NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2019
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, 2018 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, 2018.
In
the opinion of management, all adjustments (which include normal recurring adjustments) necessary to present a fair statement
of the financial position as of September 30, 2019, and the results of operations and cash flows for the nine-month periods ended
September 30, 2019 and 2018, 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
|
|
(1)
|
Wholly-owned
subsidiary of HDS
|
|
(2)
|
51%
owned by YBP and 49% owned by HDS
|
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.
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 September 30, 2019 and December 31, 2018,
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:
|
|
September 30,
2019
|
|
|
December 31,
2018
|
|
Assets
|
|
|
|
|
|
|
Cash
|
|
$
|
607,788
|
|
|
$
|
478,293
|
|
Accounts receivable
|
|
|
7,692,600
|
|
|
|
-
|
|
Accounts receivable - related parties, net of allowance for doubtful account $Nil and $837,929
|
|
|
2,200,000
|
|
|
|
4,579,666
|
|
Inventories (current and long-term), net
|
|
|
773,634
|
|
|
|
6,567,144
|
|
Prepaid expenses and other assets
|
|
|
70,958
|
|
|
|
34,492
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses - related parties
|
|
|
11,382
|
|
|
|
32,318
|
|
Property and equipment, net
|
|
|
461,731
|
|
|
|
506,949
|
|
Long-term investment in MC
|
|
|
2,866,080
|
|
|
|
2,449,757
|
|
Land use rights and yew forest assets, net
|
|
|
40,698,641
|
|
|
|
34,914,793
|
|
Operating lease right of use
|
|
|
200,963
|
|
|
|
-
|
|
VAT recoverables
|
|
|
56,191
|
|
|
|
985,831
|
|
Total assets of VIE and its subsidiary
|
|
$
|
55,639,968
|
|
|
$
|
50,549,243
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Accrued expenses and other payables
|
|
$
|
114,919
|
|
|
$
|
237,114
|
|
Accounts payable
|
|
|
7,409
|
|
|
|
10,410
|
|
Accounts payable - related party
|
|
|
878,875
|
|
|
|
-
|
|
Payable for acquisition of yew forests
|
|
|
295,852
|
|
|
|
-
|
|
Payable for acquisition of yew forests - related party
|
|
|
340,702
|
|
|
|
-
|
|
Advance from customer
|
|
|
140
|
|
|
|
145
|
|
Advance from customer-related party
|
|
|
12,869
|
|
|
|
21,295
|
|
Short-term borrowings
|
|
|
8,039,381
|
|
|
|
5,758,517
|
|
Operating lease liability- current
|
|
|
8,827
|
|
|
|
-
|
|
Operating lease liability- noncurrent
|
|
|
245,827
|
|
|
|
-
|
|
Deferred income
|
|
|
327,915
|
|
|
|
340,294
|
|
Due to related parties and VIE holding companies
|
|
|
599,362
|
|
|
|
658,501
|
|
Total liabilities of VIE and its subsidiary
|
|
$
|
10,872,078
|
|
|
$
|
7,026,276
|
|
Recently
Adopted Accounting Pronouncements
In
February 2016, the Financial Accounting Standards Board ("FASB") issued new leasing guidance ("Topic 842")
that replaced the existing lease guidance ("Topic 840"). 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.
The
Company adopted Topic 842 on its effective date of January 1, 2019 using a modified retrospective transition approach; as such,
Topic 842 will not be applied to periods prior to adoption and the adoption had no impact on the Company's previously reported
results. The Company elected the package of practical expedients permitted under the transition guidance within Topic 842, which
allowed the Company to carry forward its identification of contracts that are or contain leases, its historical lease classification
and its accounting for initial direct costs for existing leases. The impact of adopting Topic 842 was not material to the Company’s
result of operations or cash flows for the nine months ended September 30, 2019. The Company recognized operating lease liabilities
of approximately $350,000 upon adoption, with corresponding ROU assets on its balance sheet.
Recently
Issued Accounting Pronouncements Not Yet Adopted
In
June 2016, the FASB issued ASU No. 2016-13, (Topic 326), Financial Instruments – Credit Losses: Measurement of Credit Losses
on Financial Instruments which amends the current accounting guidance and requires the use of the new forward-looking “expected
loss” model, rather than the “incurred loss” model, which requires all expected losses to be determined based
on historical experience, current conditions and reasonable and supportable forecasts. This guidance amends the accounting for
credit losses for most financial assets and certain other instruments including trade and other receivables, held-to-maturity
debt securities, loans and other instruments. ASU 2016-13 is effective for public entities for annual periods beginning after
December 15, 2019, and interim periods within those annual periods. The Company is evaluating the impact of the adoption of ASU
2016-13 on its financial position and results of operations.
