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 $7,403,000 during the three months ended
October 31, 2022, a decrease of 26.8%, as compared with the same period in 2021,
and our gross margin increased to 17.2% from (0.7)%. Our total operating
expenses in the three months ended October 31, 2022 decreased by approximately
$286,000, or 16.8% compared to the same period in 2021 primarily due to a
decrease of approximately $121,000, or 31.9% in selling expense, a decrease of
approximately $142,000, or 26.9% in general and administrative expense and a
decrease of approximately $23,000, or 2.9% in research and development
expenses. Our net loss for the three months ended October 31, 2022 was
approximately $260,000, compared to a net loss $1,893,000 in the same period in
2021.
Our revenues totaled approximately $15,113,000 during the six months ended
October 31, 20221, a decrease of 7.7%, as compared with the same period in 2021,
and our gross margin increased to 16.1% from 5.0%. Our total operating expenses
in the six months ended October 31, 2022 decreased by approximately $193,000, or
6.8% compared to the same period in 2021 primarily due to a decrease of
approximately $91,000, or 12.1% in selling expense, a decrease of approximately
$159,000, or 16.9% in general and administrative expense, and offset by an
increase of approximately $57,000, or 4.9% in research and development
expenses. Our net loss for the six months ended October 31, 2022 was
approximately $454,000, compared to a net loss of $2,643,000 in six months ended
October 31, 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 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.
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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 October 31, 2022 and 2021. The percentages represent each line
item as a percent of revenues:
For the Three Months ended October 31, 2022
Stevioside Corporate and Other Consolidated
Revenues $ 7,305,077 100.0% $ 98,185 100.0% $ 7,403,262 100.0%
Cost of goods sold 6,088,144 83.3% 38,915 39.6% 6,127,059 82.8%
Gross profit 1,216,933 16.7% 59,270 60.4% 1,276,203 17.2%
Selling expenses 258,753 3.5% - - 258,753 3.5%
General and
administrative
expenses 385,344 5.3% - - 385,344 5.2%
Research and
development expenses 769,184 10.5% - - 769,184 10.4%
(Loss) income from
operations (196,348) (2.6)% 59,270 60.4% (137,078) (1.9)%
Other expenses (122,573) (1.7)% - - (122,573) (1.7)%
(Loss) income from
operations before
income taxes $ (318,921) (4.3)% $ 59,270 60.4% $ (259,651) (3.6)%
For the Three Months ended October 31, 2021
Stevioside Corporate and Other Consolidated
Revenues $ 10,001,477 100.0% $ 106,647 100.0% $ 10,108,124 100.0%
Cost of goods sold 10,121,030 101.2% 57,715 54.1% 10,178,745 100.7%
Gross (loss) profit (119,553 )(1.2)% 48,932 45.9% (70,621) (0.7)%
Selling expenses 379,977 3.8% - - 379,977 3.8%
General and
administrative
expenses 527,010 5.3% - - 527,010 5.2%
Research and
development expenses 792,367 7.9% - - 792,367 7.8%
(Loss) income from
operations (1,818,907) (18.2)% 48,932 45.9% (1,769,975) (17.5)%
Other (expenses)
income (122,818) (1.2)% 20 0.0% (122,798) (1.2)%
(Loss) income from
operations before
income taxes $ (1,941,725) (19.4)% $ 48,952 45.9% $ (1,892,773) (18.7)%
The following table summarizes our results from operations for the six month
periods ended October 31, 2022 and 2021.
For the Six Months ended October 31, 2022
Stevioside Corporate and Other Consolidated
Revenues $ 14,912,400 100.0% $ 200,765 100.0% $ 15,113,165 100.0%
Cost of goods sold 12,600,239 84.5% 80,685 40.2% 12,680,924 83.9%
Gross profit 2,312,161 15.5% 120,080 59.8% 2,432,241 16.1%
Selling expenses 658,220 4.4% - - 658,220 4.4%
General and
administrative
expenses 782,228 5.2% 30 0.0% 782,258 5.2%
Research and
development expenses 1,204,752 8.1% - - 1,204,752 8.0%
(Loss) income from
operations (333,039) (2.2)% 120,050 59.8% (212,989) (1.5)%
Other expenses (240,813) (1.6)% - - (240,813) (1.6)%
(Loss) income from
operations before
income taxes $ (573,852) (3.8)% $ 120,050 59.8% $ (453,802) (3.1)%
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For the Six Months ended October 31, 2021
Stevioside Corporate and Other Consolidated
Revenues $ 16,163,155 100.0% $ 213,429 100.0% $ 16,376,584 100.0%
Cost of goods sold 15,461,999 95.7% 102,377 48.0% 15,564,376 95.0%
Gross profit 701,156 4.3% 111,052 52.0% 812,208 5.0%
Selling expenses 748,789 4.6% - - 748,789 4.6%
General and
administrative
expenses 941,653 5.8% - - 941,653 5.7%
Research and
development expenses 1,148,080 7.1% - - 1,148,080 7.0%
(Loss) income from
operations (2,137,366) (13.2)% 111,052 52.0% (2,026,314) (12.3)%
Other (expenses)
income (616,596) (3.8)% 20 0.0% (616,576) (3.8)%
(Loss) income from
operations before
income taxes $ (2,753,962) (17.0)% $ 111,072 52.0% $ (2,642,890) (16.1)%
Revenues
Total revenues in the three months ended October 31, 2022 decreased by
approximately 26.8%, as compared to the same period in 2021, primarily due to a
decreasing demand from domestic and international markets during COVID-19
pandemic. Our Stevioside segment, revenues from sales decreased by 27.0%, from
98.9% to 98.7% of our total revenues in the three months ended October 31, 2022.
