ITEM
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
YEW
BIO-PHARM GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
|
|
March
31,
|
|
|
December
31,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
127,330
|
|
|
$
|
563,792
|
|
Accounts receivable
|
|
|
212,689
|
|
|
|
217,689
|
|
Accounts receivable
- related parties, net
|
|
|
14,974,413
|
|
|
|
9,045,669
|
|
Inventories, net
|
|
|
14,162
|
|
|
|
14,608
|
|
Prepaid expenses
and other receivables
|
|
|
78,187
|
|
|
|
90,989
|
|
VAT
input credit
|
|
|
350,416
|
|
|
|
56,637
|
|
|
|
|
|
|
|
|
|
|
Total
Current Assets
|
|
|
15,757,197
|
|
|
|
9,989,384
|
|
|
|
|
|
|
|
|
|
|
LONG-TERM ASSETS:
|
|
|
|
|
|
|
|
|
Long-term inventories,
net
|
|
|
794,236
|
|
|
|
784,784
|
|
Property and equipment,
net
|
|
|
506,001
|
|
|
|
516,921
|
|
Land use rights
and yew forest assets, net
|
|
|
41,423,561
|
|
|
|
41,952,483
|
|
Long-term advance
for yew forest assets
|
|
|
122,520
|
|
|
|
15,415
|
|
Long-term advance
for yew forest assets - related parties
|
|
|
3,008,065
|
|
|
|
4,854,273
|
|
Operating
lease right-of-use assets
|
|
|
317,881
|
|
|
|
333,402
|
|
|
|
|
|
|
|
|
|
|
Total
Long-term Assets
|
|
|
46,172,264
|
|
|
|
48,457,278
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
61,929,461
|
|
|
$
|
58,446,662
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’
EQUITY
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
Accounts payable
for acquisition of yew forests and others
|
|
$
|
1,165,124
|
|
|
$
|
423,881
|
|
Accounts payable
for acquisition of yew forests and others - related parties
|
|
|
42,665
|
|
|
|
-
|
|
Accrued expenses
and other payables
|
|
|
1,288,657
|
|
|
|
404,494
|
|
Due to related parties
|
|
|
636,813
|
|
|
|
651,360
|
|
Short-term borrowings
|
|
|
9,160,579
|
|
|
|
8,979,899
|
|
Operating
lease liabilities, current
|
|
|
42,945
|
|
|
|
65,476
|
|
|
|
|
|
|
|
|
|
|
Total
Current Liabilities
|
|
|
12,336,783
|
|
|
|
10,525,110
|
|
|
|
|
|
|
|
|
|
|
NONCURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
Taxes payable
|
|
|
-
|
|
|
|
973,647
|
|
Long-term deferred
income
|
|
|
1,167,548
|
|
|
|
1,172,928
|
|
Operating
lease liabilities, noncurrent
|
|
|
282,312
|
|
|
|
292,409
|
|
Total
Noncurrent Liabilities
|
|
|
1,449,860
|
|
|
|
2,438,984
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities
|
|
|
13,786,643
|
|
|
|
12,964,094
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS’ EQUITY:
|
|
|
|
|
|
|
|
|
Common Stock ($0.001 par value; 140,000,000
shares authorized; 51,700,000 shares issued and outstanding at March 31, 2021 and December 31, 2020)
|
|
|
51,700
|
|
|
|
51,700
|
|
Additional paid-in
capital
|
|
|
9,644,731
|
|
|
|
9,644,731
|
|
Retained earnings
|
|
|
34,333,743
|
|
|
|
31,415,605
|
|
Statutory reserves
|
|
|
3,762,288
|
|
|
|
3,762,288
|
|
Accumulated
other comprehensive income
|
|
|
356,132
|
|
|
|
608,244
|
|
|
|
|
|
|
|
|
|
|
Total
Yew Bio-Pharm Group, Inc Shareholders’ Equity
|
|
|
48,148,594
|
|
|
|
45,482,568
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling
interest
|
|
|
(5,776
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total
Equity
|
|
|
48,142,818
|
|
|
|
45,482,568
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Shareholders’ Equity
|
|
$
|
61,929,461
|
|
|
$
|
58,446,662
|
|
The
accompanying notes are an integral part of these unaudited consolidated financial statements
YEW
BIO-PHARM GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(UNAUDITED)
|
|
For
the Three Months Ended
March
31
|
|
|
|
2021
|
|
|
2020
|
|
REVENUES:
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
545
|
|
|
$
|
21,789
|
|
Revenues
- related parties
|
|
|
8,736,769
|
|
|
|
2,007,393
|
|
|
|
|
|
|
|
|
|
|
Total
Revenues
|
|
|
8,737,314
|
|
|
|
2,029,182
|
|
|
|
|
|
|
|
|
|
|
COST OF REVENUES:
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
13,000
|
|
|
|
41,366
|
|
Cost
of revenues - related parties
|
|
|
7,767,341
|
|
|
|
1,545,561
|
|
|
|
|
|
|
|
|
|
|
Total
Cost of Revenues
|
|
|
7,780,341
|
|
|
|
1,586,927
|
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT
|
|
|
956,973
|
|
|
|
442,255
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES:
|
|
|
|
|
|
|
|
|
Selling, general
and administrative
|
|
|
273,773
|
|
|
|
281,527
|
|
Bad debt expense
|
|
|
(2,283,507
|
)
|
|
|
3,340
|
|
|
|
|
|
|
|
|
|
|
Total
Operating Expenses
|
|
|
(2,009,734
|
)
|
|
|
284,867
|
|
|
|
|
|
|
|
|
|
|
INCOME (LOSS)
FROM OPERATIONS
|
|
|
2,966,707
|
|
|
|
157,388
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSES):
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(127,827
|
)
|
|
|
(111,977
|
)
|
Other income
|
|
|
45,372
|
|
|
|
13,490
|
|
Exchange
gains
|
|
|
27,714
|
|
|
|
92,510
|
|
|
|
|
|
|
|
|
|
|
Total
Other Expenses
|
|
|
(54,741
|
)
|
|
|
(5,976
|
)
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE PROVISION FOR INCOME TAXES
|
|
|
2,911,966
|
|
|
|
151,412
|
|
PROVISION FOR
INCOME TAXES
|
|
|
-
|
|
|
|
-
|
|
NET INCOME
|
|
$
|
2,911,966
|
|
|
$
|
151,412
|
|
Less:
Net (loss) attributable to noncontrolling interest
|
|
|
(6,172
|
)
|
|
|
-
|
|
NET
INCOME ATTRIBUTABLE TO YEW BIO-PHARM GROUP, INC
|
|
|
2,918,138
|
|
|
|
151,412
|
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE INCOME
(LOSS):
|
|
|
|
|
|
|
|
|
NET INCOME
|
|
$
|
2,911,966
|
|
|
$
|
151,412
|
|
OTHER COMPREHENSIVE
INCOME (LOSS):
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustment
|
|
|
(252,112
|
)
|
|
|
(816,044
|
)
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE INCOME (LOSS)
|
|
$
|
2,659,854
|
|
|
$
|
(664,632
|
)
|
Less:
comprehensive income attributable to non-controlling interest
|
|
|
396
|
|
|
|
-
|
|
COMPREHENSIVE INCOME
(LOSS) ATTRIBUTABLE TO YEW BIO-PHARM GROUP, INC
|
|
|
2,659,458
|
|
|
|
(664,632
|
)
|
|
|
|
|
|
|
|
|
|
NET INCOME PER COMMON SHARE:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.06
|
|
|
$
|
0.00
|
|
Diluted
|
|
$
|
0.06
|
|
|
$
|
0.00
|
|
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
51,700,000
|
|
|
|
51,700,000
|
|
Diluted
|
|
|
51,700,000
|
|
|
|
51,700,000
|
|
The
accompanying notes are an integral part of these unaudited consolidated financial statements
YEW
BIO-PHARM GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
For
the Three Months Ended
March 31,
|
|
|
|
2021
|
|
|
2020
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
2,911,966
|
|
|
$
|
151,412
|
|
Adjustments to reconcile
net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Bad debt (recovery)
expense
|
|
|
(2,287,713
|
)
|
|
|
3,340
|
|
Depreciation
|
|
|
14,482
|
|
|
|
8,649
|
|
Loss on disposal
of property and equipment
|
|
|
18,044
|
|
|
|
-
|
|
Inventory write-down
|
|
|
12,555
|
|
|
|
69,757
|
|
Amortization of
land use rights and yew forest assets
|
|
|
668,765
|
|
|
|
613,811
|
|
Sale of yew forest
assets as inventory
|
|
|
1,987,202
|
|
|
|
950,431
|
|
Changes in operating
assets and liabilities:
|
|
|
-
|
|
|
|
-
|
|
Accounts receivable
|
|
|
3,838
|
|
|
|
127,847
|
|
Accounts receivable
- related parties
|
|
|
(3,766,113
|
)
|
|
|
(534,754
|
)
|
Prepaid expenses
and other current assets
|
|
|
(4,608
|
)
|
|
|
(105,862
|
)
|
Prepaid expenses
- related parties
|
|
|
-
|
|
|
|
5,819
|
|
Inventories
|
|
|
(19,815
|
)
|
|
|
70,509
|
|
VAT input credit
|
|
|
(297,860
|
)
|
|
|
-
|
|
Accounts payable
|
|
|
57,196
|
|
|
|
(18,479
|
)
|
Accounts payable
- related parties
|
|
|
-
|
|
|
|
(16,598
|
)
|
Accrued expenses
and other payables
|
|
|
(88,583
|
)
|
|
|
44,942
|
|
Advance from customer
|
|
|
-
|
|
|
|
64,472
|
|
Due to related parties
|
|
|
8,970
|
|
|
|
(12,065
|
)
|
Taxes
payable
|
|
|
(656
|
)
|
|
|
(1,566
|
)
|
|
|
|
|
|
|
|
|
|
NET CASH PROVIDED
(USED IN) BY OPERATING ACTIVITIES
|
|
|
(776,330
|
)
|
|
|
1,421,665
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Prepayments made
for purchase of yew forest assets
|
|
|
(108,569
|
)
|
|
|
(591,294
|
)
|
Prepayments made
to related parties for purchase of yew forest assets
|
|
|
1,847,650
|
|
|
|
(399,725
|
)
|
Purchase of property
and equipment
|
|
|
(24,882
|
)
|
|
|
(644
|
)
|
Purchase
of land use rights and yew forest assets
|
|
|
(1,577,123
|
)
|
|
|
(428,890
|
)
|
|
|
|
|
|
|
|
|
|
NET CASH PROVIDED
BY (USED IN) INVESTING ACTIVITIES
|
|
|
137,076
|
|
|
|
(1,420,553
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds from short-term
borrowings
|
|
|
1,543,567
|
|
|
|
1,200,607
|
|
Repayments of short-term
borrowings
|
|
|
(1,256,464
|
)
|
|
|
(1,485,962
|
)
|
Proceeds
from related parties
|
|
|
(22,955
|
)
|
|
|
1,040
|
|
|
|
|
|
|
|
|
|
|
NET CASH PROVIDED
BY (USED IN) FINANCING ACTIVITIES
|
|
|
264,148
|
|
|
|
(284,315
|
)
|
|
|
|
|
|
|
|
|
|
EFFECT OF EXCHANGE RATE ON CASH
|
|
|
(61,356
|
)
|
|
|
(81,442
|
)
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH
|
|
|
(436,462
|
)
|
|
|
(364,645
|
)
|
|
|
|
|
|
|
|
|
|
CASH - Beginning
of the year
|
|
|
563,792
|
|
|
|
742,294
|
|
|
|
|
|
|
|
|
|
|
CASH - End of
the year
|
|
$
|
127,330
|
|
|
$
|
377,649
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
|
|
|
|
|
|
|
|
|
Cash paid for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
121,023
|
|
|
$
|
118,675
|
|
Income
taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
NON-CASH INVESTING AND FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Operating expense
paid by related party
|
|
$
|
-
|
|
|
$
|
430
|
|
Payable for acquisition
of yew forests
|
|
$
|
737,965
|
|
|
$
|
-
|
|
The
accompanying notes are an integral part of these unaudited consolidated financial statements
YEW
BIO-PHARM GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
|
|
Common
