NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2019
and 2018
NOTE 1 - ORGANIZATION AND PRINCIPAL ACTIVITIES
Yew Bio-Pharm Group, Inc. (individually
“YBP” and collectively with its subsidiaries and affiliates, the “Company”) was incorporated under the
law of the State of Nevada on November 13, 2007. At the time of its incorporation, YBP had no operations and no substantial assets.
On October 29, 2009, YBP established a
wholly-owned subsidiary, Heilongjiang Jinshangjing Bio-Technology Development Co., Limited (“JSJ”), a wholly-owned
foreign enterprise (“WOFE”) incorporated in the People’s Republic of China (“PRC”), as part of a
restructure of the Company (the “First Restructure”).
Harbin Yew Science and Technology Development
Co., Ltd. (“HDS”) is a limited liability company incorporated under the laws of the PRC on August 22, 1996. Until February
23, 2010, HDS was owned by Zhiguo Wang (“Mr. Wang”) (62.81%), his wife Guifang Qi (“Madame Qi”) (18.53%),
Xingming Han (“Mr. Han”) (4.82%), a PRC individual named Yingjun Jiang (“Mr. Jiang”) (3.22%) and Heilongjiang
Hongdoushan Ecology Forest Co., Ltd, (“HEFS”) (10.62%) (Mr. Wang, Madame Qi, Mr. Han, Mr. Jiang and HEFS are collectively
referred to as the “Original Shareholders”). Mr. Wang is the President and a director of the Company. Madame Qi is
the wife of Mr. Wang and an officer and director of the Company. Mr. Han was an officer and director of the Company. HEFS is owned
primarily by Mr. Wang and Madame Qi.
Pursuant to the First Restructure, on February
23, 2010, the Company, through JSJ, entered into an Equity Transfer Agreement (collectively, the “First Transfer Agreements”)
with each of the Original Shareholders. Pursuant to the First Transfer Agreements, the terms of which are substantially identical
to each other, the Original Shareholders transferred all of their respective ownership in HDS to JSJ for an aggregate RMB45,000,000,
which represents the amount of the then registered capital of HDS. As a result of this transaction, HDS became a wholly-owned subsidiary
of JSJ. At February 23, 2010, the Company did not have working capital to pay the Original Shareholders this amount and, accordingly,
the Company recorded this amount as a liability owed to the Original Shareholders. JSJ and the Original Shareholders also entered
into a Supplemental Agreement dated February 26, 2010 (the “First Supplemental Agreement”), pursuant to which JSJ had
the right to put the shares of HDS back to the Original Shareholders for the original purchase price of an aggregate RMB45,000,000,
in the event that the transaction did not close or PRC governmental approval was not received, within six months following the
execution of the First Transfer Agreements.
As of February 23, 2010, Mr. Wang, Madame
Qi and Mr. Han (collectively, the “HDS Shareholders”) owned approximately 41.5% of YBP’s common stock (the “Common
Stock”) and no other individual shareholder owned more than 2.5% of YBP’s Common Stock. Before, during and after the
First Restructure, the HDS Shareholders served as the sole directors and principal executive officers of the Company and are responsible
for all decisions and operations of the Company and HDS, and control the assets of the Company and HDS.
On May 10, 2010, JSJ, Mr. Wang, Mr. Jiang
and HEFS entered into a Debtor’s and Creditors’ Rights Agreement (the “Creditors’ Agreement”), pursuant
to which Mr. Jiang and HEFS assigned their rights, including the right to be paid for the HDS shares transferred by them to JSJ,
under their respective First Transfer Agreements, to Mr. Wang, and Mr. Wang assumed the obligations of Mr. Jiang and HEFS under
their respective First Transfer Agreements. Before, during and after the First Restructure, the HDS Shareholders served as the
sole directors and principal executive officers of the Company.
In October 2010, the Company determined,
in consultation with its professional advisors, that the First Restructure did not meet certain technical PRC legal requirements
and that the Company would need to be further reorganized (the “Second Restructure”). Accordingly, on October 28, 2010,
JSJ and each of the HDS Shareholders entered into new Equity Transfer Agreement (collectively, the “Second Transfer Agreements”),
the terms of which are substantially identical to each other, pursuant to which 100% of the common stock of HDS was transferred
by JSJ back to the HDS Shareholders for aggregate consideration of RMB45,000,000. Since the consideration of RMB45,000,000 due
to the HDS Shareholders in the First Restructure had not yet been paid, pursuant to a Supplemental Agreement to the Second Equity
Transfer Agreements dated February 16, 2011, the aggregate RMB45,000,000 amount payable by the HDS Shareholders to JSJ for the
return of their HDS common stock in respect of the Second Restructure, was offset against JSJ’s liability to the HDS Shareholders
in the same aggregate amount in respect of the First Transfer Agreements, which amount had not yet been paid by JSJ.
As discussed above, Mr. Jiang and HEFS
had assigned to Mr. Wang their respective rights and obligations vis-a-vis JSJ resulting from the First Restructure, pursuant to
the First Supplemental Agreement and the Creditors’ Agreement, since as of such time Mr. Jiang and HEFS had not yet been
paid for the transfer of their interests in HDS to JSJ in the First Restructure in the amount of 3.22% and 10.62% of HDS’s
equity interest, respectively. Therefore, in the Second Restructure, pursuant to the Second Transfer Agreements, JSJ transferred
to Mr. Wang not only his previous shareholdings in HDS before the First Restructure (representing 62.81% of HDS’s total equity),
but also an additional 13.84% of the equity in HDS as a result of Mr. Wang’s being assigned Mr. Jiang’s 3.22% equity
interest in HDS and HEFS’s 10.62% equity interest in HDS.
After the foregoing transactions were completed,
the HDS Shareholders then owned 100% of the shares of HDS in the following percentages:
Mr. Wang
|
|
|
76.65
|
%
|
Madame Qi
|
|
|
18.53
|
%
|
Mr. Han
|
|
|
4.82
|
%
|
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.
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|
|
●
|
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.
On November 29, 2010, YBP established a
wholly-owned subsidiary, Yew Bio-Pharm Holdings Limited (“Yew Bio-Pharm (HK)”), a limited liability company incorporated
under the laws of Hong Kong and on January 26, 2011, YBP transferred its ownership in JSJ to Yew Bio-Pharm (HK).
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.
As required by ASC 810-10, the Company
performs a qualitative assessment to determine whether the Company is the primary beneficiary of HDS which is identified as a VIE
of the Company. A quality assessment begins with an understanding of the nature of the risks in the entity as well as the nature
of the entity’s activities including terms of the contracts entered into by the entity, ownership interests issued by the
entity and the parties involved in the design of the entity. The Company’s assessment on the involvement with HDS reveals
that the Company has the absolute power to direct the most significant activities that impact the economic performance of HDS.
JSJ is obligated to absorb a majority of the risk of loss from HDS activities and entitles JSJ to receive a majority of HDS’s
expected residual returns. In addition, HDS’s shareholders have pledged their equity interest in HDS to JSJ, irrevocably
granted JSJ an exclusive option to purchase, to the extent permitted under PRC Law, all or part of the equity interests in HDS
and agreed to entrust all the rights to exercise their voting power to the person(s) appointed by JSJ. Under the accounting guidance,
the Company is deemed to be the primary beneficiary of HDS and the results of HDS are consolidated in the Company’s consolidated
financial statements for financial reporting purposes. Accordingly, as a VIE, HDS’s sales are included in the Company’s
total sales, its income from operations is consolidated with the Company’s and the Company’s net income includes all
of HDS’s net income. The Company does not have any non-controlling interest and, accordingly, did not subtract any net income
in calculating the net income attributable to the Company. Because of the Contractual Arrangements, YBP has a pecuniary interest
in HDS that requires consolidation of HDS’s financial statements with those of the Company.
Additionally, pursuant to ASC 805, as YBP
and HDS are under the common control of the HDS Shareholders, the Second Restructure was accounted for in a manner similar to a
pooling of interests. As a result, the Company’s historical amounts in the accompanying consolidated financial statements
give retrospective effect to the Second Restructure, whereby the assets and liabilities of the Company are reflected at the historical
carrying values and their operations are presented as if they were consolidated for all periods presented, with the results of
the Company being consolidated from the date of the Second Transfer Agreement. The accounts of HDS are consolidated in the accompanying
financial statements.
As of December 31, 2019, the Company agreed
to waive all management fees to be payable by HDS and the Company expects to waive such management fees in the near future due
to a need of working capital in HDS to expand HDS’s operations.
On November 4, 2014, HDS established a
new subsidiary, Harbin Yew Food Co. Ltd. (“HYF”), to develop and cultivate wood ear mushroom. The Company plans to
operate three production lines, including wood ear mushroom polysaccharide, powder, tea and other packaged wood ear mushroom products.
The move marks the Company’s entrance into the organic food and functional beverage market. HYF had limited operation activities
for the years ended December 31, 2019 and 2018.
On June 8, 2016, YBP established a new
subsidiary, MC Commerce Holding Inc. (“MC”), in the State of California to sell yew oil candles and yew oil soaps in
American market. MC had limited operation activities for the years ended December 31, 2019 and 2018. On July 26, 2016, YBP transferred
its 49% equity interest in MC to HDS.
The Company is principally engaged in (1)
processing and selling yew raw materials used in the manufacture of traditional Chinese medicine (“TCM”); (2) growing
and selling yew tree seedlings and mature trees, including potted miniature yew trees; (3) manufacturing and selling furniture
and handicrafts made of yew tree timber; and (4) selling agricultural products and export products (Yew candles, pine needle extracts,
complex taxus cuspidate extract, composite northeast yew extract, and yew essential oil soap). The Company’s operating VIE
and its subsidiary are located in Harbin, Heilongjiang Province, China.
