YEW
BIO-PHARM GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(Unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
Cash
|
|
$
|
377,649
|
|
|
$
|
742,294
|
|
Accounts receivable
|
|
|
7,435,599
|
|
|
|
7,692,613
|
|
Accounts receivable - related parties, net of allowance
for doubtful account $193,000 and $193,000
|
|
|
713,042
|
|
|
|
193,000
|
|
Inventories, net
|
|
|
2,570,465
|
|
|
|
2,637,389
|
|
Prepaid expenses - related parties
|
|
|
-
|
|
|
|
5,829
|
|
Prepaid expenses and other assets
|
|
|
162,506
|
|
|
|
51,140
|
|
VAT recoverables
|
|
|
343,522
|
|
|
|
349,096
|
|
|
|
|
|
|
|
|
|
|
Total Current Assets
|
|
|
11,602,783
|
|
|
|
11,671,361
|
|
|
|
|
|
|
|
|
|
|
LONG-TERM ASSETS:
|
|
|
|
|
|
|
|
|
Long-term inventories, net
|
|
|
1,459,256
|
|
|
|
1,579,615
|
|
Property and equipment, net
|
|
|
459,067
|
|
|
|
474,903
|
|
Intangible assets, net
|
|
|
31,175
|
|
|
|
32,325
|
|
Land use rights and yew forest assets, net
|
|
|
37,903,063
|
|
|
|
40,048,696
|
|
Long-term advance to suppliers for yew forest assets
|
|
|
582,301
|
|
|
|
-
|
|
Long-term advance to suppliers – related parties for yew forest assets
|
|
|
393,645
|
|
|
|
-
|
|
Operating lease assets
|
|
|
382,416
|
|
|
|
399,817
|
|
|
|
|
|
|
|
|
|
|
Total Long-term Assets
|
|
|
41,210,923
|
|
|
|
42,535,356
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
52,813,706
|
|
|
$
|
54,206,717
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
123,223
|
|
|
$
|
131,718
|
|
Accounts payable – related parties
|
|
|
-
|
|
|
|
16,629
|
|
Payable for acquisition of yew forests
|
|
|
429,200
|
|
|
|
788,741
|
|
Advance from customers
|
|
|
112,709
|
|
|
|
50,071
|
|
Accrued expenses and other payables
|
|
|
192,861
|
|
|
|
150,309
|
|
Taxes payable
|
|
|
115,256
|
|
|
|
116,440
|
|
Due to related parties
|
|
|
621,141
|
|
|
|
633,779
|
|
Short-term borrowings
|
|
|
8,141,351
|
|
|
|
8,541,517
|
|
Operating lease liabilities, current
|
|
|
74,611
|
|
|
|
52,104
|
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities
|
|
|
9,800,352
|
|
|
|
10,481,308
|
|
|
|
|
|
|
|
|
|
|
NONCURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
Taxes payable, noncurrent
|
|
|
1,088,194
|
|
|
|
1,088,194
|
|
Long-term deferred income
|
|
|
877,166
|
|
|
|
892,375
|
|
Operating lease liabilities, noncurrent
|
|
|
318,931
|
|
|
|
351,145
|
|
Total Noncurrent Liabilities
|
|
|
2,284,291
|
|
|
|
2,331,714
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
12,084,643
|
|
|
|
12,813,022
|
|
|
|
|
|
|
|
|
|
|
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, 2020 and December 31, 2019
|
|
|
51,700
|
|
|
|
51,700
|
|
Additional paid-in capital
|
|
|
9,819,828
|
|
|
|
9,819,828
|
|
Retained earnings
|
|
|
30,102,135
|
|
|
|
29,950,723
|
|
Statutory reserves
|
|
|
3,762,288
|
|
|
|
3,762,288
|
|
Accumulated other comprehensive loss
|
|
|
(3,006,888
|
)
|
|
|
(2,190,844
|
)
|
|
|
|
|
|
|
|
|
|
Total Shareholders’ Equity
|
|
|
40,729,063
|
|
|
|
41,393,695
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Shareholders’ Equity
|
|
$
|
52,813,706
|
|
|
$
|
54,206,717
|
|
See
notes to 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
|
|
|
|
2020
|
|
|
2019
|
|
REVENUES:
|
|
|
|
|
|
|
Revenues
|
|
$
|
21,789
|
|
|
$
|
33,481
|
|
Revenues – related parties
|
|
|
2,007,393
|
|
|
|
