NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2020
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 June 30, 2020,
and the results of operations and cash flows for the six months ended June 30, 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, no active operation since its incorporation
|
(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 June 30, 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:
|
|
June 30,
2020
|
|
|
December 31,
2019
|
|
Assets
|
|
|
|
|
|
|
Cash
|
|
$
|
1,656,284
|
|
|
$
|
688,863
|
|
Accounts receivable
|
|
|
4,168,465
|
|
|
|
7,692,600
|
|
Accounts receivable - related parties, net
|
|
|
4,320,000
|
|
|
|
193,000
|
|
Inventories (current and noncurrent), net
|
|
|
2,190,433
|
|
|
|
2,991,237
|
|
Prepaid expenses and other assets
|
|
|
207,859
|
|
|
|
37,202
|
|
Prepaid expenses - related parties
|
|
|
-
|
|
|
|
5,829
|
|
Advance to suppliers
|
|
|
600,299
|
|
|
|
-
|
|
Property and equipment, net
|
|
|
485,050
|
|
|
|
466,025
|
|
Long-term investment in an affiliate
|
|
|
3,562,322
|
|
|
|
3,009,527
|
|
Land use rights and yew forest assets, net
|
|
|
40,170,425
|
|
|
|
40,048,696
|
|
Operating lease right of use
|
|
|
221,248
|
|
|
|
259,331
|
|
VAT recoverable
|
|
|
751,865
|
|
|
|
349,096
|
|
Total assets of VIE and its subsidiary
|
|
$
|
58,334,250
|
|
|
$
|
55,741,406
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Accounts Payable for acquisition of yew forests and others
|
|
$
|
1,249,805
|
|
|
$
|
796,346
|
|
Accounts Payable for acquisition of yew forests and others - related parties
|
|
|
420,103
|
|
|
|
16,629
|
|
Advances from customers
|
|
|
407,208
|
|
|
|
50,071
|
|
Advances from customers - related parties
|
|
|
110,349
|
|
|
|
-
|
|
Short-term borrowings
|
|
|
8,416,199
|
|
|
|
8,541,517
|
|
Accrued expenses and other payables
|
|
|
259,571
|
|
|
|
131,420
|
|
Operating lease liability, current and noncurrent
|
|
|
238,165
|
|
|
|
262,763
|
|
Long-term deferred income
|
|
|
1,119,142
|
|
|
|
892,375
|
|
Due to related parties and VIE holding companies
|
|
|
99,903
|
|
|
|
614,265
|
|
Total liabilities of VIE and its subsidiary
|
|
$
|
12,320,445
|
|
|
$
|
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 and six months ended June 30, 2020 and 2019. The Company recognized operating
lease liabilities of approximately $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 June 30,
2020 and December 31, 2019 inventories consisted of the following:
|
|
June 30, 2020
|
|
|
December 31, 2019
|
|
|
|
Current
portion
|
|
|
Long-term
portion
|
|
|
Total
|
|
|
Current
portion
|
|
|
Long-term
portion
|
|
|
Total
|
|
Raw materials
|
|
$
|
16,517
|
|
|
$
|
89,732
|
|
|
$
|
106,249
|
|
|
$
|
16,761
|
|
|
$
|
91,056
|
|
|
$
|
107,817
|
|
Finished goods
|
|
|
1,946,551
|
|
|
|
2,568,705
|
|
|
|
4,515,256
|
|
|
|
2,770,352
|
|
|
|
2,613,724
|
|
|
|
5,384,076
|
|
Total
|
|
|
1,963,068
|
|
|
|
2,658,437
|
|
|
|
4,621,505
|
|
|
|
2,787,113
|
|
|
|
2,704,780
|
|
|
|
5,491,893
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory reserves
|
|
|
(143,517
|
)
|
|
|
(1,498,131
|
)
|
|
|
(1,641,648
|
)
|
|
|
(149,724
|
)
|
|
|
(1,125,165
|
)
|
|
|
(1,274,889
|
)
|
Inventories, net
|
|
$
|
1,819,551
|
|
|
$
|
1,160,306
|
|
|
$
|
2,979,857
|
|
|
$
|
2,637,389
|
|
|
$
|
1,579,615
|
)
|
|
$
|
4,217,004
|
|
Inventories as
of June 30, 2020 and December 31, 2019 consisted of inventories purchased from related parties are as follows:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Inventories, net
|
|
$
|
45,094
|
|
|
$
|
-
|
|
Inventories - related parties, net
|
|
|
1,774,457
|
|
|
|
2,637,389