Stock,
Par Value $0.001
|
|
|
Additional
|
|
|
|
|
|
|
|
|
Accumulated
Other
|
|
|
Total
|
|
|
|
Number
of Shares
|
|
|
Amount
|
|
|
paid-in
Capital
|
|
|
Retained
Earnings
|
|
|
Statutory
Reserve
|
|
|
Comprehensive
Income (Loss)
|
|
|
Shareholders’
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2019
|
|
|
51,700,000
|
|
|
$
|
51,700
|
|
|
$
|
9,819,828
|
|
|
$
|
29,950,723
|
|
|
$
|
3,762,288
|
|
|
$
|
(2,190,844
|
)
|
|
$
|
41,393,695
|
|
Net
income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
151,412
|
|
|
|
-
|
|
|
|
-
|
|
|
|
151,412
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(816,044
|
)
|
|
|
(816,044
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
March 31, 2020
|
|
|
51,700,000
|
|
|
$
|
51,700
|
|
|
$
|
9,819,828
|
|
|
$
|
30,102,135
|
|
|
$
|
3,762,288
|
|
|
$
|
(3,006,888
|
)
|
|
$
|
40,729,063
|
|
|
|
Common
Stock, Par Value $0.001
|
|
|
Additional
|
|
|
|
|
|
|
|
Accumulated
Other
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
Number
of
Shares
|
|
|
Amount
|
|
|
paid-in
Capital
|
|
Retained
Earnings
|
|
|
Statutory
Reserve
|
|
|
Comprehensive
Income (Loss)
|
|
|
Shareholders’
Equity
|
|
|
Noncontrolling
interest
|
|
|
Total
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2020
|
|
|
51,700,000
|
|
|
$
|
51,700
|
|
|
$
|
9,644,731
|
|
|
$
|
31,415,605
|
|
|
|
3,762,288
|
|
|
$
|
608,244
|
|
|
$
|
45,482,568
|
|
|
|
-
|
|
|
|
45,482,568
|
|
Net
income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,918,138
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,918,138
|
|
|
|
(6,172
|
)
|
|
|
2,911,966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(252,112
|
)
|
|
|
(252,112
|
)
|
|
|
396
|
|
|
|
(251,716
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
March 31, 2021
|
|
|
51,700,000
|
|
|
$
|
51,700
|
|
|
$
|
9,644,731
|
|
|
$
|
34,333,743
|
|
|
|
3,762,288
|
|
|
$
|
356,132
|
|
|
$
|
48,148,594
|
|
|
|
(5,776
|
)
|
|
|
48,142,818
|
|
The
accompanying notes are an integral part of these unaudited consolidated financial statements
NOTE
1 - ORGANIZATION AND PRINCIPAL ACTIVITIES
The
accompanying unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally
accepted in the United States of America (“U.S. GAAP”). Certain information and footnote disclosures normally included
in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted as permitted by rules and regulations
of the Securities and Exchange Commission (“SEC”). The consolidated balance sheet as of December 31, 2020 was derived
from the audited consolidated financial statements of Yew Bio-Pharm Group, Inc. (individually “YBP” and collectively
with its subsidiaries and operating variable interest entity, the “Company”). The accompanying unaudited interim consolidated
financial statements should be read in conjunction with the summary of significant accounting policies and notes to consolidated
financial statements included in the Company’s annual report on Form 10-K for the year ended December 31, 2020.
In
the opinion of management, all adjustments (which include normal recurring adjustments) necessary to present a fair statement
of the financial position as of March 31, 2021, and the results of operations and cash flows for the three-month periods ended
March 31, 2021 and 2020, have been presented.
The
preparation of consolidated financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The Company continually evaluates its estimates, including those related to bad debts, inventories,
income taxes, and the valuation of equity transactions. The Company bases its estimates on historical experience and on various
other assumptions that it believed to be reasonable under the circumstances, the results of which form the basis for making judgments
about the carrying values of assets and liabilities that are not readily apparent from other sources. Any future changes to these
estimates and assumptions could cause a material change to our reported amounts of revenues, expenses, assets and liabilities.
Actual results may differ from these estimates under different assumptions or conditions.
Certain
amounts from prior period financial statements have been reclassified to conform to the current period presentation. This reclassification
has resulted in no changes to the Company’s financial position or results of operations presented.
Details
of the Company’s subsidiaries, variable interest entity (“VIE”) and VIE’s subsidiary are as follows:
Name
|
|
Domicile
and Date of Incorporation
|
|
Registered
Capital
|
|
Effective
Ownership
|
|
|
Principal
Activities
|
Heilongjiang Jinshangjing
Bio-Technology Development Co., Limited (“JSJ”)
|
|
PRC
October 29, 2009
|
|
US$100,000
|
|
|
100
|
%
|
|
Holding company
|
Yew Bio-Pharm Holdings Limited (“Yew
Bio-Pharm (HK)”)
|
|
Hong Kong
November 29, 2010
|
|
HK$10,000
|
|
|
100
|
%
|
|
Holding company of JSJ
|
Harbin Yew Science and Technology Development
Co., Ltd. (“HDS”)
|
|
PRC
August 22, 1996
|
|
RMB45,000,000
|
|
|
Contractual
arrangements
|
|
|
Sales of yew tree components for
use in pharmaceutical industry; sales of yew tree seedlings; the manufacture of yew tree wood handicrafts; and the sales of
candle, pine needle extract, yew essential oil soap, complex taxus cuspidate extract, and northeast yew extract
|
Harbin Yew Food Co., Ltd (“HYF”)
|
|
PRC
November 4, 2014
|
|
RMB100,000
|
|
|
100
|
%(1)
|
|
Sales of wood ear mushroom drink
|
MC Commerce Holding Inc.(“MC”)
|
|
State of California, United State
June 8, 2016
|
|
|
|
|
100
|
%(2)
|
|
Sales of yew oil candles and yew
oil soaps
|
Harbin Jingchibai Bio-Technology Development
Co., Limited (“JCB”)
|
|
PRC March 18, 2020
|
|
RMB1,000,000
|
|
|
51
|
%(3)
|
|
Sales of yew oil candles and yew
oil soaps, no active operation since its incorporation
|
Yew (Guangzhou) Bio-Technology Co.,
Ltd (“YBT”)
|
|
PRC December 24, 2020
|
|
RMB10,000,000
|
|
|
80
|
%
|
|
Cosmetic marketing and sales
|
(1)
|
Wholly-owned
subsidiary of HDS
|
(2)
|
51%
owned by YBP and 49% owned by HDS
|
|
|
(3)
|
JCB
was cancelled of its registration on December 3, 2020
|
NOTE
2 - PRINCIPLES OF CONSOLIDATION
The
consolidated financial statements include the financial statements of YBP, its subsidiaries and operating VIE and its subsidiary
in which the Company is the primary beneficiary. All significant intercompany balances and transactions have been eliminated on
consolidation. Certain reclassifications have been made to the consolidated financial statements for prior year to the current
year’s presentation. Such reclassifications have no effect on net income as previously reported.
Pursuant
to a restructuring plan intended to ensure compliance with applicable PRC laws and regulations (the “Second Restructure”),
on November 5, 2010, JSJ entered into a series of contractual arrangements (the “Contractual Arrangements”) with HDS
and/or Zhiguo Wang, his wife Guifang Qi and Xingming Han (collectively with Mr. Wang and Madame Qi, the “HDS Shareholders”),
as described below:
|
●
|
Exclusive
Business Cooperation Agreement. Pursuant to the Exclusive Business Cooperation Agreement between JSJ and HDS (the “Business
Cooperation Agreement”), JSJ has the exclusive right to provide to HDS general business operation services, including
advice and strategic planning, as well as consulting services related to technology, research and development, human resources,
marketing and other services deemed necessary (collectively, the “Services”). Under the Business Cooperation Agreement,
JSJ has exclusive and proprietary rights and interests in all rights, ownership, interests and intellectual properties arising
out of or created during the performance of the Business Cooperation Agreement, including but not limited to copyrights, patents,
patent applications, software and trade secrets. HDS shall pay to JSJ a monthly consulting service fee (the “Service
Fee”) in RMB that is equal to 100% of the monthly net income of HDS. Upon the prior written consent by JSJ, the rate
of Service Fee may be adjusted pursuant to the operational needs of HDS. Within 30 days after the end of each month, HDS shall
(a) deliver to JSJ the management accounts and operating statistics of HDS for such month, including the net income of HDS
during such month (the “Monthly Net Income”), and (b) pay 80% of such Monthly Net Income to JSJ (each such payment,
a “Monthly Payment”). Within ninety (90) days after the end of each fiscal year, HDS shall (a) deliver to JSJ
financial statements of HDS for such fiscal year, which shall be audited and certified by an independent certified public
accountant approved by JSJ, and (b) pay an amount to JSJ equal to the shortfall, if any, of the aggregate net income of HDS
for such fiscal year, as shown in such audited financial statements, as compared to the aggregate amount of the Monthly Payments
paid by HDS to JSJ in such fiscal year. HDS also granted an irrevocable and exclusive option to JSJ to purchase any and all
of the assets of HDS, to the extent permitted under PRC law, at the lowest price permitted by PRC law. Unless earlier terminated
in accordance with the provisions of the Business Cooperation Agreement or other agreements separately executed between JSJ
and HDS, the Business Cooperation Agreement is for a term of ten years and expires on November 5, 2020; however, the term
of the Business Cooperation Agreement may be extended if confirmed in writing by JSJ prior to the expiration of the term thereof.
The period of the extended term shall be determined exclusively by JSJ and HDS shall accept such extended term unconditionally.
