strengthen regulations already in place, introduce and
strictly enforce laws and penalties, and hasten sweeping changes to how it
produces and consumes energy, goods and raw materials. China will take
additional action to reduce waste, promote renewables and unconventional fuel,
and reform its electricity network as part of its plan to significantly reduce
carbon emissions before 2030.
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In the past two months, we had been asked to lower capacity and cut production
in half due to government's carbon emission reduction requirements. Also, we
will be facing government's guidelines regarding air pollution in the overall
attempt to create a better environment for the Beijing Winter Olympic Game in
addition to the carbon emission reduction requirements for the coming
years. Those are all unpredictable facts that will significantly impair our
ability to maintain optimal production and will negatively impact our overall
ability to generate revenue.
Recent Developments
On September 7, 2021, Mr. Laiwang Zhang and Ms. Dongdong Lin resigned their
position as Directors of the Company due to health and personal reasons. 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, effective September 7, 2021 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 agreements.
On September 30, 2021, Ms. Dongdong Lin resigned her position as Chief Executive
Officer ("CEO") of the Company due to personal reasons. On September 30, 2021,
the Company appointed Mr. Jianjun Yan as CEO of the Company and as General
Manager of Qufu Natural Green Engineering Co., Ltd ("Qufu Natural Green"), a
wholly owned subsidiary of the Company.
On March 11, 2022, Mr. Yuqiang Lai resigned his position as Director of the
Company due to personal reasons. As of the same date, Mr. Jianjun Yan resigned
as Director and CEO of the Company due to personal reasons.
The resignations of Mr. Zhang, Ms. Lin, Mr. Lai and Mr. Yan are not due to any
disagreement with the Company on any matter related to operations, policies, or
practices.
On March 11, 2022, the Company appointed Mr. Chunchun Wang as a Director and CEO
of the Company. Mr. Wang has been working in the pharmaceutical industry since
his graduation from Qufu Yuandong Professional Technical College in 2005 and has
been working with the Company since March 2006 in various positions in our
technology and web-based sales departments and is currently serving as the
General Manager of web-based operations. We believe Mr. Wang's expertise and
experience in the industry as well as his experience with us will be greatly
beneficial to the future growth of the Company. Mr. Wang is not a party of any
related party transactions with the Company.
On March 11, 2022, the Company appointed Ms. Fanjun Wu as a Director of the
Company. Ms. Wu has been our Chief Financial Officer since April 30, 2004. Since
1997, she has been employed by Qufu Natural Green, serving as Director of
Finance from 1997 to 1998 and thereafter as Chief Financial Officer. From 1992
to 1996, Ms. Wu was a Director of Finance for our subsidiary Shengya Veterinary
Medicine, which was owned by Shandong Group prior to our acquisition in 2004.
Ms. Wu graduated from Qufu Industrial College in 1995 with a Bachelor's Degree
in Accounting. We believe Ms. Wu's expertise and experience in the industry as
well as her experience with us will be greatly beneficial to the future growth
of the Company. Ms. Wu is not a party of any related party transactions with the
Company.
OUR PERFORMANCE
Our revenues totaled approximately $10,998,000 during the three months ended
January 31, 2022, an increase of 57.4%, as compared with the same period in
2021, and our gross margin increased to 7.1% from (4.5)%. Our total operating
expenses in the three months ended January 31, 2022 increased by approximately
$716,000, or 49.0% compared to the same period in 2021 primarily due to an
increase of approximately $147,000, or 30.6% in selling expense, an increase of
approximately $270,000, or 61.3% in general and administrative expense and an
increase of approximately $299,000, or 55.2% in research and development
expenses. Our net loss for the three months ended January 31, 2022 was
approximately $1,560,000, compared to a net loss $1,761,000 in the same period
in 2021.