11,480,523
|
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
|
|
2,029,182
|
|
|
|
11,514,004
|
|
|
|
|
|
|
|
|
|
|
COST OF REVENUES:
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
41,366
|
|
|
|
26,668
|
|
Cost of revenues – related parties
|
|
|
1,545,561
|
|
|
|
10,328,807
|
|
|
|
|
|
|
|
|
|
|
Total Cost of Revenues
|
|
|
1,586,927
|
|
|
|
10,355,475
|
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT
|
|
|
442,255
|
|
|
|
1,158,529
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES:
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
281,527
|
|
|
|
294,971
|
|
Bad debt expense
|
|
|
3,340
|
|
|
|
318,284
|
|
Stock-based compensation
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Expenses
|
|
|
284,867
|
|
|
|
613,255
|
|
|
|
|
|
|
|
|
|
|
INCOME FROM OPERATIONS
|
|
|
157,388
|
|
|
|
545,274
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSES):
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(111,977
|
)
|
|
|
(88,709
|
)
|
Other income
|
|
|
13,490
|
|
|
|
43,017
|
|
Exchange gains (loss)
|
|
|
92,511
|
|
|
|
(100,934
|
)
|
|
|
|
|
|
|
|
|
|
Total Other Expenses
|
|
|
(5,976
|
)
|
|
|
(146,626
|
)
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE PROVISION FOR INCOME TAXES
|
|
|
151,412
|
|
|
|
398,648
|
|
PROVISION FOR INCOME TAXES
|
|
|
-
|
|
|
|
(21,606
|
)
|
NET INCOME
|
|
$
|
151,412
|
|
|
$
|
377,042
|
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE INCOME (LOSS):
|
|
|
|
|
|
|
|
|
NET INCOME
|
|
$
|
151,412
|
|
|
$
|
377,042
|
|
OTHER COMPREHENSIVE INCOME (LOSS):
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
(816,044
|
)
|
|
|
1,024,884
|
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE (LOSS) INCOME
|
|
$
|
(664,632
|
)
|
|
$
|
1,401,926
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) PER COMMON SHARE:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.00
|
|
|
$
|
0.01
|
|
Diluted
|
|
$
|
0.00
|
|
|
$
|
0.01
|
|
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
51,700,000
|
|
|
|
52,012,729
|
|
Diluted
|
|
|
51,700,000
|
|
|
|
52,116,189
|
|
See
notes to 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,
|
|
|
|
2020
|
|
|
2019
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
Net income
|
|
$
|
151,412
|
|
|
$
|
377,042
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Bad debt expense
|
|
|
3,340
|
|
|
|
318,284
|
|
Depreciation and amortization
|
|
|
8,649
|
|
|
|
15,216
|
|
Inventory reserves
|
|
|
69,757
|
|
|
|
-
|
|
Amortization of land use rights and yew forest assets
|
|
|
613,811
|
|
|
|
2,665,955
|
|
Sale of yew forest assets as inventory
|
|
|
950,431
|
|
|
|
-
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
127,847
|
|
|
|
17,167
|
|
Accounts receivable - related parties
|
|
|
(534,754
|
)
|
|
|
(3,904,383
|
)
|
Prepaid expenses and other current assets
|
|
|
(105,862
|
)
|
|
|
(22,757
|
)
|
Prepaid expenses - related parties
|
|
|
5,819
|
|
|
|
7,317
|
|
Inventories
|
|
|
70,509
|
|
|
|
71,192
|
|
Accounts payable
|
|
|
(18,479
|
)
|
|
|
(133,408
|
)
|
Accounts payable - related parties
|
|
|
(16,598
|
)
|
|
|
-
|
|
Accrued expenses and other payables
|
|
|
44,942
|
|
|
|
117,745
|
|
Advance from customer
|
|
|
64,472
|
|
|
|
-
|
|
Advance from customer-related parties
|
|
|
-
|
|
|
|
2,337,581
|
|
Due to related parties
|