Unless JSJ commits gross negligence, or a fraudulent act, against HDS, HDS shall not terminate the Business Cooperation Agreement
prior to the expiration of the term, including any extended term. Notwithstanding the foregoing, JSJ shall have the right
to terminate the Business Cooperation Agreement at any time upon giving 30 days’ prior written notice to HDS.
|
|
●
|
Exclusive
Option Agreement. Under an Exclusive Option Agreement among JSJ, HDS and each HDS
Shareholder (individually, an “Option Agreement”), the terms of which are substantively identical to each other,
each HDS Shareholder has granted JSJ or its designee the irrevocable and exclusive right to purchase, to the extent permitted
under PRC law, all or any part of the HDS Shareholder’s equity interests in HDS (the “Equity Interest Purchase
Option”) for RMB10. If an appraisal is required by PRC laws at the time when and if JSJ exercises the Equity Interest
Purchase Option, the parties shall negotiate in good faith and, based upon the appraisal, make a necessary adjustment to the
purchase price so that it complies with any and all then applicable PRC laws. Without the consent of JSJ, the HDS Shareholders
shall not sell, transfer, mortgage or dispose of their respective shares of HDS stock. Additionally, without the prior consent
of JSJ, the HDS Shareholders shall not in any manner supplement, change or amend the articles of association and bylaws of
HDS, increase or decrease its registered capital, change the structure of its registered capital in any other manner, or engage
in any transactions that could materially affect HDS’ assets, liabilities, rights or operations, including, without
limitation, the incurrence or assumption of any indebtedness except incurred in the ordinary course of business, execute any
major contract over RMB500,000, sell or purchase any assets or rights, incur of any encumbrance on any of its assets or intellectual
property rights in favor of a third party or transfer of any agreements relating to its business operation to any third party.
The term of each Option Agreement is ten years commencing on November 5, 2020 and may be extended at the sole election of
JSJ.
|
|
●
|
Equity
Interest Pledge Agreement. In order to guarantee HDS’s performance of its
obligations under the Business Cooperation Agreement, each HDS Shareholder, JSJ and HDS entered into an Equity Interest Pledge
Agreement (individually, a “Pledge Agreement”), the terms of which are substantially similar to each other. Pursuant
to the Pledge Agreement, each HDS Shareholder pledged all of his or her equity interest in HDS to JSJ. If HDS or the HDS Shareholders
breach their respective contractual obligations and such breach is not remedied to the satisfaction of JSJ within 20 days
after the giving of notice of breach, JSJ, as pledgee, will be entitled to exercise certain rights, including the right to
foreclose upon and sell the pledged equity interests. During the term of the Pledge Agreement, the HDS Shareholder shall not
transfer his or her equity interest in HDS or place or otherwise permit any other security interest of other encumbrance to
be placed on such equity interest. Upon the full payment of the Service Fee under the Business Cooperation Agreement and upon
the termination of HDS’s obligations thereunder, the Pledge Agreement shall be terminated.
|
|
|
|
|
●
|
Power
of Attorney. Under the Power of Attorney executed by each HDS Shareholder
(each, a “Power of Attorney”), the terms of which are substantially similar to each other, JSJ has been granted
an exclusive, irrevocable power of attorney to take actions in the place and stead of the HDS Shareholders, to act on behalf
of the HDS Shareholder as his or her exclusive agent and attorney with respect to all matters concerning the HDS Shareholder’s
equity interests in HDS, including without limitation, the right to: 1) attend shareholders’ meetings of HDS; 2) exercise
all the HDS Shareholders’ rights, including voting rights under PRC laws and HDS’s Articles of Association, including
but not limited to the sale or transfer or pledge or disposition of the HDS Shareholder’s equity interests in HDS in
whole or in part; and 3) designate and appoint on behalf of the HDS Shareholders the legal representative, executive director,
supervisor, manager and other senior management of HDS.
|
To
the extent that the Contractual Arrangements are enforceable under PRC law, as from time to time interpreted by relevant state
agencies, they constitute the valid and binding obligations of each of the parties to each such agreement.
The
Company believes that HDS is considered a VIE under ASC 810 “Consolidation”, because the equity investors in HDS no
longer have the characteristics of a controlling financial interest, and the Company, through JSJ, is the primary beneficiary
of HDS and controls HDS’s operations. Accordingly, HDS has been consolidated as a deemed subsidiary into YBP as a reporting
company under ASC 810.
YBP
has no direct or indirect legal or equity ownership interest in HDS. However, through the Contractual Arrangements, the stockholders
of HDS have assigned all their rights as stockholders, including voting rights and disposition rights of their equity interests
in HDS to JSJ, our indirect, wholly-owned subsidiary. YBP is deemed to be the primary beneficiary of HDS and the financial statements
of HDS are consolidated in the Company’s consolidated financial statements. At
March 31, 2021 and December 31, 2020, the carrying amount and classification of the assets and liabilities in the Company’s
balance sheets that relate to the Company’s variable interest in the VIE and VIE’s subsidiary are as follows:
|
|
March
31,
2021
|
|
|
December
31,
2020
|
|
Assets
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
104,687
|
|
|
$
|
549,771
|
|
Accounts receivable
|
|
|
250,000
|
|
|
|
250,000
|
|
Accounts receivable - related parties,
net
|
|
|
14,974,413
|
|
|
|
9,045,669
|
|
Other current assets
|
|
|
3,982,376
|
|
|
|
5,418,495
|
|
Property and equipment, net
|
|
|
474,075
|
|
|
|
483,139
|
|
Long-term investment in an affiliate
|
|
|
4,306,238
|
|
|
|
4,172,550
|
|
Land use rights and yew forest assets,
net
|
|
|
41,423,561
|
|
|
|
41,952,483
|
|
Operating lease right of use assets
|
|
|
232,192
|
|
|
|
236,833
|
|
Total assets
of VIE and its subsidiary
|
|
$
|
65,747,542
|
|
|
$
|
62,108,940
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Accounts payable for acquisition of
yew forests and others
|
|
$
|
1,073,075
|
|
|
$
|
389,028
|
|
Accounts payable for acquisition of
yew forests and others - related parties
|
|
|
42,665
|
|
|
|
-
|
|
Other current liabilities
|
|
|
193,900
|
|
|
|
272,297
|
|
Short-term borrowings
|
|
|
9,142,579
|
|
|
|
8,899,979
|
|
Operating lease liability, current and
noncurrent
|
|
|
237,790
|
|
|
|
259,686
|
|
Long-term deferred income
|
|
|
1,167,548
|
|
|
|
1,172,928
|
|
Due to related
parties and VIE holding companies
|
|
|
105,488
|
|
|
|
97,461
|
|
Total
liabilities of VIE and its subsidiary
|
|
$
|
11,963,045
|
|
|
$
|
11,091,379
|
|
Recent
Accounting Pronouncements Adopted
In
January 2017, the FASB issued ASU No. 2017-04, “Intangibles and Other (Topic 350): Simplifying the Test for Goodwill Impairment”,
which eliminates the requirement to calculate the implied fair value of goodwill, but rather requires an entity to record an impairment
charge based on the excess of a reporting unit’s carrying value over its fair value. This amendment is effective for annual
or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted. The Company
adopted ASU No. 2017-04 on January 01, 2020 and the adoption did not have an impact on the Company’s financial position
and results of operations.
Recent
Accounting Pronouncements Not Adopted
In
June 2016, the FASB issued ASU 2016-13, “Financial Instruments—Credit Losses”. The standard, including subsequently
issued amendments (ASU 2018-19, ASU 2019-04, ASU 2019-05, ASU 2019-10 and ASU 2019-11), requires a financial asset measured at
amortized cost basis, such as accounts receivable and certain other financial assets, to be presented at the net amount expected
to be collected based on relevant information about past events, including historical experience, current conditions, and reasonable
and supportable forecasts that affect the collectability of the reported amount. In November 2019, the FASB issued ASU No. 2019-10
to postpone the effective date of ASU No. 2016-13 for public business entities eligible to be smaller reporting companies defined
by the SEC to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company
is evaluating the impact of this guidance on its consolidated financial statements.
In
December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes which is intended
to simplify various aspects related to accounting for income taxes. The standard is effective for fiscal years, and interim periods
within those years, beginning after December 15, 2020, with early adoption permitted. The standard will be adopted upon the effective
date for us beginning January 1, 2021. The Company is currently evaluating the effects of the standard on our consolidated financial
statements and related disclosures.
In
March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform
on Financial Reporting. The standard provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships,
and other transactions in which the reference LIBOR or another reference rate are expected to be discontinued as a result of the
Reference Rate Reform. The standard is effective for all entities. The standard may be adopted as of any date from the beginning
of an interim period that includes or is subsequent to March 12, 2020 through December 31, 2022. The Company is currently evaluating
the effects of the standard on our consolidated financial statements and related disclosures.
The
management does not believe that other than disclosed above, accounting pronouncements the recently issued but not yet adopted
will have a material impact on its financial position, results of operations or cash flows.
NOTE
3 - REVENUE RECOGNITION
The
Company accounts for revenue arising from contracts and customers in accordance with Accounting Standards Update (ASU or Update)
No. 2014-09, Revenue from Contracts with Customers (“ASC 606”).
Under
ASC 606, the Company recognizes revenue when its customer obtains control of promised goods, in an amount that reflects the consideration
which the Company expects to receive in exchange for those goods. To determine revenue recognition for arrangements that the Company
determines are within the scope of ASC 606, the Company performs the following five steps: (i) identify the contract(s) with a
customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the
transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies
a performance obligation. The Company only applies the five-step model to contracts when it is probable that Company will collect
the consideration it is entitled to in exchange for the goods it transfers to the customer. At contract inception, once the contract
is determined to be within the scope of ASC 606, the Company assesses the goods promised within each contract and determines those
that are performance obligations and assesses whether each promised good is distinct. The Company then recognizes as revenue the
amount of the transaction price, which is allocated to the respective performance obligation, when the performance obligation
is satisfied. Generally, the Company’s performance obligations are satisfied when the customers take possession of the products,
which normally occurs upon shipment or delivery depending on the terms of the contracts.
NOTE
4 - TAXES
(a)
Federal Income Tax and Enterprise Income Taxes
The
table below summarizes the difference between the U.S. statutory federal tax rate and the Company’s effective tax rate for
the three months ended March 31, 2021 and 2020:
|
|
Three
Months Ended
March
31,
|
|
|
|
2021
|
|
|
2020
|
|
U.S. federal income tax
rate
|
|
|
21.0
|
%
|
|
|
21.0
|
%
|
Tax rate difference
|
|
|
4.2
|
%
|
|
|
9.6
|
%
|
Loss not subject income tax
|
|
|
1.2
|
%
|
|
|
-
|
%
|
PRC tax exemption and reduction
|
|
|
(26.4
|
)%
|
|
|
(30.6
|
)%
|
GILTI
|
|
|
-
|
%
|
|
|
-
|
%
|
Others
|
|
|
-
|
%
|
|
|
-
|
%
|
Effective tax
rate
|
|
|
-
|
%
|
|
|
-
|
%
|
In
Accordance with the U.S. Tax Cuts and Jobs Act (the “Tax Act”), the Company recognized a one-time transition tax of
$1,431,835 during 2018 that represented management’s estimate of the amount of U.S. corporate income tax based on the deemed
repatriation to the United States of the Company’s share of previously deferred earnings of certain non-U.S. subsidiaries
of the Company mandated by the U.S. Tax Reform. The Company elected to pay the one-time transition tax over eight years commencing
in 2018. The actual impact of the U.S. Tax Reform on the Company may differ from management’s estimates, and management
may update its judgments based on future regulations or guidance issued or changes in the interpretations taken that would adjust
the provisional amounts recorded. As of March 31, 2021, and December 31, 2020, the Company had current income tax payable of $1,088,249
and $115,327, and noncurrent income tax payable of $nil and $973,647, respectively.