Our revenues totaled approximately $27,375,000 during the nine months ended
January 31, 2022, an increase of 48.3%, as compared with the same period in
2021, and our gross margin increased to 5.8% from (1.4)%. Our total operating
expenses in the nine months ended January 31, 2022 increased by approximately
$1,909,000, or 61.4% compared to the same period in 2021 primarily due to an
increase of approximately $328,000, or 31.3% in selling expense, an increase of
approximately $566,000, or 52.1% in general and administrative expense, and an
increase of approximately $1,015,000, or 104.1% in research and development
expenses. Our net loss for the nine months ended January 31, 2022 was
approximately $4,203,000, compared to a net loss of $3,475,000 in nine months
ended January 31, 2021.
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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 2023 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 2022 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, 2022 and 2021, as well as
negative impact from the global COVID-19 pandemic. During the fiscal years ended
April 30, 2022, 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 2023. We anticipate the price of
stevia leaves, the raw material used to produce our stevioside series products,
will also continue to increase in fiscal 2023 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.
RESULTS OF OPERATIONS
The following table summarizes our results from operations for the three month
periods ended January 31, 2022 and 2021. The percentages represent each line
item as a percent of revenues:
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For the Three Months ended January 31, 2022
Stevioside Corporate and Other Consolidated
Revenues $10,890,274 100.0% $107,991 100.0% $10,998,265 100.0%
Cost of goods sold 10,161,251 93.3% 53,326 49.4% 10,214,577 92.9%
Gross profit 729,023 6.7% 54,665 50.6% 783,688 7.1%
Selling expenses 627,172 5.8% - - 627,172 5.7%
General and
administrative
expenses 710,827 6.5% 50 0.0% 710,877 6.5%
Research and
development expenses 840,814 7.7% - - 840,814 7.6%
Income (loss) from
operations (1,449,790) (13.3)% 54,615 50.6% (1,395,175) (12.7)%
Other income
(expenses) (165,338) (1.5)% 20 0.0% (165,318) (1.5)%
Income (loss) from
operations before
income taxes $(1,615,128) (14.8)% $54,635 50.6% $(1,560,493) (14.2)%
For the Three Months ended January 31, 2021
Stevioside Corporate and Other Consolidated
Revenues $6,881,811 100.0% $104,866 100.0% $6,986,677 100.0%
Cost of goods sold 7,246,458 105.3% 56,802 54.2% 7,303,260 104.5%
Gross profit (364,647) (5.3)% 48,064 45.8% (316,583) (4.5)%
Selling expenses 480,210 7.0% 11 0.0% 480,221 6.9%
General and
administrative
expenses 440,634 6.4% 110 0.1% 440,744 6.3%
Research and
development expenses 541,733 7.9% - - 541,733 7.8%
Income (loss) from
operations (1,827,224) (26.6)% 47,943 45.7% (1,779,281) (25.5)%
Other income 18,435 0.3% - - 18,435 0.3%
Income (loss) from
continuing operations
before income taxes $(1,808,789) (26.3)% $47,943 45.7% $(1,760,846) (25.2)%
The following table summarizes our results from operations for the nine month
periods ended January 31, 2022 and 2021.