|
|
Total
|
|
$
|
1,819,551
|
|
|
$
|
2,637,389
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Long-term inventories, net
|
|
$
|
395,263
|
|
|
$
|
395,032
|
|
Long-term inventories - related parties, net
|
|
|
765,043
|
|
|
|
1,184,583
|
|
Total
|
|
$
|
1,160,306
|
|
|
$
|
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 six months ended June 30, 2020 and 2019:
|
|
Six Months Ended
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
U.S. federal income tax rate
|
|
|
21.0
|
%
|
|
|
21.00
|
%
|
State income tax rate
|
|
|
8.8
|
%
|
|
|
8.8
|
%
|
Tax rate difference
|
|
|
6.9
|
%
|
|
|
4.81
|
%
|
PRC tax exemption and reduction
|
|
|
(58.7
|
)%
|
|
|
(30.16
|
)%
|
GILTI
|
|
|
-
|
%
|
|
|
(1.60
|
)%
|
Valuation allowance
|
|
|
22.0
|
%
|
|
|
2.9
|
%
|
Others
|
|
|
-
|
%
|
|
|
0.29
|
%
|
Effective tax rate
|
|
|
-
|
%
|
|
|
(2.76
|
)%
|
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 June 30, 2020 and December 31, 2019, the
Company had current income tax payable of $115,264 and $116,440 and noncurrent income tax payable of $1,088,194 and $1,088,194,
respectively. The Company made income tax payment of $115,264 subsequently on July 2020.
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 six months ended June 30, 2020 and 2019, the GILTI tax
expense was nil. As of June 30, 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. 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 $2,800,000 (approximately RMB20,000,000) 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 two $1,400,000 back in March and April 2020, totaling $2,800,000 under the initial line of credit, through
which the initial line of credit was paid off in its entirety. As of June 30, 2020 and December 31, 2019, the Company held $2,758,250
and $2,800,000 loans from CEB, respectively. During the three and six months ended June 30, 2020, the Company recorded $37,190
and $70,794 interest expense in connection with the CEB loans, 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 $2,153,000), 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 credit agreement with Postal Saving Bank of China which agreed to provide a line of credit of
RMB20,000,000 (approximately $2,830,000) to the Company for the period of ten years. These loans have interest rate of 5.22% per
annum payable monthly. Zhiguo Wang and his wife Madame Qi, pledged buildings and land use rights they owned with Postal Saving
Bank of China to secure the loans. In addition, Zhiguo Wang and his wife Madame Qi, Yicheng Wang and Lei Zhang provided personal
guarantees to the loans. During the six months ended June 30, 2020, HDS renewed RMB15,400,000 (approximately $2,190,000) loan
under the RMB 20 million line of credit. As of June 30, 2020 and December 31, 2019, $2,828,974 and $2,870,758 were outstanding
under the loan agreements, respectively. HDS recorded $32,680 and $70,489 interest expense associated with the loan for the three
and six months ended June 30, 2020, respectively.
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 June 30, 2020 and December 31, 2019, $2,121,731 and $2,153,069 were outstanding under the loan agreement, respectively.
HDS recorded $39,225 and $70,733 interest expense associated with the loan for the three and six months ended June 30, 2020, respectively.
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 June 30, 2020 and December 31, 2019, $707,244 and $717,690 were outstanding under the loan agreement,
respectively. HDS recorded $7,824 and $23,578 interest expense associated with the loan for the three and six months ended June
30, 2020, respectively.