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 December 31, 2019 and 2018, the carrying amount and classification of the assets and liabilities
in the Company’s balance sheets that relate to the Company’s variable interest in the VIE and VIE’s subsidiary
are as follows:
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
Assets
|
|
|
|
|
|
|
Cash
|
|
$
|
688,863
|
|
|
$
|
478,293
|
|
Accounts receivable
|
|
|
7,692,600
|
|
|
|
-
|
|
Accounts receivable - related parties, net of allowance for doubtful account $193,000 and 837,929
|
|
|
193,000
|
|
|
|
4,579,666
|
|
Inventories (current and long-term), net
|
|
|
2,991,237
|
|
|
|
6,567,144
|
|
Prepaid expenses and other assets
|
|
|
37,202
|
|
|
|
34,492
|
|
Prepaid expenses - related parties
|
|
|
5,829
|
|
|
|
32,318
|
|
Property and equipment, net
|
|
|
466,025
|
|
|
|
506,949
|
|
Long-term investment in MC
|
|
|
3,009,527
|
|
|
|
2,449,757
|
|
Land use rights and yew forest assets, net
|
|
|
40,048,696
|
|
|
|
34,914,793
|
|
Operating lease right of use
|
|
|
259,331
|
|
|
|
-
|
|
VAT recoverables
|
|
|
349,096
|
|
|
|
985,831
|
|
Total assets of VIE and its subsidiary
|
|
$
|
55,741,406
|
|
|
$
|
50,549,243
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Accrued expenses and other payables
|
|
$
|
131,420
|
|
|
$
|
237,114
|
|
Accounts payable
|
|
|
7,605
|
|
|
|
10,410
|
|
Accounts payable-related parties
|
|
|
16,629
|
|
|
|
-
|
|
Payable for acquisition of yew forests
|
|
|
788,741
|
|
|
|
-
|
|
Advance from customer
|
|
|
50,071
|
|
|
|
145
|
|
Advance from customer-related party
|
|
|
-
|
|
|
|
21,295
|
|
Short-term borrowings
|
|
|
8,541,517
|
|
|
|
5,758,517
|
|
Operating lease liability- current
|
|
|
9,340
|
|
|
|
-
|
|
Operating lease liability- noncurrent
|
|
|
253,423
|
|
|
|
-
|
|
Deferred income
|
|
|
892,375
|
|
|
|
340,294
|
|
Due to related parties and VIE holding companies
|
|
|
614,265
|
|
|
|
658,501
|
|
Total liabilities of VIE and its subsidiary
|
|
$
|
11,305,386
|
|
|
$
|
7,026,276
|
|
Although the structure the Company has
adopted is consistent with longstanding industry practice, and is commonly adopted by comparable companies in China, the PRC government
may not agree that these arrangements comply with PRC licensing, registration or other regulatory requirements, with existing policies
or with requirements or policies that may be adopted in the future. There are uncertainties regarding the interpretation and application
of PRC laws and regulations including those that govern the Company’s contractual arrangements, which could limit the Company’s
ability to enforce these contractual arrangements. If the Company or any of its variable interest entities are found to be in violation
of any existing or future PRC laws, rules or regulations, or fail to obtain or maintain any of the required permits or approvals,
the relevant PRC regulatory authorities would have broad discretion to take action in dealing with such violations or failures,
including levying fines, revoking business and other licenses of the Company’s variable interest entities, requiring the
Company to discontinue or restrict its operations, restricting its right to collect revenue, requiring the Company to restructure
its operations or taking other regulatory or enforcement actions against the Company. In addition, it is unclear what impact the
PRC government actions would have on the Company and on its ability to consolidate the financial results of its variable interest
entities in the consolidated financial statements, if the PRC government authorities were to find the Company’s legal structure
and contractual arrangements to be in violation of PRC laws, rules and regulations. If the imposition of any of these government
actions causes the Company to lose its right to direct the activities of HDS and through HDS’s equity interest in its subsidiary
or the right to receive their economic benefits, the Company would no longer be able to consolidate the HDS and its subsidiary.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
Details of the Company’s subsidiaries and variable interest
entities (“VIE”) 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
|
|
RMB
|
45,000,000
|
|
|
|
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 composite northeast yew extract
|
Harbin Yew Food Co., Ltd (“HYF”)
|
|
PRC November 4, 2014
|
|
RMB
|
100,000
|
|
|
|
100
|
%(1)
|
|
Sales of wood ear mushroom drink
|
MC Commerce Holding Inc.(“MC”)
|
|
State of California, United State June 8, 2016
|
|
|
|
|
|
|
51
|
%(2)
|
|
Sales of yew oil candles and yew oil soaps
|
|
(1)
|
Wholly-owned subsidiary of HDS
|
|
(2)
|
51% owned by YBP and 49% owned by HDS
|
Method of accounting
The Company maintains its general ledger
and journals with the accrual method accounting for financial reporting purposes. The consolidated financial statements and notes
are representations of management. Accounting policies adopted by the Company conform to generally accepted accounting principles
in the United States of America and have been consistently applied in the presentation of consolidated financial statements.
Use of estimates
The preparation of consolidated financial
statements in accordance with generally accepted accounting principles in the United State of America (“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, recovery of long-lived assets, 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. Significant estimates include allowance for accounts receivable,
slow-moving and obsolete inventory, the classification of short and long-term inventory, the useful life of property and equipment
and land use rights and yew forest assets, assumptions used in assessing impairment of long-term assets, write-down in value of
inventory and the valuation of stock-based compensation.
Fair value of financial instruments
The Company adopted the guidance of Accounting
Standards Codification (“ASC”) 820 for fair value measurements which clarifies the definition of fair value, prescribes
methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as
follows:
●
|
Level 1-Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.
|
|
|
●
|
Level 2-Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.
|
|
|
●
|
Level 3-Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.
|
The carrying amounts reported in the balance
sheets for cash, accounts receivable, accounts payable, and short-term borrowings, approximate their fair market value based on
the short-term maturity of these instruments. The Company did not have any non-financial assets or liabilities that are measured
at fair value on a recurring basis as of December 31, 2019 and 2018.
Transactions involving related parties
cannot be presumed to be carried out on an arm’s-length basis, as the requisite conditions of competitive, freemarket dealings
may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions
were consummated on terms equivalent to those that prevail in arm’s-length transactions unless such representations can be
substantiated. It is not, however, practical to determine the fair value of amounts due from/to related parties due to their related
party nature
Concentrations of credit risk
The Company’s operations are mainly
conducted in the PRC. Accordingly, the Company’s business, financial condition and results of operations may be influenced
by the political, economic and legal environment in the PRC, and by the general state of the PRC economy. The Company’s operations
in the PRC are subject to special considerations and significant risks not typically associated with companies in North America
and Western Europe. These include risks associated with, among others, the political, economic and legal environment and foreign
currency exchange. The Company’s results may be adversely affected by changes in the political and social conditions in the
PRC, and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion,
remittances abroad, and rates and methods of taxation, among other things.
Financial instruments which potentially
subject the Company to concentrations of credit risk consist principally of cash and trade accounts receivable. Substantially all
of the Company’s cash is maintained with state-owned banks within the PRC, and part of deposits are covered by insurance.
The Company has not experienced any losses in such accounts and believes it is not exposed to any risks on its cash in bank accounts.
A portion of the Company’s sales are credit sales which are primarily to customers whose ability to pay is dependent upon
the industry economics prevailing in these areas; however, concentrations of credit risk with respect to trade accounts receivables
is limited due to generally short payment terms. The Company also performs ongoing credit evaluations of its customers to help
further reduce credit risk.
At December 31, 2019 and 2018, the Company’s
cash balances by geographic area were as follows:
|
|
December
31, 2019
|
|
|
December
31, 2018
|
|
Country:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
46,855
|
|
|
|
6.3
|
%
|
|
$
|
40,405
|
|
|
|
7.7
|
%
|
China
|
|
|
695,439
|
|
|
|
93.7
|
%
|
|
|
481,265
|
|
|
|
92.3
|
%
|
Total cash
|
|
$
|
742,294
|
|
|
|
100.0
|
%
|
|
$
|
521,670
|
|
|
|
100.0
|
%
|
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 December 31, 2019, approximately $216,000 of the Company’s cash held by financial institutions, was insured, and the
remaining balance of approximately $526,000 was not insured. As of December 31, 2018, approximately
$200,000 of the Company’s cash held by financial institutions, was insured, and the remaining balance of approximately $330,000
was not insured.
Cash
For purposes of the consolidated statements
of cash flows, the Company considers all highly liquid instruments purchased with original maturities of three months or less and
money market accounts to be cash equivalents. As of December 31, 2019 and 2018, the Company has no cash equivalents.
Accounts receivable
Accounts receivable are presented net of
an allowance for doubtful accounts. If necessary, the Company shall maintain allowances for doubtful accounts for estimated losses.
The Company reviews accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as to
the collectability of individual balances. In evaluating the collectability of individual receivable balances, the Company considers
many factors, including the age of the balance, a customer’s historical payment history, its current credit-worthiness and
current economic trends. Accounts are written off after exhaustive efforts at collection. At December 31, 2019 and 2018, the Company
has an allowance for doubtful accounts in the amount of $193,000 and $837,929, respectively.
Inventories
Inventories, consisting of raw materials,
work in process, yew seedlings and finished goods related to the Company’s yew products are stated at the lower of cost or
net realizable value, with cost computed on a weighted-average basis. Raw materials primarily include yew wood used in the production
of yew products such as furniture, ornaments, and other products containing yew wood, yew foliage and tender conifer foliage. Finished
goods consist of yew handicrafts, yew candles, pine needle extracts, yew essential oil soap, complex taxus cuspidate extract and
composite northeast yew extract products.
The Company estimates the amount of the
excess inventories by comparing inventory on hand with the estimated sales that can be sold within its normal operating cycle of
one year. Any inventory in excess of the Company’s current requirements based on historical and anticipated levels of sales
is classified as long-term on its consolidated balance sheets. The Company’s classification of long-term inventory requires
it to estimate the portion of inventory that can be realized over the next 12 months.
To estimate the amount of slow-moving or
obsolete inventories, the Company analyzes movement of its products, monitors competing products and technologies and evaluates
acceptance of its products. Periodically, the Company identifies inventories that cannot be sold at all or can only be sold at
deeply discounted prices. An allowance will be established if management determines that certain inventories may not be saleable.
If inventory costs exceed expected net realizable value due to obsolescence or quantities in excess of expected demand, the Company
will record reserves for the difference between the carrying cost and the net realizable value, with cost computed on a weighted-average
basis.