For the Nine Months ended January 31, 2022
Stevioside Corporate and Other Consolidated
Revenues $ 27,053,429 100.0% $ 321,420 100.0% $ 27,374,849 100.0%
Cost of goods sold 25,623,250 94.7% 155,703 48.4% 25,778,953 94.2%
Gross profit 1,430,179 5.3% 165,717 51.6% 1,595,896 5.8%
Selling expenses 1,375,961 5.1% - - 1,375,961 5.0%
General and
administrative
expenses 1,652,480 6.1% 50 0.1% 1,652,530 6.0%
Research and
development expenses 1,988,894 7.4% - - 1,988,894 7.3%
Income (loss) from
operations (3,587,156) (13.3)% 165,667 51.5% (3,421,489) (12.5)%
Other income
(expenses) (781,914) (2.9)% 20 0.0% (781,894) (2.9)%
Income (loss) from
operations before
income taxes $ (4,369,070) (16.1)% $ 165,687 51.5% $ (4,203,383) (15.4)%
For the Nine Months ended January 31, 2021
Stevioside Corporate and Other Consolidated
Revenues $18,157,132 100.0% $303,067 100.0% $18,460,199 100.0%
Cost of goods sold 18,550,208 102.2% 163,508 54.0% 18,713,716 101.4%
Gross profit (393,076) (2.2)% 139,559 46.0% (253,517) (1.4)%
Selling expenses 1,047,115 5.8% 587 0.2% 1,047,702 5.7%
General and
administrative expenses 1,050,924 5.8% 35,380 11.7% 1,086,304 5.9%
Research and
development expenses 974,300 5.4% - - 974,300 5.3%
Income (loss) from
operations (3,465,415) (19.1)% 103,592 34.2% (3,361,823) (18.2)%
Other expenses (113,301) (0.6)% - - (113,301) (0.6)%
Income (loss) from
continuing operations
before income taxes $(3,578,716) (19.7)% $103,592 34.2% $(3,475,124) (18.8)%
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Revenues
Total revenues in the three months ended January 31, 2022 increased by
approximately 57.4%, as compared to the same period in 2021, primarily due to an
increasing demand from domestic and international markets after COVID-19
pandemic. Our Stevioside segment, revenues from sales increased by 58.2%, from
98.5% to 99.0% of our total revenues in the three months ended January 31, 2022
and 2021. We sold 273 metric tons and 227 metric tons of stevioside for the
three months ended January 31, 2022 and 2021, respectively.
Total revenues in the nine months ended January 31, 2022 increased by 48.3% as
compared to the same period in 2021. Stevioside revenues, accounts for 98.8% and
98.4% of our total revenues in the nine months ended January 31, 2022 and 2021,
respectively. During the nine months ended January 31, 2022, within our
Stevioside segment, our sales volume increased by approximately 237 metric tons,
from 609 metric tons to 846 metric tons, a 38.9% increase. With the
restructuring of our product line, we also continue to increase the sales of our
low grade stevia products. Our low grade stevia and A3-97 products generated
more than 45.8% and 43.2% of total revenue of our Stevioside segment for three
and nine months ended January 31, 2022, respectively.
Our products including enzyme treated stevia have been well accepted by the
market, especially in the U.S. We generated approximately $3,150,000 and
$7,271,000 in revenue from producing over 83 metric tons and 225 metric tons of
the customized orders for restructuring by enzyme based on our Stevioside
products which accounted for approximately 32.3% and 27.8% of our total revenues
of Stevioside segment in the three and nine months ended January 31, 2022,
respectively.
Our unit sale price fluctuated from month to month in the three and nine months
ended January 31, 2022, 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 and
nine months ended January 31, 2022, as compared to the same period in 2021. 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. In the nine months ended January 31,
2022, some of our stevia products, such as A3-95, A3-80, A3-98 and A3-99, were
sold for a loss in order to avoid further losses resulting from spoilage of
overstocked inventory.
Cost of Revenues and Gross Margin
Cost of revenues in the three and nine months ended January 31, 2022 increased
by 39.9% and 37.8%, compared to the same period in 2021, respectively. Cost of
revenues as a percentage of revenues decreased from 104.5% and 101.4% to 92.9%
and 94.2% during the three and nine months ended January 31, 2022 compared to
the same period in 2021, respectively. Gross margin in Stevioside segment
increased from (5.3)% to 6.7% for the three months ended by January 31, 2022,
compared the same period in 2021. Gross margin in Stevioside segment increased
from (2.2)% to 5.3% for the nine months ended by January 31, 2022, compared the
same period in 2021, which was primarily due to the epidemic of the novel strain
of coronavirus COVID-19 pandemic adversely affected businesses and economic
activities in fiscal year 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. 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 January 31, 2022, we had an increase of approximately
$147,000, or 30.6% in selling expenses, as compared to the same period in 2021.
The increase was primarily due to the approximately $54,000 increase in local
sales taxes and $113,000 increase in commission expenses, offset by $19,000
decrease in promotion and marketing expenses and $1,000 decrease in
miscellaneous expense in the three months ended January 31, 2022.