On
January 30, 2020, Yicheng Wang entered into a loan agreement with the Company, pursuant to which the Company lent RMB600,000 to
Yicheng Wang for the period from January 30, 2020 to January 29, 2021 at the interest rate of 5.00%. On February 24 and 25, 2020,
Yicheng Wang paid the entire loan amount off.
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 loan
will be due in one payment of all outstanding principal plus all accrued unpaid interest in two years after the date of this Note
(“Maturity Date”). In addition, the Company will start to pay regular monthly payments in an amount equal to one month’s
accrued interest commencing from the seventh month after the date of this Note. 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 $70,920 PPP Loan on May
4, 2020, which was outstanding as of June 30, 2020.
On
July 2020, the Company received advances of the SBA Economic Injury Disaster Loans (“EIDL”) totaling $9,000 under
the CARES Act. The advances will reduce the amount that will ultimately be forgiven under the PPP program.
For
the three months ended June 30, 2020 and 2019, interest expense were approximately $124,000 and $93,000, respectively. For the
six months ended June 30, 2020 and 2019, interest expense were approximately $236,000 and $182,000, respectively.
NOTE
7 - STOCKHOLDERS’ EQUITY
On February 28, 2019, the Company entered
into an agreement with Chineseinvestors.com, Inc., pursuant to which the Company cancelled the common shares of 375,000 issued
to Chineseinvestors.com, Inc.
Stock
option activities for the six months ended June 30, 2020 and 2019 were summarized in the following table.
|
|
Six Months Ended
June 30,
2020
|
|
|
Six Months Ended
June 30,
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
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
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 June
30, 2020:
Stock
Options Outstanding
|
|
|
Stock
Options Exercisable
|
|
Range
of
Exercise
Price
|
|
|
Number
Outstanding
at
June
30,
2020
|
|
|
Weighted
Average
Remaining
Contractual
Life (Years)
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Number
Exercisable
at
June
30,
2020
|
|
|
Weighted
Average
Exercise
Price
|
|
$
|
0.22-0.25
|
|
|
|
7,738,737
|
|
|
|
1.5
|
|
|
$
|
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 $0.199 as of June 30, 2020.
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 six months ended June 30,
2020 and 2019:
|
|
For the Three Months Ended
June 30,
|
|
|
For the Six Months Ended
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Net income available to common stockholders for basic and diluted net income per share of common stock
|
|
$
|
737,567
|
|
|
$
|
1,436,423
|
|
|
$
|
888,979
|
|
|
$
|
1,813,465
|
|
Weighted average common stock outstanding - basic
|
|
|
51,700,000
|
|
|
|
51,700,000
|
|
|
|
51,700,000
|
|
|
|
51,822,238
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested restricted common stock
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Stock options issued to directors/officers/employees
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Weighted average common stock outstanding - diluted
|
|
|
51,700,000
|
|
|
|
51,700,000
|
|
|
|
51,700,000
|
|
|
|
51,822,238
|
|
Net income per common share - basic
|
|
$
|
0.01
|
|
|
$
|
0.03
|
|
|
$
|
0.02
|
|
|
$
|
0.03
|
|
Net income per common share - diluted
|
|
$
|
0.01
|
|
|
$
|
0.03
|
|
|
$
|
0.02
|
|
|
$
|
0.03
|
|
For
the three months ended June 30, 2020 and 2019, and for the six months ended June 30, 2020 and 2019, outstanding options of 7,738,737
were excluded from the computation of diluted net income per share as the impact of including those option shares would be anti-dilutive.