We sold 204 metric tons and 359 metric tons of stevioside for the three months
ended October 31, 2022 and 2021, respectively.
Total revenues in the six months ended October 31, 2022 decreased by 7.7% as
compared to the same period in 2021. Stevioside revenues, accounts for 98.7% of
our total revenues both in the six months ended October 31, 2022 and 2021,
respectively. During the six months ended October 31, 2022, within our
Stevioside segment, our sales volume decreased by approximately 105 metric tons,
from 573 metric tons to 468 metric tons, a 18.2% decrease.
Our products including enzyme treated stevia have been well accepted by the
market, especially in the U.S. We generated approximately $2,237,000 and
$5,186,000 in revenue from producing over 69 metric tons and 162 metric tons of
the customized orders for restructuring by enzyme based on our Stevioside
products which accounted for approximately 32.3% and 34.8% of our total revenues
of Stevioside segment in the three and six months ended October 31, 2022,
respectively. With the restructuring of our product line, we also continue to
increase the sales of our low grade stevia products. Our A3-98 product amounted
22.2% and 13.3% of total revenue of our Stevioside segment for three and six
months ended October 31, 2022, respectively.
Cost of Revenues and Gross Margin
Cost of revenues in the three and six months ended October 31, 2022 decreased by
39.8% and 18.5%, compared to the same period in 2021, respectively. Cost of
revenues as a percentage of revenues decreased from 100.7% and 95.0% to 82.8%
and 83.9% during the three and six months ended October 31, 2022 compared to the
same period in 2021, respectively. Gross margin in Stevioside segment increased
from (1.2)% to 16.7% for the three months ended by October 31, 2022, compared
the same period in 2021. Gross margin in Stevioside segment increased from 4.3%
to 15.5% for the six months ended by October 31, 2022, compared the same period
in 2021, which was primarily due improvements in the management of our
production process, we were able to operate with better efficiency and reduce
the cost of production, as well as an increase in our sales prices.
Our unit sale price fluctuated from month to month in the three and six months
ended October 31, 2022, which was mainly affected by the market environment; the
average unit sales price of our stevia products has increased for the three and
six months ended October 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 six months ended October 31,
2022, some of our stevia products, such as A3-95 and A3-80, were sold for a loss
in order to avoid further losses resulting from spoilage of overstocked
inventory.
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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 October 31, 2022, we had a decrease of approximately
$121,000, or 31.9% in selling expenses, as compared to the same period in 2021.
The decrease was primarily due to the approximately $107,000 decrease in
promotion and marketing expenses, $31,000 decrease in commission expenses,
$12,000 decrease in shipping and freight and $2,000 decrease in hospitality
expenses, offset by $23,000 increase in office expenses and $8,000 increase in
local sales taxes in the three months ended October 31, 2022.
For the six months ended October 31, 2022, we had a decrease of approximately
$91,000, or 12.1% in selling expenses, as compared to the same period in 2021.
The decrease was primarily due to the approximately $121,000 decrease in
promotion and marketing expenses, $24,000 decrease in commission expenses,
$20,000 decrease in travel expenses, $8,000 decrease in shipping and freight and
$2,000 decrease in hospitality expenses, offset by $63,000 increase in local
sales taxes and $21,000 increase in salary expenses in the six months ended
October 31, 2022.
General and Administrative Expenses
Our general and administrative expenses for the three months ended October 31,
2022 decreased by approximately $142,000, or 26.9% from the same period in 2021.