For the nine months ended January 31, 2022, we had an increase of approximately
$328,000, or 31.3% in selling expenses, as compared to the same period in 2021.
The increase was primarily due to the approximately $115,000 increase in local
sales taxes, $179,000 increase in commission expenses, $77,000 increase in
promotion and marketing expenses, $13,000 increase in shipping and freight and
$4,000 increase in salary, offset by $8,000 decrease in office expenses, $51,000
decrease in advertising expenses and $1,000 decrease in miscellaneous expense in
the nine months ended January 31, 2022.
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General and Administrative Expenses
Our general and administrative expenses for the three months ended January 31,
2022 increased by approximately $270,000, or 61.3% from the same period in 2021.
The increase was primarily due to an increase of approximately $52,000 in
depreciation and amortization expenses, $76,000 increase in salary and wage
expenses, $19,000 increase in safety production fund, $43,000 increase in
service and professional fees, $6,000 increase in repairs and maintenance fees,
$67,000 increase in office expense and $12,000 increase in miscellaneous
expense, offset by a decrease of $2,000 in hospitality expense and $3,000
decrease in travel expense.
Our general and administrative expenses for the nine months ended January 31,
2022 increased by approximately $566,000, or 52.1% from the same period in 2021.
The increase was primarily due to an increase of approximately $163,000 in
depreciation and amortization expenses, due to a land use right we purchased in
2021, $185,000 increase in salary and wage expenses, $50,000 increase in safety
production fund, $28,000 increase in repairs and maintenance fees, $15,000
increase in insurance expense, $77,000 increase in office expense, $65,000
increase in service and professional fees and $7,000 increase in miscellaneous
expenses, offset by a decrease of $24,000 in hospitality expenses.
Research and Development Expense
For the three and nine months ended January 31, 2022, our research and
development expenses amounted to approximately $841,000 and $1,989,000, as
compared to $542,000 and $974,000 for the same period in 2021, respectively. The
increase of $299,000 and $1,015,000 were primarily due to the increase in
materials used for R&D purpose in the three and nine months ended January 31,
2022.
Other Income (Expenses)
For the three months ended January 31, 2022, other expense, net of other income,
amounted to approximately $165,000, an increase of $184,000 as compared to the
other income, net of other expense, amounted to approximately $18,000 for the
three months ended January 31, 2021. The increase of other expenses was
primarily attributable to an increase of $96,000 in interest expenses to related
parties and an increase in other expense of $101,000, offset by a decrease of
$13,000 in interest expense to third parties.
For the nine months ended January 31, 2022, other expense, net of other income,
amounted to approximately $782,000, an increase of $669,000 as compared to the
other expense, net of other income, amounted to approximately $113,000 for the
nine months ended January 31, 2021. The increase of other expenses was primarily
attributable to an increase in other expenses of $526,000 mainly attributable to
a loss on disposition of property and equipment in the nine months ended January
31, 2022, and an increase of $229,000 in interest expenses to related parties,
offset by a decrease of $85,000 in interest expense to third parties, net of an
increase of $2,000 in interest income.
Net Loss
As a result of the foregoing, our loss was $1,560,000 for the three months ended
January 31, 2022, as compared with loss from operations of $1,761,000 for the
three and nine months ended January 31, 2021, a decrease of $200,000, or 11.4%.
The decrease in net losses were primarily due to decreased operating expenses
and increased gross profit, offset by an increase of other expenses in the three
months ended January 31, 2022, compared to the three months ended January 31,
2021.
As a result of the foregoing, our loss was $4,203,000 for the nine months ended
January 31, 2022, as compared with loss from operations of $3,475,000 for the
nine months ended January 31, 2021, an increase of $728,000, or 21.0%. The
increase in net losses were primarily due to increased operating expenses and
increased other expenses in the nine months ended January 31, 2022, compared to
the nine months ended January 31, 2021.