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
|
|
Six Months Ended
June 30,
2020
|
|
|
Six Months Ended
June 30,
2019
|
|
Operating lease cost
|
|
Selling, general and administrative expense
|
|
$
|
38,686
|
|
|
$
|
38,480
|
|
Net lease cost
|
|
|
|
$
|
38,686
|
|
|
$
|
38,480
|
|
Balance
sheet information related to leases consists of the following:
|
|
Classification
|
|
June 30,
2020
|
|
|
December 31,
2019
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
Operating lease ROU assets
|
|
Right-of-use assets
|
|
$
|
339,080
|
|
|
$
|
399,817
|
|
Total leased assets
|
|
|
|
$
|
339,080
|
|
|
$
|
399,817
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
Current Operating
|
|
Current maturities of operating lease liabilities
|
|
$
|
59,799
|
|
|
$
|
52,104
|
|
Non-current Operating
|
|
Operating lease liabilities
|
|
|
296,940
|
|
|
|
351,145
|
|
Total lease liabilities
|
|
|
|
$
|
356,739
|
|
|
$
|
403,249
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average remaining lease term
|
|
|
|
|
|
|
|
|
|
|
Operating leases
|
|
|
|
|
9.96 years
|
|
|
|
6.11 years
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average discount rate
|
|
|
|
|
|
|
|
|
|
|
Operating leases
|
|
|
|
|
6.44
|
%
|
|
|
6.44
|
%
|
Cash
flow information related to leases consists of the following:
|
|
Six Months Ended
June 30,
2020
|
|
|
Six Months Ended
June 30,
2019
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
|
|
Operating cash flows from operating leases
|
|
$
|
52,674
|
|
|
$
|
48,322
|
|
The
minimum future lease payments as of June 30, 2020 are as follows:
Years Ending December 31,
|
|
Operating
Leases
|
|
The remaining of 2020
|
|
$
|
25,909
|
|
2021
|
|
|
79,191
|
|
2022
|
|
|
79,559
|
|
2023
|
|
|
32,826
|
|
2024
|
|
|
28,564
|
|
2025
|
|
|
25,625
|
|
Thereafter
|
|
|
206,283
|
|
Total lease payments
|
|
|
477,957
|
|
Less: Interest
|
|
|
(125,556
|
)
|
Present value of lease liabilities
|
|
$
|
352,401
|
|
NOTE
10 - CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS
Customers
For
the six months ended June 30, 2020 and 2019, the major customers whose sales accounted for 10% or more of the Company’s
total revenue were as follows:
|
|
For the Six Months Ended
June 30,
|
|
Customer
|
|
2020
|
|
|
2019
|
|
A (Yew Pharmaceutical, a related party)
|
|
|
61.1
|
%
|
|
|
29.0
|
%
|
B (HongKong YIDA Commerce Co., Limited, a related party)
|
|
|
-
|
%
|
|
|
30.2
|
%
|
C (GOLDEN PEACH TRAVEL SERVICE COMPANY LTD)
|
|
|
-
|
%
|
|
|
40.2
|
%
|
D (DMSU, a related party)
|
|
|
22.4
|
%
|
|
|
-
|
%
|
E (LIFEFORFUN LIMITED, a related party)
|
|
|
14.9
|
%
|
|
|
-
|
%
|
|
|
Accounts receivable as of
|
|
Customer
|
|
June 30,
2020
|
|
|
December 31,
2019
|
|
A (Yew Pharmaceutical, a related party)
|
|
|
-%
|
|
|
|
-
|
%
|
B (HongKong YIDA Commerce Co., Limited, a related party)
|
|
|
-%
|
|
|
|
2.5
|
%
|
C (GOLDEN PEACH TRAVEL SERVICE COMPANY LTD)
|
|
|
48.6
|
%
|
|
|
97.5
|
%
|
D (DMSU, a related party)
|
|
|
30.5
|
%
|
|
|
-
|
|
E (LIFEFORFUN LIMITED, a related party)
|
|
|
20.4
|
%
|
|
|
-
|
|
Suppliers
For
the six months ended June 30, 2020 and 2019, major suppliers accounting for 10% or more of the Company’s total purchase
were as follows:
|
|
For the
Six Months Ended
June
30,
|
|
Supplier
|
|
2020
|
|
|
2019
|
|
A (Yew Pharmaceutical, a
related party)
|
|
|
35.6
|
%
|
|
|
58
|
%
|
B (Heilongjiang Zishan Technology Co., Ltd.,
a related party)
|
|
|
10.6
|
%
|
|
|
-
|
%
|
No
suppliers’ accounts payables as of June 30, 2020 and December 31, 2019 accounted 10% and more of the total accounts payable.