|
|
(12,065
|
)
|
|
|
815
|
|
Taxes payable
|
|
|
(1,566
|
)
|
|
|
(99,122
|
)
|
|
|
|
|
|
|
|
|
|
NET CASH PROVIDED BY OPERATING ACTIVITIES
|
|
|
1,422,047
|
|
|
|
1,768,644
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Prepayments made for purchase of yew forest assets
|
|
|
(591,294
|
)
|
|
|
(1,668,518
|
)
|
Prepayments made to related parties for purchase of yew forest assets
|
|
|
(399,725
|
)
|
|
|
-
|
|
Payments made to acquisition of yew forests
|
|
|
(351,443
|
)
|
|
|
-
|
|
Purchase of property and equipment and intangible assets
|
|
|
(644
|
)
|
|
|
(632
|
)
|
Purchase of land use rights and yew forest assets
|
|
|
(77,447
|
)
|
|
|
(30,465
|
)
|
|
|
|
|
|
|
|
|
|
NET CASH USED IN INVESTING ACTIVITIES
|
|
|
(1,420,553
|
)
|
|
|
(1,699,615
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds from short-term borrowings
|
|
|
1,200,607
|
|
|
|
1,290,000
|
|
Repayments of short-term borrowings
|
|
|
(1,485,962
|
)
|
|
|
(1,600,000
|
)
|
Proceeds from related parties
|
|
|
1,040
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
NET CASHUSED IN FINANCING ACTIVITIES
|
|
|
(284,315
|
)
|
|
|
(310,000
|
)
|
|
|
|
|
|
|
|
|
|
EFFECT OF EXCHANGE RATE ON CASH
|
|
|
(81,824
|
)
|
|
|
(58,971
|
)
|
|
|
|
|
|
|
|
|
|
NET DECREASE IN CASH
|
|
|
(364,645
|
)
|
|
|
(299,942
|
)
|
|
|
|
|
|
|
|
|
|
CASH - Beginning of the year
|
|
|
742,294
|
|
|
|
521,670
|
|
|
|
|
|
|
|
|
|
|
CASH - End of the year
|
|
$
|
377,649
|
|
|
$
|
221,728
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
Cash paid for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
118,675
|
|
|
$
|
80,688
|
|
Income taxes
|
|
$
|
-
|
|
|
$
|
114,547
|
|
|
|
|
|
|
|
|
|
|
NON-CASH INVESTING AND FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Operating expense paid by related party
|
|
$
|
430
|
|
|
$
|
-
|
|
See
notes to 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
Comprehensive
|
|
|
Total
|
|
|
|
Number
of
Shares
|
|
|
Amount
|
|
|
paid-in
Capital
|
|
|
Retained
Earnings
|
|
|
Statutory
Reserve
|
|
|
Income
(Loss)
|
|
|
Shareholders’
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2018
|
|
|
52,075,000
|
|
|
$
|
52,075
|
|
|
$
|
9,953,494
|
|
|
$
|
28,965,217
|
|
|
$
|
3,762,288
|
|
|
$
|
(1,646,035
|
)
|
|
$
|
41,087,039
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancellation
of common stocks
|
|
|
(375,000
|
)
|
|
|
(375
|
)
|
|
|
375
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
377,042
|
|
|
|
-
|
|
|
|
-
|
|
|
|
377,042
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,024,884
|
|
|
|
1,024,884
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
March 31, 2019
|
|
|
51,700,000
|
|
|
$
|
51,700
|
|
|
$
|
9,953,869
|
|
|
$
|
29,342,259
|
|
|
$
|
3,762,288
|
|
|
$
|
(621,151
|
)
|
|
$
|
42,488,965
|
|
|
|
Common
Stock,
Par Value $0.001
|
|
|
Additional
|
|
|
|
|
|
|
|
|
Accumulated
Other
Comprehensive
|
|
|
Total
|
|
|
|
Number
of
Shares
|
|
|
Amount
|
|
|
paid-in
Capital
|
|
|
Retained
Earnings
|
|
|
Statutory
Reserve
|
|
|
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
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(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
|
|
See
notes to 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, 2019 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, 2019.
