The following discussion should be read in conjunction with the information
contained in the preceding unaudited condensed consolidated financial statements
and footnotes and our 2022 Annual Report on Form 10-K for fiscal year ended
April 30, 2022.
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 2023, 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 2023.
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.
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OUR PERFORMANCE
Our revenues totaled approximately $7,710,000 during the three months ended
July 31, 2022, an increase of 23.0%, as compared with the same period in 2021,
and our gross margin increased to 15.0% from 14.1%. Our total operating expenses
in the three months ended July 31, 2022 increased by approximately $93,000, or
8.1% compared to the same period in 2021 primarily due to an increase of
approximately $31,000, or 8.3% in selling expense and an increase of
approximately $80,000, or 22.4% in research and development expenses, offset by
a decrease of approximately $18,000, or 4.3% in general and administrative
expense. Our net loss for the three months ended July 31, 2022 was approximately
$194,000, compared to a net loss $750,000 in the same period in fiscal 2022.
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, 2023 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 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, 2023 and 2022, 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.
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RESULTS OF OPERATIONS
The following table summarizes our results from operations for the three month
periods ended July 31, 2022 and 2021. The percentages represent each line item
as a percent of revenues:
For the Three Months ended July 31, 2022
Stevioside Corporate and Other Consolidated
Revenues $7,607,323 100.0% $102,580 100.0% $7,709,903 100.0%
Cost of goods sold 6,512,095 85.6% 41,770 40.7% 6,553,865 85.0%
Gross profit 1,095,228 14.4% 60,810 59.3% 1,156,038 15.0%
Selling expenses 399,467 5.3% - - 399,467 5.2%
General and
administrative
expenses 396,884 5.2% 30 - 396,914 5.1%
Research and
development expenses 435,568 5.7% - - 435,568 5.6%
(Loss) income from
operations (136,691) (1.8)% 60,780 59.3% (75,911) (1.0)%
Other expenses (118,240) (1.6)% - - (118,240) (1.5)%
(Loss) income from
continuing operations
before income taxes $(254,931) (3.4)% $60,780 59.3% $(194,151) (2.5)%
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 $(812,237) (13.2)% $62,120 58.2% $(750,117) (12.0)%
Revenues
Total revenues in the three months ended July 31, 2022 increased by
approximately 23.0%, as compared to the same period in 2021. Stevioside
revenues, which accounts for 98.7% and 98.3% of our total revenues in the three
months ended July 31, 2022 and 2021, respectively, increased by approximately
23.5%, primarily due to an increasing demand from both domestic and overseas
markets as the industries recover from the COVID-19 pandemic. We sold 264 metric
tons and 214 metric tons of stevioside for the three months ended July 31, 2022
and 2021, respectively,
Our products including enzyme treated stevia have been well accepted by the
market, especially in the U.S.. We generated approximately $3,014,000 and
$1,690,000 in revenue from producing over 93 metric tons and 55 metric tons of
the customized orders for restructuring by enzyme based on our Stevioside
products which accounted for approximately 37% and 28% of our total revenues of
Sativoside segment in the three months ended July 31, 2022 and 2021,
respectively.
Our unit sale price fluctuated from month to month in the three months ended
July 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 months ended
July 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. 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, 2022, some of our stevia products, such as A3-98, A3-97, A3-95, A3-90,
and A3-80, were sold for a loss in order to avoid further losses resulting from
spoilage of overstocked inventory.
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Cost of Revenues and Gross Margin
Cost of revenues includes the cost of raw materials, labor, depreciation, and
other fixed and variable overhead costs. Cost of revenues in the three months
ended July 31, 2022 increased by 21.7%, compared to the same period in 2021.
Cost of revenues as a percentage of revenues decreased from 85.9% to
85.0% during the three months ended July 31, 2022 compared to the same period in
2021. Gross margin in Stevioside segment increased from 13.3% to 14.4% for the
three months ended by July 31, 2021, compared the same period in 2021. Our
consolidated gross margin for the three months ended by July 31, 2022 was 15.0%,
as compared to 14.1% in the same period in 2021, which was primarily due to a
reduction of the higher production costs we experienced during the height of the
pandemic and that we were able to sell more of our overstocked inventories from
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 2023. 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, 2022, we had an increase of approximately
$31,000, or 8.3% in selling expenses, as compared to the same period in 2021.