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”), which was adopted on January 1, 2018 using
the full retrospective method. The adoption of ASC 606 did not impact the Company’s previously reported financial statements
in any prior period nor did it result in a cumulative effect adjustment to retained earnings.
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.
In
general, the Company's products within its segments are aligned according to the nature and economic characteristics of its products
and provide meaningful disaggregation of each business segment's results of operations. Disaggregation of revenue by business
segment are included in Note 12 - SEGMENT INFORMATION.
NOTE
4 - INVENTORIES
Inventories
consisted of raw materials, finished goods including handicrafts, yew essential oil soap, complex cuspidate extract, composite
northeast yew extract, yew candles and pine needle extracts, yew seedlings and other trees, which consist of larix, spruce and
poplar trees. The Company classifies its inventories based on its historical and anticipated levels of sales; any inventory in
excess of its normal operating cycle of one year is classified as long-term on its consolidated balance sheets. As of September
30, 2019 and December 31, 2018 inventories consisted of the following:
|
|
September 30, 2019
|
|
|
December 31, 2018
|
|
|
|
Current portion
|
|
|
Long-term portion
|
|
|
Total
|
|
|
Current portion
|
|
|
Long-term portion
|
|
|
Total
|
|
Raw materials
|
|
$
|
16,364
|
|
|
$
|
88,897
|
|
|
$
|
105,261
|
|
|
$
|
40,240
|
|
|
$
|
92,801
|
|
|
$
|
133,041
|
|
Finished goods
|
|
|
1,104,728
|
|
|
|
2,013,869
|
|
|
|
3,118,597
|
|
|
|
6,194,707
|
|
|
|
2,794,335
|
|
|
|
8,989,042
|
|
Yew seedlings
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
16,023
|
|
|
|
16,023
|
|
Total
|
|
|
1,121,092
|
|
|
|
2,102,766
|
|
|
|
3,223,858
|
|
|
|
6,234,947
|
|
|
|
2,903,159
|
|
|
|
9,138,106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory write-down
|
|
|
(130,618
|
)
|
|
|
(922,198
|
)
|
|
|
(1,052,816
|
)
|
|
|
(29,993
|
)
|
|
|
(1,079,031
|
)
|
|
|
(1,109,024
|
)
|
Inventories, net
|
|
$
|
990,474
|
|
|
$
|
1,180,568
|
|
|
$
|
2,171,042
|
|
|
$
|
6,204,954
|
|
|
$
|
1,824,128
|
|
|
$
|
8,029,082
|
|
Inventories as
of September 30, 2019 and December 31, 2018 consisted of the inventory purchased from related parties are as follows:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Inventories, net
|
|
$
|
60,008
|
|
|
$
|
182,905
|
|
Inventories - related parties, net
|
|
|
930,466
|
|
|
|
6,022,049
|
|
Total
|
|
$
|
990,474
|
|
|
$
|
6,204,954
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Long-term inventories, net
|
|
$
|
474,986
|
|
|
$
|
894,357
|
|
Long-term inventories - related parties, net
|
|
|
705,582
|
|
|
|
929,771
|
|
Total
|
|
$
|
1,180,568
|
|
|
$
|
1,824,128
|
|
NOTE
5 - TAXES
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 nine months ended September 30, 2019 and 2018:
|
|
Nine months ended
September 30,
|
|
|
|
2019
|
|
|
2018
|
|
U.S. federal income tax rate
|
|
|
21.00
|
%
|
|
|
21.00
|
%
|
Tax rate difference
|
|
|
4.48
|
%
|
|
|
4.00
|
%
|
Loss not subject income tax
|
|
|
2.60
|
%
|
|
|
12.81
|
%
|
PRC tax exemption and reduction
|
|
|
(28.09
|
)%
|
|
|
(37.81
|
)%
|
GILTI
|
|
|
0.35
|
%
|
|
|
(50.90
|
)%
|
Others
|
|
|
(0.69
|
)%
|
|
|
-
|
%
|
Effective tax rate
|
|
|
(0.35
|
)%
|
|
|
(50.90
|
)%
|
The
U.S. Tax Cuts and Jobs Act (the “Tax Act”) was enacted on December 22, 2017. The Tax Act among other changes, reduces
the U.S. federal corporate tax rate from 35% to 21%, eliminating certain deductions, imposing a mandatory one-time tax on accumulated
earnings of foreign subsidiaries, introducing new tax regimes, and changing how foreign earnings are subject to U.S. tax. The
Company has determined the implication of the tax rate reduction does not have any impact on the consolidated financial statements.