Net Loss Attributable to Sunwin Stevia International, Inc.
Our net loss attributable to Sunwin Stevia International, Inc. in the three and
nine months ended January 31, 2022 was approximately $958,000 and $2,587,000, or
$(0.00) and $(0.01) per share (basic and diluted), compared to net loss of
$1,080,000 and $2,146,000, or $(0.01) and $(0.01) per share (basic and diluted),
in the three and nine months ended January 31, 2021, respectively.
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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 $602,000 and $1,616,000 for the three and
nine months ended January 31, 2022, compared to net loss attributable to
noncontrolling interest of $681,000 and $1,330,000 for the three and nine months
ended January 31, 2021.
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 $43,000 and
$116,000, and $420,000 and $1,101,000 for the three and nine months ended
January 31, 2022 and 2021, 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 January 31, 2022, we had working capital deficit of approximately $6,302,000,
including cash of approximately $1,143,000, as compared to working deficit of
$1,089,000, including cash of approximately $1,566,000 at April 30, 2021. The
approximate $423,000 decrease in our cash at January 31, 2022 from April 30,
2021 is primarily attributable to net cash used in operating activities of
approximately $1,313,000 and net cash used in investing activities of
approximately $2,378,000, offset by net cash provided by financing activities of
approximately $3,249,000 during the nine months ended January 31, 2022. 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 2021 and 2022, 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.
Capital Resources
The following table provides certain selected balance sheets comparisons as of
January 31, 2022 and April 30, 2021:
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January 31, 2022 April 30, 2021 Increase (Decrease) %
Cash and cash
equivalents $1,143,045 $1,565,829 $(422,784) (27.0)%
Accounts receivable,
net 8,695,153 1,693,801 7,001,352 413.4%
Accounts receivable -
related party - 5,999,791 (5,999,791) (100.0)%
Inventories, net 8,863,050 12,930,461 (4,067,411) (31.5)%
Prepaid expenses and
other current assets 5,310,661 661,882 4,648,779
702.4%
Total current assets 24,011,909 22,851,764 1,160,145 5.1%
Property and
equipment, net 8,306,973 9,217,115 (910,142) (9.9)%
Land use rights 2,035,922 - 2,035,922 100%
Total assets $34,354,804 $32,068,879 $2,285,925 7.1%
Accounts payable and
accrued expenses $19,877,311 $11,141,408 $8,735,903 78.4%
Short-term loans 1,764,306 2,955,304 (1,190,998) (40.3)%
Due to related
parties 8,672,479 9,843,636 (1,171,157) (11.9)%
Total current
liabilities 30,314,096 23,940,348 6,383,748 26.6%
Total liabilities 30,314,096 $23,940,348 $6,383,748 26.6%
We maintain cash and cash equivalents in China and United States. On January 31,
2022 and April 30, 2021, bank deposits were as follows:
Country January 31, 2022 April 30, 2021
United States $97,271 $161,860
China 1,045,774 1,403,969
Total $1,143,045 $1,565,829
The majority of our cash balances on January 31, 2022 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 $1,045,774 as of January 31,
2022 has been converted based on the exchange rate as of January 31, 2022. 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 $1,002,000 during
the nine months ended January 31, 2022. The days for sales outstanding in
accounts receivable decreased to 27 days as of January 31, 2022, as compared to
97 days as of April 30, 2021. Accounts receivable, net of allowance for doubtful
accounts, excluding accounts receivable from the related parties, increased by
approximately $7,001,000 during the nine months ended January 31, 2022, but
accounts receivable from related parties decreased by approximately $6,000,000,
due to no revenue from related parties from fiscal 2022 and reclassification
partial receivables from a related party to account receivable from third
parties from fiscal 2022. We will reevaluate and categorize accounts receivable
for sales and will target to improve our collection effort in accounts
receivable in fiscal 2022.