In accordance with Accounting Standards
Codification (“ASC”) 905, “Agriculture”, our costs of growing Yew seedlings are accumulated until the time
of harvest and are reported at the lower of cost or net realizable value, with cost computed on a weighted-average basis.
Property and equipment
Property and equipment are carried at cost
and are depreciated on a straight-line basis (after taking into account their respective estimated residual value) over the estimated
useful lives of the assets. The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are
capitalized. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any
resulting gains or losses are included in income in the year of disposition. The Company examines the possibility of decreases
in the value of fixed assets when events or changes in circumstances reflect the fact that their recorded value may not be recoverable.
The estimated useful lives are as follows:
Building
|
|
|
10-20 years
|
|
Machinery and equipment
|
|
|
3-10 years
|
|
Office equipment
|
|
|
2-5 years
|
|
Motor vehicles
|
|
|
4-10 years
|
|
Land use rights and yew forest assets
All land in the PRC is owned by the PRC
government and cannot be sold to any individual or company. The Company has recorded the amounts paid to the PRC government to
acquire long-term interests to utilize land use rights and yew forests. This type of arrangement is common for the use of land
in the PRC. Yew trees on land containing yew tree forests will be used to supply raw materials such as branches, leaves and fruit
to the Company. The Company amortizes land use rights based on their terms and yew forest assets over the term of the respective
land use rights or expected useful lives, which generally ranges from 15 to 50 years. The lease agreements do not have any renewal
option and the Company has no further obligations to the lessor. The Company records the amortization of these land use rights
and yew forest assets as part of its cost of revenues.
Impairment of long-lived assets
In accordance with ASC Topic 360, the Company
reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets
may not be fully recoverable, or at least annually. The Company recognizes an impairment loss when the sum of expected undiscounted
future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between
the asset’s estimated fair value and its book value. For years ended December 31, 2019 and 2018, the Company didn’t
record any impairment charges on long-lived assets.
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 15 -
SEGMENT INFORMATION.
Stock-based compensation
The Company accounts for stock options
and other equity based compensation issued to employees in accordance with ASC 718 “Stock Compensation”. ASC 718 requires
companies to measure the cost of services received in exchange for an award of an equity instrument based upon the grant-date fair
value of the award. Stock-based compensation expense is recognized on a straight-line basis over the requisite service period.
The Company accounts for non-employee share-based awards in accordance with ASC 505-50 “Equity-based payments to non-employees”.
On January 1, 2019, the Company adopted ASU 2018-07, which substantially aligns stock-based compensation for employees and non-employees
and accounts for non-employee share-based awards in accordance with the measurement and recognition criteria of ASC 718. The Company
used the modified prospective method of adoption. There was no cumulative effect of the adoption of ASC 718.
Advertising
Advertising is expensed as incurred and
is included in selling expenses in the accompanying Consolidated Statements of Operations and Comprehensive Income (loss). The
Company incurred $0 and $31,346 for the years ended December 31, 2019 and 2018, respectively.
Shipping costs
Shipping costs are expensed as incurred
and included in operating expenses and amount to $6,590 and $13,351 for the years ended December 31, 2019 and 2018, respectively.
Research and development
Research and development costs are expensed
as incurred. The costs primarily consist of salaries paid for the development and improvement of the Company’s products.
Research and development costs of the years ended December 31, 2019 and 2018 were $0 and $0, respectively.
Employee benefits
The Company’s major operations and
most employees are located in the PRC. The Company makes mandatory contributions to the PRC government’s health, retirement
benefit and unemployment funds in accordance with the relevant Chinese social security laws. The costs of these payments are charged
to the same accounts and in the same period as the related salary costs and are not material.
Income taxes
The Company is governed by the Income Tax
Law of the People’s Republic of China, Hong Kong and the United States. The Company accounts for income tax using the liability
method prescribed by ASC 740, “Income Taxes”. Under this method, deferred tax assets and liabilities are determined
based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will
be in effect in the year in which the differences are expected to reverse. The Company records a valuation allowance to offset
deferred tax assets if based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the
deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is recognized as income or loss
in the period that includes the enactment date.
The Company applied the provisions of ASC
740-10-50, “Accounting for Uncertainty in Income Taxes”, which provides clarification related to the process associated
with accounting for uncertain tax positions recognized in our financial statements. Audit periods remain open for review until
the statute of limitations has passed. The completion of review or the expiration of the statute of limitations for a given audit
period could result in an adjustment to the Company’s liability for income taxes. Any such adjustment could be material to
the Company’s results of operations for any given quarterly or annual period based, in part, upon the results of operations
for the given period. As of December 31, 2019, the Company had no uncertain tax positions, and will continue to evaluate for uncertain
positions in the future.
Value added tax
The Company is subject to value added tax
(“VAT”). The applicable VAT rate is 13% for agricultural products, 16% for handicraft products, yew essential oil soap,
yew candles, complex taxus cuspidate extract, composite northeast yew extract and pine needle extracts sold in the PRC for the
year of 2019. The amount of VAT liability is determined by applying the applicable tax rate to the amount of goods sold (output
VAT) less VAT accrued on purchases made with the relevant supporting invoices (input VAT). Sales and purchases are recorded net
of VAT (the amount of VAT is excluded from revenues and costs) collected and paid as the Company acts as an agent for the government.
Government grants
Government grants include cash subsidies
as well as other subsidies received from the PRC government by the subsidiaries and VIEs of the Company. Government grants are
recognized when received and all the conditions specified in the grants have been met. As of December 31, 2019 and 2018, the Company
had government grants of $892,375 and $340,294, respectively, for afforestation that were recorded initially as deferred income
and to be recognized over the periods and in the proportions in which amortization expense on the trees is recognized.
Foreign currency translation
The accompanying consolidated financial
statements are presented in U.S. dollars (“USD”). The reporting currency of the Company is the USD. The functional
currency of Yew Bio-Pharm (HK) is the Hong Kong dollar, and the functional currency of the Company’s VIEs and subsidiaries
located in the PRC is the RMB. For the subsidiaries whose functional currencies are the Hong Kong dollar or RMB, results of operations
and cash flows are translated at average exchange rates during the period, assets and liabilities are translated at the unified
exchange rate at the end of the period, and equity is translated at historical exchange rates. As a result, amounts relating to
assets and liabilities reported on the statements of cash flows may not necessarily agree with the changes in the corresponding
balances on the balance sheets. Translation adjustments resulting from the process of translating the local currency financial
statements into U.S. dollars are included in determining comprehensive income. The foreign currency translation adjustment included
in comprehensive income (loss) for the years ended December 31, 2019 and 2018 amounted to $ (544,809) and $(2,352,663), respectively.
The PRC government imposes significant
exchange restrictions on fund transfers out of the PRC that are not related to business operations. These restrictions have not
had a material impact on the Company because it has not engaged in any significant transactions that are subject to the restrictions.
The exchange rates used to translate amounts
in RMB into USD for the purposes of preparing the consolidated financial statements are as follows:
|
|
2019
|
|
|
2018
|
|
Exchange rate on balance sheet dates:
|
|
|
|
|
|
|
USD: RMB exchange rate
|
|
|
6.9668
|
|
|
|
6.8764
|
|
|
|
|
|
|
|
|
|
|
Average exchange rate for the year
|
|
|
|
|
|
|
|
|
USD: RMB exchange rate
|
|
|
6.9072
|
|
|
|
6.6146
|
|
The RMB is not freely convertible into
foreign currency and all foreign exchange transactions must take place through authorized institutions. No representation is made
that the RMB amounts could have been, or could be, converted into USD at the rates used in translation. In addition, the current
foreign exchange control policies applicable in PRC also restrict the transfer of assets or dividends outside the PRC.
Net income per share of common stock
ASC 260 “Earnings per Share,”
requires dual presentation of basic and diluted earnings per share (“EPS”) with a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. Basic EPS excludes dilution.
Diluted EPS 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 then shared in the earnings of the entity. Basic
net income per share is computed by dividing net income available to common shareholders by the weighted average number of shares
of common stock outstanding during the period. Diluted income per share is computed by dividing net income by the weighted average
number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during each period.
Potentially dilutive common shares consist of restricted common stock and common stock options using the treasury stock method.
Comprehensive income
The Company follows ASC 220, “Comprehensive
Income” to recognize the elements of comprehensive income. Comprehensive income is comprised of net income and all changes
to the statements of stockholders’ equity, except those due to investments by stockholders, changes in paid-in capital and
distributions to stockholders. For the Company, comprehensive income (loss) for the years ended December 31, 2019 and 2018 included
net income and unrealized gains (losses) from foreign currency translation adjustments.
Operating leases
Prior to the adoption of ASC 842 on January
1, 2019:
Leases, mainly leases of offices, where
substantially all the rewards and risks of ownership of assets remain with the lessor are accounted for as operating leases. Payments
made under operating leases are recognized as an expense on a straight-line basis over the lease term. The Company had no finance
leases for any of the periods stated herein.
Upon and hereafter the adoption of ASC
842 on January 1, 2019:
The Company determines if an arrangement
is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, operating lease
liability, and operating lease liability, non-current in the Company’s consolidated balance sheets. ROU assets represent
the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation
to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based
on the present value of lease payments over the lease term. When determining the lease term, the Company includes options to extend
or terminate the lease when it is reasonably certain that it will exercise that option, if any. As the Company’s leases do
not provide an implicit rate, the Company used an incremental borrowing rate based on the information available at commencement
date in determining the present value of lease payments. The Company has elected to adopt the following lease policies in conjunction
with the adoption of ASU 2016-02: (i) for leases that have lease terms of 12 months or less and does not include a purchase option
that is reasonably certain to exercise, the Company elected not to apply ASC 842 recognition requirements; and (ii) the Company
elected to apply the package of practical expedients for existing arrangements entered into prior to January 1, 2019 to not reassess
(a) whether an arrangement is or contains a lease, (b) the lease classification applied to existing leases, and(c) initial direct
costs.
Segment reporting
ASC Topic 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.
Related party transactions
A related party is generally defined as
(i) any person that holds 10% or more of the Company’s securities including such person’s immediate families, (ii)
the Company’s management, (iii) someone that directly or indirectly controls, is controlled by or is under common control
with the Company, or (iv) anyone who can significantly influence the financial and operating decisions of the Company. A transaction
is considered to be a related party transaction when there is a transfer of resources or obligations between related parties.