At
June 30, 2020 and December 31, 2019, the Company’s cash balances by geographic area were as follows:
|
|
June 30,
2020
|
|
|
December 31,
2019
|
|
Country
|
|
|
|
|
|
|
United States
|
|
$
|
8,119
|
|
|
$
|
46,855
|
|
China
|
|
|
1,660,390
|
|
|
|
695,439
|
|
Total Cash
|
|
$
|
1,668,509
|
|
|
$
|
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 June 30, 2020 and December 31, 2019, approximately $236,000 and $216,000 of the Company’s
cash held by financial institutions was insured, and the remaining balance of approximately $1,432,000 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, 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 six months ended June 30, 2020 and 2019, total revenues from Yew Pharmaceutical under the above agreement amounted to $7,083,638
and $6,988,782, and the corresponding cost of revenues amounted to $6,197,045 and $5,911,265, respectively. At June 30, 2020 and
December 31, 2019, the Company had $110,349 and $Nil advance from Yew Pharmaceutical, respectively.
For the six months ended June 30, 2020 and
2019, the Company purchased various products from Yew Pharmaceutical totalling $3,490,294 and $10,870,922, respectively, such
as pine needle extracts, composite northeast yew extract and mixed essential oil and etc.
Transactions
with DMSU
On February 10, 2020, the Company entered
a payment schedule agreement with DMSU regarding the outstanding accounts receivable under 2018 and 2020 sales contracts. Pursuant
to the payment schedule, DMSU agreed to make payments in 2020 totalling of $1,000,000 out of total $5,304,000 receivable balance
under 2018 sales contracts and the remaining will be paid within next three years. Regarding the 2020 sales contracts entered,
DMSU will arrange payments of the entire transaction within six months after goods are delivered. For the six months ended June
30, 2020, total revenues from DMSU amounted to $2,592,000, which was outstanding as of June 30, 2020. Subsequently, DMSU paid
approximately $1,050,000 cash to HDS in July 2020.
For
the six months ended June 30, 2019, there was $Nil sales transaction the Company conducted with DMSU. During the six months ended
June 30, 2019, the Company recovered approximately $240,000 of accounts receivable previously written off from DMSU. The recovered
amount was recorded in other income as of June 30, 2020 and was received in July 2019.
Transactions
with HBP
As
of June 30, 2020 and December 31, 2019, HYF had due to HBP in the amount of $88,967 and $103,158, respectively, which were included
in due to related parties in the accompanying consolidated balance sheets.
Transactions
with ZTC
During
the six months ended June 30, 2020 and 2019, HDS purchased yew forest assets from ZTC in the amount of $1,037,831 and $1,422,486,
respectively. Since the purchases were conducted between entities under common control, the Company recorded the assets received
at the carrying costs of $918,335 and $1,149,605 by ZTC, respectively. The differences of $119,496 and $272,881 between the actual
purchase amounts and carrying costs were recorded as a deduction of additional paid-in capital. At June 30, 2020 and December
31, 2019, the Company had $Nil balance payable to ZTC.
Transactions
with Xinlin
During
the six months ended June 30, 2020 and 2019, HDS purchased yew forest assets from ZTC in the amount of $454,940 and $Nil, respectively.
Since the purchase were conducted between entities under common control, the Company recorded the assets received at the carrying
costs of $402,622 and $Nil by Xinlin, respectively. The differences of $52,318 and $Nil between the actual purchase price and
carrying costs were recorded as a deduction of additional paid-in capital. At June 30, 2020 and December 31, 2019, the Company
had $Nil balance payable to Xinlin.
Transactions
with YIDA
For
the six months ended June 30, 2020 and 2019, total revenues from YIDA amounted to $Nil and $7,274,506. At June 30, 2020 and December
31, 2019, the Company had $Nil and $193,000 accounts receivable from YIDA, respectively.
Transactions
with Lifeforfun Limited
For
the six months ended June 30, 2020 and 2019, total revenues from Lifeforfun Limited amounted to $1,728,000 and $Nil. At June 30,
2020 and December 31, 2019, the Company had $1,728,000 and $Nil accounts receivable, respectively.
