The following discussion should be read in conjunction with the information
contained in the preceding unaudited condensed consolidated financial statements
and footnotes and our 2021 Annual Report on Form 10-K for fiscal year ended
April 30, 2021.
OVERVIEW
We sell stevioside, a natural sweetener. Stevioside is a natural zero calorie
sweetener extracted from the leaf of the stevia plants. Substantially all of our
operations are located in the PRC. We have built an integrated company with the
production and distribution capabilities designed to meet the needs of our
customers.
Our operations were organized in two operating segments related to our product
lines:
- Stevioside, and
- Corporate and other.
Going Concern
The accompanying unaudited condensed consolidated financial statements have been
prepared assuming that the Company will continue as a going concern. The Company
has a significant accumulated deficit and incurred recurring losses. The
Company's cash balance and revenues generated are not currently sufficient and
cannot be projected to cover operating expenses for the next twelve months from
the date of this report. These factors raise doubt as to the ability of the
Company to continue as a going concern. Management's plans include attempting to
improve its business profitability, its ability to generate sufficient cash flow
from its operations to meet its operating needs on a timely basis, obtain
additional working capital funds through debt and equity financings, and
restructure on-going operations to eliminate inefficiencies to raise cash
balance in order to meet its anticipated cash requirements for the next twelve
months from the date of this report. Management intends to make every effort to
improve its current sales forecast to further develop and expand the
international markets for its new products as well as continuing with the
current sources of funds to meet working capitals needs on as needed
basis. There can be no assurance that these plans and arrangements will be
successful.
The ability of the Company to continue as a going concern is dependent upon its
ability to achieve profitable operations and raise additional capital. The
accompanying unaudited condensed consolidated financial statements do not
include any adjustments related to the recoverability or classification of
asset-carrying amount or the amounts and classification of liabilities that may
result should the Company be unable to continue as a going concern.
Recent Developments
Consequently, the COVID-19 pandemic may adversely affect the Company's business
operations, financial condition and operating results for 2021 and 2022,
including but not limited to material negative impact to the Company's total
revenues, production capability, ability to conduct marketing and sales, and
slower collection of accounts receivables. We are able to maintain certain
income from previous existing orders and finished products, however, we believe
the effect of the COVID-19 pandemic will be most significant in our raw material
purchasing and our sales. Due to the effect of the global COVID-19 pandemic, we
expect the sourcing and availability of stevia raw material will have increased
difficulties and costs for fiscal 2022.
We are monitoring the global outbreak and spread of COVID-19 and taking steps in
an effort to identify and mitigate the adverse impacts on, and risks to, our
business posed by its spread and the governmental and community reactions
thereto. We continue to assess and update our business continuity plans in the
context of this pandemic, including taking steps in an effort to help keep our
workforces healthy and safe. We are also working with our suppliers to
understand the existing and future negative impacts, and to take actions in an
effort to mitigate such impacts. Due to the speed with which
the COVID-19 pandemic is developing, the global breadth of its spread and the
range of governmental and community reactions thereto, there is uncertainty
around its duration and ultimate impact; therefore, any negative impact on our
overall financial and operating results (including without limitation our
liquidity) cannot be reasonably estimated at this time, but the pandemic could
lead to extended disruption of economic activity and the impact on our financial
and operating results.
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OUR PERFORMANCE
Our revenues totaled approximately $6,268,000 during the three months ended
July 31, 2021, a decrease of 11.0%, as compared with the same period in 2020,
and our gross margin increased to 14.1% from 2.4%. Our total operating expenses
in the three months ended July 31, 2021 decreased by approximately $6,000, or
0.6% compared to the same period in 2020 primarily due to a decrease of
approximately $59,000, or 12.4% in general and administrative expense and a
decrease of approximately $6,000, or 1.6% in research and development expenses,
offset by an increase of approximately $58,000, or 18.6% in selling expense. Our
net loss for the three months ended July 31, 2021 was approximately $750,000,
compared to a net loss $1,056,000 in the same period in fiscal 2021.
While we have broadened our stevia product offerings to include a number of
higher quality stevia grades needed in new product formulations we are
developing to introduce to the U.S. and European food and beverage industry, the
demand for higher grade stevia products has yet to materialize to the degree we
had anticipated, and we hope that our sales volume in higher grade stevia
products will increase in fiscal 2022 as demand resumes and increases after the
effects of the global pandemic. Stevia has become more widely accepted by the
food industry and many new stevia manufacturers have entered this industry in
the past few years; recently we have introduced a new product line. We are now
focusing on new types of stevia products, including tablets, liquid, High A
products, and others. We expect to consistently increase our sales of our new
products; however, we cannot quantify this increase and its effects on future
periods.