One-time transition tax is based on the Company’s total post-1986 earnings and profits (“E&P”) that it previously
deferred from U.S. income taxes. The Company completed its calculation and recorded $1,431,835 of the transition tax on undistributed
earnings of non-U.S. subsidiaries during the year ended December 31, 2018. As of September 30, 2019 and December 31, 2018, the
Company had current income tax payable of $114,547 and $114,547 and noncurrent income tax payable of $1,088,194 and $1,202,741.
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 nine months ended September 30, 2019 and 2018, the GILTI
tax expense was nil. As of September 30, 2019 and December 31, 2018, the Company had GILTI tax payable approximately of $29,000
and $60,000.
NOTE
6 - SHORT-TERM BORROWINGS
On
November 10, 2016, HDS entered into a loan agreement with Shanghai Pudong Development Bank (“SPD Bank”) Harbin Branch,
pursuant to which the Company obtained a bank loan in the amount of RMB1,970,000 (approximately $290,000), payable on November
9, 2017. HDS paid off the loan in full on November 9, 2017. On November 15, 2017, HDS obtained another loan in the amount of RMB10,000,000
(approximately $1,509,000), payable on October 20, 2018. The loan carries an interest rate of 4.100% per annum and is payable
at maturity. The proceeds of the loan were used by the Company to purchase raw materials. Madam Qi has secured the loan with her
personal assets. In addition, Yew Pharmaceutical, Zhiguo Wang, Yicheng Wang, and Yuqi Mao, the spouse of Yicheng Wang provided
guarantees to the loan. HDS paid off the loan in full as the loan expired.
On
December 22, 2016, HDS entered into a credit agreement with China Everbright Bank (“CEB”) which agreed to provide
credit line of RMB20,000,000 (approximately $2,880,000) to the Company for the period of three years. These loans carry interest
rates ranging from 4.30% to 4.80% 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
guarantees to the loan. During the nine months ended September 30, 2019 and 2018, the Company obtained short-term loans from CEB
in the total amount of $4,714,000 and $4,406,000, respectively, under this credit agreement and paid off in the total amount of
$5,130,000 and $5,133,000, respectively. As of September 30, 2019 and December 31, 2018, the balance of loans borrowed from CEB
was $2,434,000 and $2,851,000, respectively.
On
August 6, 2018, HDS entered into a loan agreement with Bank of Yingkou Harbin Branch (“Yingkou Bank”), pursuant to
which HDS obtained a bank loan in the amount of RMB15,000,000 (approximately $2,102,000 at September 30, 2019), payable on August
5, 2019. The loan carries an interest rate of 5.4375% 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 paid off the loan in full on July 24, 2019.
On
August 27, 2018, HDS entered into a loan agreement with Yingkou Bank, pursuant to which HDS obtained a bank loan in the amount
of RMB5,000,000 (approximately $700,000 at September 30, 2019), payable on August 26, 2019. The loan carries an interest rate
of 5.4375% 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 paid off the loan in full on August 14, 2019.
On
May 13, 2019, HDS entered into a loan agreement with Postal Saving Bank of China, pursuant to which HDS obtained three bank loans
in the amount of RMB7,300,000, RMB8,100,000 and RMB4,600,000, respectively (approximately $1,023,000, $1,135,000 and $645,000
at September 30, 2019), payable to on June 3, 2020, June 11, 2020 and July 1, 2020 respectively. All of the loans carry an interest
rate of 5.2200% per annum and are payable monthly. Zhiguo Wang and his wife Madame Qi, collateralized their buildings and land
use right with Postal Saving Bank of China to secure the loan. In addition, Zhiguo Wang and his wife Madame Qi provided guarantees
to the loans.
On
July 26, 2019, HDS entered into a loan agreement with Bank of Yingkou Harbin Branch (“Yingkou Bank”), pursuant to
which HDS obtained a bank loan in the amount of RMB15,000,000 (approximately $2,102,000 at September 30, 2019), payable on July
25, 2020. The loan carries 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.
On
August 20, 2019, HDS entered into a loan agreement with Yingkou Bank, pursuant to which HDS obtained a bank loan in the amount
of RMB5,000,000 (approximately $700,000 at September 30, 2019), 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.
During
the nine months ended September 30, 2019 and 2018, interest expense was approximately $279,000 and $183,000, respectively.
During
the three months ended September 30, 2019 and 2018, interest expense was approximately $97,000 and $46,000, respectively.
NOTE
7 - STOCKHOLDERS’ EQUITY
On
February 28, 2019, the Company entered into an agreement with Chineseinvestor.com, pursuant to which both parties reached an agreement
to cancel to issue the common shares of 375,000 to Chineseinvestor.