In
addition, the 2017 Tax Act also creates a new requirement that certain income (i.e., Global Intangible Low-Taxed Income (“GILTI”))
earned by controlled foreign corporations (“CFCs”) must be included currently in the gross income of the CFCs’
U.S. shareholder income. GILTI is the excess of the shareholder’s net CFC tested income over the net deemed tangible income
return, which is currently defined as the excess of (1) 10 percent of the aggregate of the U.S. shareholder’s pro rata share
of the qualified business asset investment of each CFC with respect to which it is a U.S. shareholder over (2) the amount of certain
interest expense taken into account in the determination of net CFC-tested income. The Company has elected to recognize the tax
on GILTI as a period expense in the period the tax is incurred. For the three months ended March 31, 2021 and 2020, the GILTI
tax expense was nil, and the Company had no GILTI tax payable outstanding as of March 31, 2021, and December 31, 2020.
The
Company’s subsidiary, JSJ, and VIE and its subsidiary, HDS and HYF, incorporated in the PRC, are subject to PRC’s
Enterprise Income Tax. Pursuant to the PRC Income Tax Laws, Enterprise Income Taxes (“EIT”) is generally imposed at
25%. However, HDS has been named as a leading enterprise in the agricultural industry and awarded with a tax exemption through
December 31, 2058 with an exception of sales of handicrafts, yew candle, pine needle extracts and yew essential oil soap which
are not within the scope of agricultural area.
NOTE
5 - SHORT-TERM BORROWINGS
Loans
from China Everbright Bank
On
December 22, 2016, HDS entered into a credit agreement with China Everbright Bank (“CEB”) which agreed to provide a line
of credit of $2,800,000 (approximately RMB20 million) to the Company for the period of three years. On February 25, 2020, the Company
entered into another credit agreement with CEB, pursuant to which CEB provides another line of credit of RMB20 million (approximately
$2,820,000) to the Company for the period of three years. These loans carry interest rates ranging from 4.30% to 5.65% per annum and
the interests are payable when the loans are due. The loans with CEB are secured by properties and land use rights of Yew Pharmaceutical.
In addition, Zhiguo Wang, Madame Qi, Yew Pharmaceutical, and ZTC provided personal guarantees to the loans. HDS paid two $1,400,000 back
in March and April 2020, totaling $2,800,000 under the initial line of credit, resulted the initial line of credit was paid off in its
entirety. As of March 31, 2021 and December 31, 2020, the Company held approximately $3.0
million and $2.8 million loans from CEB, respectively.
Loans
from Bank of Yingkou
On
July 26, 2019, HDS entered into a loan agreement with Bank of Yingkou Harbin Branch (“Yingkou Bank”), through which
HDS obtained a bank loan in the amount of RMB15 million (approximately $2,153,000), payable on July 25, 2020. The loan carried
an interest rate of 6.525% per annum and is payable monthly. Heilongjiang Zishan Technology Co., Ltd. (“ZTC”), a related
party controlled by Zhiguo Wang and his wife Madame Qi, collateralized its buildings and land use right with Yingkou Bank to secure
the loan. In addition, HEFS, HBP, Yew Pharmaceutical, and ZTC provided guarantees to the loan. HDS renewed the RMB15 million (approximately
$2,200,000) bank loan with Yingkou Bank on July 24, 2020 with the expiration date on July 23, 2021. As of March 31, 2021 and December
31, 2020, approximately $2.3 million (RMB 15 million) were outstanding under the loan agreement.
On
August 20, 2019, HDS entered into another loan agreement with Yingkou Bank, pursuant to which HDS obtained a bank loan in the amount
of RMB5 million (approximately $718,000), payable on August 19, 2020. The loan carries an interest rate of 6.525% per annum and is payable
monthly. ZTC, a related party controlled by Zhiguo Wang and his wife Madame Qi, collateralized its buildings and land use right with
Yingkou Bank to secure the loan. In addition, HEFS, HBP, Yew Pharmaceutical, and ZTC provided guarantees to the loan. HDS renewed the
RMB5 million (approximately $735,000) for another year with maturity date on July 23, 2021. As of March 31, 2021 and December 31, 2020,
approximately $800,000 (RMB5 million) and $800,000 (RMB5 million) were outstanding under the loan agreement, respectively.
Loan
from Postal Saving Bank of China
On
May 13, 2019, HDS entered into a credit agreement with Postal Saving Bank of China who agreed to provide a line of credit of RMB20 million
(approximately $2,830,000) to the Company for the period of ten years. These loans have interest rate of 5.22% per annum payable monthly.
Zhiguo Wang and his wife Madame Qi, pledged buildings and land use rights they owned with Postal Saving Bank of China to secure the loans.
In addition, Zhiguo Wang and his wife Madame Qi, Yicheng Wang and Lei Zhang provided personal guarantees to the loans. As of March 31,
2021 and December 31, 2020, approximately $3.0 million (RMB20 million) was outstanding under the line of credit.
SBA
loans
On
May 1, 2020, the Company got a Promissory Note (the “Note”) of $70,920 from Paycheck Protection Program (the “PPP
Loan”) through Bank of America (the “Lender”) under the CARES Act excused by government due to the COVID-19
crisis. The interest rate on this Note is a fixed rate of 1.00% per annum. The loan will be due in one payment of all outstanding
principal plus all accrued unpaid interest in two years after the date of this Note (“Maturity Date”). According to the
program terms, the PPP loan will be fully forgiven if the funds are used for payroll costs, interest on mortgages, rent, and
utilities. Loan payments will also be deferred for six months. No collateral or personal guarantees are required. On July 2020,
the Company received advances of the SBA Economic Injury Disaster Loans (“EIDL”) totaling $9,000 under the CARES Act. $61,920
in principal was forgiven on December 15, 2020 by Small Business Administration which was recognized as other income for the three
months ended March 31, 2021. As of March 31, 2021 and December 31, 2020, $18, 000 and $79,920 SBA loans outstanding,
respectively.
Other
loan
On
January 30, 2020, Yicheng Wang entered into a loan agreement with the Company, pursuant to which the Company lent RMB600,000 to
Yicheng Wang for the period from January 30, 2020 to January 29, 2021 at the interest rate of 5.00%. On February 24 and 25, 2020,
Yicheng Wang paid the entire loan amount off.
During
the three months ended March 31, 2021 and 2020, interest expense was $127,827 and $111,977, respectively.
NOTE
6 - STOCKHOLDERS’ EQUITY
Stock
option activities for the three months ended March 31, 2021 was summarized in the following table.
|
|
Number
of Stock Options
|
|
|
Weighted
Average Exercise Price
|
|
|
Weighted
Average Remaining Contractual Life in Years
|
|
Balance at beginning of period
|
|
|
7,738,737
|
|
|
|
0.22
|
|
|
|
1.00
|
|
Issued
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Balance at end of period
|
|
|
7,738,737
|
|
|
|
0.22
|
|
|
|
0.75
|
|
Option exercisable at end of period
|
|
|
7,738,737
|
|
|
|
0.22
|
|
|
|
0.75
|
|
The
Company’s outstanding stock options and exercisable stock options had intrinsic value in the amount of $nil, based upon the Company’s
closing stock price of $0.12 as of March 31, 2021. Stock option expense recognized during the three months ended March 31, 2021 and 2020
was $nil.
Note
7 - Leases
The
Company leases office space from third parties and related parties.
Leases
is classified as operating at inception of the lease. Operating leases result in the recognition of ROU assets and lease liabilities
on the balance sheet. ROU assets represent the Company’s right to use the leased asset for the lease term and lease liabilities
represent the obligation to make lease payments. The liability is calculated as the present value of the remaining minimum rental
payments for existing operating leases using either the rate implicit in the lease or, if none exists, the Company’s incremental
borrowing rate. The Company uses incremental borrowing rate at 6.44% annum. Lease expense for these leases is recognized on a
straight-line basis over the lease term.