Inventories on January 31, 2022, net of reserve for obsolescence, totaled
approximately $8,863,000, as compared to $12,930,000 as of April 30, 2021. The
decrease is primarily due to our increase in revenue, thus inventory turnover
rate increased. Accordingly, inventory ending balance decreased. Meanwhile, we
did impairment on the inventories.
Our accounts payable and accrued expenses were approximately $19,877,000 on
January 31, 2022, an increase of approximately $8,736,000 from April 30, 2021.
The increase is primarily result from reclassification of partial liabilities
from related parties to other payables from third parties from fiscal 2022.
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Loans payable on January 31, 2022 and April 30, 2021 totaled approximately
$1,764,000 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 March 6, 2022 to November 28, 2022. During the nine months ended January
31, 2022, the Company borrowed new short term loans and received proceeds in a
total amount of approximately $1,095,000 in cash.
Due to related parties on January 31, 2022 and April 30, 2021 totaled
approximately $8,672,000 and $9,844,000, respectively. The decrease was a result
of the reclassification of partial liabilities from related parties to other
payables from third parties from fiscal 2022. As of January 31, 2022, the
balance we owed Pharmaceutical Corporation, Mr. Jianjun Yan and Mr. Weidong Chai
amounted to approximately $4,601,000, $3,832,000 and $240,000, 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., amounted to approximately $3,484,000,
$6,140,000 and $219,000, respectively.
Cash Flows Analysis
NET CASH FLOW USED IN OPERATING ACTIVITIES:
Net cash used in operating activities was approximately $1,313,000 for the nine
months ended January 31, 2022, primarily due to a net loss of approximately
$4,203,000 adjusted by non-cash working capital, depreciation and amortization
expenses of $1,121,000, provision for obsolete inventories of $855,000 and loss
on disposition of property and equipment of $388,000. Changes in operating
assets and liabilities include an increase of approximately $865,000 in accounts
receivable from third party and an increase of approximately $4,594,000 in
prepaid expenses and other current assets, offset by a decrease of approximately
$3,387,000 in inventories, an increase in accounts payable and accrued expenses
of approximately $2,153,000 and an increase of approximately $444,000 in taxes
payable.
Net cash used in operating activities was approximately $1,537,000 for the nine
months ended January 31, 2021, primarily due to a net loss of approximately
$3,475,000, adjusted by non-cash working capital, depreciation expense of
$976,000 and provision for obsolete inventory of approximately $665,000, an
increase of approximately $806,000 in inventories, an increase of approximately
$14,000 in prepaid expenses and other current assets, offset by a decrease of
approximately $727,000 in accounts receivable and note receivable from a third
party, a decrease of approximately $173,000 in accounts receivable - related
party, an increase in accounts payable and accrued expenses of approximately
$80,000, and an increase of approximately $137,000 in taxes payable.
NET CASH FLOW USED IN INVESTING ACTIVITIES:
Net cash used in investing activities from operations amounted to approximately
$2,378,000 during the nine months ended January 31, 2022 due to capital
expenditures for property and equipment of approximately $322,000 and land use
rights of approximately $2,064,000, offset by proceeds from disposal of
equipment of $8,000.
Net cash used in investing activities from operations amounted to approximately
$529,000 during the nine months ended January 31, 2021 due to capital
expenditures for property and equipment.
NET CASH FLOW PROVIDED BY FINANCING ACTIVITIES:
Net cash provided by financing activities from operations amounted to
approximately $3,249,000 in the nine months ended January 31, 2022, primarily
due to proceeds from short term loans in a total amount of $1,095,000 and
advances received from related parties of approximately $6,162,000, offset by
repayment of related party advances of approximately $4,008,000.
Net cash provided by financing activities from operations amounted to
approximately $1,108,000 in the nine months ended January 31, 2021, primarily
due to proceeds from loan of approximately $21,000 and advances received from
related parties of approximately $10,413,000, offset by repayment of short term
loans in a total amount of approximately $912,000 and repayment of related party
advances of approximately $8,414,000.
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:
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- 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. We have 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.
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SUNWIN STEVIA INTERNATIONAL, INC. 