Stock
option activities for the nine months ended September 30, 2019 and 2018 were summarized in the following table.
|
|
Nine months ended
September 30, 2019
|
|
|
Nine months ended
September 30, 2018
|
|
|
|
Number of Stock Options
|
|
|
Weighted Average Exercise Price
|
|
|
Number of Stock Options
|
|
|
Weighted Average Exercise Price
|
|
Balance at beginning of period
|
|
|
7,738,737
|
|
|
|
0.22
|
|
|
|
24,872,212
|
|
|
|
0.22
|
|
Issued
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
200,000
|
|
|
|
-
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
15,503,475
|
|
|
|
0.22
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Balance at end of period
|
|
|
7,738,737
|
|
|
|
0.22
|
|
|
|
9,168,737
|
|
|
|
0.22
|
|
Option exercisable at end of period
|
|
|
7,738,737
|
|
|
|
0.22
|
|
|
|
9,068,737
|
|
|
|
0.22
|
|
The
following table summarizes the shares of the Company’s common stock issuable upon exercise of options outstanding at September
30, 2019:
Stock
Options Outstanding
|
|
|
Stock
Options Exercisable
|
|
Range
of
Exercise
Price
|
|
|
Number
Outstanding
at
September
30,
2019
|
|
|
Weighted
Average
Remaining
Contractual
Life (Years)
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Number
Exercisable
at
September
30,
2019
|
|
|
Weighted
Average
Exercise
Price
|
|
$
|
0.22-0.25
|
|
|
|
7,738,737
|
|
|
|
0.25
|
|
|
$
|
0.22
|
|
|
|
7,738,737
|
|
|
$
|
0.22
|
|
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 $0.081 as of September 30, 2019. Stock option expense recognized during the nine months
ended September 30, 2019 and 2018 amounted to $Nil and $1,067,548, respectively.
NOTE
8 - EARNINGS PER SHARE
Under
the provisions of ASC 260, “Earnings Per Share”, basic income per common share is computed by dividing net income
attributable to common shareholders by the weighted average number of shares of common stock outstanding for the periods presented.
Diluted income per share reflects the potential dilution that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock or resulted in the issuance of common stock that would then share in the income
of the company, subject to anti-dilution limitations.
The
following table presents a reconciliation of basic and diluted net income per share for the three and nine months ended September
30, 2019 and 2018:
|
|
For the Three Months Ended
September 30,
|
|
|
For the Nine months ended September 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Net income (loss) available to common stockholders for basic and diluted net income per share of common stock
|
|
$
|
1,183,633
|
|
|
$
|
(380,818
|
)
|
|
$
|
2,997,098
|
|
|
$
|
1,381,376
|
|
Weighted average common stock outstanding - basic
|
|
|
51,700,000
|
|
|
|
52,018,478
|
|
|
|
51,781,044
|
|
|
|
51,923,352
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested restricted common stock
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Stock options issued to directors/officers/employees
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,884,928
|
|
Weighted average common stock outstanding - diluted
|
|
|
51,700,000
|
|
|
|
52,018,478
|
|
|
|
51,781,044
|
|
|
|
54,808,280
|
|
Net income per common share - basic
|
|
$
|
0.02
|
|
|
$
|
(0.01
|
)
|
|
$
|
0.06
|
|
|
$
|
0.03
|
|
Net income per common share - diluted
|
|
$
|
0.02
|
|
|
$
|
(0.01
|
)
|
|
$
|
0.06
|
|
|
$
|
0.03
|
|
Diluted
net income per share is computed using the weighted average number of common shares and dilutive potential common shares outstanding
during the respective periods.