The
components of lease expense consist of the following:
|
|
Classification
|
|
Three
Months
Ended
March 31,
2021
|
|
|
Three
Months
Ended
March 31,
2020
|
|
Operating
lease cost
|
|
Selling,
general and administrative expense
|
|
$
|
20,044
|
|
|
$
|
19,319
|
|
Net lease
cost
|
|
|
|
$
|
20,044
|
|
|
$
|
19,319
|
|
Balance
sheet information related to leases consists of the following:
|
|
Classification
|
|
March
31,
2021
|
|
|
December
31, 2020
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
Operating
lease ROU assets
|
|
Right-of-use
assets
|
|
$
|
317,881
|
|
|
$
|
333,402
|
|
Total leased
assets
|
|
|
|
$
|
317,881
|
|
|
$
|
333,402
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
Operating
|
|
Current maturities of operating lease
liabilities
|
|
$
|
42,945
|
|
|
$
|
65,476
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current
|
|
|
|
|
|
|
|
|
|
|
Operating
|
|
Operating
lease liabilities
|
|
|
282,312
|
|
|
|
292,409
|
|
Total lease liabilities
|
|
|
|
$
|
325,257
|
|
|
$
|
357,885
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average remaining lease term
|
|
|
|
|
|
|
|
|
|
|
Operating leases
|
|
|
|
|
10.7
years
|
|
|
|
10.9
years
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average discount rate
|
|
|
|
|
|
|
|
|
|
|
Operating leases
|
|
|
|
|
6.44
|
%
|
|
|
6.44
|
%
|
Cash
flow information related to leases consists of the following:
|
|
Three
Months Ended
March 31,
2021
|
|
|
Three
Months Ended
March 31,
2020
|
|
Cash paid for amounts included in
the measurement of lease liabilities:
|
|
|
|
|
|
|
|
|
Operating cash flows
from operating leases
|
|
$
|
38,812
|
|
|
$
|
34,725
|
|
The
minimum future lease payments as of March 31, 2021 are as follows:
Years
Ending December 31,
|
|
Operating
Leases
|
|
The remaining of 2021
|
|
$
|
44,741
|
|
2022
|
|
|
82,244
|
|
2023
|
|
|
35,511
|
|
2024
|
|
|
31,250
|
|
2025
|
|
|
28,034
|
|
After 2025
|
|
|
227,993
|
|
Total lease payments
|
|
|
449,772
|
|
Less: Interest
|
|
|
(122,515
|
)
|
Present value
of lease liabilities
|
|
$
|
325,257
|
|
NOTE
8 - CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS
Customers
For
the three months ended March 31, 2021 and 2020, major customers whose sales and accounts receivable accounted for 10% or more
of the Company’s total revenue and accounts receivable, respectively, were as follows:
|
|
For
the Three Months Ended
March 31,
|
|
Customers
|
|
2021
|
|
|
2020
|
|
A (Yew Pharmaceutical, a
related party)
|
|
|
41
|
%
|
|
|
99
|
%
|
D (LIFEFORFUN LIMITED, a related party)
|
|
|
59
|
%
|
|
|
-
|
%
|
|
|
Accounts
receivable as of
|
|
Customers
|
|
March
31,
2021
|
|
|
December
31, 2020
|
|
A
(Yew Pharmaceutical, a related party)
|
|
|
37
|
%
|
|
|
*
|
%
|
B
(HongKong YIDA Commerce Co., Limited, a related party)
|
|
|
-
|
%
|
|
|
91
|
%
|
D
(LIFEFORFUN LIMITED, a related party)
|
|
|
62
|
%
|
|
|
-
|
%
|
Suppliers
For
the three months ended March 31, 2021 and 2020, major suppliers accounting for 10% or more of the Company’s total purchase
and major suppliers whose accounts payable accounted for 10% or more of the Company’s total accounts payable were as follows:
|
|
For
the Three Months
Ended March 31,
|
|
Suppliers
|
|
2021
|
|
|
2020
|
|
A (Yew Pharmaceutical, a
related party)
|
|
|
71
|
%
|
|
|
*
|
%
|
|
|
Accounts
payable as of
|
|
Suppliers
|
|
March
31,
2021
|
|
|
December
31, 2020
|
|
E (Haixiang Liu)
|
|
|
30
|
%
|
|
|
*
|
%
|
F (Changhai Yu)
|
|
|
32
|
%
|
|
|
91
|
%
|
G (Xingcai Shi)
|
|
|
25
|
%
|
|
|
*
|
%
|
*
Less than 10%
At
March 31, 2021 and December 31, 2020, the Company’s cash balances by geographic area were as follows:
|
|
March
31,
2021
|
|
|
December
31, 2020
|
|
Country
|
|
|
|
|
|
|
|
|
United
States
|
|
$
|
12,711
|
|
|
$
|
3,071
|
|
China
|
|
|
114,619
|
|
|
|
560,721
|
|
Total Cash
|
|
$
|
127,330
|
|
|
$
|
563,792
|
|
In
China, a depositor has up to RMB500,000 insured by the People’s Bank of China Financial Stability Bureau (“FSD”). In
the United States, the standard insurance amount is $250,000 per depositor in a bank insured by the Federal Deposit Insurance Corporation
(“FDIC”). As of March 31, 2021 and December 31, 2020, approximately $127,330 and $242,000 of the Company’s cash held
by financial institutions were insured, and the remaining balance of approximately $nil and $322,000 were not insured,
respectively.
NOTE
9 - RELATED PARTY TRANSACTIONS
In
addition to several of the Company’s officers and directors, the Company conducted transactions with the following related
parties:
Company
|
|
Ownership
|
Heilongjiang
Zishan Technology Co., Ltd. (“ZTC”)
|
|
51%
owned by Heilongjiang Hongdoushan Ecology Forest Co., Ltd., 34% owned by Zhiguo Wang, Chairman and Chief Executive Officer,
11% owned by Guifang Qi, the wife of Mr. Wang and director of the Company, and 4% owned by third parties.
|
|
|
|
Heilongjiang
Yew Pharmaceutical Co., Ltd. (“Yew Pharmaceutical”)
|
|
95%
owned by Heilongjiang Hongdoushan Ecology Forest Stock Co., Ltd., and 5% owned by Madame Qi.
|
|
|
|
Shanghai
Kairun Bio-Pharmaceutical Co., Ltd. (“Kairun”)
|
|
60%
owned by Heilongjiang Zishan Technology Co., Ltd., 20% owned by Heilongjiang Hongdoushan Ecology Forest Stock Co., Ltd., and
20% owned by Mr. Wang.
|
|
|
|
Heilongjiang
Hongdoushan Ecology Forest Co., Ltd. (“HEFS”)
|
|
63%
owned by Mr. Wang, 34% owned by Madame Qi, and 3% owned by third parties.
|
|
|
|
Hongdoushan
Bio-Pharmaceutical Co., Ltd. (“HBP”)
|
|
30%
owned by Mr. Wang, 19% owned by Madame Qi and 51% owned by HEFS
|
|
|
|
Heilongjiang
Pingshan Hongdoushan Development Co., Ltd. (“HDS Development”)
|
|
80%
owned by HEFS and 20% owned by Kairun
|
|
|
|
Wuchang
City Xinlin Forestry Co., Ltd. (Xinlin)
|
|
98%
owned by ZTC and 2% owned by HEFS
|
|
|
|
Wonder
Genesis Global Ltd.
|
|
Jinguo
Wang is the Company’s director.
|
|
|
|
DMSU
Digital Technology Limited(“DMSU”)
|
|
Significantly
influenced by the Company
|
|
|
|
HongKong
YIDA Commerce Co., Limited(“YIDA”)
|
|
Significantly
influenced by the Company
|
|
|
|
LIFEFORFUN
LIMITED
|
|
Significantly
influenced by the Company
|
|
|
|
Jinguo
Wang
|
|
Management
of HDS and Legal person of Xinlin
|
|
|
|
Zhiguo
Wang
|
|
Principal
shareholder and CEO of the Company
|
|
|
|
Guifang
Qi
|
|
Principal
shareholder and the wife of CEO
|
|
|
|
Cai
Wang
|
|
Employee
of the Company
|
|
|
|
Weihong
Zhang
|
|
Employee
of the Company
|
|
|
|
Xue
Wang
|
|
Employee
of the Company
|
|
|
|
Chunping
Wang
|
|
Employee
of the Company
|
|
|
|
Jimin
Lu
|
|
Employee
of the Company
|
Transactions
with Yew Pharmaceutical
On
January 9, 2010, the Company entered into a Cooperation and Development Agreement (the “Development Agreement”) with
Yew Pharmaceutical. Pursuant to the Development Agreement, for a period of ten years expiring on January 9, 2020, the Company
shall supply cultivated yew raw materials to Yew Pharmaceutical that will be used by Yew Pharmaceutical to make traditional Chinese
medicines and other pharmaceutical products, at price of RMB 1,000,000 (approximately $146,000) per metric ton. In addition, the
Company entered into a series of wood ear mushroom selling agreements with Yew Pharmaceuticals, pursuant to which the Company
sells wood ear mushroom collected from local peasants to Yew Pharmaceuticals for manufacturing of wood ear mushroom products.
Furthermore, the Company entered into a series of yew candles, yew essential oil soaps, complex taxus cuspidate extract, composite
northeast yew extract and pine needle extracts purchase agreements with Yew Pharmaceuticals, pursuant to which the Company purchases
yew candles and pine needle extracts as finished goods and then sells to third party and related party. The Company has not renewed
the Development Agreement with Yew Pharmaceutical yet. We currently enter into individual agreement for each single transaction.
For
the three months ended March 31, 2021 and 2020, total revenues from Yew Pharmaceutical under the above agreement amounted to $3,574,369
and $2,007,393, respectively. At March 31, 2021 and December 31, 2020, the Company had $5,596,013 and $2,982,114 accounts receivable
from Yew Pharmaceutical, respectively.
For
the three months ended March 31, 2021 and 2020, the total purchase of yew candles and mixed essential oil from Yew Pharmaceutical
amounted to approximately $5,667,979 and $nil, respectively.
Transactions
with HBP
For
the three months ended March 31, 2021 and 2020, HBP paid off operation expense on behalf of HYF in the amount of $nil and $430,
respectively. As of March 31, 2021 and December 31, 2020, HYF had due to HBP in the amount of $95,840 and $96,282, respectively,
which was included in due to related parties in the accompanying consolidated balance sheets.
Transactions
with Chunping Wang
During
the three months ended March 31, 2021 and 2020, HDS purchased yew forest assets from Chunping Wang in the amount of $188,315 and
$nil, respectively.
Transactions
with Weihong Zhang
During
the three months ended March 31, 2021 and 2020, HDS purchased yew forest assets from Weihong Zhang in the amount of $43,220 and
$nil, respectively. On March 31, 2021 and December 31, 2020, payable to Weihong Zhang for purchase of yew forest assets amounted
to $42,665 and $nil, respectively, included in payable for acquisition of yew forests in the accompanying consolidated balance
sheets.
Transactions
with Xue Wang
During
the three months ended March 31, 2021 and 2020, HDS purchased yew forest assets from Xue Wang in the amount of $202,207 and $nil
respectively.
Operating
Leases
On
March 25, 2005, the Company entered into an Agreement for the Lease of Seedling Land with ZTC (the “ZTC Lease and leased
361 mu of land for a period of 30 years, expiring on March 24, 2035. Annual payments under the ZTC Lease are RMB 162,450 (approximately
$24,000).
On
January 1, 2010, the Company entered into a lease for office space with Mr. Wang (the “Office Lease”) with the annual
payments of RMB15,000 (approximately $2,000). The term of the Office Lease is 15 years and expires on December 31, 2025.
On
July 1, 2012, the Company entered into a lease for office space with Zhiguo Wang (the “JSJ Lease”) with the annual
rent is RMB10,000 (approximately $1,500) annually. The renewed term of the JSJ Lease expires on June 30, 2021.
On
January 1, 2015, HYF entered into a lease agreement with HBP to lease a warehouse and a workshop in exchange for no consideration
for the period from January 1, 2015 to December 31, 2020.
The
Company leased office space from HDS Development in the A’cheng district in Harbin (the “A’cheng Lease”)
on March 20, 2002 with a term of 23 years and expires on March 19, 2025. The annum lease amount is RMB25,000 which is due before
December 2025 for the lease period from March 2017 to March 2025.
For
the three months ended March 31, 2021 and 2020, the total rent expense related to the lease agreements listed above $8,199 and
$7,596, respectively. As of March 31, 2021 and December 31, 2020, the total unpaid rent were $8,104 and $nil, respectively, which
was included in (due to related parties) prepaid expenses-related parties in the accompanying consolidated balance sheets.