Collaborative arrangement
HDS entered into a Joint Venture Planting
Agreement with Wuchang City Forestry Bureau on March 21, 2004 and certain Joint Venture Planting Agreements with Qingan State-owned
Bureau (the “Qingan Forest Bureau”) in June 2018 and May 2019, respectively (see Note 16), which is considered a collaborative
arrangement under U.S. GAAP. The purpose of this arrangement is to share some of the risks and rewards associated with this Joint
Venture Planting Agreement. The Company’s current share of profits is 80% for the collaborative agreement with Wuchang City
Forestry Bureau and Qingan State-owned Bureau dated in June 2018, and is 70% for the collaborative agreement with Qingan State-owned
Bureau dated in May 2019. The Company accounts for this collaborative arrangement under ASC 808, “Collaborative Arrangements”
and related topics and will record revenue gross as the prime contractor. ASC Topic 808-10-15 defines collaborative arrangements
and requires collaborators to present the result of activities for which they act as the principal on a gross basis and report
any payments received from (made to) the other collaborators based on other applicable authoritative accounting literature, and
in the absence of other applicable authoritative literature, on a reasonable, rational and consistent accounting policy is to be
elected. The Company adopted the provisions of ASC 808-10-15. The adoption of this statement did not have an impact on the Company’s
consolidated financial position, results of operations or cash flows. For the years ended December 31, 2019 and 2018, the Company
has not generated any revenues or activity from this collaborative agreement.
NOTE 3 - RECENT 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 was not 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 year ended December 31, 2019. The Company recognized operating lease liabilities of approximately $350,000 upon adoption,
with corresponding ROU assets on its balance sheet.
In June 2018, the FASB issued ASU 2018-07,
“Compensation - Stock Compensation (Topic 718) - Improvements to Nonemployee Share-Based Payment Accounting”,
which expands the scope of Topic 718 to include all share-based payment transactions for acquiring goods and services from nonemployees.
These amendments align the accounting for share-based payment transactions with non-employees with accounting for share-based payment
transactions with employees. An entity should only remeasure liability-classified awards that have not been settled by the date
of adoption and equity-classified awards for which a measurement date has not been established through a cumulative-effect adjustment
to retained earnings as of the beginning of the fiscal year of adoption. Upon transition, the entity is required to measure these
nonemployee awards at fair value as of the adoption date. The entity must not remeasure assets that are completed. This standard
was effective for public business entities for fiscal years beginning after December 15, 2018 including interim periods within
those fiscal years. Early adoption is permitted, but no earlier than an entity’s adoption date of Topic 606. The adoption
of the guidance didn’t have a material impact on its consolidated financial statements.
In July 2018, the FASB issued ASU 2018-09,
“Codification Improvements”, which affects a wide variety of Topics in the Codification and applies to all reporting
entities within the scope of the affected accounting guidance. These amendments represent changes to clarify, correct errors
in, or make minor improvements to the Codification, eliminating inconsistencies and providing clarifications in current guidance.
Some of the amendments do not require transition guidance and were effective upon issuance. However, many of the amendments do
have transition guidance with effective dates for annual periods beginning after December 15, 2018, for public business entities.
The adoption of the guidance didn’t have a material impact on its consolidated financial statements.
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. For public business entities that meet the definition of an US
Securities and Exchange(SEC) filer, excluding entities eligible to be smaller reporting companies as defined by the SEC, this
ASU is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, and requires
the modified retrospective approach. For all other entities, the amendments are effective for fiscal years beginning after December
15, 2022, including interim periods within those fiscal years. Early adoption is permitted. The Company is evaluating the impact
of this guidance on its consolidated financial statements.
NOTE 4 - INVENTORIES
Inventories consisted of raw materials,
work-in-progress, 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 December 31, 2019 and 2018,
inventories consisted of the following:
|
|
December 31, 2019
|
|
|
December 31, 2018
|
|
|
|
Current portion
|
|
|
Long-term portion
|
|
|
Total
|
|
|
Current portion
|
|
|
Long-term portion
|
|
|
Total
|
|
Raw materials
|
|
$
|
16,761
|
|
|
$
|
91,056
|
|
|
$
|
107,817
|
|
|
$
|
40,240
|
|
|
$
|
92,801
|
|
|
$
|
133,041
|
|
Finished goods
|
|
|
2,770,352
|
|
|
|
2,613,724
|
|
|
|
5,384,076
|
|
|
|
6,194,707
|
|
|
|
2,794,335
|
|
|
|
8,989,042
|
|
Yew seedlings
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
16,023
|
|
|
|
16,023
|
|
Total
|
|
|
2,787,113
|
|
|
|
2,704,780
|
|
|
|
5,491,893
|
|
|
|
6,234,947
|
|
|
|
2,903,159
|
|
|
|
9,138,106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory write-down
|
|
|
(149,724
|
)
|
|
|
(1,125,165
|
)
|
|
|
(1,274,889
|
)
|
|
|
(29,993
|
)
|
|
|
(1,079,031
|
)
|
|
|
(1,109,024
|
)
|
Inventories, net
|
|
$
|
2,637,389
|
|
|
$
|
1,579,615
|
|
|
$
|
4,217,004
|
|
|
$
|
6,204,954
|
|
|
$
|
1,824,128
|
|
|
$
|
8,029,082
|
|
Inventories as of December 31, 2019 and
2018 consisted of the inventory purchased from related parties as follows:
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Inventories, net
|
|
$
|
-
|
|
|
$
|
182,905
|
|
Inventories - related parties, net
|
|
|
2,637,389
|
|
|
|
6,022,049
|
|
Total
|
|
$
|
2,637,389
|
|
|
$
|
6,204,954
|
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Long-term inventories, net
|
|
$
|
395,032
|
|
|
$
|
894,357
|
|
Long-term inventories - related parties, net
|
|
|
1,184,583
|
|
|
|
929,771
|
|
Total
|
|
$
|
1,579,615
|
|
|
$
|
1,824,128
|
|
During the year ended December 31, 2019
and 2018, inventories of yew seedlings in the amount of $Nil and $9,802,656, respectively, were reclassified into land use rights
and yew forest assets as the Company changed the use of the inventories into productive assets.
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following as of December
31, 2019 and 2018:
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Buildings and building improvements
|
|
$
|
629,641
|
|
|
$
|
637,920
|
|
Motor vehicles
|
|
|
498,137
|
|
|
|
576,434
|
|
Machinery and equipment
|
|
|
501,713
|
|
|
|
508,309
|
|
Office equipment
|
|
|
35,424
|
|
|
|
29,792
|
|
|
|
|
1,664,915
|
|
|
|
1,752,455
|
|
Less: accumulated depreciation
|
|
|
(1,190,012
|
)
|
|
|
(1,233,805
|
)
|
Total property and equipment, net
|
|
$
|
474,903
|
|
|
$
|
518,650
|
|
For the years ended December 31, 2019 and
2018, depreciation expenses amounted to $59,703 and $74,955, respectively.
NOTE 6 - LAND USE RIGHTS AND YEW
FOREST ASSETS
There is no private ownership of land in
PRC. Land is owned by the government and the government grants land use rights for specified terms. The following summarizes land
use rights acquired by the Company.
Yew trees on land containing yew tree forests
will be used to supply raw materials such as branches and leaves that will be used by the Company’s customers for production
of TCM. The Company amortizes land use rights based on their terms and amortizes yew forest assets over the term of the respective
land use rights or expected useful lives. The lease agreements do not have any renewal option and the Company has no further obligations
to the lessor. The Company records the amortization of these land use rights and yew forest assets as part of its cost of revenues.
At December 31, 2019 and 2018, land use rights and yew forest
assets consisted of the following:
|
|
Useful Life
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
Land use rights and yew forest assets
|
|
15-50 years
|
|
$
|
44,760,976
|
|
|
$
|
37,927,492
|
|
Less: accumulated amortization
|
|
|
|
|
(4,712,280
|
)
|
|
|
(3,012,699
|
)
|
Land use rights and yew forest assets, net
|
|
|
|
$
|
40,048,696
|
|
|
$
|
34,914,793
|
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Land use rights, net
|
|
$
|
243,877
|
|
|
$
|
257,083
|
|
Yew forest assets, net
|
|
|
39,804,819
|
|
|
|
34,657,710
|
|
Land use rights and yew forest assets, net
|
|
$
|
40,048,696
|
|
|
$
|
34,914,793
|
|
During the years ended December 31, 2019
and 2018, the Company cut certain whole yew trees to process TCM raw materials. As the trees could no longer supply branches and
leaves, their remaining carrying value in the amount of $7,643,574 and $10,286,709 was transferred to cost of revenues, respectively.