The decrease was primarily due to a decrease of approximately $78,000 in repairs
and maintenance fees, $3,000 decrease in consulting service and auditing fees,
$26,000 decrease in hospitality expenses, $11,000 decrease in travel expenses,
$34,000 decrease in salary expenses and $23,000 decrease in safety production
fund, offset by an increase of approximately $7,000 increase in office expenses
and $26,000 increase in miscellaneous expense in the three months ended October
31, 2022.
Our general and administrative expenses for the six months ended October 31,
2022 decreased by approximately $159,000, or 16.9% from the same period in 2021.
The decrease was primarily due to a decrease of approximately $76,000 in repairs
and maintenance fees, $11,000 decrease in consulting service and auditing fees,
$31,000 decrease in hospitality expenses, $13,000 decrease in travel expenses,
$38,000 decrease in salary expenses and $15,000 decrease in safety production
fund, offset by an increase of approximately $19,000 increase in office expenses
and $6,000 increase in miscellaneous expense in the six months ended October 31,
2022.
Research and Development Expenses
For the three and six months ended October 31, 2022, our research and
development expenses amounted to approximately $769,000 and $1,205,000,
respectively, as compared to $792,000 and $1,148,000 for the same period in
2021. The changes were primarily due to the changes in materials used for R&D
purpose in the three and six months ended October 31, 2022.
Other Income (Expenses)
For the three months ended October 31, 2022 and 2021, other expense, net of
other income, amounted to approximately $123,000, respectively. For the six
months ended October 31, 2022, other expense, net of other income, amounted to
approximately $241,000, a decrease of $376,000 as compared to the other expense,
net of other income, amounted to approximately $617,000 for the six months ended
October 31, 2021. The decrease of other expenses was primarily attributable to a
decrease in other expenses of $443,000 attributable to a loss on disposition of
property and equipment in the six months ended October 31, 2021, and a decrease
of approximately $143,000 in interest expense to related parties, offset by a
decrease of $1,000 in interest income and an increase of $210,000 in interest
expense to third parties.
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Net Loss
As a result of the foregoing, our loss amounted $260,000 and $454,000 for the
three and six months ended October 31, 2022, as compared with net loss of
$1,893,000 and $2,643,000 for the three and six months ended October 31, 2021,
respectively, a decrease of $1,633,000, or 86.3% and a decrease of $2,189,000,
or 82.8%. The decrease in net loss was primarily due to decreased operating
expenses and decreased other expenses, as well as increased gross profit in the
three and six months ended October 31, 2022, compared to the three and six
months ended October 31, 2021.
Net Loss Attributable to Sunwin Stevia International, Inc.
Our net loss attributable to Sunwin Stevia International, Inc. in the three and
six months ended October 31, 2022 was approximately $218,000 and $339,000, or
$(0.00) and (0.00) per share (basic and diluted), compared to $1,169,000 and
$1,629,000, or $(0.01) and (0.01) per share (basic and diluted), in the three
and six months ended October 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 $42,000 and $114,000 for the three and six
months ended October 31, 2022, compared to net loss attributable to
noncontrolling interest of $724,000 and $1,014,000 for the three and six months
ended October 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 attributable to Sunwin Stevia
International, Inc., which are a non-cash adjustment, we reported a foreign
currency translation loss of $208,000 and $274,000 for the three and six months
ended October 31, 2022. We reported a foreign currency translation gain of
$40,000 and $46,000 for the three and six months ended October 31, 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 October 31, 2022, we had working capital deficit of approximately $5,404,000,
including cash of approximately $2,774,000, as compared to working deficit of
$5,949,000, including cash of approximately $321,000 at April 30, 2022. The
approximate $2,453,000 increase in our cash at October 31, 2022 from April 30,
2022 is primarily attributable to net cash provided by operating activities of
approximately $3,363,000, offset by net cash used in investing activities of
approximately $162,000, net cash used in financing activities of approximately
$560,000 and effect of exchange rate on cash of $188,000 during the six months
ended October 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.
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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.