Due
to Related Parties
The
following summarized the Company’s due to related parties as of March 31, 2021 and December 31, 2020:
|
|
March
31, 2021
|
|
|
December
31, 2020
|
|
Zhiguo Wang and Guifang
Qi
|
|
|
533,832
|
|
|
|
555,078
|
|
HBP
|
|
|
95,840
|
|
|
|
96,282
|
|
Others
|
|
|
7,141
|
|
|
|
-
|
|
Total
|
|
$
|
636,813
|
|
|
$
|
651,360
|
*
|
NOTE
10 – SEGMENT INFORMATION
The
Company managed and reviewed its business as two operating segments: PRC segment and USA segment. PRC and USA segments retain all of
the reported consolidated amounts. The geographical distributions of the Company’s financial information for the three months ended
March 31, 2021 and 2020 were as follows:
|
|
For the Three Months Ended
March 31,
|
|
Geographic Areas
|
|
2021
|
|
|
2020
|
|
Revenue
|
|
|
|
|
|
|
PRC
|
|
|
8,736,769
|
|
|
|
2,007,393
|
|
USA
|
|
|
545
|
|
|
|
76,809
|
|
Elimination Adjustment
|
|
|
-
|
|
|
|
(55,020
|
)
|
Total Revenue
|
|
$
|
8,737,314
|
|
|
$
|
2,029,182
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
PRC
|
|
$
|
3,038,564
|
|
|
$
|
361,683
|
|
USA
|
|
|
(126,598
|
)
|
|
|
(210,271
|
)
|
Total net income (loss)
|
|
$
|
2,911,966
|
|
|
$
|
151,412
|
|
The
geographical distribution of the Company’s financial information as of March 31, 2021 and December 31, 2020 were as follows:
|
|
As of March 31,
|
|
|
As of December 31,
|
|
Geographic Areas
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
Reportable assets
|
|
|
|
|
|
|
|
|
PRC
|
|
$
|
65,003,945
|
|
|
$
|
62,362,889
|
|
USA
|
|
|
1,245,153
|
|
|
|
1,278,250
|
|
Elimination adjustment
|
|
|
(4,331,637
|
)
|
|
|
(4,194,477
|
)
|
Total reportable assets
|
|
$
|
61,929,461
|
|
|
$
|
58,446,662
|
|
NOTE
11 - COMMITMENTS AND CONTINGENCIES
Operating
Lease
See
future minimum lease payments in Note 7.
NOTE
12 - SUBSEQUENT EVENTS
The
Company has evaluated all subsequent events through the date these consolidated financial statements were issued and determine
that there were no subsequent events or transactions that require recognition or disclosures in the consolidated financial statements.
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The
following discussion of our consolidated results of operations and cash flows for the three months ended March 31, 2021 and 2020,
and consolidated financial conditions as of March 31, 2021 and December 31, 2020 should be read in conjunction with our unaudited
consolidated financial statements and the related notes included elsewhere in this document.
Overview
We
are a major grower and seller of yew trees and manufacturer of products made from yew trees, we also sell branches and leaves
of yew trees for the manufacture of TCM containing taxol, which TCM has been approved in the PRC for use as a secondary treatment
of certain cancers, meaning it must be administered in combination with other pharmaceutical drugs. The yew industry is highly
regulated in the PRC because the Northeast yew tree is considered an endangered species. In the third quarter of 2016, we started
to sell handmade yew essence oil soaps and candles.
We
operated in two reportable business segments. The business of HDS, JSJ, HYF and YBT in PRC was managed and reviewed as PRC segment.
The business of YBP, Yew Bio-Pharm (HK), and MC was managed and reviewed as USA segment.
For
the three months ended March 31, 2021 and 2020, revenues from the PRC segment accounted for approximately 99.99% and 98.93%, respectively,
of consolidated revenue; revenues from USA segment accounted for approximately 0.01% and 1.07% of consolidated revenue.
YBP’s
revenues were mostly generated by HDS and in the PRC. The expenses incurred in the U.S. were primarily related to fulfilling the
reporting requirements of public listed company, stock-based compensation, office daily operations and other costs. As of March
31, 2021, YBP had $10,178 in cash and held the 100% equity interests in its subsidiaries Yew HK and JSJ. Yew HK itself has no
business operations or assets other than holding of equity interests in JSJ. JSJ has no business operations and assets with a
book value of approximately $10,373, including approximately $9,932 in cash on March 31, 2021. JSJ also holds the VIE interests
in HDS through the contractual arrangements (the “Contractual Arrangements”) described in Notes to Unaudited Consolidated
Financial Statements. On November 4, 2014, HDS established a new subsidiary, Harbin Yew Food Co. LTD. (“HYF”), to
develop and cultivate wood ear mushroom drink. As of March 31, 2021, HYF had started pilot production with a limited amount of
sales. On December 24, 2020, HDS acquired 80% ownership of a new subsidiary, Yew (Guangzhou) Bio-Technology Co., Ltd (“YBT”),
to marketing and sell cosmetics. As of March 31, 2021, YBT had not started sales. In the event that we are unable to enforce the
Contractual Agreements, we may not be able to exert effective control over HDS, HYF and YBT, and our ability to conduct our business
may be materially and adversely affected. If the applicable PRC authorities invalidate our Contractual Agreements for any violation
of PRC laws, rules and regulations, we would lose control of the VIE and its subsidiary resulting in its deconsolidation in financial
reporting and severe loss in our market valuation. On June 8, 2016, YBP established a new subsidiary, MC Commerce Holding Inc.
(MC), to sales the Company’s yew products in American market. MC had limited operation activities for the three months ended
March 31, 2021.
In
December 2019, COVID-19 was reported in China. Since then, COVID-19 has spread globally, to include the United States and several
European countries. Many countries around the world have imposed quarantines and restrictions on travel and mass gatherings to
slow the spread of the virus and have closed non-essential businesses. The pandemics could result in increased travel restrictions,
market downturns and changes in the behavior of the terminal customers of our products related to pandemic fears. In addition,
our certain customers could decrease the demand on our products due to the outbreak of the COVID-19. To date, our business is
impact by the outbreak of the coronavirus (COVID-19) in China. The extent to which the coronavirus impacts our results will depend
on future developments and reactions in China, which are highly uncertain and will include emerging information concerning the
severity of the coronavirus and the actions taken by governments to attempt to contain the coronavirus. Any decreased collectability
of accounts receivable, or reduction of purchase orders could further negatively impact our results of operations.
Critical
accounting policies and estimates
Our
discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements,
which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of
these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We continually evaluate our estimates,
including those related to bad debts, allowance for obsolete inventory, and the classification of short and long-term inventory,
the useful life of property and equipment and land use rights and yew forest assets, recovery of long-lived assets, write-down
in value of inventory, and the valuation of equity transactions. We base our estimates on historical experience and on various
other assumptions that we believed to be reasonable under the circumstances, the results of which form the basis for making judgments
about the carrying values of assets and liabilities that are not readily apparent from other sources. Any future changes to these
estimates and assumptions could cause a material change to our reported amounts of revenues, expenses, assets and liabilities.
Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting
policies affect our significant judgments and estimates used in the preparation of the financial statements.
Variable
interest entities
Pursuant
to ASC 810 and related subtopics related to the consolidation of variable interest entities, we are required to include in our
consolidated financial statements the financial statements of VIEs. The accounting standards require a VIE to be consolidated
by a company if that company is subject to the risk of loss for the VIE or is entitled to receive the VIE’s residual returns.
VIEs are those entities in which we, through contractual arrangements, bear the risk of, and enjoy the rewards normally associated
with ownership of the entity, and therefore we are the primary beneficiary of the entity. HDS is considered a VIE, and we are
the primary beneficiary. We entered into agreements with HDS pursuant to which we shall receive 100% of HDS’s net income.
In accordance with these agreements, HDS shall pay consulting fees equal to 100% of its net income to our wholly-owned subsidiary,
JSJ. JSJ shall supply the technology and administrative services needed to service the HDS.
The
accounts of HDS are consolidated in the accompanying financial statements. As a VIE, HDS’ sales are included in our total
sales, its income from operations is consolidated with ours, and our net income includes all of HDS’ net income, and their
assets and liabilities are included in our consolidated balance sheets. The VIEs do not have any non-controlling interest and,
accordingly, we did not subtract any net income in calculating the net income attributable to us. Because of the contractual arrangements,
we have pecuniary interest in HDS that requires consolidation of HDS’ financial statements with our financial statements.
As
required by ASC 810-10, we perform a qualitative assessment to determine whether we are the primary beneficiary of HDS which is
identified as a VIE of us. A quality assessment begins with an understanding of the nature of the risks in the entity as well
as the nature of the entity’s activities including terms of the contracts entered into by the entity, ownership interests
issued by the entity and the parties involved in the design of the entity. The significant terms of the agreements between us
and HDS are discussed above in the “Corporate Structure and Recapitalization - Second Restructure” section. Our assessment
on the involvement with HDS reveals that we have the absolute power to direct the most significant activities that impact the
economic performance of HDS. JSJ, our wholly own subsidiary, is obligated to absorb the risk of loss from HDS activities and is
entitled to receive HDS’s expected residual returns. In addition, HDS’ shareholders have pledged their equity interest
in HDS to JSJ, irrevocably granted JSJ an exclusive option to purchase, to the extent permitted under PRC Law, all or part of
the equity interests in HDS and agreed to entrust all the rights to exercise their voting power to the person(s) appointed by
JSJ. Under the accounting guidance, we are deemed to be the primary beneficiary of HDS and the results of HDS’ operation
are consolidated in our consolidated financial statements for financial reporting purposes.
Accordingly,
as a VIE, HDS’ sales are included in our total sales, its income from operations is consolidated with our income from operations
and our net income includes all of HDS’ net income. All the equity (net assets) and profits (losses) of HDS are attributed
to us. Therefore, no non-controlling interest in HDS is presented in our consolidated financial statements. As we do not have
any non-controlling interest and, accordingly, did not subtract any net income in calculating the net income attributable to us.
Because of the Contractual Arrangements, YBP has a pecuniary interest in HDS that requires consolidation of HDS’ financial
statements with those of ours.
Additionally,
pursuant to ASC 805, as YBP and HDS are under the common control of the HDS Shareholders, the Second Restructure was accounted
for in a manner similar to a pooling of interests. As a result, our historical amounts in the accompanying consolidated financial
statements give retrospective effect to the Second Restructure, whereby our assets and liabilities are reflected at the historical
carrying values and their operations are presented as if they were consolidated for all periods presented, with our results of
operations being consolidated from the date of the Second Transfer Agreement. The accounts of HDS are consolidated in the accompanying
financial statements.
Accounts
receivable
Accounts
receivable are presented net of an allowance for doubtful accounts. We maintain allowances for doubtful accounts for estimated
losses. We review the accounts receivable balance on a periodic basis and make general and specific allowances when there is doubt
as to the collectability of individual balances. In evaluating the collectability of individual receivable balances, we consider
many factors, including the age of the balance, a customer’s historical payment history, its current credit-worthiness and
current economic trends. Accounts are written off after exhaustive efforts at collection. We recognize the probability of the
collection for each customer.
Inventories
Inventories
consisted of raw materials, work-in-progress, finished goods-handicrafts, yew seedlings, yew candles and other trees (consisting
of larix, spruce and poplar trees). We classify our inventories based on our historical and anticipated levels of sales; any inventory
in excess of its normal operating cycle of one year is classified as long-term on our consolidated balance sheets. Inventories
are stated at the lower of cost or market value utilizing the weighted average method. Raw materials primarily include yew timber
used in the production of products such as handicrafts, furniture and other products containing yew timber. Finished goods-handicraft
and yew seedlings include direct materials and direct labor.