Amortization of land use rights and yew forest assets attributable
to future periods is as follows:
Years ending December 31:
|
|
Land Use Right
|
|
|
Yew Forest Assets
|
|
|
Total Amortization
|
|
2020
|
|
$
|
9,871
|
|
|
$
|
1,728,817
|
|
|
$
|
1,738,688
|
|
2021
|
|
|
9,871
|
|
|
|
1,728,817
|
|
|
|
1,738,688
|
|
2022
|
|
|
9,871
|
|
|
|
1,728,817
|
|
|
|
1,738,688
|
|
2023
|
|
|
9,871
|
|
|
|
1,728,817
|
|
|
|
1,738,688
|
|
2024
|
|
|
9,871
|
|
|
|
1,728,817
|
|
|
|
1,738,688
|
|
2025 and thereafter
|
|
|
194,522
|
|
|
|
31,160,734
|
|
|
|
31,355,256
|
|
Total, net
|
|
$
|
243,877
|
|
|
$
|
39,804,819
|
|
|
$
|
40,048,696
|
|
NOTE 7 - TAXES
(a) Federal Income Tax and Enterprise Income Taxes
Provision for income taxes for the years
ended December 31, 2019 and 2018 consisted of:
Year ended December 31, 2019
|
|
Federal
|
|
|
State
|
|
|
Foreign
|
|
|
Total
|
|
Current
|
|
$
|
(9,889
|
)
|
|
$
|
-
|
|
|
$
|
21,103
|
|
|
$
|
11,214
|
|
Deferred
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
(9,889
|
)
|
|
$
|
-
|
|
|
$
|
21,103
|
|
|
$
|
11,214
|
|
Year ended December 31, 2018
|
|
Federal
|
|
|
State
|
|
|
Foreign
|
|
|
Total
|
|
Current
|
|
$
|
1,492,831
|
|
|
$
|
-
|
|
|
$
|
352
|
|
|
$
|
1,493,183
|
|
Deferred
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
1,492,831
|
|
|
$
|
-
|
|
|
$
|
352
|
|
|
$
|
1,493,183
|
|
Significant components of the deferred
tax assets and liabilities for income taxes as of December 31, 2019 and 2018 consisted of the following:
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Deferred tax assets
|
|
|
|
|
|
|
|
|
Net operating loss carry-forward
|
|
$
|
361,712
|
|
|
$
|
67,520
|
|
Inventory write-down
|
|
|
311,536
|
|
|
|
196,564
|
|
Total
|
|
|
673,248
|
|
|
|
264,084
|
|
Valuation allowance
|
|
|
(673,248
|
)
|
|
|
(264,084
|
)
|
Net deferred tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
The Company, YBP, registered in the State
of Nevada, and its subsidiary, MC, registered in the State of California, are subject to the United States federal income tax at
a tax rate of 21%. $(9,889) and $1,492,831 of provision for income taxes for YBP has been made as of December 31, 2019 and 2018,
respectively. No provision for income taxes for MC has been made as MC had no U.S. taxable income as of December 31, 2019 and 2018.
The Company’s subsidiary, Yew Bio-Pharm
(HK), is incorporated in Hong Kong and has no operating profit or tax liabilities during the years. Yew Bio-Pharm (HK) is subject
to tax at 16.5% on the assessable profits arising in or derived from Hong Kong.
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.
For the years ended December 31, 2019 and
2018, the provision for income taxes was $11,214 and $1,493,183, respectively.
The table below summarizes the difference
between the U.S. statutory federal tax rate and the Company’s effective tax rate for the years ended December 31, 2019 and
2018:
|
|
Years Ended
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
U.S. federal income tax rate
|
|
|
21.00
|
%
|
|
|
21.00
|
%
|
Tax rate difference
|
|
|
8.02
|
%
|
|
|
63.12
|
%
|
PRC tax exemption
|
|
|
(51.59
|
)%
|
|
|
(397.43
|
)%
|
Income tax from previous year
|
|
|
(0.99
|
)%
|
|
|
0.21
|
%
|
Income tax on undistributed earnings
|
|
|
-
|
%
|
|
|
838.60
|
%
|
GILTI tax
|
|
|
-
|
%
|
|
|
35.72
|
%
|
Others
|
|
|
2.12
|
%
|
|
|
-
|
%
|
Valuation allowance
|
|
|
22.57%
|
|
|
313.31
|
%
|
Effective tax rate
|
|
|
1.13
|
%
|
|
|
874.53
|
%
|
For U.S. income tax purposes, the Company
has cumulative undistributed earnings of foreign subsidiary and VIE of approximately $Nil million and $Nil million as of December
31, 2019 and 2018, respectively. Accordingly, no provision has been made for U.S. deferred taxes related to future repatriation
of these earnings, nor is it practicable to estimate the amount of income taxes that would have to be provided if we concluded
that such earnings will be remitted to the U.S. in the future.
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, 2019. There was no
impact of the revaluation to the current net income because it was fully offset by the valuation allowance that was recorded against
the deferred tax asset. In addition, the Tax Act implements a modified territorial tax system that includes a one-time transition
tax on deemed repatriation of previously untaxed accumulated earnings and profits of certain foreign subsidiaries, and creates
new taxes on certain foreign-sourced earnings. In connection with the Tax Act, the Securities and Exchange Commission (“SEC”)
issued Staff Accounting Bulletin No. 118 (“SAB 118”) that allows companies to record provisional estimates of the effects
of the legislative change, and a one-year measurement period to finalize the accounting of those effects.
During the year ended December 31, 2018,
the Company recognized a one-time transition tax of $1,431,835 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. For the years ended December 31, 2019 and 2018, $114,547 transition tax
payment has been made.
As of December 31, 2019, the income tax
payable, current and noncurrent were $116,440 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. 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 year ended December 31, 2019 and 2018, GILTI tax expense of $nil and $60,996 was recorded,
respectively.
ASC 740 requires recognition and measurement
of uncertain income tax positions using a “more-likely-than-not” approach. The management evaluated the Company’s
tax positions and considered that no provision for uncertainty in income taxes was necessary as of December 31, 2019 and 2018.
In the normal course of business, the Company
is subject to examination by taxing authorities. With few exceptions, the Company is no longer subject to U.S. federal income tax
examinations for years before 2016.
(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 8 - SHORT-TERM BORROWINGS AND
NOTE PAYABLE
In May 2016, HDS entered into a line of
credit agreement with Harbin Rongtong Branch of Bank of Communications (“BOCOM”) for the period from May 3, 2016 through
May 3, 2018, pursuant to which the Company obtained a bank loan in the amount of RMB10,000,000 (approximately $1,519,000) on May
30, 2016, payable on May 30, 2017. HDS paid off the loan in full on May 26, 2017. On June 13, 2017, HDS obtained another loan in
the amount of RMB10,000,000 (approximately $1,471,000), payable on June 12, 2018, under this credit agreement. The loan carries
an interest rate of 5.873% per annum and is payable quarterly. 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 BOCOM to secure
the loans under this credit agreement. In addition, ZTC, Heilongjiang Yew Pharmaceutical Co., Ltd. (“Yew Pharmaceutical”),
a related party of the Company, Zhiguo Wang, Madame Qi, Yicheng Wang, the son of Zhiguo Wang and Yuqi Mao, the spouse of Yicheng
Wang, provided guarantees to the loans. HDS paid off the loan in full on June 11, 2018.
On November 10, 2016, HDS entered
into a loan agreement with Shanghai Pudong Development Bank (“SPD Bank”) Harbin Branch, pursuant to which the Company
obtained a bank loan in the amount of RMB1,970,000 (approximately $290,000), payable on November 9, 2017. HDS paid off the loan
in full on November 9, 2017. On November 15, 2017, HDS obtained another loan in the amount of RMB10,000,000 (approximately $1,509,000),
payable on October 20, 2018. The loan carries an interest rate of 4.100% per annum and is payable at maturity. The proceeds of
the loan were used by the Company to purchase raw materials. Madam Qi has secured the loan with her personal assets. In addition,
Yew Pharmaceutical, Zhiguo Wang, Yicheng Wang, and Yuqi Mao, the spouse of Yicheng Wang provided guarantees to the loan. HDS paid
off the loan in full as the loan expired.
On December 22, 2016, HDS entered into
a credit agreement with China Everbright Bank (“CEB”) which agreed to provide credit line of RMB20,000,000 (approximately
$2,880,000) to the Company for the period of three years. During the years ended December 31, 2019 and 2018, the Company obtained
short-term loans from CEB in the total amount of $6,114,000 and $6,006,000 under this credit agreement, respectively and paid off
in the total amount of $6,164,000 and $6,026,000, respectively. As of December 31, 2019 and 2018, the balance of loans borrowed
from CEB was approximately $2,800,000 and $2,851,000, respectively. These loans carry interest rates ranging from 4.30% to 4.80%
per annum and the interests are payable when the loans are due. The loans with CEB are secured by properties and land use rights
of Yew Pharmaceutical. In addition, Zhiguo Wang, Madame Qi, Yew Pharmaceutical, and ZTC provided guarantees to the loan. On
February 25, 2020, the Company entered into another credit agreement with CEB, pursuant to which CEB provide credit line of RMB20,000,000(approximately
$2,880,000) to the Company for the period from February 25, 2020 to February 24, 2023.
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 carry an interest rate of 5.2200% per annum
and are payable monthly. Zhiguo Wang and his wife Madame Qi, collateralized their buildings and land use right with Postal Saving
Bank of China to secure the loan. In addition, Zhiguo Wang and his wife Madame Qi, Yicheng Wang and Lei Zhang provided guarantees
to the loans.
On July 26, 2019, HDS entered into a loan
agreement with Bank of Yingkou Harbin Branch (“Yingkou Bank”), pursuant to which HDS obtained a bank loan in the amount
of RMB15,000,000 (approximately $2,153,000 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.
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.
During the years ended December 31, 2019
and 2018, interest expense was $388,979 and $294,117, respectively.
NOTE 9 - STOCKHOLDERS’ EQUITY
(a) Common Stock
On July 22, 2014, the Company entered into
a Service Provider Agreement (the “SPA”) with a service provider to commence service on July 22, 2014 for a period
of three years. Pursuant to the SPA, the Company agreed to issue to the service provider 1,250,000 shares of its Rule 144 restricted
common stock for the service period. The shares are payable in 875,000 shares of its restricted common stock on or before July
22, 2014 for the first year of service under the SPA and 375,000 shares of its restricted common stock to be issued on or before
July 22, 2015, for the second and third year of service under the SPA. The 875,000 shares were issued on July 22, 2014 and the
fair value of these shares of $131,250 was fully expensed for the year ended December 31, 2014. The 375,000 shares were cancelled
based on the agreement entered into on February 28, 2019. And the fair value of these shares of $65,856 was fully expensed for
the year ended December 31, 2015 based on the SPA.
(b) Stock Options
On July 18, 2014, the Company’s board
of directors in lieu of an established compensation committee granted options pursuant to the Corporation’s 2012 Equity Incentive
Plan to two directors and one of its employees (the “Optionees I”). Within the stock option agreement, each of the
Optionees I was issued 200,000 shares of common stock of the Company at an exercise price of $0.20 per share. The option has a
term of four years and expires on August 1, 2018 from August 1, 2014, vesting commencement date. The options vest over a three-year
time period from August 1, 2014, and 30%, 35%, and 35% of the total shares granted shall vest and become exercisable 12, 24, and
36 months after the initial vesting commencement date.