Capital Resources
The following table provides certain selected balance sheets comparisons as of
October 31, 2022 and April 30, 2022:
October 31, 2022 April 30, 2022 Increase (Decrease) %
Cash and cash
equivalents $ 2,774,026 $321,193 $2,452,833 763.7%
Accounts receivable,
net 7,935,814 7,404,669 531,145 7.2%
Inventories, net 2,194,443 5,564,044 (3,369,601) (60.6)%
Prepaid expenses and
other current assets 3,711,037 2,765,819 945,218 34.2%
Total current assets 16,615,320 16,055,725 559,595 3.5%
Property and
equipment, net 6,272,114 7,485,733 (1,213,619) (16.2)%
Land use rights 1,731,945 1,950,204 (218,259) (11.2)%
Total assets $ 24,619,379 $25,491,662 $(872,283) (3.4)%
Accounts payable and
accrued expenses $ 13,282,031 $12,215,238 $1,066,793 8.7%
Short-term loans 4,320,781 4,907,506 (586,725) (12.0)%
Due to related
parties 4,416,504 4,882,162 (465,658) (9.5)%
Total current
liabilities 22,019,316 22,004,906 14,410 0.1%
Total liabilities $ 22,019,316 $22,004,906 $14,410 0.1%
We maintain cash and cash equivalents in China and United States. On October 31,
2022 and April 30, 2022, total cash were as follows:
Country October 31, 2022 April 30, 2022
United States $ 59,918 $18,033
China 2,714,108 303,160
Total $ 2,774,026 $321,193
The majority of our cash balances on October 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 $2,707,000 as of
October 31, 2022 has been converted based on the exchange rate as of October 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 $531,000 during the six months ended October 31, 2022, as a result
of the increase in sales of product sold as of October 31, 2022. The days for
sales outstanding in accounts receivable increased to 93 days as of October 31,
2022, as compared to 80 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.
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Inventories on October 31, 2022, net of reserve for obsolescence, totaled
approximately $2,194,000, 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 six
months ended October 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
Our accounts payable and accrued expenses were approximately $13,282,000 on
October 31, 2022, an increase of approximately $1,067,000 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 six months ended
October 31, 2022.
Loans payable on October 31, 2022 and April 30, 2022 totaled approximately
$4,321,000 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 January 8, 2023 to November 30, 2023. During the six months ended October
31, 2022, the Company repaid loans in amount of approximately $560,000 in cash.
Due to related parties on October 31, 2022 and April 30, 2022 totaled
approximately $4,417,000 and $4,882,000, respectively. As of October 31, 2022,
the balance we owed Pharmaceutical Corporation and Mr. Weidong Chai, a
management member of Qufu Shengren Pharmaceutical Co., Ltd., amounted to
approximately $4,191,000 and $226,000, respectively. On April 30, 2022, the
balance we owed to Pharmaceutical Corporation and Export and Mr. Weidong Chai
amounted to approximately $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 $3,363,000 for the
six months ended October 31, 2022, primarily due to adjusted by non-cash working
capital, depreciation and amortization expenses of $652,000, impairment on
obsolete inventories of $56,000. Changes in operating assets and liabilities
include a decrease of approximately $2,954,000 in inventories and an increase in
accounts payable and accrued expenses of approximately $2,836,000, offset by an
increase of approximately $1,335,000 in accounts receivable, an increase of
approximately $1,294,000 in prepaid expenses and other current assets, a
decreased of approximately $52,000 in taxes payable and a net loss of
approximately $454,000.
Net cash used in operating activities was approximately $2,446,000 for the six
months ended October 31, 2021, primarily due to a net loss of approximately
$2,643,000 adjusted by non-cash working capital, depreciation and amortization
expenses of $737,000, provision for obsolete inventories of $654,000 and loss on
disposition of property and equipment of $387,000. Changes in operating assets
and liabilities include an increase of approximately $3,560,000 in prepaid
expenses and other current assets and a decrease in accounts payable and accrued
expenses of approximately $1,488,000, offset by a decrease of approximately
$317,000 in accounts receivable and note receivable from third party, a decrease
of approximately $3,142,000 in inventories and an increase of approximately
$9,000 in taxes payable.
NET CASH FLOW USED IN INVESTING ACTIVITIES:
Net cash used in investing activities from operations amounted to approximately
$162,000 during the six months ended October 31, 2022 due to capital
expenditures for property and equipment in amount of approximately $166,000 and
offset by proceed from disposal of equipment of $5,000.
Net cash used in investing activities from operations amounted to approximately
$2,198,000 during the six months ended October 31, 2021 due to capital
expenditures for property and equipment of approximately $150,000 and land use
rights of approximately $2,056,000, offset by proceed from disposal of equipment
of $8,000.
NET CASH FLOW PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Net cash used in financing activities from operations amounted to approximately
$560,000 in the six months ended October 31, 2022, primarily due to repayments
for short term loans in a total amount of $560,000 and repayment of related
party advances of approximately $2,000, offset by advances received from related
parties of approximately $2,000.
Net cash provided by financing activities from operations amounted to
approximately $3,769,000 in the six months ended October 31, 2021, primarily due
to proceeds from short term loans in a total amount of $1,008,000 and advances
received from related parties of approximately $6,303,000, offset by repayment
of related party advances of approximately $3,542,000.
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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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SUNWIN STEVIA INTERNATIONAL, INC. 