Transactions
with Jinguo Wang
During
the six months ended June 30, 2020 and 2019, HDS purchased yew forest assets from Jinguo Wang in the amount of $710,843 and $906,086,
respectively. At June 30, 2020 and December 31, 2019, payable to Jinguo Wang for purchase of yew forest assets amounted to $14,145
and $Nil, respectively, included in payable for acquisition of yew forests in the accompanying consolidated balance sheets.
Transactions
with Weihong Zhang
During
the six months ended June 30, 2020 and 2019, HDS purchased yew forest assets from Weihong Zhang in the amount of $28,434 and $Nil,
respectively. At June 30, 2020 and December 31, 2019, payable to Weihong Zhang for purchase of yew forest assets amounted to $28,290
and $Nil, respectively, included in payable for acquisition of yew forests in the accompanying consolidated balance sheets.
Transactions
with Chunping Wang
During
the six months ended June 30, 2020 and 2019, HDS purchased yew forest assets from Chunping Wang in the amount of $453,518 and
$711,980, respectively. At June 30, 2020 and December 31, 2019, payable to Chunping Wang for purchase of yew forest assets amounted
to $14,145 and $Nil, respectively, included in payable for acquisition of yew forests in the accompanying consolidated balance
sheets.
Transactions
with Xue Wang
During
the six months ended June 30, 2020 and 2019, HDS purchased yew forest assets from Xue Wang in the amount of $351,157 and $Nil
respectively. At June 30, 2020 and December 31, 2019, payable to Xue Wang for purchase of yew forest assets amounted to $349,378
and $Nil, respectively, included in payable for acquisition of yew forests in the accompanying consolidated balance sheets.
Transactions
with Cai Wang
During
the six months ended June 30, 2020 and 2019, HDS purchased yew forest assets from Cai Wang in the amount of $383,855 and $Nil,
respectively. At June 30, 2020 and December 31, 2019, payable to Cai Wang for purchase of yew forest assets amounted to $14,145
and $Nil, respectively, included in payable for acquisition of yew forests 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 six months ended June 30, 2020 and 2019, rent expense related to the ZTC Lease approximately
amounted to $12,000 and $12,000, respectively. At June 30, 2020 unpaid rent to ZTC amounted to approximately $5,700, which was
included in due to related parties in the accompanying consolidated balance sheets. At December 31, 2019, prepaid rent to ZTC
amounted to approximately $5,800, which was included in prepaid expenses-related parties in the accompanying consolidated balance
sheets.
On
March 2002, January 2010 and July 2015, the Company entered three office lease agreements with HDS Development and Mr. Wang in
the lease terms of 23 years, 3 years and 15 years. The total annual payments of the three office leases are RMB 50,000 (approximately
$7,000). For the six months ended June 30, 2020 and 2019, the total rent expense related to the three office leases approximately
amounted to $3,600 and $3,650 respectively. As of June 30, 2020 and December 31, 2019, the unpaid rent was approximately $4,300
and $700, respectively, which were included in due to related parties in the accompanying consolidated balance sheets.
On
January 1, 2015, HYF leases from HBP 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,
in exchange for no consideration for the period from January 1, 2015 to December 31, 2020.
The
Company leased an apartment in the Nangang district (the “Jixing Lease”) in Harbin from Ms. Qi on October 1, 2016.
The initial lease term of Jixing Lease is one year and renewed twice currently with the expiration date on September 30, 2019.
For the six months ended June 30, 2020 and 2019, rent expense related to the Jixing Lease amounted $Nil and $700, respectively.