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, 2020, and the results of operations and cash flows for the three-month periods ended
March 31, 2020 and 2019, 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
|
%
|
|
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 subsidiaries
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 March 31, 2020 and December 31, 2019, 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,
2020
|
|
|
December 31,
2019
|
|
Assets
|
|
|
|
|
|
|
Cash
|
|
$
|
367,849
|
|
|
$
|
688,863
|
|
Accounts receivable
|
|
|
7,435,586
|
|
|
|
7,692,600
|
|
Accounts receivable - related parties, net of allowance
for doubtful account $193,000 and 193,000
|
|
|
713,042
|
|
|
|
193,000
|
|
Inventories (current and long-term), net
|
|
|
2,940,255
|
|
|
|
2,991,237
|
|
Prepaid expenses and other assets
|
|
|
148,568
|
|
|
|
37,202
|
|
Long-term advance to suppliers
|
|
|
582,301
|
|
|
|
|
|
Long-term advance to suppliers - related parties
|
|
|
393,645
|
|
|
|
|
|
Prepaid expenses - related parties
|
|
|
-
|
|
|
|
5,829
|
|
Property and equipment, net
|
|
|
450,894
|
|
|
|
466,025
|
|
Long-term investment in MC
|
|
|
3,443,236
|
|
|
|
3,009,527
|
|
Land use rights and yew forest assets, net
|
|
|
37,903,062
|
|
|
|
40,048,696
|
|
Operating lease assets
|
|
|
254,195
|
|
|
|
259,331
|
|
VAT recoverables
|
|
|
343,522
|
|
|
|
349,096
|
|
Total assets of VIE and its subsidiaries
|
|
$
|
54,976,155
|
|
|
$
|
55,741,406
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Accrued expenses and other payables
|
|
$
|
163,465
|
|
|
$
|
131,420
|
|
Accounts payable
|
|
|
113
|
|
|
|
7,605
|
|
Accounts payable-related parties
|
|
|
-
|
|
|
|
16,629
|
|
Payable for acquisition of yew forests
|
|
|
429,200
|
|
|
|
788,741
|
|
Advance from customer
|
|
|
112,709
|
|
|
|
50,071
|
|
Advance from customer-related party
|
|
|
-
|
|
|
|
-
|
|
Short-term borrowings
|
|
|
8,141,351
|
|
|
|
8,541,517
|
|
Operating lease liabilities, current
|
|
|
33,561
|
|
|
|
9,340
|
|
Operating lease liabilities, noncurrent
|
|
|
231,463
|
|
|
|
253,423
|
|
Long-term deferred income
|
|
|
877,166
|
|
|
|
892,375
|
|
Due to related parties and VIE holding companies
|
|
|
90,676
|
|
|
|
614,265
|
|
Total liabilities of VIE and its subsidiaries
|
|
$
|
10,079,704
|
|
|
$
|
11,305,386
|
|
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 three months ended March 31, 2020 and 2019. The Company recognized operating lease
liabilities of $350,000 upon adoption, with corresponding ROU assets on its balance sheet as of January 1, 2019.
Recently
Issued Accounting Pronouncements Not Yet 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.
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, NET
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 March 31,
2020 and December 31, 2019, inventories consisted of the following:
|
|
March 31, 2020
|
|
|
December 31, 2019
|
|
|
|
Current portion
|
|
|
Long-term portion
|
|
|
Total
|
|
|
Current portion
|
|
|
Long-term portion
|
|
|
Total
|
|
Raw materials
|
|
$
|
16,475
|
|
|
$
|
89,504
|
|
|
$
|
105,979
|
|
|
$
|
16,761
|
|
|
$
|
91,056
|
|
|
$
|
107,817
|
|
Finished goods
|
|
|
2,697,347
|
|
|
|
2,567,529
|
|
|
|
5,264,876
|
|
|
|
2,770,352
|
|
|
|
2,613,724
|
|
|
|
5,384,076
|
|
Yew seedlings
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
|
2,713,822
|
|
|
|
2,657,033
|
|
|
|
5,370,855
|
|
|
|
2,787,113
|
|
|
|
2,704,780
|
|
|
|
5,491,893
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory reserves
|
|
|
(143,357
|
)
|
|
|
(1,197,777
|
)
|
|
|
(1,341,134
|
)
|
|
|
(149,724
|
)
|
|
|
(1,125,165
|
)
|
|
|
(1,274,889
|
)
|
Inventories, net
|
|
$
|
2,570,465
|
|
|
$
|
1,459,256
|
|
|
$
|
4,029,721
|
|
|
$
|
2,637,389
|
|
|
$
|
1,579,615
|
|
|
$
|
4,217,004
|
|
Inventories as
of March 31, 2020 and December 31, 2019 consisted of the inventory purchased from related parties are as follows:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Inventories, net
|
|
$
|
44,971
|
|
|
$
|
-
|
|
Inventories - related parties, net
|
|
|
2,525,494
|
|
|
|
2,637,389
|
|
Total
|
|
$
|
2,570,465
|
|
|
$
|
2,637,389
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Long-term inventories, net
|
|
$
|
394,172
|
|
|
$
|
395,032
|
|
Long-term inventories - related parties, net
|
|
|
1,065,084
|
|
|
|
1,184,583
|
|
Total
|
|
$
|
1,459,256
|
|
|
$
|
1,579,615
|
|
NOTE
5 - 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, 2020 and 2019:
|
|
Three
Months Ended
March
31,
|
|
|
|
2020
|
|
|
2019
|
|
U.S. federal income tax rate
|
|
|
21.0
|
%
|
|
|
21.0
|
%
|
Tax rate difference
|
|
|
9.6
|
%
|
|
|
5.6
|
%
|
Loss not subject income tax
|
|
|
-
|
%
|
|
|
8.7
|
%
|
PRC tax exemption and reduction
|
|
|
(60.2
|
)%
|
|
|
(40.8
|
)%
|
GILTI
|
|
|
-
|
%
|
|
|
-
|
%
|
Valuation allowance
|
|
|
29.6
|
%
|
|
|
-
|
%
|
Others
|
|
|
-
|
%
|
|
|
-
|
%
|
Effective tax rate
|
|
|
-
|
%
|
|
|
(5.4
|
)%
|
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%. The Company recognized provisional tax impacts related to the revaluation
of deferred tax assets and liabilities and corresponding valuation allowances in its consolidated financial statements for the
year ended December 31, 2018. Accordingly, 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, 2020 and December 31, 2019, the Company had current income tax payable of $115,256 and $116,440 and noncurrent
income tax payable of $1,088,194 and $1,088,194, 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, 2020 and 2019, the GILTI
tax expense was nil. As of March 31, 2020 and December 31, 2019, the Company had no GILTI tax payable outstanding.