On November 18, 2014, the Company’s
board of directors in lieu of an established compensation committee granted options pursuant to the Corporation’s 2012 Equity
Incentive Plan to the Company’s employees (the “Optionees II”). Within the stock option agreement, each of the
Optionees II was issued shares of common stock of the Company at an exercise price of $0.23 per share. There are three types of
term for the subject stock options granted. (1) The option has a term of four years starting from November 18, 2014, the vesting
commencement date, and expires on November 18, 2018. The options vest over a three-year time period from November 18, 2014, and
30%, 35%, and 35% of the total shares granted shall vest and become exercisable 12, 24, and 36 months after the initial vesting
commencement date. (2) The option has a term of two years starting from November 18, 2014, the vesting commencement date, and expires
on November 18, 2016. The options vest over a one-year time period from November 18, 2014, and 100% of the total shares granted
shall vest and become exercisable 12 months after the initial vesting commencement date. (3) The option has a term of three years
starting from November 18, 2014, the vesting commencement date, and expires on November 18, 2017. The options vest over a two-year
time period, and 50% and the remaining 50% of the total shares shall vest and become exercisable 12 and 24 months respectively
after the initial vesting commencement date.
On October 11, 2016, the Company’s
board of directors in lieu of an established compensation committee granted options pursuant to the Corporation’s 2012 Equity
Incentive Plan to their attorney who is also the Company’s employee, William B. Barnett (the “Optionees III”).
Within the stock option agreement, the Optionees III was issued 200,000 shares of common stock of the Company at an exercise price
of $0.25 per share. The option has a term of three years and expires on October 11, 2019 from October 11, 2016, vesting commencement
date. The options vest over a two-year time period from October 11, 2016, and 50% and remaining 50% of the total shares granted
shall vest and become exercisable 12 and 24 months after the initial vesting commencement date.
On February 1, 2017, the Company’s
board of directors in lieu of an established compensation committee granted options according to the Corporation’s 2012 Equity
Incentive Plan to their employee, Jianping Han (the “Optionees IV”). Within the stock option agreement, the Optionees
IV was issued 50,000 shares of common stock of the Company at an exercise price of $0.25 per share. The option has a term of four
years and expires on February 1, 2021 from February 1, 2017, vesting commencement date. The options vest immediately on the grant
date.
On October 13, 2017, the Board approved
to extend the expiration date for the options issued to Zhiguo Wang and Guifang Qi from December 13, 2017 to June 30, 2018. On
May 20, 2018 the Board approved to extend the expiration date of 5,000,000 options issued to Zhiguo Wang and 2,488,737 options
issued to Guifang Qi from June 30, 2018 to December 31, 2019. The Company treated this extension as a modification of the award
upon the directors’ extraordinary services rendered to the Company and recognized incremental compensation cost. The Company
measured the incremental compensation cost as the excess of the fair value of the modified award over the fair value of the original
award immediately before its terms were modified. As a result of these modifications, the Company recognized incremental compensation
cost of $1,059,987 in stock-based compensation expense during the year ended December 31, 2018, and the weighted average remaining
contractual life was changed to 1 years.
On July 20, 2018, the Company issued 200,000
shares of common stock to Xuehai Wu, a director, for the exercise of the stock options with an exercise price of $0.20 granted
to him pursuant to the stock option agreement entered into on July 18, 2014. The Company received the proceeds in the amount of
$40,000 on July 19, 2018.
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.
On October 3, 2019 the Board approved to
extend the expiration date of 5,000,000 options issued to Zhiguo Wang and 2,488,737 options issued to Guifang Qi from December
31, 2019 to December 31, 2021, and 200,000 options issued to William B. Barnett from October 11, 2019 to December 31, 2021. The
Company treated these extension as modifications of the awards upon their extraordinary services rendered to the Company and recognized
incremental compensation cost. The Company measured the incremental compensation cost as the excess of the fair value of the modified
award over the fair value of the original award immediately before its terms were modified. As a result of these modifications,
the Company recognized incremental compensation cost of $284,461 in stock-based compensation expense during the year ended December
31, 2019, and the weighted average remaining contractual life was changed to 2 years.
The fair value of the Company’s option
as of the date of grant for the year ended December 31, 2018 was determined using the following management assumptions:
Name of Optionee
|
|
Expected Terms
(In Years)
|
|
|
Computed Volatility
|
|
|
Risk free Interest Rate (%)
|
|
|
Expected Dividends
|
|
|
Fair Value
|
|
William B. Barnett
|
|
|
2.250
|
|
|
|
173
|
%
|
|
|
0.87
|
|
|
|
-
|
|
|
|
40,434
|
|
The fair value of the Company’s option as of the date
of revaluation upon modification on May 20, 2018 was determined using the following management assumptions:
Name of Optionee
|
|
Expected Terms
(In Years)
|
|
|
Computed Volatility
|
|
|
Risk free Interest Rate (%)
|
|
|
Expected Dividends
|
|
|
Fair Value
|
|
Before the modification
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Zhiguo Wang
|
|
|
0.12
|
|
|
|
91
|
%
|
|
|
1.77
|
|
|
|
-
|
|
|
|
434,763
|
|
Guifang Qi
|
|
|
0.12
|
|
|
|
91
|
%
|
|
|
1.77
|
|
|
|
-
|
|
|
|
216,402
|
|
After the modification
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Zhiguo Wang
|
|
|
1.62
|
|
|
|
168
|
%
|
|
|
2.58
|
|
|
|
-
|
|
|
|
1,142,484
|
|
Guifang Qi
|
|
|
1.62
|
|
|
|
168
|
%
|
|
|
2.58
|
|
|
|
-
|
|
|
|
568,669
|
|
The fair value of the Company’s option as of the date
of revaluation upon modification on October 3, 2019 was determined using the following management assumptions:
Name of Optionee
|
|
Expected Terms
(In Years)
|
|
|
Computed Volatility
|
|
|
Risk free Interest Rate (%)
|
|
|
Expected Dividends
|
|
|
Fair Value
|
|
Before the modification
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Zhiguo Wang
|
|
|
0.25
|
|
|
|
125
|
%
|
|
|
1.70
|
|
|
|
-
|
|
|
|
9,285
|
|
Guifang Qi
|
|
|
0.25
|
|
|
|
125
|
%
|
|
|
1.70
|
|
|
|
-
|
|
|
|
4,622
|
|
William B. Barnett
|
|
|
0.02
|
|
|
|
29
|
%
|
|
|
1.78
|
|
|
|
-
|
|
|
|
0
|
|
After the modification
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Zhiguo Wang
|
|
|
2.25
|
|
|
|
127
|
%
|
|
|
1.39
|
|
|
|
-
|
|
|
|
194,285
|
|
Guifang Qi
|
|
|
2.25
|
|
|
|
127
|
%
|
|
|
1.39
|
|
|
|
-
|
|
|
|
96,705
|
|
William B. Barnett
|
|
|
2.25
|
|
|
|
127
|
%
|
|
|
1.39
|
|
|
|
-
|
|
|
|
7,378
|
|
Stock option activities for the years ended
December 31, 2019 and 2018 are summarized in the following table.
|
|
Year Ended
December 31, 2019
|
|
|
Year Ended
December 31, 2018
|
|
|
|
Number of
Stock
Options
|
|
|
Weighted
Average
Exercise Price
|
|
|
Number of
Stock
Options
|
|
|
Weighted
Average
Exercise Price
|
|
Balance at beginning of year
|
|
|
7,738,737
|
|
|
$
|
0.22
|
|
|
|
24,872,212
|
|
|
$
|
0.22
|
|
Issued
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
200,000
|
|
|
|
0.20
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
16,933,475
|
|
|
|
0.22
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Balance at end of year
|
|
|
7,738,737
|
|
|
$
|
0.22
|
|
|
|
7,738,737
|
|
|
$
|
0.22
|
|
Options exercisable at end of year
|
|
|
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 December 31, 2019:
Stock Options Outstanding
|
|
|
Stock Options Exercisable
|
|
Range of
Exercise Price
|
|
|
Number
Outstanding at
December 31,
2019
|
|
|
Weighted
Average
Remaining
Contractual
Life (Years)
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Number
Exercisable at
December 31,
2019
|
|
|
Weighted
Average
Exercise
Price
|
|
$
|
0.22-0.25
|
|
|
|
7,738,737
|
|
|
|
2.00
|
|
|
$
|
0.22
|
|
|
|
7,738,737
|
|
|
$
|
0.22
|
|
The Company’s outstanding stock options
and exercisable stock options had intrinsic value of $0, based upon the Company’s closing stock price of $0.075 as of December
31, 2019. Stock option expense recognized during the years ended December 31, 2019 and 2018 amounted to $284,461 and $1,067,548,
respectively.
NOTE 10 - EARNINGS PER SHARE
The following table presents a reconciliation
of basic and diluted net income per share for the years ended December 31, 2019 and 2018:
|
|
For the Years Ended
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Net income (loss) available to common stockholders for basic and diluted net income per share of common stock
|
|
$
|
985,506
|
|
|
$
|
(1,322,441
|
)
|
Weighted average common stock outstanding - basic
|
|
|
51,760,616
|
|
|
|
51,965,411
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
Stock options issued to directors/officers/employees
|
|
|
-
|
|
|
|
-
|
|
Weighted average common stock outstanding - diluted
|
|
|
51,760,616
|
|
|
|
51,965,411
|
|
Net income (loss) per common share - basic
|
|
$
|
0.02
|
|
|
$
|
(0.03
|
)
|
Net income (loss) per common share - diluted
|
|
$
|
0.02
|
|
|
$
|
(0.03
|
)
|
Diluted net income (loss)
per share is computed using the weighted average number of common shares and dilutive potential common shares outstanding during
the respective periods. The anti-dilutive securities included options to purchase common shares are 5,492,421 and 1,892,508 on
a weighted average basis for the years ended December 31, 2019 and 2018, respectively.