NOTE
9 - 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
|
|
Nine months ended
September 30,
2019
|
|
Operating lease cost
|
|
Selling, general and administrative expense
|
|
$
|
113,476
|
|
Net lease cost
|
|
|
|
$
|
113,476
|
|
Balance
sheet information related to leases consists of the following:
|
|
Classification
|
|
September 30,
2019
|
|
Assets
|
|
|
|
|
|
|
Operating lease ROU assets
|
|
Right-of-use assets
|
|
$
|
218,195
|
|
Total leased assets
|
|
|
|
$
|
218,195
|
|
Liabilities
|
|
|
|
|
|
|
Current portion
|
|
|
|
|
|
|
Operating lease liabilities
|
|
Current maturities of operating lease liabilities
|
|
$
|
24,389
|
|
|
|
|
|
|
|
|
Non-current portion
|
|
|
|
|
|
|
Operating lease liabilities
|
|
Operating lease liabilities
|
|
|
247,147
|
|
Total lease liabilities
|
|
|
|
$
|
271,536
|
|
|
|
|
|
|
|
|
Weighted average remaining lease term
|
|
|
|
|
|
|
Operating leases
|
|
|
|
|
5.86 years
|
|
|
|
|
|
|
|
|
Weighted average discount rate
|
|
|
|
|
|
|
Operating leases
|
|
|
|
|
6.44
|
%
|
Cash
flow information related to leases consists of the following:
|
|
Nine months ended
September 30,
2019
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
Operating cash flows from operating leases
|
|
$
|
58,004
|
|
The
minimum future lease payments as of September 30, 2019 are as follows:
Years Ending December 31,
|
|
Operating Leases
|
|
2019
|
|
$
|
13,192
|
|
2020
|
|
|
30,987
|
|
2021
|
|
|
27,318
|
|
2022
|
|
|
25,861
|
|
2023
|
|
|
25,861
|
|
After 2024
|
|
|
311,784
|
|
Total lease payments
|
|
|
435,003
|
|
Less: Interest
|
|
|
(163,467
|
)
|
Present value of lease liabilities
|
|
$
|
271,536
|
|
NOTE
10 - CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS
Customers
For
the nine months ended September 30, 2019 and 2018, customers accounting for 10% or more of the Company’s revenue were as
follows:
|
|
For
the Nine months ended
September
30,
|
|
Customer
|
|
2019
|
|
|
2018
|
|
A (Yew Pharmaceutical, a
related party)
|
|
|
31.3
|
%
|
|
|
56.7
|
%
|
B (HongKong YIDA Commerce Co., Limited,
a related party)
|
|
|
29.2
|
%
|
|
|
*
|
%
|
|
|
|
|
|
|
|
|
|
D (GOLDEN PEACH TRAVEL SERVICE COMPANY
LTD)
|
|
|
38.8
|
%
|
|
|
*
|
%
|
E (DMSU, a related party)
|
|
|
-
|
%
|
|
|
21.9
|
%
|
|
|
Accounts receivable as of
|
|
Customer
|
|
September 30,
2019
|
|
|
December 31,
2018
|
|
A (Yew Pharmaceutical, a related party)
|
|
|
-
|
%
|
|
|
31
|
%
|
B (HongKong YIDA Commerce Co., Limited, a related party)
|
|
|
22
|
%
|
|
|
24
|
%
|
D (GOLDEN PEACH TRAVEL SERVICE COMPANY LTD)
|
|
|
78
|
%
|
|
|
-
|
|
Suppliers
For
the nine months ended September 30, 2019 and 2018, suppliers accounting for 10% or more of the Company’s purchase were as
follows:
|
|
For the Nine months ended
September 30,
|
|
Supplier
|
|
2019
|
|
|
2018
|
|
A (Yew Pharmaceutical, a related party)
|
|
|
44
|
%
|
|
|
39
|
%
|
B (Heilongjiang Zishan Technology Co., Ltd., a related party)
|
|
|
*
|
%
|
|
|
12
|
%
|
C (Haixiang Liu)
|
|
|
10
|
%
|
|
|
*
|
%
|
|
|
Accounts payable and
Yew payable as of
|
|
Supplier
|
|
September 30,
2019
|
|
|
December 31,
2018
|
|
A (Yew Pharmaceutical, a related party)
|
|
|
58
|
%
|
|
|
-
|
|
B (Heilongjiang Zishan Technology Co., Ltd., a related party)
|
|
|
13
|
%
|
|
|
-
|
|
C (Haixiang Liu)
|
|
|
-
|
|
|
|
-
|
|
At
September 30, 2019 and December 31, 2018, the Company’s cash balances by geographic area were as follows:
Country
|
|
September 30,
2019
|
|
|
December 31,
2018
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
4,245
|
|
|
$
|
40,405
|
|
China
|
|
|
623,499
|
|
|
|
481,265
|
|
Total Cash
|
|
$
|
627,744
|
|
|
$
|
521,670
|
|
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 September 30, 2019 and December 31, 2018, approximately $107,000 and $200,000 of the Company’s
cash held by financial institutions, was insured, and the remaining balance of approximately $521,000 and $330,000 was not insured,
respectively.
NOTE
11 - RELATED PARTY TRANSACTIONS
In
addition to several of the Company’s officers and directors, the Company conducted transactions with the following related
parties:
Company
|
|
Nature
of Relationship
|
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 effective March 21, 2016
|
|
|
|
HongKong
YIDA Commerce Co., Limited(“YIDA”)
|
|
Significantly
influenced by the Company
|
|
|
|
LIFEFORFUN
LIMITED
|
|
Significantly
influenced by the Company
|
|
|
|
DMSU
Digital Technology Limited(“DMSU”)
|
|
Significantly
influenced by the Company
|
|
|
|
Jinguo
Wang
|
|
Management
of HDS, legal person of Xinlin before February 9, 2018, and director of ZTC effective February 1, 2018.
|
|
|
|
Chunping
Wang
|
|
Employee
of the Company
|
Weihong
Zhang
|
|
Employee
of the Company
|
Xue
Wang
|
|
Employee
of the Company
|
Cai
Wang
|
|
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.