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.
(b)
Value Added Taxes (“VAT”)
The
applicable VAT tax rate is 13% for agricultural products, 17% and 16% for handicrafts, yew candles complex taxus cuspidate extract,
composite northeast yew extract and pine needle extracts sold in the PRC prior to and after May 1, 2018, respectively. In accordance
with VAT regulations in the PRC, the Company is exempt from paying VAT on its yew raw materials and yew trees sales as an agricultural
corps cultivating company up to December 31, 2019. The company’s sales of yew candles, handmade essence oil soaps,
and pine needle extracts and export products are under VAT tax-exempt treaty and thus are eligible for return of VAT-IN. VAT payable
in the PRC is charged on an aggregated basis at the applicable rate on the full price collected for the goods sold or taxable
services provided and less any deductible VAT already paid by the taxpayer on purchases of goods in the same fiscal year.
NOTE
6 - SHORT-TERM BORROWINGS
On December 22, 2016, HDS entered into a credit
agreement with China Everbright Bank (“CEB”) which agreed to provide a line of credit of RMB20,000,000 (approximately
$2,880,000) 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 RMB20,000,000 (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 $1,400,000 back on March 2020
and the remaining $1,400,000 back subsequently on April 2020 under the initial line of credit, through which the initial line
of credit was paid off in its entirety. As of March 31, 2020 and December 31, 2019, the Company held $2,497,692 and $2,800,000,
respectively, under the two line of credits, respectively. During the three months ended March 31, 2020, the Company recorded
$33,604 interest expense in connection with the two line of credits.
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 $2,153,000), 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 $718,000), 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 (approximately $1,048,000) for the period from June 4, 2019 to June 3, 2020, RMB8,100,000 (approximately
$1,163,000) for the period from June 11, 2019 to June 10, 2020, and RMB4,600,000 (approximately $660,000) for the period from
July 2, 2019 to July 1, 2020. All of the three 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, 2020
and December 31, 2019, $2,821,830 and $2,870,758 were outstanding under the loan agreement, respectively. HDS recorded $37,809
interest expense associated with the loan for the three months ended March 31, 2020. Subsequently HDS paid $2,172,809 (RMB15,400,000)
on June 2020.
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 $2,153,000 at December 31, 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. As of March 31, 2020 and December 31, 2019, $2,116,372 and $2,153,069 were outstanding under the loan agreement, respectively.
HDS recorded $31,508 interest expense associated with the loan for the three months ended March 31, 2020.
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 $718,000 at December 31, 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. As of March 31, 2020 and December 31, 2019, $705,457 and $717,690 were outstanding under the loan agreement,
respectively. HDS recorded $15,754 interest expense associated with the loan for the three months ended March 31, 2020.
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 off RMB200,000 and RMB400,000 to the Company,
respectively.
During
the three months ended March 31, 2020 and 2019, interest expense was $111,977 and $88,709, 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.com.