We
estimate the amount of the excess inventories by comparing inventory on hand with the estimated sales that can be sold within
our normal operating cycle of one year. Any inventory in excess of our current requirements based on historical and anticipated
levels of sales is classified as long-term on our consolidated balance sheets. Our classification of long-term inventory requires
us to estimate the portion of inventory that can be realized over the next 12 months.
To
estimate the amount of slow-moving or obsolete inventories, we analyze movement of our products, monitor competing products and
technologies and evaluate acceptance of our products. Periodically, we identify inventories that cannot be sold at all or can
only be sold at deeply discounted prices. An allowance will be established if management determines that certain inventories may
not be saleable. If inventory costs exceed expected market value due to obsolescence or quantities in excess of expected demand,
we will record reserves for the difference between the carrying cost and the estimated market value.
Our
handicraft and yew furniture products are hand-made by traditional Chinese artisans.
In
accordance with ASC 905, “Agriculture”, our costs of growing yew seedlings are accumulated until the time of harvest
and are reported at the lower of cost or market.
Property
and equipment
Property
and equipment are carried at cost and are depreciated on a straight-line basis (after taking into account their respective estimated
residual value) over the estimated useful lives of the assets. The cost of repairs and maintenance is expensed as incurred; major
replacements and improvements are capitalized. When assets are retired or disposed of, the cost and accumulated depreciation are
removed from the accounts, and any resulting gains or losses are included in income in the year of disposition. We examine the
possibility of decreases in the value of fixed assets when events or changes in circumstances reflect the fact that their recorded
value may not be recoverable. The estimated useful lives are as follows:
Building
|
|
|
10
- 20 years
|
|
Machinery and equipment
|
|
|
3
- 10 years
|
|
Office equipment
|
|
|
2
- 5 years
|
|
Motor vehicles
|
|
|
4
- 10 years
|
|
Land
use rights and yew forest assets
All
land in the PRC is owned by the PRC government and cannot be sold to any individual or company. We have recorded the amounts paid
to the PRC government to acquire long-term interests to utilize land and yew forests as land use rights and yew forest assets.
This type of arrangement is common for the use of land in the PRC. Yew trees on land containing yew tree forests are used to supply
raw materials such as branches, leaves and fruit to us that will be used to manufacture our products. We amortize these land and
yew forest use rights over the term of the respective land and yew forest use right, which ranges from 15 to 50 years. The lease
agreements do not have any renewal option and we have no further obligations to the lessor. We record the amortization of these
land and forest use rights as part of our cost of revenues.
Revenue
recognition
We
generate our revenue from sales of yew seedling products, sales of yew raw materials for medical application, sales of yew handicraft
products, sales of “Others” including yew candles, yew essential oil soap, pine needle extract, complex taxus cuspidate
extract, and composite northeast yew extract. Pursuant to the guidance of ASC 606, we recognize revenue when obligations under
the terms of a contract with customer are satisfied; generally this occurs with the transfer of control of the products sold.
Transfer of control to the customer is based on the standardized shipping terms in the contract as this determines when we has
the right to payment, the customer has legal title to the asset and the customer has the risks of ownership.
Income
taxes
We
are governed by the Income Tax Law of the PRC, Hong Kong and the United States. We account for income tax using the liability
method prescribed by ASC 740, “Income Taxes”. Under this method, deferred tax assets and liabilities are determined
based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will
be in effect in the year in which the differences are expected to reverse. We record a valuation allowance to offset deferred
tax assets if based on the weight of available evidence; it is more-likely-than-not that some portion, or all, of the deferred
tax assets will not be realized. The effect on deferred taxes of a change in tax rates is recognized as income or loss in the
period that includes the enactment date.
We
apply the provisions of ASC 740-10-50, “Accounting for Uncertainty in Income Taxes”, which provides clarification
related to the process associated with accounting for uncertain tax positions recognized in our financial statements. Audit periods
remain open for review until the statute of limitations has passed. The completion of review or the expiration of the statute
of limitations for a given audit period could result in an adjustment to our liability for income taxes. Any such adjustment could
be material to our results of operations for any given quarterly or annual period based, in part, upon the results of operations
for the given period. Currently, we have no uncertain tax positions, and will continue to evaluate for uncertain positions in
the future.
Stock-based
compensation
Stock
based compensation is accounted for based on the requirements of the Share-Based Payment topic of ASC 718 which requires recognition
in the financial statements of the cost of employee and director services received in exchange for an award of equity instruments
over the period the employee or director is required to perform the services in exchange for the award. The Accounting Standards
Codification also requires measurement of the cost of employee and director services received in exchange for an award based on
the grant-date fair value of the award.
The
Company accounts for share-based compensation awards to nonemployees in accordance with FASB ASC 718 and FASB ASC 505-50. Under
FASB ASC 718 and FASB ASC 505-50, stock compensation granted to non-employees has been determined as the fair value of the consideration
received or the fair value of equity instrument issued, whichever is more reliably measured and is recognized as an expense as
the goods or services are received.
Leases
The
Company adopted Topic 842 on its effective date of January 1, 2019 using a modified retrospective transition approach. Topic 842
established a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and lease liability on the balance
sheet for all leases with terms longer than 12 months. Leases are classified as either finance or operating, with classification affecting
the pattern of expense recognition in the statement of operations. This guidance also expanded the requirements for lessees to record
leases embedded in other arrangements and the required quantitative and qualitative disclosures surrounding leases.
Currency
exchange rates
Our
functional currency is the U.S. dollar, and the functional currency of our operating subsidiaries and VIE is the RMB. All of our
sales are denominated in RMB. As a result, changes in the relative values of U.S. dollars and RMB affect our reported levels of
revenues and profitability as the results of our operations are translated into U.S. dollars for reporting purposes. In particular,
fluctuations in currency exchange rates could have a significant impact on our financial stability due to a mismatch among various
foreign currency-denominated sales and costs. Fluctuations in exchange rates between the U.S. dollar and RMB affect our gross
and net profit margins and could result in foreign exchange and operating losses.
Our
exposure to foreign exchange risk primarily relates to currency gains or losses resulting from timing differences between signing
of sales contracts and settling of these contracts. Furthermore, we translate monetary assets and liabilities denominated in other
currencies into RMB, the functional currency of our operating subsidiaries. Our results of operations and cash flow are translated
at average exchange rates during the period, and assets and liabilities are translated at the unified exchange rate at the end
of the period. Translation adjustments resulting from this process are included in accumulated other comprehensive income in our
statement of shareholders’ equity. We have not used any forward contracts, currency options or borrowings to hedge our exposure
to foreign currency exchange risk. We cannot predict the impact of future exchange rate fluctuations on our results of operations
and may incur net foreign currency losses in the future.
Our
financial statements are expressed in U.S. dollars, which is the functional currency of our parent company. The functional currency
of our operating subsidiaries and affiliates is RMB. To the extent we hold assets denominated in U.S. dollars, any appreciation
of the RMB against the U.S. dollar could result in a charge in our statement of operations and a reduction in the value of our
U.S. dollar denominated assets. On the other hand, a decline in the value of RMB against the U.S. dollar could reduce the U.S.
dollar equivalent amounts of our financial results.
Results
of Operations
The
following tables set forth key components of our results of operations for the periods indicated, in dollars. The discussion following
the table is based on these results:
|
|
Three
Months Ended
March
31,
|
|
|
|
2021
|
|
|
2020
|
|
Revenues - third parties
|
|
$
|
545
|
|
|
$
|
21,789
|
|
Revenues - related
parties
|
|
|
8,736,769
|
|
|
|
2,007,393
|
|
Total
revenues
|
|
|
8,737,314
|
|
|
|
2,029,182
|
|
Cost of revenues - third parties
|
|
|
13,000
|
|
|
|
41,366
|
|
Cost of revenues
- related parties
|
|
|
7,767,341
|
|
|
|
1,545,561
|
|
Total
cost of revenues
|
|
|
7,780,341
|
|
|
|
1,586,927
|
|
Gross profit
|
|
|
956,973
|
|
|
|
442,255
|
|
Operating expenses
|
|
|
(2,009,734
|
)
|
|
|
284,867
|
|
Income from operations
|
|
|
2,966,707
|
|
|
|
157,388
|
|
Other expenses, net
|
|
|
(54,741
|
)
|
|
|
(5,976
|
)
|
Income Tax
|
|
|
-
|
|
|
|
-
|
|
Net income
|
|
|
2,911,966
|
|
|
|
151,412
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
Foreign currency
translation adjustment
|
|
|
(252,112
|
)
|
|
|
(816,044
|
)
|
Comprehensive
income
|
|
$
|
2,659,854
|
|
|
$
|
(664,632
|
)
|
Three
Months Ended March 31, 2021 Compared to Three Months Ended March 31, 2020
Revenues
For
the three months ended March 31, 2021, we had total revenues of $8,737,314, as compared to $2,029,182 for the three months ended
March 31, 2020, an increase of $6,708,132 or 330.58%. The increase in total revenue was attributable to the increase in revenues
in the TCM raw materials and Extracts.
|
|
Three
Months Ended
March
31,
|
|
|
|
|
|
Percentage
|
|
Total revenue is summarized as
follows:
|
|
2021
|
|
|
2020
|
|
|
Increase
|
|
|
Change
|
|
TCM raw materials
|
|
$
|
3,575,519
|
|
|
$
|
2,007,393
|
|
|
$
|
1,568,126
|
|
|
|
78.12
|
%
|
Handicrafts
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
%
|
Extracts
|
|
|
5,161,250
|
|
|
|
-
|
|
|
|
5,161,250
|
|
|
|
100.00
|
%
|
Others
|
|
|
545
|
|
|
|
21,789
|
|
|
|
(21,244
|
)
|
|
|
(97.50
|
)%
|
Total
|
|
$
|
8,737,314
|
|
|
$
|
2,029,182
|
|
|
$
|
6,708,132
|
|
|
|
330.58
|
%
|
For
the three months ended March 31, 2021 compared to March 31, 2020, the increase in revenue of TCM raw material was mainly attributable
to the increase in demand from our related party, Yew Pharmaceutical. The increase in Extracts was mainly attributable to the
increase in demand for pine needle extract, complex taxus cuspidate extract, and composite northeast yew extract.
Cost
of Revenues
For
the three months ended March 31, 2021, cost of revenues amounted to $7,780,341 as compared to $1,586,927 for the three months
ended March 31, 2020, an increase of $6,193,414 or 390.28%. For the three months ended March 31, 2021, cost of revenues accounted
for 89.05% of total revenues compared to 78.21% of total revenues for the three months ended March 31, 2020.