For
the nine months ended September 30, 2019 and 2018, total revenues from Yew Pharmaceutical under the above agreement amounted to
$7,755,545 and $18,075,032, and corresponding cost of revenues amounted to $6,159,705 and $13,863,380, respectively. At September
30, 2019 and December 31, 2018, the Company had $Nil and $1,408,313 accounts receivable from Yew Pharmaceutical, respectively.
For
the nine months ended September 30, 2019 and 2018, the total purchase of yew candles, pine needle extracts, composite northeast
yew extract and mixed essential oil from Yew Pharmaceutical amounted to $11,018,135 and $18,033,411, respectively. At September
30, 2019 and December 31, 2018, the Company had $878,875 and $Nil accounts payable to Yew Pharmaceutical, respectively.
Transactions
with DMSU
As
of September 30, 2019, the Company recovered approximately $1,034,000 of accounts receivable previously written off from DMSU.
The amount was recorded in bad debt recovery as of September 30, 2019.
Transactions
with HBP
For
the nine months ended September 30, 2019 and 2018, HBP paid off operation expense on behalf of HYF in the amount of $874 and $5,834,
respectively. As of September 30, 2019 and December 31, 2018, HYF had due to HBP in the amount of $100,292 and $102,770, respectively,
which was included in due to related parties in the accompanying consolidated balance sheets.
Transactions
with HDS Development
As
of September 30, 2019 and December 31, 2018, the Company had $Nil and $981,613 accounts receivable, which were net of allowance
for doubtful account $Nil and $763,476 from HDS Development, respectively.
Transactions
with ZTC
During
the nine months ended September 30, 2019, HDS purchased yew forest assets from ZTC in the amount of $2,135,919. Since the assets
purchase occurred between entities under common control, the Company recorded the assets received at historical carrying costs
recorded by ZTC, which amounted to $1,730,920. The difference of $404,999 between the actual contract price and carrying costs
is recorded as additional paid-in capital. During the nine months ended September 30, 2018, HDS purchased yew forest assets from
ZTC in the amount of $5,616,194. At September 30, 2019 and December 31, 2018, the Company had $197,064 and $Nil balance payable
to ZTC.
Transactions
with Xinlin
During
the nine months ended September 30, 2019, HDS purchased yew forest assets from Xinlim in the amount of $149,378. Since the assets
purchase occurred between entities under common control, the Company recorded the assets received at historical carrying costs
recorded by Xinlin, which amounted to $122,788. The difference of $26,589 between the actual contract price and carrying costs
is recorded as additional paid-in capital. During the nine months ended September 30, 2018, HDS purchased yew forest assets from
Xinlin in the amount of $2,622,473. At September 30, 2019 and December 31, 2018, the Company had $143,638 and $Nil balance payable
to ZTC, respectively.
Transactions
with YIDA
For
the nine months ended September 30, 2019 and 2018, total revenues from YIDA amounted to $7,236,000 and $Nil. At September 30,
2019 and December 31, 2018, the Company had $2,200,000 and $1,108,808 accounts receivable from YIDA, respectively.
Transactions
with Lifeforfun Limited
At
September 30, 2019 and December 31, 2018, the Company had $Nil and $1,080,912 accounts receivable, which were net of allowance
for doubtful account $Nil and $74,448 from Lifeforfun Limited, respectively.
Transactions
with Jinguo Wang
During
the nine months ended September 30, 2019 and 2018, HDS purchased yew forest assets from Jinguo Wang in the amount of $1,085,255
and $1,426,873, respectively.
Transactions
with Chunping Wang
During
the nine months ended September 30, 2019 , HDS purchased yew forest assets from Chunping Wang in the amount of $1,285,377.
Transactions
with Weihong Zhang
During
the nine months ended September 30, 2019, HDS purchased yew forest assets from Weihong Zhang in the amount of $794,252.
Transactions
with Xue Wang
During
the nine months ended September 30, 2019, HDS purchased yew forest assets from Xue Wang in the amount of $158,093.
Transactions
with Cai Wang
During
the nine months ended September 30, 2019, HDS purchased yew forest assets from Cai Wang in the amount of $81,611.
Operating
Leases
On
March 25, 2005, the Company entered into an Agreement for the Lease of Seedling Land with ZTC (the “ZTC Lease”). Pursuant
to the ZTC Lease, the Company leased 361 mu of land from ZTC for a period of 30 years, expiring on March 24, 2035. Annual payments
under the ZTC Lease are RMB162,450 (approximately $24,000). The payment for the first five years of the ZTC Lease was due prior
to December 31, 2010 and beginning in 2011, the Company is required to make full payment for the land use rights in advance for
each subsequent five-year period. For the nine months ended September 30, 2019 and 2018, rent expense related to the ZTC Lease
approximately amounted to $18,000 and $19,000, respectively. At September 30, 2019 and December 31, 2018, prepaid rent to ZTC
approximately amounted to $11,000 and $30,000, respectively, which was included in prepaid expenses-related parties in the accompanying
consolidated balance sheets.