NOTE 11 - 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
|
|
For the Year Ended
December 31, 2019
|
|
Operating lease cost
|
|
Selling, general and administrative expense
|
|
$
|
128,664
|
|
Net lease cost
|
|
|
|
$
|
128,664
|
|
Balance sheet information related to leases
consists of the following:
|
|
Classification
|
|
As of December 31,
2019
|
|
Assets
|
|
|
|
|
|
Operating lease ROU assets
|
|
Right-of-use assets
|
|
$
|
399,817
|
|
Total leased assets
|
|
|
|
$
|
399,817
|
|
Liabilities
|
|
|
|
|
|
|
Current portion
|
|
|
|
|
|
|
Operating lease liabilities
|
|
Current maturities of operating lease liabilities
|
|
$
|
52,104
|
|
|
|
|
|
|
|
|
Non-current portion
|
|
|
|
|
|
|
Operating lease liabilities
|
|
Operating lease liabilities
|
|
|
351,145
|
|
Total lease liabilities
|
|
|
|
$
|
403,249
|
|
|
|
|
|
|
|
|
Weighted average remaining lease term
|
|
|
|
|
|
|
Operating leases
|
|
|
|
|
6.17 years
|
|
|
|
|
|
|
|
|
Weighted average discount rate
|
|
|
|
|
|
|
Operating leases
|
|
|
|
|
6.44
|
%
|
Cash flow information related to leases
consists of the following:
|
|
For the Year Ended
December 31, 2019
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
Operating cash flows from operating leases
|
|
$
|
127,127
|
|
The minimum future lease payments as of December 31, 2019 are
as follows:
Years Ending December 31,
|
|
Operating Leases
|
|
2020
|
|
$
|
77,784
|
|
2021
|
|
|
78,993
|
|
2022
|
|
|
80,054
|
|
2023
|
|
|
33,321
|
|
2024
|
|
|
29,059
|
|
Thereafter
|
|
|
235,929
|
|
Total lease payments
|
|
|
535,140
|
|
Less: Interest
|
|
|
(131,891
|
)
|
Present value of lease liabilities
|
|
$
|
403,249
|
|
NOTE 12 - CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS
Customers
For the years ended December 31, 2019 and
2018, customers accounting for 10% or more of the Company’s revenue were as follows:
|
|
Revenue For the Years Ended
|
|
|
AR as of
|
|
|
|
December 31,
|
|
|
December 31,
|
|
Customer
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
A (Yew Pharmaceutical, a related party)
|
|
|
38.39
|
%
|
|
|
57.65
|
%
|
|
|
-
|
%
|
|
|
31.00
|
%
|
B (HongKong YIDA Commerce Co., Limited, a related party)
|
|
|
25.62
|
%
|
|
|
*
|
%
|
|
|
2.45
|
%
|
|
|
NA
|
%
|
C (GOLDEN PEACH TRAVEL SERVICE COMPANY LTD)
|
|
|
34.13
|
%
|
|
|
-
|
|
|
|
97.55
|
%
|
|
|
-
|
|
D (DMSU, a related party)
|
|
|
-
|
%
|
|
|
18.27
|
%
|
|
|
-
|
%
|
|
|
**
|
%
|
|
**
|
The Company wrote off all of accounts receivable from
DMSU as of December 31, 2018.
|
Suppliers
For the years ended December 31, 2019 and
2018, suppliers accounting for 10% or more of the Company’s purchase were as follows:
|
|
For the Years Ended
December 31,
|
|
Supplier
|
|
2019
|
|
|
2018
|
|
A (Yew Pharmaceutical, a related party)
|
|
|
47
|
%
|
|
|
37
|
%
|
Q (Heilongjiang Zishan Technology Co., Ltd., a related party)
|
|
|
*
|
%
|
|
|
12
|
%
|
No significant account payable as of December
31, 2019 and 2018.
NOTE 13 - 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 years ended December 31, 2019 and
2018, total revenues from Yew Pharmaceutical under the above agreement amounted to $10,705,727 and $21,673,772, and the corresponding
cost of revenues amounted to $9,962,940 and $11,483,628, respectively. At December 31, 2019 and 2018, the Company had $0 and $1,408,321
accounts receivable from Yew Pharmaceutical, respectively.
For the years ended December 31, 2019 and
2018, the total purchase of yew candles, yew essential oil soap, complex taxus cuspidate extract, composite northeast yew extract,
wood ear mushroom extract, and pine needle extracts from Yew Pharmaceutical amounted to $13,299,780 and $22,454,476, respectively.
For the years ended December 31, 2019 and 2018, the products purchased from Yew Pharmaceutical in the amount of $16,633,020 and
$13,171,608 were sold and included in the total cost of revenues of $27,109,518 and $26,872,694, respectively. At December 31,
2019 and 2018, the Company had $16,629 and $0 accounts payable to Yew Pharmaceutical, respectively.
Transactions with HBP
For the year ended December 31, 2019, HBP
paid off operation expense on behalf of HYF in the amount of $1,737. As of December 31, 2019 and 2018, HYF had due to HBP in the
amount of $103,158 and $102,770, respectively, which was included in due to related parties in the accompanying consolidated balance
sheets.
Transactions with HDS Development
For the years ended December 31, 2019 and
2018, total revenue from HDS Development amounted to $Nil and $1,814,169. As of December 31, 2019 and 2018, the Company had $Nil
and $981,618 accounts receivable, which were net of allowance for doubtful account $Nil and $763,481 from HDS Development, respectively.
For the years ended December 31, 2019 and 2018, the Company recorded bad debt expense for HDS development in the amount of $Nil
and $793,699, respectively.
Transactions with Jinguo Wang
For the years ended December 31, 2019 and
2018, HDS purchased yew forest assets and yew seedlings from Jinguo Wang in the amount of $1,078,121 and $1,405,107, respectively.
As of December 31, 2019 and 2018, the Company had no accounts payable to Jinguo Wang.
Transactions with Wonder Genesis Global
Ltd.
For the years ended December 31, 2019 and
2018, total revenues from Wonder Genesis Global Ltd. amounted to $Nil and $2,552,148, and the corresponding cost of revenues amounted
to $Nil and $2,535,264. At December 31, 2019 and 2018, the Company has no accounts receivable from Wonder Genesis Global Ltd.
Transactions with Lifeforfun Limited
For the years ended December 31, 2019 and
2018, total revenues from Lifeforfun Limited amounted to $Nil and $1,159,021. As of December 31, 2019 and 2018, the Company had
$Nil and $1,080,919 accounts receivable, which were net of allowance for doubtful account $Nil and $74,448 from Lifeforfun Limited,
respectively. For the years ended December 31, 2019 and 2018, the Company recorded bad debt expense for Lifeforfun Limited in the
amount of $Nil and $77,395, respectively.
Transactions with DMSU
For the years ended December 31, 2019 and
2018, total revenues from DMSU amounted to $Nil and $6,869,966. The Company wrote off accounts receivable in the amount of $6,782,442
from DMSU due to being uncollectable. As of December 31, 2019 and 2018, the Company had no accounts receivable from DMSU. For the
year ended December 31, 2019, the Company recovered approximately $1,034,000 of accounts receivable previously written off from
DMSU. The amount 1,034,000 was recorded in bad debt recovery. For the year ended December 31, 2018, the Company recorded bad debt
expense for DMSU in the amount of $7,050,885.
Transactions with YIDA
For the years ended December 31, 2019 and
2018, total revenues from YIDA amounted to $7,144,649and $3,085,648. As of December 31, 2019 and 2018, the Company had $193,000
and $1,108,808 accounts receivable, which were net of allowance for doubtful account $193,000 and $Nil from YIDA, respectively.
Transactions with ZTC
For the years ended December 31, 2019 and
2018, HDS purchased yew forest assets from ZTC in the amount of $2,121,880 and $6,458,773, respectively. Since the assets purchase
occurred between entities under common control, the Company recorded the assets received at historical carrying costs recorded
by ZTC, which amounted to $1,729,793 and $6,415,707, respectively. The differences between the actual contract price and carrying
costs are recorded as additional paid-in capital in the amount of $392,087 and $43,066, respectively. As of December 31, 2019 and
2018, the Company had no balance payable to ZTC.
Transactions with Xinlin
For the years ended December 31, 2019 and
2018, HDS purchased yew forest assets from Xinlin in the amount of $148,396 and $2,582,469, respectively. Since the assets purchase
occurred between entities under common control, the Company recorded the assets received at historical carrying costs recorded
by Xinlin, which amounted to $121,981 and $1,362,252, respectively. The differences between the actual contract price and carrying
costs are recorded as additional paid-in capital in the amount of $26,415 and $1,220,217, respectively. As of December 31, 2019
and 2018, the Company had no balance payable to Xinlin.
Transactions with Zhiguo Wang
For the years ended December 31, 2019 and
2018, HDS purchased yew forest assets from Zhiguo Wang in the amount of $Nil and $1,269,918, respectively. As of December 31, 2019
and 2018, the Company had no balance payable to Zhiguo Wang. Since the assets purchase occurred between entities under common control,
the Company recorded the assets received at historical carrying costs recorded by Zhiguo Wang, which amounted to $1,015,935. The
difference of $253,983 between the actual contract price and carrying costs is recorded as additional paid-in capital.
Transactions with Weihong Zhang
For the years ended December 31, 2019 and
2018, HDS purchased yew forest assets from Weihong Zhang in the amount of $789,032 and $Nil, respectively.
Transactions with Chunping Wang
For the years ended December 31, 2019 and
2018, HDS purchased yew forest assets from Chunping Wang in the amount of $1,653,347 and $3,266,259, respectively.
Transactions with Xue Wang
For the years ended December 31, 2019 and
2018, HDS purchased yew forest assets from Xue Wang in the amount of $157,054 and $1,863,756, respectively.
Transactions with Cai Wang
For the years ended December 31, 2019 and
2018, HDS purchased yew forest assets from Cai Wang in the amount of $81,075 and $2,324,525, respectively.
Transactions with Jimin Lu
For the years ended December 31, 2019 and
2018, HDS purchased yew forest assets from Jimin Lu in the amount of $Nil and $2,137,937, respectively.
Loans Guaranteed
As of December 31, 2019 and 2018, the Company’s
certain loans were guaranteed by related parties (see note 8).
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 years ended December 31, 2019 and 2018, rent expense related to the ZTC Lease amounted to $23,519 and $24,559, respectively.