The increase was primarily due to the approximately $56,000 increase in local
sales taxes, $8,000 increase in commission expenses, $21,000 increase in salary
and $4,000 increase in shipping and freight, offset by $24,000 decrease in
office expenses, $14,000 decrease in promotion and marketing expenses and
$20,000 decrease in travel expense in the three months ended July 31, 2022.
General and Administrative Expenses
Our general and administrative expenses for the three months ended July 31, 2022
decreased by approximately $18,000, or 4.3% from the same period in 2021. The
decrease was primarily due to a decrease of approximately $14,000 in repairs and
maintenance fees, $37,000 decrease in service and consulting fee, $5,000
decrease in hospitality expenses and $25,000 decrease in miscellaneous expense,
offset by an increase of approximately $7,000 in depreciation and amortization
expenses, $12,000 increase in office expenses, $9,000 increase in safety
production fund, $6,000 increase in auto expenses and $29,000 increase in
auditing fees.
Research and Development Expenses
For the three months ended July 31, 2022, our research and development expenses
amounted to approximately $436,000, as compared to $356,000 for the same period
in 2021. The increase of $80,000 was primarily due to the increase in spending
for third party technical consulting fees in the three months ended July 31,
2022.
Other Income (Expenses)
For the three months ended July 31, 2022, other expense, net of other income,
amounted to approximately $118,000, a decrease of $376,000 as compared to the
other expense, net of other income, amounted to approximately $494,000 for the
three months ended July 31, 2021. The decrease of other expenses was primarily
attributable to a decrease in other expenses of $438,000 attributable to a loss
on disposition of property and equipment in the three months ended July 31,
2022, offset by a decrease of $1,000 in interest income and an increase of
$61,000 in interest expense to third parties.
Net Loss
As a result of the foregoing, our loss was $194,000 for the three months ended
July 31, 2022, as compared with loss from continuing operations of $750,000 for
the three months ended July 31, 2021, a change of $556,000, or 74.1%. The
decrease in net loss was primarily due to increased gross profit and decreased
other expenses, offset by increased operating expenses in the three months ended
July 31, 2022, compared to the three months ended July 31, 2021.
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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, 2022 was approximately $121,000, or $(0.00) per
share (basic and diluted), compared to $460,000, or $(0.00) per share (basic and
diluted), in the three months ended July 31, 2021.
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 $73,000 and $290,000 for the three months
ended July 31, 2022 and 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 loss of $48,000 and gain
of $10,000 for the three months ended July 31, 2022 and 2021, respectively.
These non-cash loss and gain had the effect of 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, 2022, we had working capital deficit of approximately $5,748,000,
including cash of approximately $943,000, as compared to working deficit of
$5,949,000, including cash of approximately $321,000 at April 30, 2022. The
approximate $622,000 increase in our cash at July 31, 2022 from April 30, 2022
is primarily attributable to net cash provided by operating activities of
approximately $1,035,000, offset by net cash used in investing activities of
approximately $56,000, net cash used in financing activities of approximately
$348,000 and effect of exchange rate on cash of $9,000 during the three months
ended July 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 2022 and 2023, 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.