Our Outlook
We believe that there are significant opportunities for worldwide growth in our
Stevioside segment, not only in the U.S. and EU markets but also in our domestic
market. For the fiscal year ended April 30, 2021 and beyond, we will continue to
focus on our core business of producing and selling stevioside series products.
Currently there is a world-wide movement of lowering sugar intake, and more and
more consumers are becoming aware of the health benefits associated with
reduction of sugar intake. According to research data, 40% of Chinese consumers
stated that they "will not mind paying more for food and beverages with more
natural ingredients" and 80% of the interview consumers express a goal of
"having a healthier diet". We believe that, in this search of a more natural and
healthy diet and lifestyle, natural sweeteners such as stevia will become the
mainstream sweetener in the food and beverage markets.
Some of the recent favorable observations related to the stevia markets in
fiscal 2020 include:
- Chinese domestic food and beverages, particularly herbal tea
manufacturers and the pharmaceutical industry, have increased the use
of steviosides, and new health awareness trends have also resulted in
some new governing laws supporting the growth of this industry;
- Southeast and South Asia have renewed and increased their interest in
stevia, particularly high grade stevia;
- New global product launches mentioning stevia have increased 13% per
year on average from 2014 to 2018; and
- Stevia has been growing in popularity in the last 10 years throughout
all the global markets.
Meanwhile, we are also facing challenges in competitive pricing and raw
materials for the fiscal years ended April 30, 2021 and 2020, as well as
negative impact from the global COVID-19 pandemic. During the fiscal years ended
April 30, 2021, the market prices of stevioside products continue to be impacted
by strong price competition among Chinese manufacturers. With this being a
product gaining large market shares in China, in the recent years we have seen
many competitors entering the market. These new competitors use lower pricing as
their effort to gain market share as they initially entering the market, thus
driving down the average prices for stevia products. We expect the pressure from
pricing competition to continue in fiscal 2022. We anticipate the price of
stevia leaves, the raw material used to produce our stevioside series products,
will also continue to increase in fiscal 2022 since the demand for raw material
may increase as the market grows, while the production of the raw material
experiences negative impact due to the global pandemic.
We intend to make adjustments internally in order to better operate in this
market; our goal is to increase sales and develop new client bases through our
marketing effort, decrease our production expenses while maintaining the
stability and quality of our products, and decrease our overall expenditures. We
believe while there are challenges and risks in this market, our high quality
high grade product and the formulations developed by our internal research and
development team differentiates us from other competitors and our efforts will
lead to sustainable growth in the future.
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RESULTS OF OPERATIONS
The following table summarizes our results from operations for the three month
periods ended July 31, 2021 and 2020. The percentages represent each line item
as a percent of revenues:
For the Three Months ended July 31, 2021
Stevioside Corporate and Other Consolidated
Revenues $6,161,678 100.0% $106,782 100.0% $6,268,460 100.0%
Cost of goods sold 5,340,969 86.7% 44,662 41.8% 5,385,631 85.9%
Gross profit 820,709 13.3% 62,120 58.2% 882,829 14.1%
Selling expenses 368,812 6.0% - - 368,812 5.9%
General and
administrative
expenses 414,643 6.7% - - 414,643 6.6%
Research and
development expenses 355,713 5.8% - - 355,713 5.7%
(Loss) income from
operations (318,459) (5.2)% 62,120 58.2% (256,339) (4.1)%
Other expenses (493,778) (8.0)% - - (493,778) (7.9)%
(Loss) income from
continuing operations
before income taxes $(812,243) (13.2)% $62,120 58.2% $(750,117) (12.0)%
For the Three Months ended July 31, 2020
Stevioside Corporate and Other Consolidated
Revenues $6,942,286 100.0% $97,392 100.0% $7,039,678 100.0%
Cost of goods sold 6,820,399 98.2% 52,101 53.5% 6,872,500 97.6%
Gross profit 121,887 1.8% 45,291 46.5% 167,178 2.4%
Selling expenses 310,915 4.5% - - 310,915 4.4%
General and
administrative
expenses 436,311 6.3% 36,865 37.9% 473,176 6.7%
Research and
development expenses 361,438 5.2% - - 361,438 5.1%
(Loss) income from
operations (986,777) (14.2)% 8,426 8.7% (978,351) (13.9)%
Other expenses (77,476) (1.1)% - - (77,476) (1.1)%
(Loss) income from
continuing operations
before income taxes $(1,064,253) (15.3)% $8,426 8.7% $(1,055,827) (15.0)%
Revenues
Total revenues in the three months ended July 31, 2021 decreased by
approximately 11.0%, as compared to the same period in 2020. Stevioside