On
January 1, 2010, the Company entered into a lease for office space with Mr. Wang (the “Office Lease”). Pursuant to
the Office Lease, annual payments of RMB15,000 (approximately $2,000) are due for each of the term. The term of the Office Lease
is 15 years and expires on December 31, 2025. For the nine months ended September 30, 2019 and 2018, rent expense related to the
Office Lease approximately amounted to $1,600 and $1,700, respectively. As of September 30, 2019 and December 31, 2018, the unpaid
rent was approximately $1,700 and $Nil, respectively, which was included in due to related parties in the accompanying consolidated
balance sheets.
On
July 1, 2012, the Company entered into a lease for office space with Zhiguo Wang (the “JSJ Lease”). Pursuant to the
JSJ Lease, JSJ leases approximately 30 square meter of office space from Zhiguo Wang in Harbin. Rent under the JSJ Lease is RMB10,000
(approximately $1,500) annually. The term of the JSJ Lease is three years and expires on June 30, 2015. On July 1, 2015, the Company
and Mr. Wang renewed the JSJ Lease. The renewed lease expires on June 30, 2018. On July 1, 2018, the Company renewed JSJ Lease
for three years, which will now expire on June 30, 2021. Pursuant to the renewed lease agreement, the annual payment will be RMB
10,000 (approximately $1,500). For the nine months ended September 30, 2019 and 2018, rent expense related to the JSJ Lease approximately
amounted to $1,100 and $1,100, respectively. As of September 30, 2019 and December 31, 2018, the unpaid rent was approximately
$5,300 and $6,500, respectively, which was included in due to related parties in the accompanying consolidated balance sheets.
On
January 1, 2015, HYF entered into an lease agreement with HBP, pursuant to which HBP leases a warehouse, with an area of 225 square
meters, and a workshop, with an area of 50 square meters, both of which are located at No.1 Zisan Road, Shangzhi economic development
district, Shangzhi City, Heilongjiang Province, to HYF 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. The A’cheng Lease is for a term of 23 years and expires on March 19, 2025. Pursuant to the A’cheng
Lease, lease payment shall be made as follows:
Period
|
|
Annual lease amount
|
|
Payment due date
|
March 2002 to February 2012
|
|
RMB25,000
|
|
Before December 2012
|
March 2012 to February 2017
|
|
RMB25,000
|
|
Before December 2017
|
March 2017 to March 2025
|
|
RMB25,000
|
|
Before December 2025
|
For
the nine months ended September 30, 2019 and 2018, rent expense related to the A’cheng Lease approximately amounted $2,600
and $2,900, respectively. At September 30, 2019 and December 31, 2018, the unpaid rent was $Nil and $2,000, respectively, which
was included in due to related parties in the accompanying consolidated balance sheets.
The
Company leased an apartment in the Nangang district (the “Jixing Lease”) in Harbin from Ms. Qi on October 1, 2016.
The term of Jixing Lease is one year. On October 1, 2017, the Company and Ms. Qi renewed the Jixing Lease. The renewed lease expires
on September 30, 2018. On October 1, 2018, the Company and Ms. Qi renewed the Lease. The renewed lease expires on September 30,
2019. For the nine months ended September 30, 2019 and 2018, rent expense related to the Jixing Lease amounted $1,100 and $1,150,
respectively. As of September 30, 2019 and December 31, 2018, the prepaid rent to Ms. Qi amounted to approximately $700 and $1,000,
respectively, which was included in 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 September 30, 2019 and December 31, 2018:
|
|
September 30,
2019
|
|
|
December 31,
2018
|
|
Zhiguo Wang and Guifang Qi
|
|
$
|
498,002
|
|
|
$
|
477,246
|
|
HBP
|
|
|
100,292
|
|
|
|
102,770
|
|
Total
|
|
$
|
598,294
|
*
|
|
$
|
580,016
|
*
|
|
*:
|
The
amounts due to related parties bear no interest and are payable on demand.
|
NOTE
12 - SEGMENT INFORMATION
ASC
280 requires use of the “management approach” model for segment reporting. The management approach model is based
on the way a company’s management organizes segments within the company for making operating decisions and assessing performance.
Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner
in which management disaggregates a company.
The
Company managed and reviewed its business as two operating segments starting from year 2018. The business of HDS, JSJ and HYF
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. PRC and USA segments retain all of the reported consolidated amounts.