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Capital Resources
The following table provides certain selected balance sheets comparisons as of
July 31, 2022 and April 30, 2022:
July 31, 2022 April 30, 2022 Increase (Decrease) %
Cash and cash
equivalents $942,782 $321,193 $621,589 193.5%
Accounts receivable,
net 9,661,191 7,404,669 2,256,522 30.5%
Inventories, net 5,118,711 5,564,044 (445,333) (8.0)%
Prepaid expenses and
other current assets 2,214,165 2,765,819 (551,654) (19.9)%
Total current assets 17,936,849 16,055,725 1,881,124 11.7%
Property and
equipment, net 7,045,606 7,485,733 (440,127) (5.9)%
Land use rights 1,891,995 1,950,204 (58,209) (3.0)%
Total assets $26,874,450 $25,491,662 $1,382,788 5.4%
Accounts payable and
accrued expenses $14,315,173 $12,215,238 $2,099,935 17.2%
Short-term loans 4,589,025 4,907,506 (318,481) (6.5)%
Due to related
parties 4,781,048 4,882,162 (101,114) (2.1)%
Total current
liabilities 23,685,246 22,004,906 1,680,340 7.6%
Total liabilities $23,685,246 $22,004,906 $1,680,340 7.6%
We maintain cash and cash equivalents in China and United States. On July 31,
2022 and April 30, 2022, bank deposits were as follows:
Country July 31, 2022 April 30, 2022
United States $18,578 $18,033
China 924,204 303,160
Total $942,782 $321,193
The majority of our cash balances on July 31, 2022 are in the form of RMB stored
in a bank account in China. Cash held in banks in the PRC is not insured. The
value of cash on deposit in mainland China of approximately $924,000 as of July
31, 2022 has been converted based on the exchange rate as of July 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 increased by
approximately $2,257,000 during the three months ended July 31, 2022, as a
result of the increase in sales of product sold as of July 31, 2022. The days
for sales outstanding in accounts receivable increased to 101 days as of July
31, 2022, as compared to 20 days as of April 30, 2022. We will reevaluate and
categorize accounts receivable for sales and will target to improve our
collection effort in fiscal 2023.
Inventories on July 31, 2022, net of reserve for obsolescence, totaled
approximately $5,119,000, as compared to $5,564,000 as of April 30, 2022. The
decrease is primarily due to our increase in higher sales volume during the
three months ended July 31, 2022. However, due to the COVID-19 pandemic, there
has been minimal disruption in our supply chain network of certain raw
materials. We are not able to purchase enough leaves of the stevia to meet our
anticipated upcoming increase in demands
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Our accounts payable and accrued expenses were approximately $14,315,000 on July
31, 2022, an increase of approximately $2,100,000 from April 30, 2022. The
increase is primarily due to our increase in procurements of raw material as a
result of the rising sales of such materials during the three months ended July
31, 2022.
Loans payable on July 31, 2022 and April 30, 2022 totaled approximately
$4,589,000 and $4,908,000, 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 1, 2022 to July 27, 2023. During the three months ended July 31,
2022, the Company repaid loans in amount of approximately $349,000 in cash.
Due to related parties on July 31, 2022 and April 30, 2022 totaled approximately
$4,781,000 and $4,882,000, respectively. As of July 31, 2022, the balance we
owed Pharmaceutical Corporation and Mr. Weidong Chai, a management member of
Qufu Shengren Pharmaceutical Co., Ltd., approximately amounted to $4,542,000 and
$239,000, respectively. On April 30, 2022, the balance we owed to Pharmaceutical
Corporation and Export and Mr. Weidong Chai approximately amounted to $4,646,000
and $236,000, respectively.
Cash Flows Analysis
NET CASH FLOW PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net cash provided by operating activities was approximately $1,035,000 for the
three months ended July 31, 2022, primarily due to adjusted by non-cash working
capital, depreciation and amortization expenses of $333,000, impairment on
obsolete inventories of $78,000 and loss on disposition of property and
equipment of $5,000. Changes in operating assets and liabilities include a
decrease of approximately $246,000 in inventories, a decrease of approximately
$493,000 in prepaid expenses and other current assets, an increase in accounts
payable and accrued expenses of approximately $2,249,000, and an increase of
approximately $257,000 in taxes payable, offset an increase of approximately
$2,431,000 in accounts receivable and note receivable and a net loss of
approximately $194,000.
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 FLOW USED IN INVESTING ACTIVITIES:
Net cash used in investing activities from operations amounted to approximately
$56,000 during the three months ended July 31, 2022 due to capital expenditures
for property and equipment.
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 FLOW PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Net cash used in financing activities from operations amounted to approximately
$348,000 in the three months ended July 31, 2022, primarily due to repayments
for short term loans in a total amount of $349,000 and repayment of related
party advances of approximately $ 1,000, offset by advances received from
related parties of approximately $2,000.
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.
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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.
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