revenues, which accounts for 98.3% and 98.6% of our total revenues in the three
months ended July 31, 2021 and 2020, respectively, decreased by approximately
11.2%, but we sold 214 metric tons and 180 metric tons of stevioside for the
three months ended July 31, 2021 and 2020, respectively. Our Stevioside segment,
revenues from sales to third parties decreased by 27.3%, from 74.8% to 61.3% of
total revenue of Stevioside segment in the three months ended July 31, 2021, as
compared to the same period in 2020, primarily due to a decreasing demand from
domestic markets after COVID-19 pandemic. Our sales to the related party
increased by 36.2%, from 24.9% to 38.1% of total revenue in the three months
ended July 31, 2021, as compared to the same period in 2020, primarily due to an
increasing demand from the oversea market and the results of our effort to
develop sales in the international market. Since we do not have the
authorization to export products from China, we outsourced our exporting
business to a related party, Qufu Shengwang Import and Export Corporation, which
has authorizations to export.
Our products including enzyme treated stevia have been well accepted by the
market, especially in the U.S.. We generated approximately $1,690,000 and
$1,340,000 in revenue from producing over 55 metric tons and 40 metric tons of
the customized orders for restructuring by enzyme based on our Stevioside
products which accounted for approximately 28% and 19% of our total revenues of
Sativoside segment in the three months ended July 31, 2021 and 2020,
respectively.
Our unit sale price fluctuated from month to month in the three months ended
July 31, 2021, which was mainly affected by the market environment; the average
unit sales price of our stevia products has decreased because of our effort to
stay ahead of competition and to gain market share for the three months ended
July 31, 2021, as compared to the same period in 2020. We are facing challenges
in competitive pricing and sourcing of raw materials, and the market prices of
stevioside products were impacted by strong price competition among Chinese
manufacturers. We also anticipate the price of stevia leaves, the raw material
used to produce our stevioside series products, to continue to increase in the
near future. With the restructuring of our product line, we also continue to
increase the sales of our low grade stevia products. In the three months ended
July 31, 2021, some of our stevia products, such as A3-95, A3-80, A3-60, and
A3-50, were sold for a loss in order to avoid further losses resulting from
spoilage of overstocked inventory.
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Cost of Revenues and Gross Margin
Cost of revenues in the three months ended July 31, 2021 decreased by 21.6%,
compared to the same period in 2020. Cost of revenues as a percentage of
revenues increased from 97.6% to 85.9% during the three months ended July 31,
2021 compared to the same period in 2020. Gross margin in Stevioside segment
increased from 1.8% to 13.3% for the three months ended by July 31, 2021,
compared the same period in 2020. Our consolidated gross margin for the three
months ended by July 31, 2021 was 14.1%, as compared to 2.4% in the same period
in 2020, which was primarily due to the epidemic of the novel strain of
coronavirus COVID-19 pandemic adversely affected businesses and economic
activities in 2021.
We believe the effect of the COVID-19 pandemic is the most significant in our
raw material purchasing and our sales. Due to the effect of the global COVID-19
pandemic, we expect the sourcing and availability of stevia raw material will
have increased difficulties and costs for fiscal 2022. February to March is
normally the nursing period for stevia plants; as a result of COVID-19 related
gathering laws, farmers are not able to have the same amount of nursery workers
as previous years, resulting in a decrease of stevia plants, and relevant safety
measures also resulted in an increase of general planting costs. We expect this
to cause a shortage of stevia leaves harvest this year and along with the effect
of the rain seasons, we expect to see an increase in our cost of raw material.
After we resumed production, the effect of the COVID-19 pandemic on
transportation has also made it difficult for us to efficiently procure our raw
materials.
Selling Expenses
For the three months ended July 31, 2021, we had an increase of approximately
$58,000, or 18.6% in selling expenses, as compared to the same period in 2020.
The increase was primarily due to the approximately $18,000 increase in local
sales taxes, $15,000 increase in commission expenses, $18,000 increase in office
expenses, $13,000 increase in travel expense, $13,000 increase in promotion
expense, $4,000 increase in shipping and freight, offset by $14,000 decrease in
advertising expenses, $5,000 decrease in salary and $4,000 decrease in
miscellaneous expense in the three months ended July 31, 2021.