The
geographical distributions of the Company’s financial information for the nine months ended September 30, 2019 and 2018
were as follows:
|
|
For the Nine months ended
September 30,
|
|
Geographic Areas
|
|
2019
|
|
|
2018
|
|
Revenue
|
|
|
|
|
|
|
PRC
|
|
|
24,564,383
|
|
|
|
31,514,139
|
|
USA
|
|
|
205,694
|
|
|
|
376,604
|
|
Elimination Adjustment
|
|
|
(23,325
|
)
|
|
|
-
|
|
Total Revenue
|
|
$
|
24,746,752
|
|
|
$
|
31,890,743
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from operations
|
|
|
|
|
|
|
|
|
PRC
|
|
$
|
3,178,243
|
|
|
$
|
4,925,873
|
|
USA
|
|
|
(424,549
|
)
|
|
|
(1,427,087
|
)
|
Total Income (Loss) from operations
|
|
$
|
2,753,694
|
|
|
$
|
3,498,786
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
PRC
|
|
$
|
3,361,756
|
|
|
$
|
4,237,913
|
|
USA
|
|
|
(364,658
|
)
|
|
|
(2,856,537
|
)
|
Total net income (loss)
|
|
$
|
2,997,098
|
|
|
$
|
1,381,376
|
|
The
geographical distributions of the Company’s financial information for the three months ended September 30, 2019 and 2018
were as follows:
|
|
For the Three Months Ended
September 30,
|
|
Geographic Areas
|
|
2019
|
|
|
2018
|
|
Revenue
|
|
|
|
|
|
|
PRC
|
|
|
604,204
|
|
|
|
13,830,161
|
|
USA
|
|
|
86,647
|
|
|
|
209,076
|
|
Elimination Adjustment
|
|
|
(23,325
|
)
|
|
|
-
|
|
Total Revenue
|
|
$
|
667,526
|
|
|
$
|
14,039,237
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from operations
|
|
|
|
|
|
|
|
|
PRC
|
|
$
|
1,067,778
|
|
|
$
|
1,350,449
|
|
USA
|
|
|
4,441
|
|
|
|
(137,343
|
)
|
Total Income (Loss) from operations
|
|
$
|
1,072,219
|
|
|
$
|
1,213,106
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
PRC
|
|
$
|
1,138,524
|
|
|
$
|
1,188,418
|
|
USA
|
|
|
45,109
|
|
|
|
(1,569,236
|
)
|
Total net income (loss)
|
|
$
|
1,183,633
|
|
|
$
|
(380,818
|
)
|
The
geographical distribution of the Company’s financial information as of September 30, 2019 and December 31, 2018 were as
follows:
|
|
As of
September 30,
|
|
|
As of December 31,
|
|
Geographic Areas
|
|
2019
|
|
|
2018
|
|
Long-term assets
|
|
|
|
|
|
|
PRC
|
|
$
|
41,839,253
|
|
|
$
|
35,866,829
|
|
USA
|
|
|
775,457
|
|
|
|
1,436,101
|
|
Total long-term assets
|
|
$
|
42,614,710
|
|
|
$
|
37,302,930
|
|
|
|
|
|
|
|
|
|
|
Reportable assets
|
|
|
|
|
|
|
|
|
PRC
|
|
$
|
55,244,766
|
|
|
$
|
50,107,147
|
|
USA
|
|
|
2,169,813
|
|
|
|
2,289,019
|
|
Elimination adjustment
|
|
|
(3,129,210
|
)
|
|
|
(2,704,100
|
)
|
Total reportable assets
|
|
$
|
54,285,369
|
|
|
$
|
49,692,066
|
|
NOTE
13 - COMMITMENTS AND CONTINGENCIES
Operating
Lease
See
future minimum lease payments in Note 9.
NOTE
14 - SUBSEQUENT EVENTS
On
October 3, 2019 the Board of Directors approved to extend the expiration date of 5,000,000 options issued to Zhiguo Wang and 2,488,737
options issued to Guifang Qi from December 31, 2019 to December 31, 2021, and 200,000 options issued to William B. Barnett from
October 11, 2019 to December 31, 2021.
On
October 29, 2019, the Board of Directors approved 2019 Equity Incentive Plan and authorized an aggregate 5,000,000 shares of the
Company’s Common Stock, subject to stock splits, recapitalizations and other adjustments, for issuance to all employees
(including, without limitation, officers and directors who are also employees) of the Company or any subsidiary of the Company
(each a “Subsidiary”), to any non-employee director, consultants and to independent contractors of the Company or
any Subsidiary, and any joint venture partners (including, without limitation, officers, directors and partners thereof) of the
Company or any Subsidiary.
The
Company has evaluated all subsequent events through the date these consolidated financial statements were issued and determine
that there were no other subsequent events or transactions that require recognition or disclosures in the consolidated financial
statements.