Due
to Related Parties
The
following summarized the Company’s due to related parties as of June 30, 2020 and December 31, 2019:
|
|
June 30,
2020
|
|
|
December 31,
2019
|
|
Zhiguo Wang and Guifang Qi
|
|
$
|
534,244
|
|
|
$
|
530,621
|
|
HBP
|
|
|
88,967
|
|
|
|
103,158
|
|
Others
|
|
|
7,513
|
|
|
|
-
|
|
Total
|
|
$
|
630,724
|
|
|
$
|
633,779
|
*
|
*:
|
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 six months ended June 30, 2020 and 2019 were as
follows:
|
|
For the Six Months Ended
June 30,
|
|
Geographic Areas
|
|
2020
|
|
|
2019
|
|
Revenue
|
|
|
|
|
|
|
PRC
|
|
$
|
11,569,496
|
|
|
$
|
23,960,179
|
|
USA
|
|
|
76,863
|
|
|
|
119,047
|
|
Elimination Adjustment
|
|
|
(55,020
|
)
|
|
|
|
|
Total Revenue
|
|
$
|
11,591,339
|
|
|
$
|
24,079,226
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from operations
|
|
|
|
|
|
|
|
|
PRC
|
|
$
|
1,663,125
|
|
|
$
|
2,110,465
|
|
USA
|
|
|
(649,237
|
)
|
|
|
(428,990
|
)
|
Total Income from operations
|
|
$
|
1,013,888
|
|
|
$
|
1,681,475
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
PRC
|
|
$
|
1,536,836
|
|
|
$
|
2,223,232
|
|
USA
|
|
|
(647,857
|
)
|
|
|
(409,767
|
)
|
Total net income
|
|
$
|
888,979
|
|
|
$
|
1,813,465
|
|
The
geographical distributions of the Company’s financial information for the three months ended June 30, 2020 and 2019 were
as follows:
|
|
For the Three Months Ended
June 30,
|
|
Geographic Areas
|
|
2020
|
|
|
2019
|
|
Revenue
|
|
|
|
|
|
|
PRC
|
|
$
|
9,562,103
|
|
|
$
|
12,479,508
|
|
USA
|
|
|
54
|
|
|
|
85,714
|
|
Elimination Adjustment
|
|
|
-
|
|
|
|
|
|
Total Revenue
|
|
$
|
9,562,157
|
|
|
$
|
12,565,222
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from operations
|
|
|
|
|
|
|
|
|
PRC
|
|
$
|
1,294,086
|
|
|
$
|
1,361,205
|
|
USA
|
|
|
(437,586
|
)
|
|
|
(225,004
|
)
|
Total Income from operations
|
|
$
|
856,500
|
|
|
$
|
1,136,201
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
PRC
|
|
$
|
1,175,153
|
|
|
$
|
1,684,287
|
|
USA
|
|
|
(437,586
|
)
|
|
|
(247,864
|
)
|
Total net income
|
|
$
|
737,567
|
|
|
$
|
1,436,423
|
|
The
geographical distribution of the Company’s financial information as of June 30, 2020 and December 31, 2019 were as follows:
|
|
As of
June 30,
|
|
|
As of
December 31,
|
|
Geographic Areas
|
|
2020
|
|
|
2019
|
|
Long-term assets
|
|
|
|
|
|
|
PRC
|
|
$
|
45,434,607
|
|
|
$
|
44,547,842
|
|
USA
|
|
|
920,746
|
|
|
|
1,363,586
|
|
Elimination adjustment
|
|
|
(3,562,322
|
)
|
|
|
(3,376,072
|
)
|
Total long-term assets
|
|
$
|
42,793,031
|
|
|
$
|
42,535,356
|
|
|
|
|
|
|
|
|
|
|
Reportable assets
|
|
|
|
|
|
|
|
|
PRC
|
|
$
|
57,638,866
|
|
|
$
|
55,407,391
|
|
USA
|
|
|
1,747,312
|
|
|
|
2,146,518
|
|
Elimination adjustment
|
|
|
(3,641,762
|
)
|
|
|
(3,347,192
|
)
|
Total reportable assets
|
|
$
|
55,744,416
|
|
|
$
|
54,206,717
|
|
NOTE
13 - COMMITMENTS AND CONTINGENCIES
Operating
Lease
See
future minimum lease payments in Note 9.
NOTE
14 - SUBSEQUENT EVENTS
The
Company has evaluated all subsequent events through the date these consolidated financial statements were issued and determine
that there were no subsequent events or transactions except disclosed in Note 6 and 11 that require recognition or disclosures
in the consolidated financial statements.