General and Administrative Expenses
Our general and administrative expenses for the three months ended July 31, 2021
decreased by approximately $59,000, or 12.4% from the same period in 2020. The
decrease was primarily due to a decrease of approximately $98,000 in repairs and
maintenance fees, $13,000 decrease in auto expenses, $3,000 decrease in safety
production fund, $26,000 decrease in hospitality expenses, and $76,000 decrease
in miscellaneous expense, offset by an increase of approximately $43,000 in
depreciation and amortization expenses, $66,000 increase in salary and wage
expenses and $48,000 increase in service and consulting fee.
Research and Development Expense
For the three months ended July 31, 2021, our research and development expenses
amounted to approximately $355,000, as compared to $361,000 for the same period
in 2020. The decrease of $6,000 was primarily due to the decrease in spending
for third party technical consulting fees in the three months ended July 31,
2021.
Other Income (Expenses)
For the three months ended July 31, 2021, other expense, net of other income,
amounted to approximately $493,000, an increase of $416,000 as compared to the
other expense, net of other income, amounted to approximately $77,000 for the
three months ended July 31, 2020. The increase of other expenses was primarily
attributable to an increase in other expenses of $424,000 attributable to a loss
on disposition of property and equipment in the three months ended July 31,
2021, and an increase of $5,000 in interest expense to third parties, offset by
a decrease of $12,000 in interest expenses to related parties.
Net Loss
As a result of the foregoing, our loss was $750,000 for the three months ended
July 31, 2021, as compared with loss from continuing operations of $1,056,000
for the three months ended July 31, 2020, a change of $306,000, or 29.0%. The
decrease in net loss was primarily due to increased gross profit and decreased
operating expenses, offset by increased other expenses in the three months ended
July 31, 2021, compared to the three months ended July 31, 2020.
Net Loss Attributable to Sunwin Sunwin Stevia International, Inc.
Our net loss attributable to Sunwin Sunwin Stevia International, Inc. in the
three months ended July 31, 2021 was approximately $460,000, or $(0.00) per
share (basic and diluted), compared to $663,000, or $(0.00) per share (basic and
diluted), in the three months ended July 31, 2020.
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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 $290,000 and $393,000 for the three months
ended July 31, 2021 and 2020.
Foreign Currency Translation Gain
The functional currency of our subsidiaries and variable interest entities
operating in the PRC is the Chinese Yuan or Renminbi ("RMB"). The financial
statements of our subsidiaries are translated to U.S. dollars using period end
rates of exchange for assets and liabilities, and average rates of exchange (for
the period) for revenues, costs, and expenses. Net gains and losses resulting
from foreign exchange translations are included in the Comprehensive loss on the
unaudited condensed consolidated statements of operations and comprehensive
loss. As a result of foreign currency translations, which are a non-cash
adjustment, we reported a foreign currency translation gain of $10,000 and
$131,000 for the three months ended July 31, 2021 and 2020, respectively. This
non-cash gain had the effect of reducing our reported comprehensive loss.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is the ability of a company to generate sufficient cash to meet its
operational cash requirements.
On July 31, 2021, we had working capital deficit of approximately $3,112,000,
including cash of approximately $670,000, as compared to working deficit of
$1,089,000, including cash of approximately $1,566,000 at April 30, 2021. The
approximate $895,000 decrease in our cash at July 31, 2021 from April 30, 2021
is primarily attributable to net cash provided by operating activities of
approximately $1,831,000 and net cash used in investing activities of
approximately $2,058,000, offset by net cash provided by financing activities of
approximately $2,984,000 during the three months ended July 31, 2021. The
Company's cash balance and revenues generated are not currently sufficient and
cannot be projected to cover operating expenses for the next twelve months from
the date of this report. These factors raise doubt as to the ability of the
Company to continue as a going concern. Management's plans include attempting to
improve its business profitability, its ability to generate sufficient cash flow
from its operations to meet its operating needs on a timely basis, obtain
additional working capital funds through debt and equity financings, and
restructure on-going operations to eliminate inefficiencies to raise cash
balance in order to meet its anticipated cash requirements for the next twelve
months from the date of this report. Management intends to make every effort to
improve its current sales force as to further develop and expand the
international markets for its new products as well as continuing with the
current sources of funds to meet working capital needs on as needed basis. There
can be no assurance that these plans and arrangements will be successful.