At December 31, 2019 and 2018, prepaid rent to ZTC amounted to $5,829 and $29,530 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 years ended December 31, 2019 and 2018, rent expense related to the Office Lease amounted to approximately $2,200
and $2,300, respectively. As of December 31, 2019 and 2018, the Company had no unpaid rent related to the Office Lease.
On July 1, 2012, the Company entered into
a lease for office space with Mr. Wang (the “JSJ Lease”). Pursuant to the JSJ Lease, JSJ leases approximately 30 square
meter of office space from Mr. 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
years ended December 31, 2019 and 2018, rent expense related to the JSJ Lease amounted to $1,448 and $1,512, respectively. As of
December 31, 2019 and 2018, the unpaid rent was $718 and $6,544, respectively, which was included in due to related parties in
the accompanying consolidated balance sheets.
The Company entered into two forest land
leases with Mr. Wang. Pursuant to the Leases, Mr.Wang leases two forest land with area of 20 mu and 73 mu, respectively, to the
Company for free. The leases terms are for the periods from January 9, 2008 to November 24, 2022 and from January 30, 2007 to December
30, 2026, respectively.
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 in the
A’cheng district in Harbin (the “A’cheng Lease”) from HDS Development 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
|
|
RMB
|
25,000
|
|
|
Before December 2012
|
March 2012 to February 2017
|
|
RMB
|
25,000
|
|
|
Before December 2017
|
March 2017 to March 2025
|
|
RMB
|
25,000
|
|
|
Before December 2025
|
For the years ended December 31, 2019 and
2018, rent expense related to the A’cheng Lease amounted approximately $3,600 and $3,700, respectively. At December 31, 2019
and 2018, the prepaid rent was $Nil and $1,818, respectively, which was included in due to related parties in the accompanying
consolidated balance sheets.
The Company leased an apartment 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 expired on September 30, 2019. For the years ended December 31, 2019
and 2018, rent expense related to the Jixing Lease amounted $1,086 and $1,512, respectively. As of December 31, 2019 and 2018,
the prepaid rent to Ms. Qi amounted to $Nil and $970 respectively, which was included in prepaid expenses-related parties in the
accompanying consolidated balance sheets.
Due to Related Parties
The Company’s officers, directors
and other related parties, from time to time, provided advances to the Company for working capital purpose. These advances and
payables are usually short-term in nature, non-interest bearing, unsecured and payable on demand.
The following summarized the Company’s
due to related parties as of December 31, 2019 and 2018:
|
|
December 31,
2019
|
|
|
December 31,
2018
|
|
Zhiguo Wang and Guifang Qi
|
|
$
|
530,621
|
|
|
$
|
477,246
|
|
HBP
|
|
|
103,158
|
|
|
|
102,770
|
|
Total
|
|
$
|
633,779
|
|
|
$
|
580,016
|
|
NOTE 14 - STATUTORY RESERVES
The Company is required to make appropriations
to reserve funds, comprising the statutory surplus reserve and discretionary surplus reserve, based on after-tax net income determined
in accordance with generally accepted accounting principles of the PRC (“PRC GAAP”). Appropriation to the statutory
surplus reserve is required to be at least 10% of the after tax net income determined in accordance with PRC GAAP until the reserve
is equal to 50% of the entities’ registered capital. Appropriations to the discretionary surplus reserve are made at the
discretion of the board of directors.
The statutory surplus reserve fund is non-distributable
other than during liquidation and can be used to fund previous years’ losses, if any, and may be utilized for business expansion
or converted into share capital by issuing new shares to existing shareholders in proportion to their shareholding or by increasing
the par value of the shares currently held by them, provided that the remaining reserve balance after such issue is not less than
25% of the registered capital. For the years ended December 31, 2019 and 2018, the Company appropriated to the statutory surplus
reserve in the amount of $0. The accumulated balance of the statutory reserve of the Company as of December 31, 2019 and 2018 was
$3,762,288.
NOTE 15 - 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 year ended December 31, 2019 and 2018 were as follows:
|
|
For the Years Ended
December 31,
|
|
Geographic Areas
|
|
2019
|
|
|
2019
|
|
Revenue
|
|
|
|
|
|
|
|
|
PRC
|
|
$
|
27,552,181
|
|
|
$
|
37,206,112
|
|
USA
|
|
|
354,725
|
|
|
|
390,830
|
|
Elimination Adjustment
|
|
|
(23,257
|
)
|
|
|
-
|
|
Total Revenue
|
|
$
|
27,883,649
|
|
|
$
|
37,596,942
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from operations
|
|
|
|
|
|
|
|
|
PRC
|
|
$
|
2,047,256
|
|
|
$
|
3,242,250
|
|
USA
|
|
|
(1,031,772
|
)
|
|
|
(2,523,653
|
)
|
Elimination Adjustment
|
|
|
(3,965
|
)
|
|
|
-
|
|
Total Income (Loss) from operations
|
|
$
|
1,011,519
|
|
|
$
|
718,597
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
PRC
|
|
$
|
1,977,627
|
|
|
$
|
2,694,043
|
|
USA
|
|
|
(988,156
|
)
|
|
|
(4,016,484
|
)
|
Elimination Adjustment
|
|
|
(3,965
|
)
|
|
|
-
|
|
Total net income (loss)
|
|
$
|
985,506
|
|
|
$
|
(1,322,441
|
)
|
The geographical distribution of the Company’s
financial information as of December 31, 2019 and 2018 were as follows:
|
|
As of December 31,
|
|
Geographic Areas
|
|
2019
|
|
|
2018
|
|
Long-term assets
|
|
|
|
|
|
|
|
|
PRC
|
|
$
|
44,547,842
|
|
|
$
|
35,866,829
|
|
USA
|
|
|
1,363,586
|
|
|
|
1,436,101
|
|
Elimination adjustment
|
|
|
(3,376,072
|
)
|
|
|
-
|
|
Total long-term assets
|
|
$
|
42,535,356
|
|
|
$
|
37,302,930
|
|
|
|
|
|
|
|
|
|
|
Reportable assets
|
|
|
|
|
|
|
|
|
PRC
|
|
$
|
55,407,391
|
|
|
$
|
50,107,147
|
|
USA
|
|
|
2,146,518
|
|
|
|
2,289,019
|
|
Elimination adjustment
|
|
|
(3,347,192
|
)
|
|
|
(2,704,100
|
)
|
Total reportable assets
|
|
$
|
54,206,717
|
|
|
$
|
49,692,066
|
|
The Company does not allocate any selling,
general and administrative expenses, other income/expenses to its reportable segments because these activities are managed at a
corporate level. In addition, the specified amounts for interest expense and income tax expense are not included in the measure
of segment profit or loss reviewed by the chief operating decision maker and these specified amounts are not regularly provided
to the chief operating decision maker.
Asset information by reportable segment
is not reported to or reviewed by the chief operating decision maker and, therefore, the Company has not disclosed asset information
for each reportable segment. The Company’s operations are located in the PRC.
NOTE 16 - JOINT VENTURE AGREEMENT
FOR PLANTING OF YEW TREES
On March 21, 2004, HDS entered into a Joint
Venture Planting Agreement (the “Joint Venture Agreement”) with Wuchang City Forestry Bureau (the “Forest Bureau”),
pursuant to which the Forest Bureau has given HDS access to 1,000,000 mu of forest land located in Wuchang City to develop yew
tree forests and produce yew seedlings. Pursuant to the Joint Venture Agreement, the Company is required to plant yew trees on
this land from 2004 to 2034. Any profits from the planting of yew trees and other agriculture shall be distributed 80% to the Company
and 20% to the Forest Bureau. For the years ended December 31, 2019 and 2018, the Company has not generated any revenues or activity
on this land.
On June 14, 2018, HDS entered into a Joint
Venture Planting Agreement (the “Joint Venture Agreement”) with Qingan State-owned Forestry Bureau (the “Qingan
Forest Bureau”), pursuant to which the Qingan Forest Bureau has given HDS access to 10,730 mu of forest land located in Qingan
City to develop yew tree forests and produce yew seedlings and foliage. Pursuant to the Joint Venture Agreement, the Company is
required to plant yew trees on this land from 2018 to 2038. Any profits from the planting of yew trees and other agriculture shall
be distributed 80% to the Company and 20% to the Qingan Forest Bureau. For the year ended December 31, 2019 the Company has not
generated any revenues.
On May 16, 2019, HDS entered into three
Joint Venture Planting Agreements (the “Joint Venture Agreement”) with Qingan State-owned Forestry Bureau (the “Qingan
Forest Bureau”), pursuant to which the Qingan Forest Bureau has given HDS access to 5,000 mu in total of forest land located
in Qingan City to develop yew tree forests and produce yew seedlings and foliage. Pursuant to the Joint Venture Agreement, the
Company is required to plant yew trees on this land from 2019 to 2049. Any profits from the planting of yew trees and other agriculture
shall be distributed 70% to the Company and 30% to the Qingan Forest Bureau. For the year ended December 31, 2019 the Company has
not generated any revenues.
NOTE 17 - SUBSEQUENT
EVENT
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%. On February 24 and 25, 2020, Yicheng Wang paid off RMB200,000 and RMB400,000
to the Company, respectively.
On February 25, 2020, the Company entered
into a credit agreement with CEB, pursuant to which CEB provide credit line of RMB20,000,000(approximately $2,880,000) to the Company
for the period from February 25, 2020 to February 24, 2023.
In March, 2020, HDS entered into two Joint
Venture Planting Agreements (the “Joint Venture Agreement”) with Qingan State-owned Forestry Bureau (the “Qingan
Forest Bureau”), pursuant to which the Qingan Forest Bureau has given HDS access to 5,000 mu in total of forest land located
in Qingan City to develop yew tree forests and produce yew seedlings and foliage. Pursuant to the Joint Venture Agreement, the
Company is required to plant yew trees on this land from 2020 to 2050. Any profits from the planting of yew trees and other agriculture
shall be distributed 70% to the Company and 30% to the Qingan Forest Bureau.
On March 18, 2020, the Company established
a subsidiary, Harbin Jingchibai Bio-Technology Development Co., Limited (“JCB”), accounting for 51% of equity interest
incorporated in Harbin city, Heilongjiang province, China. The total registered capital is RMB1 million. As of the filing date,
the registered capital has not been paid.
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.
F-33