Stock
option activities for the three months ended March 31, 2020 and 2019 were summarized in the following table.
|
|
Three Months Ended
March 31, 2020
|
|
|
Three Months Ended
March 31, 2019
|
|
|
|
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
|
|
|
|
7,738,737
|
|
|
|
0.22
|
|
Issued
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Balance at end of period
|
|
|
7,738,737
|
|
|
|
0.22
|
|
|
|
7,738,737
|
|
|
|
0.22
|
|
Option exercisable at end of period
|
|
|
7,738,737
|
|
|
|
0.22
|
|
|
|
7,738,737
|
|
|
|
0.22
|
|
The
following table summarizes the shares of the Company’s common stock issuable upon exercise of options outstanding at March
31, 2020:
Stock Options Outstanding
|
|
|
Stock Options Exercisable
|
|
Range of
Exercise Price
|
|
|
Number
Outstanding
at
March 31,
2020
|
|
|
Weighted
Average
Remaining
Contractual
Life (Years)
|
|
|
Weighted
Average
Exercise Price
|
|
|
Number
Exercisable
at
March 31,
2019
|
|
|
Weighted
Average
Exercise Price
|
|
$
|
0.22-0.25
|
|
|
|
7,738,737
|
|
|
|
1.75
|
|
|
$
|
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 $0.12 as of March 31, 2020. Stock option expense recognized during the three months
ended March 31, 2020 and 2019 was $Nil.
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 months ended March 31, 2020
and 2019:
|
|
For the Three Months
Ended March 31,
|
|
|
|
2020
|
|
|
2019
|
|
Net income available to common stockholders for basic and diluted net income per share of common stock
|
|
$
|
151,412
|
|
|
$
|
377,042
|
|
Weighted average common stock outstanding - basic
|
|
|
51,700,000
|
|
|
|
52,012,729
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
Stock options issued to directors/officers/employees
|
|
|
-
|
|
|
|
103,460
|
|
Weighted average common stock outstanding - diluted
|
|
|
51,700,000
|
|
|
|
52,116,189
|
|
Net income per common share - basic
|
|
$
|
0.00
|
|
|
$
|
0.01
|
|
Net income per common share - diluted
|
|
$
|
0.00
|
|
|
$
|
0.01
|
|
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 spaces 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,
2020
|
|
|
Three Months Ended
March
31,
2019
|
|
Operating lease cost
|
|
Selling, general and administrative expense
|
|
$
|
19,319
|
|
|
$
|
29,514
|
|
Net lease cost
|
|
|
|
$
|
19,319
|
|
|
$
|
29,514
|
|
Balance
sheet information related to leases consists of the following:
|
|
Classification
|
|
March 31, 2020
|
|
|
December 31,
2019
|
|
Assets
|
|
|
|
|
|
|
|
|
Operating lease ROU assets
|
|
Right-of-use assets
|
|
$
|
382,416
|
|
|
$
|
399,817
|
|
Total leased assets
|
|
|
|
$
|
382,416
|
|
|
$
|
399,817
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
Operating
|
|
Operating lease liabilities, current
|
|
$
|
74,611
|
|
|
$
|
52,104
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current
|
|
|
|
|
|
|
|
|
|
|
Operating
|
|
Operating lease liabilities, noncurrent
|
|
|
318,931
|
|
|
|
351,145
|
|
Total lease liabilities
|
|
|
|
$
|
394,542
|
|
|
$
|
403,249
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average remaining lease term
|
|
|
|
|
|
|
|
|
|
|
Operating leases
|
|
|
|
|
5.92 years
|
|
|
|
6.17 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,
2020
|
|
|
Three Months Ended
March 31,
2019
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
|
|
Operating cash flows from operating leases
|
|
$
|
34,725
|
|
|
$
|
35,530
|
|
The
minimum future lease payments as of March 31, 2020 are as follows:
Years Ending December 31,
|
|
Operating Leases
|
|
The remaining of 2020
|
|
$
|
39,271
|
|
2021
|
|
|
76,072
|
|
2022
|
|
|
76,418
|
|
2023
|
|
|
29,685
|
|
2024
|
|
|
25,423
|
|
After 2024
|
|
|
281,090
|
|
Total lease payments
|
|
|
527,959
|
|
Less: Interest
|
|
|
(134,417
|
)
|
Present value of lease liabilities
|
|
$
|
393,542
|
|
NOTE
10 - CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS
Major Customers
For
the three months ended March 31, 2020 and 2019, customers accounting for 10% or more of the Company’s revenue were as follows:
|
|
For the Three Months
Ended March 31,
|
|
Customer
|
|
2020
|
|
|
2019
|
|
A (Yew Pharmaceutical, a related party)
|
|
|
99
|
%
|
|
|
36
|
%
|
B (HongKong YIDA Commerce Co., Limited, a related party)
|
|
|
-
|
%
|
|
|
64
|
%
|
|
|
Accounts receivable as of
|
|
Customer
|
|
March 31, 2020
|
|
|
March 31, 2019
|
|
A (Yew Pharmaceutical, a related party)
|
|
|
6
|
%
|
|
|
-
|
%
|
B (HongKong YIDA Commerce Co., Limited, a related party)
|
|
|
91
|
%
|
|
|
-
|
%
|
Major Suppliers
For
the three months ended March 31, 2020 and 2019, suppliers accounting for 10% or more of the Company’s purchase were as follows:
|
|
For the Three Months
Ended March 31,
|
|
Supplier
|
|
2020
|
|
|
2019
|
|
A (Yew Pharmaceutical, a related party)
|
|
|
-
|
%
|
|
|
100
|
%
|
No
significant accounts payable as of March 31, 2020 and 2019.