Cost
of revenues by product categories is as follows:
|
|
Three
Months Ended
March
31,
|
|
|
|
|
|
Percentage
|
|
|
|
2021
|
|
|
2020
|
|
|
Increase
|
|
|
Change
|
|
TCM raw materials
|
|
$
|
2,750,122
|
|
|
$
|
1,695,884
|
|
|
$
|
1,054,238
|
|
|
|
68.06
|
%
|
Handicrafts
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
%
|
Extracts
|
|
|
5,017,219
|
|
|
|
-
|
|
|
|
5,017,219
|
|
|
|
100.00
|
%
|
Others
|
|
|
13,000
|
|
|
|
(108,957
|
)
|
|
|
121,957
|
|
|
|
111.93
|
%
|
Total
|
|
$
|
7,780,341
|
|
|
$
|
1,586,927
|
|
|
$
|
6,193,414
|
|
|
|
390.28
|
%
|
The
increase in our cost of revenues for the three months ended March 31, 2021 as compared to the three months ended March 31, 2020
was in line with the increase in revenue.
Gross
Profit
For
the three months ended March 31, 2021, gross profit was $956,973 as compared to $442,255 for the three months ended March 31,
2020, representing gross profit margins of 10.95% and 21.79%, respectively. Gross profit margins by categories are as follows:
|
|
Three
Months Ended
March
31,
|
|
|
|
2021
|
|
|
2020
|
|
|
Increase
|
|
|
|
|
|
|
|
|
|
|
|
TCM raw materials
|
|
|
23.08
|
%
|
|
|
15.52
|
%
|
|
|
7.56
|
%
|
Handicrafts
|
|
|
-
|
%
|
|
|
-
|
%
|
|
|
-
|
%
|
Extracts
|
|
|
2.79
|
%
|
|
|
-
|
|
|
|
2.79
|
%
|
Others
|
|
|
(14,95
|
)%
|
|
|
600.06
|
%
|
|
|
(622.92
|
)%
|
Total
|
|
|
10.95
|
%
|
|
|
21.79
|
%
|
|
|
(10.84
|
)%
|
The
decrease in our overall gross profit margin for the three months ended March 31, 2021 as compared to the three months ended March 31,
2020 were primarily attributable to the Extracts sales during the three months ended March 31, 2021, which had low gross margin yielded
during the three months ended March 31, 2021.
Operating
Expenses
For
the three months ended March 31, 2021, operating expenses amounted to $(2,009,734), as compared to $284,867 for the three months
ended March 31, 2020, a decrease of $2,294,601 or 805.50%. The decrease was mainly due to the bad debt recovery of $2,283,507
during three months ended March 31, 2021.
Income
from Operations
For
the three months ended March 31, 2021, income from operations was $2,966,707, as compared to income from operations of $157,388 for the
three months ended March 31, 2020, an increase of $2,809,319, or 1,784.96%. The increase was primarily attributable to the increase in
gross profit and bad debt recovery.
Other
Expenses
For
the three months ended March 31, 2021, total other expenses was $54,741 as compared to total other expenses of $5,976 for the
three months ended March 31, 2020. The increase was primarily attributable to the decrease in currency exchange gain.
Net
Income
As
a result of the factors described above, our net income was $2,911,966 or $0.06 per share (basic and diluted), for the three months
ended March 31, 2021, as compared to net income of $151,412 or $0.00 per share (basic and diluted), for the three months ended
March 31, 2020.
Foreign
Currency Translation Adjustment
For
the three months ended March 31, 2021, we reported an unrealized loss on foreign currency translation of $252,112, as compared
to a loss of $816,044 for the three months ended March 31, 2020. The change reflects the effect of the value of the U.S. dollar
in relation to the RMB. As described elsewhere herein, the functional currency of our subsidiary, JSJ, and our VIE, HDS, is the
RMB. The accompanying unaudited consolidated financial statements have been translated and presented in U.S. dollars using period
end rates of exchange for assets and liabilities, and average rates of exchange for the period for net revenues, costs, and expenses.
Net gains resulting from foreign exchange transactions, if any, are included in the consolidated statements of income and comprehensive
income.
Comprehensive
Income
For
the three months ended March 31, 2021, comprehensive income of $2,659,854 was derived from the sum of our net income of $2,911,966
with foreign currency translation loss of $252,112. For the three months ended March 31, 2020, comprehensive loss of $664,632
was derived from the sum of our net income of $151,412 with foreign currency translation loss of $816,044.
Segment
Information
For
the three months ended March 31, 2021 as compared to the three months ended March 31, 2020, we operated in two reportable business
segments. The business of HDS, JSJ, HYF and YBT in PRC was managed and reviewed as PRC segment. The business of YBP, Yew Bio-Pharm
(HK), and MC was managed and reviewed as USA segment.
Information
with respect to these reportable business segments for the three months ended March 31, 2021 and 2020 was as follows:
|
|
For
the three months
March
31, 2021
|
|
|
For
the three months
March
31, 2020
|
|
|
|
Revenues-
third
parties
|
|
|
Revenues
–
related
party
|
|
|
Total
|
|
|
Revenues-
third
parties
|
|
|
Revenues
–
related
party
|
|
|
Total
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PRC
|
|
$
|
|
|
|
$
|
8,736,769
|
|
|
$
|
8,736,769
|
|
|
$
|
|
|
|
$
|
2,007,393
|
|
|
$
|
2,007,393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
USA
|
|
|
545
|
|
|
|
-
|
|
|
|
545
|
|
|
|
21,789
|
|
|
|
-
|
|
|
|
21,789
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
|
$
|
545
|
|
|
$
|
8,736,769
|
|
|
$
|
8,737,314
|
|
|
$
|
21,789
|
|
|
$
|
2,007,393
|
|
|
$
|
2,029,182
|
|
During
the three months ended March 31, 2021 and 2020, the revenue from PRC segment was $8,736,769 and $2,007,393, respectively, increase of
$6,729,376 or 335.23% due to the increase demand on Asia market from our related parties.
During
the three months ended March 31, 2021 and 2020, the revenue from USA segment was $545 and $21,789, respectively, decrease of $21,244
or 97.50%. The decrease in USA segment was due to the decrease in revenue resulted from pandemic impact.
Liquidity
and Capital Resources
Liquidity
is the ability of a company to generate funds to support its current and future operations, satisfy its obligations and otherwise operate
on an ongoing basis. On March 31, 2021 and December 31, 2020, we had cash balances of $127,330 and $563,792, respectively. These funds
are primarily located in various financial institutions located in China. Our primary uses of cash have been for the purchase of yew
trees, land use rights and yew forest assets. Additionally, we use cash for employee compensation and working capital. Our working capital
increased by $3,956,140 to $3,420,414 on March 31, 2021, from working capital of $(535,726) on December 31, 2020.
For
the three months ended March 31, 2021, net cash flow used in operating activities was $776,330, as compared to net cash flow provided
by operating activities of $1,422,047 for the three months ended March 31, 2020, a decrease of $2,198,377. Because the exchange
rate conversion is different for the balance sheet and the statements of cash flows, the changes in assets and liabilities reflected
on the statements of cash flows are not necessarily identical with the comparable changes reflected on the balance sheets.
For
the three months ended March 31, 2021, net cash flow used in operating activities of $776,330 was primarily attributable to:
|
●
|
net
income of approximately $2,912,000 adjusted for the add-back of non-cash items, such as bad debt recovery of approximately $2,282,000,
amortization of land use rights and yew forest assets of approximately $669,000, and sale
of yew forest assets as inventory of approximately 1,987,000; and
|
|
●
|
changes
in operating assets and liabilities, such as an increase in accounts receivable-related parties of approximately $3,766,000,
and an increase in VAT input credit of approximately 298,000.
|
For
the three months ended March 31, 2020, net cash flow provided by operating activities of $1,422,047 was primarily attributable
to:
|
●
|
net
income of approximately $151,000 adjusted for the add-back of non-cash items, such as inventory write-down of approximately
$70,000, amortization of land use rights and yew forest assets of approximately $614,000, and sale
of yew forest assets as inventory of approximately 950,000; and
|
|
●
|
changes
in operating assets and liabilities, such as an increase in accounts receivable-related parties of approximately $535,000,
a decrease in accounts receivable of approximately 128,000, and an increase prepaid expenses and other current assets of $113,000.
|
Net
cash flow provided by investing activities was $137,076 for the three months ended March 31, 2021. During the three months ended
March 31, 2021, our prepayment in purchase of yew forest assets to third parties decreased by approximately $1,848,000. We also
have made payment in approximately $1,577,000 for purchase of land use right and yew forest assets. Net cash flow used in investing
activities was $1,420,553 for the three months ended March 31, 2020. During the three months ended March 31, 2020, we have made
prepayment in purchase of yew forest assets of approximately $591,000 to third parties and approximately $400,000 to related parties.
We also have made payment in approximately $429,000 for purchase of land use right and yew forest assets.
Net
cash flow provided by financing activities was approximately $264,000 for the three months ended March 31, 2021 due to proceeds
of approximately $1,544,000 from short-term borrowings and partially offset by repayment of short-term borrowings of approximately
$1,256,000. Net cash flow used in financing activities was approximately $284,000 for the three months ended March 31, 2020 due
to repayment of short-term borrowings of approximately $1,486,000, and partially offset by proceeds of approximately $1,201,000
from short-term borrowings.
We
have historically financed our operations and capital expenditures through cash flows from operations, bank loans and advances
from related parties. From March 2008 to September 2009, we received approximately $2.9 million of proceeds in the aggregate from
offerings and sales of our common stock. Except for the portion used to pay for professional and other expenses in the U.S., substantial
portions of the proceeds we received through sales of our common stock were retained in the PRC and used to fund our working capital
requirements. As the PRC government imposes controls on PRC companies’ ability to convert RMB into foreign currencies and
the remittance of currency out of China, from time to time, in order to fund our corporate activities in the U.S., Zhiguo Wang,
our President and CEO, advanced funds to us in the U.S. and we repaid the amounts owed to him in RMB in the PRC.
The
majority of our funds are maintained in RMB in bank accounts in China. We receive most of our revenue in the PRC. Under existing
PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and expenditures
from trade related transactions, can be made in foreign currencies by complying with certain procedural requirements. However,
approval from China’s State Administration of Foreign Exchange (“SAFE”) or its local counterparts is required
where RMB is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of
loans denominated in foreign currencies. The PRC government may also, at its discretion, restrict access to foreign currencies
for current account transactions. As of March 31, 2021 and December 31, 2020, approximately $53.0 million and $50.3 million, respectively,
of our net assets are located in the PRC. If the foreign exchange control system in the PRC prevents us from obtaining sufficient
foreign currency to satisfy our currency demands, we may not be able to transfer funds deposited within the PRC to fund working
capital requirements in the U.S. or pay any dividends in currencies other than the RMB, to our shareholders.
Off-Balance
Sheet Arrangements
We
have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties.
We have not entered into any derivative contracts that are indexed to our shares and classified as shareholder’s equity
or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest
in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do
not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support
to us or engages in leasing, hedging or research and development services with us.