The COVID-19 Pandemic. On January 30, 2020, the World Health Organization
declared the coronavirus outbreak a "Public Health Emergency of International
Concern" and on March 10, 2020, declared it to be a pandemic. Actions taken
around the world to help mitigate the spread of the coronavirus include
restrictions on travel, quarantines in certain areas, and forced closures for
certain types of public places and businesses. The coronavirus and actions taken
to mitigate it have had and are expected to continue to have an adverse impact
on the economies and financial markets of many countries, including the
geographical areas in China in which the Company operates. Consequently, the
COVID-19 pandemic may adversely affect the Company's business operations,
financial condition and operating results for 2020, including but not limited to
material negative impact to the Company's total revenues, slower collection of
accounts receivables and significant impairment to the Company's equity
investments. Due to the high uncertainty of the evolving situation, the Company
has limited visibility on the full impact brought upon by the COVID-19 pandemic
and the related financial impact cannot be estimated at this time.
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Capital Resources
The following table provides certain selected balance sheets comparisons as of
July 31, 2021 and April 30, 2021:
July 31, 2021 April 30, 2021 Increase (Decrease) %
Cash and cash
equivalents $670,432 $1,565,829 $(895,397) (57.2)%
Accounts receivable,
net 2,037,930 1,693,801 (344,129) 20.3%
Accounts receivable -
related party 6,954,986 5,999,791 955,195 15.9%
Inventories, net 11,947,698 12,930,461 (982,763) (7.6)%
Prepaid expenses and
other current assets 2,089,381 661,882 1,427,499 215.7%
Total current assets 23,700,427 22,851,764 848,663 3.7%
Property and
equipment, net 8,464,702 9,217,115 (752,413) (8.2)%
Land use rights 2,035,819 - 2,035,819 100%
Total assets $34,200,948 $32,068,879 $2,132,069 6.6%
Accounts payable and
accrued expenses $11,021,663 $11,141,408 $(119,745) (1.1)%
Short-term loans 4,149,493 2,955,304 1,194,189 40.4%
Due to related
parties 11,641,345 9,843,636 1,797,709 18.3%
Total current
liabilities 26,812,501 23,940,348 2,872,153 12.0%
Total liabilities $26,812,501 $23,940,348 $2,872,153 12.0%
We maintain cash and cash equivalents in China and United States. On July 31,
2021 and April 30, 2021, bank deposits were as follows:
Country July 31, 2021 April 30, 2021
United States $181,353 $161,860
China 489,079 1,403,969
Total $670,432 $1,565,829
The majority of our cash balances on July 31, 2021 are in the form of RMB stored
in bank account of China. Cash held in banks in the PRC is not insured. The
value of cash on deposit in mainland China of $489,079 as of July 31, 2021 has
been converted based on the exchange rate as of July 31, 2021. In 1996, the
Chinese government introduced regulations, which relaxed restrictions on the
conversion of the RMB; however, restrictions still remain, including but not
limited to restrictions on foreign invested entities. Foreign invested entities
may only buy, sell or remit foreign currencies after providing valid commercial
documents at only those banks authorized to conduct foreign exchanges.
Furthermore, the conversion of RMB for capital account items, including direct
investments and loans, is subject to PRC government approval. Chinese entities
are required to establish and maintain separate foreign exchange accounts for
capital account items. We cannot be certain Chinese regulatory authorities will
not impose more stringent restrictions on the convertibility of the RMB,
especially with respect to foreign exchange transactions. Accordingly, cash on
deposit in banks in the PRC is not readily deployable by us for use outside of
China.
Accounts receivable, net of allowance for doubtful accounts, including accounts
receivable from related parties, increased by approximately $1,299,000 during
the three months ended July 31, 2021, as a result of the increase in both
accounts receivable from the third parties and accounts receivable from related
party as of July 31, 2021. The days for sales outstanding in accounts receivable
increased to 121 days as of July 31, 2021, as compared to 24 days as of April
30, 2021. Accounts receivable, net of allowance for doubtful accounts, excluding
accounts receivable from the related parties, increased by approximately
$344,000 during the three months ended July 31, 2021. The days for sales
outstanding in accounts receivable for third party sales increased to 44 days as
of July 31, 2021, as compared to 12 days as of April 30, 2021. We will
reevaluate and categorize accounts receivable for sales and will target to
improve our collection effort in accounts receivable for related party sales and
accounts receivable for third party sales in fiscal 2021.