At
March 31, 2020 and December 31, 2019, the Company’s cash balances by geographic area were as follows:
|
|
March 31,
2020
|
|
|
December 31,
2019
|
|
Country
|
|
|
|
|
|
|
United States
|
|
$
|
3,410
|
|
|
$
|
46,855
|
|
China
|
|
|
374,239
|
|
|
|
695,439
|
|
Total Cash
|
|
$
|
377,649
|
|
|
$
|
742,294
|
|
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, 2020 and December 31, 2019, approximately $367,000 and $216,000 of the Company’s
cash held by financial institutions, was insured, and the remaining balance of approximately $10,000 and $526,000 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
|
|
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. 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 soap, 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, yew essential oil soap, complex taxus cuspidate extract,
composite northeast yew extract, and pine needle extracts as finished goods and then sells to third party and related party.
For
the three months ended March 31, 2020 and 2019, total revenues from Yew Pharmaceutical under the above agreement amounted to $2,007,393
and $4,163,435, respectively. At March 31, 2020 and December 31, 2019, the Company had $520,042 and nil accounts receivable from
Yew Pharmaceutical, respectively.
For
the three months ended March 31, 2020 and 2019, the total purchase of yew candles and mixed essential oil from Yew Pharmaceutical
amounted to approximately $Nil and $8,460,000, respectively.
Transactions
with HBP
For
the three months ended March 31, 2020 and 2019, HBP paid off operation expense on behalf of HYF in the amount of $430 and $Nil,
respectively. As of March 31, 2020 and December 31, 2019, HYF had due to HBP in the amount of $89,166 and $103,158, respectively,
which was included in due to related parties in the accompanying consolidated balance sheets.
Transactions
with YIDA
For
the three months ended March 31, 2020 and 2019, total revenues from YIDA amounted to $Nil and $7,314,941. At March 31, 2020 and
December 31, 2019, the Company had $193,000 and $193,000 accounts receivable from YIDA, respectively.
Transactions
with Changzhi Du
During
the three months ended March 31, 2020 and 2019, HDS prepaid $Nil and $636,922, respectively, to Changzhi Du for purchase of yew
forest assets, which was included in long-term prepaid expenses-related parties in the accompanying consolidated balance sheets.
Transactions
with Jinguo Wang
At
March 31, 2019, HDS prepaid $282,183 to Jinguo Wang for purchase of yew forest assets, which was included in advance to suppliers-related
parties in the accompanying consolidated balance sheets.
Transactions
with Chunping Wang
At
March 31, 2019, HDS prepaid $111,462 to Chunping Wang for purchase of yew forest assets, which was included in advance to suppliers-related
parties in the accompanying consolidated balance sheets.
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 RMB 162,450 (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 three months ended March 31, 2020 and 2019, rent expense related to the ZTC Lease amounted
to $5,819 and $6,020, respectively. At March 31, 2020 and December 31, 2019, prepaid rent to ZTC amounted to approximately $Nil
and $5,829, 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 three months ended March 31, 2020 and 2019, rent expense related to the
Office Lease amounted to $537 and $556 respectively. As of March 31, 2020 and December 31, 2019, the unpaid rent was $529 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 three months ended March 31, 2020 and 2019, rent expense related to the JSJ Lease amounted
to $358 and $371, respectively. As of March 31, 2020 and December 31, 2019, the unpaid rent was $1,058 and $718, 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 three months ended March 31, 2020 and 2019, rent expense related to the A’cheng Lease amounted $882 and $886, respectively.
At March 31, 2020 and December 31, 2019, the unpaid rent was $882 and $Nil, respectively, which was included in (due to related
parties) prepaid expenses-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 three months ended March 31, 2020 and 2019, rent expense related to the Jixing Lease amounted $Nil and $371, respectively.