Inventories on July 31, 2021, net of reserve for obsolescence, totaled
approximately $11,948,000, as compared to $12,930,000 as of April 30, 2021. The
decrease is primarily due to our decrease in procurements of raw materials in
order to meet our anticipated lower sales volume during the fiscal year ended
April 30, 2021. These inventories have not yet been sold due to the market
demands not raising as much as we predicted; meanwhile, we did impairment and
price adjustment on the inventories.
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Our accounts payable and accrued expenses were approximately $11,022,000 on July
31, 2021, a decrease of approximately $120,000 from April 30, 2021. The decrease
is primarily due to our decrease in procurements of raw material as a result of
the raising sales of such materials during the three months ended July 31, 2021.
Loans payable on July 31, 2021 and April 30, 2021 totaled approximately
$4,149,000 and $2,955,000, respectively. These loans payable consisted of
short-term loans from multiple non-related individuals, which bear annual
interest rates of 4% - 12%. Range of maturity dates of the loans payable was
from September 20, 2021 to July 27, 2022. During the three months ended July 31,
2021, the Company borrowed new short term loans and received proceeds in a total
amount of approximately $1,195,000 in cash.
Due to related parties on July 31, 2021 and April 30, 2021 totaled approximately
$11,641,000 and $9,844,000, respectively. The increase was a result of our
borrowing from related parties more than our repayment to them during the three
months ended July 31, 2021. As of July 31, 2021, the balance we owed
Pharmaceutical Corporation, Qufu Shengwang Import and Export and Mr. Weidong
Chai amounted to $4,724,432, $6,686,795 and $230,118, respectively. On April 30,
2021, the balance we owed to Pharmaceutical Corporation, Qufu Shengwang Import
and Export and Mr. Weidong Chai, a management member of Qufu Shengren
Pharmaceutical Co., Ltd., approximately amounted to $3,484,000, $6,140,000 and
$219,000, respectively.
Cash Flows Analysis
NET CASH FLOW (USED IN) PROVIDED BY OPERATING ACTIVITIES:
Net cash used in operating activities was approximately $1,831,000 for the three
months ended July 31, 2021, primarily due to a net loss of approximately
$750,000 adjusted by non-cash working capital, depreciation expense of $384,000,
provision for obsolete inventories of $188,000 and loss on disposition of
property and equipment of $395,000. Changes in operating assets and liabilities
include an increase of approximately $339,000 in accounts receivable and note
receivable from a third party, an increase of approximately $953,000 in accounts
receivable - related party, an increase of approximately $1,436,000 in prepaid
expenses and other current assets, a decrease in accounts payable and accrued
expenses of approximately $129,000 and a decrease of approximately $1,000 in
taxes payable, offset by a decrease of approximately $809,000 in inventories.
Net cash provided by operating activities was approximately $2,747,000 for the
three months ended July 31, 2020, primarily due to a decrease of approximately
$596,000 in accounts receivable and note receivable from a third party, a
decrease of approximately $1,217,000 in accounts receivable - related party and
an increase in accounts payable and accrued expenses of approximately
$2,229,000, offset by an increase of approximately $189,000 in inventories, an
increase of approximately $290,000 in prepaid expenses and other current assets,
a decrease of approximately $65,000 in taxes payable, and a net loss of
approximately $1,056,000 adjusted by non-cash working capital, depreciation
expense of $304,000.
NET CASH FLOW USED IN INVESTING ACTIVITIES:
Net cash used in investing activities from operations amounted to approximately
$2,058,000 during the three months ended July 31, 2021 due to capital
expenditures for property and equipment of approximately $1,000 and land use
rights of approximately $2,057,000.
Net cash used in investing activities from operations amounted to approximately
$138,000 during the three months ended July 31, 2020 due to capital expenditures
for property and equipment.
NET CASH FLOW PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Net cash provided by financing activities from operations amounted to
approximately $2,984,000 in the three months ended July 31, 2021, primarily due
to proceeds from short term loans in a total amount of $1,195,000 and advances
received from related parties of approximately $5,266,000, offset by repayment
of related party advances of approximately $ 3,476,000.
Net cash used in financing activities from operations amounted to approximately
$2,880,000 in the three months ended July 31, 2020, primarily due to repayment
of short term loans in a total amount of approximately $667,000 and repayment of
related party advances of approximately $5,268,000 and offset by advances
received from related parties of approximately $3,055,000.
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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. 