Due
to Related Parties
The
following summarized the Company’s due to related parties as of March 31, 2020 and December 31, 2019:
|
|
March 31,
2020
|
|
|
December 31,
2019
|
|
Zhiguo Wang and Guifang Qi
|
|
|
531,975
|
|
|
|
530,621
|
|
HBP
|
|
|
89,166
|
|
|
|
103,158
|
|
Total
|
|
$
|
621,141
|
|
|
$
|
633,779
|
|
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 three months ended March 31, 2020 and 2019 were
as follows:
|
|
For the Three Months
Ended March 31,
|
|
Geographic Areas
|
|
2020
|
|
|
2019
|
|
Revenue
|
|
|
|
|
|
|
PRC
|
|
|
2,007,393
|
|
|
|
11,480,671
|
|
USA
|
|
|
76,809
|
|
|
|
33,333
|
|
Elimination Adjustment
|
|
|
(55,020
|
)
|
|
|
|
|
Total Revenue
|
|
$
|
2,029,182
|
|
|
$
|
11,514,004
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from operations
|
|
|
|
|
|
|
|
|
PRC
|
|
$
|
369,038
|
|
|
$
|
749,260
|
|
USA
|
|
|
(211,650
|
)
|
|
|
(203,986
|
)
|
Total Income from operations
|
|
$
|
157,388
|
|
|
$
|
545,274
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
PRC
|
|
$
|
361,683
|
|
|
$
|
538,945
|
|
USA
|
|
|
(210,271
|
)
|
|
|
(161,903
|
)
|
Total net income
|
|
$
|
151,412
|
|
|
$
|
377,042
|
|
The
geographical distribution of the Company’s financial information as of March 31, 2020 and December 31, 2019 were as follows:
|
|
As of March 31,
|
|
|
As of December 31,
|
|
Geographic Areas
|
|
2020
|
|
|
2019
|
|
Long-term assets
|
|
|
|
|
|
|
PRC
|
|
$
|
43,421,505
|
|
|
$
|
44,547,842
|
|
USA
|
|
|
1,232,654
|
|
|
|
1,363,586
|
|
Elimination adjustment
|
|
|
(3,443,236
|
)
|
|
|
(3,376,072
|
)
|
Total long-term assets
|
|
$
|
41,210,923
|
|
|
$
|
42,535,356
|
|
|
|
|
|
|
|
|
|
|
Reportable assets
|
|
|
|
|
|
|
|
|
PRC
|
|
$
|
54,284,822
|
|
|
$
|
55,407,391
|
|
USA
|
|
|
2,053,325
|
|
|
|
2,146,518
|
|
Elimination adjustment
|
|
|
(3,524,441
|
)
|
|
|
(3,347,192
|
)
|
Total reportable assets
|
|
$
|
52,813,706
|
|
|
$
|
54,206,717
|
|
NOTE
13 - COMMITMENTS AND CONTINGENCIES
Operating
Lease
See
future minimum lease payments in Note 9.
NOTE
14 - SUBSEQUENT EVENTS
On
May 1, 2020, the Company got a Promissory Note (the “Note”) in the amount of $70,920 approved from the Paycheck Protection
Program (the “PPP Loan”) through Bank of America (the “Lender”). The PPP loan is a loan program of U.S.
Small Business Administration (the “SBA”) designated to provide a direct incentive for small business to keep their
workers on the payroll due to the COVID-19 crisis. The interest rate on this Note is a fixed rate of 1.00% per annum. The Company
will pay this loan in one payment of all outstanding principal plus all accrued unpaid interest on that date that is two years
after the date of this Note (“Maturity Date”). In addition, the Company will pay regular monthly payments in an amount
equal to one month’s accrued interest commencing on that date that is seven months after the date of this Note, with all
subsequent interest payments to be due on the same day of each month after that. All interest which accrues during the initial
six months of the loan period will be deferred to and payable on the Maturity Date. Unless otherwise agreed or required by applicable
law, payments will be applied first to any accrued unpaid interest; then to principal.
According
to SBA’s PPP description, the PPP loan will be fully forgiven if the funds are used for payroll costs, interest on mortgages,
rent, and utilities (due to likely high subscription, at least 75% of the forgiven amount must have been used for payroll).
Loan payments will also be deferred for six months. No collateral or personal guarantees are required. Neither the government
nor lenders will charge small businesses any fees. Forgiveness is based on the employer maintaining or quickly rehiring employees
and maintaining salary levels. Forgiveness will be reduced if full-time headcount declines, or if salaries and wages decrease.
The Company received the amount of $70,920 from Bank of America on May 4, 2020.