10-Q 1 suwn10-q.htm SUNWIN STEVIA INTERNATIONAL, INC. FORM 10-Q suwn10-q.htm
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q
 (Mark One)
 
[X] 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly report ended July 31, 2012

or

[  ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ________ to __________

Commission file number: 000-53595

SUNWIN STEVIA INTERNATIONAL, INC.
(Exact name of registrant as specified in charter)

NEVADA
56-2416925
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
 
6 SHENGWANG AVE., QUFU, SHANDONG, CHINA
273100
(Address of principal executive offices)
(Zip Code)

(86) 537-4424999
(Registrant's telephone number, including area code)

NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes [X] No [ ]

Indicate by check mark whether the registrant has been submitted electronically and posted on its corporate Web site, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer  [  ]
Accelerated filer          [  ]
Non-accelerated filer    [  ]
Smaller reporting company  [X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes [  ] No [X].

Indicate the number of shares outstanding of each of the issuer's classes of common equity as of the latest practicable date: As of September 7, 2012 there were 167,022,803 shares of the registrant's common stock issued and outstanding.

 
 
 
 

SUNWIN STEVIA INTERNATIONAL, INC. AND SUBSIDIARIES
 
FORM 10-Q
 
QUARTERLY PERIOD ENDED JULY 31, 2012
 
INDEX
 
 
Page
PART I-FINANCIAL INFORMATION
  
Item 1.   Financial Statements
1
   
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations
15
   
Item 3.   Quantitative and Qualitative Disclosures About Market Risk
21
   
Item 4.   Controls and Procedures
21
   
PART II-OTHER INFORMATION
  
Item 1.   Legal Proceedings
21
   
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds
21
   
Item 3.   Defaults Upon Senior Securities
21
   
Item 4.   Mine Safety Disclosures
21
   
Item 5.   Other Information
22
   
Item 6.  Exhibits
22


 
i
 
 



Cautionary Note Regarding Forward-Looking Information and Factors That May Affect Future Results

This report contains forward-looking statements. The Securities and Exchange Commission encourages companies to disclose forward-looking information so that investors can better understand a company’s future prospects and make informed investment decisions. This report and other written and oral statements that we make from time to time contain such forward-looking statements that set out anticipated results based on management’s plans and assumptions regarding future events or performance. We have tried, wherever possible, to identify such statements by using words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “will” and similar expressions in connection with any discussion of future operating or financial performance. In particular, these include statements relating to future actions, future performance or results of current and anticipated sales efforts, expenses, the outcome of contingencies, such as legal proceedings, and financial results. A list of factors that could cause our actual results of operations and financial condition to differ materially is set forth below, and these factors are discussed in greater detail under Item 1A – "Risk Factors" in our Annual Report on Form 10-K for the year ended April 30, 2012 as filed with the Securities and Exchange Commission:

       
 
-
  
Our revenues have declined in the past two fiscal years and there are no assurances they will return to historic levels in future periods;
 
-
  
Growing dependence on related party revenues;
 
-
  
Dependence upon continued market acceptance of our stevioside products, maintaining Generally Recognized as Safe status in the United States and obtaining approval in other countries in the world that currently do not permit use of steviosides in food products;
 
-
  
Competition and low barriers to entry to the market in which we sell our products;
 
-
  
Our dependence on the services of our president;
 
-
  
Our inability to control the cost of our raw materials;
 
-
  
The limitation on our ability to receive and use our cash flows effectively as a result of restrictions on currency exchange in the PRC;
 
-
  
Our operations are subject to government regulation. If we fail to comply with the applicable regulations, our ability to operate in future periods could be in jeopardy;
 
-
  
The absence of various corporate governance measures which may reduce stockholders’ protections against interested director transactions, conflicts of interest and other matters;
 
-
  
The effect of changes resulting from the political and economic policies of the Chinese government on our assets and operations located in the PRC;
 
-
  
The impact of economic reform policies in the PRC;
 
-
  
The influence of the Chinese government over the manner in which our Chinese subsidiaries must conduct our business activities;
 
-
  
The impact of any natural disasters and health epidemics in China;
 
-
  
Regulations relating to offshore investment activities by Chinese residents may increase the administrative burden we face and create regulatory uncertainties that may limit or adversely affect our ability to complete a business combination with PRC companies;
 
-
  
The lack of various legal protections in certain agreements to which we are a party and which are material to our operations which are customarily contained in similar contracts prepared in the United States;
 
-
  
Our ability to enforce our rights due to policies regarding the regulation of foreign investments in China;
 
-
  
Difficulties stockholders may face who seek to enforce any judgment obtained in the United States against us, which may limit the remedies otherwise available to our stockholders;
 
-
  
Our ability to comply with the United States Foreign Corrupt Practices Act which could subject us to penalties and other adverse consequences;
 
-
  
Provisions of our articles of incorporation and bylaws may delay or prevent a take-over which may not be in the best interests of our stockholders;
 
-
  
Our dependence on our corporate management services in the preparation of our financial statements and reports we file with the SEC.
 
-
  
Adverse affects on the liquidity of our stock because it currently trades below $5.00 per share, is quoted on the OTC bulletin board, and is considered a “penny stock;” and
 
-
  
The impact on our stock price due to future sales of restricted stock held by existing shareholders.

We caution that the factors described herein and other factors could cause our actual results of operations and financial condition to differ materially from those expressed in any forward-looking statements we make and that investors should not place undue reliance on any such forward-looking statements. Further, any forward-looking statement speaks only as of the date on which such statement is made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of anticipated or unanticipated events or circumstances. New factors emerge from time to time, and it is not possible for us to predict all of such factors. Further, we cannot assess the impact of each such factor on our results of operations or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

 
ii
 
 



INDEX OF CERTAIN DEFINED TERMS USED IN THIS REPORT

We are on a fiscal year ending April 30, as such the year ended April 30, 2012 is referred to as “fiscal 2012” and the year ending April 30, 2013 is referred to as “fiscal 2013.”  Also, the three month period ending July 31, 2012 is our first quarter and is referred to as the “first quarter of fiscal 2013”. Likewise, the three month period ending July 31, 2011 is referred to as the “first quarter of fiscal 2012”.

  When used in this report, the terms:
     
 
-
  
“Sunwin”, “we”, “us” and the “Company” refers to Sunwin Stevia International, Inc., a Nevada corporation formerly known as Sunwin Neutraceuticals International, Inc., and our subsidiaries;
       
 
-
  
“Sunwin Tech” refers to our wholly owned subsidiary Sunwin Tech Group, Inc., a Florida corporation;
       
 
-
  
“Qufu Natural Green” refers to our wholly owned subsidiary Qufu Natural Green Engineering Co., Ltd., a Chinese limited liability company;
       
       
 
-
  
“Sunwin Stevia International” refers to our wholly owned subsidiary Sunwin Stevia International Corp., a Florida corporation, which was converted to Sunwin USA, LLC a Delaware limited liability company in May 2009;
       
 
-
  
“Sunwin USA” refers to Sunwin USA, LLC, a Delaware limited liability company, a 100% owned subsidiary as of August 20, 2012;;
       
       
 
-
  
“Qufu Shengwang” refers to Qufu Shengwang Stevia Biology and Science Co., Ltd., a Chinese limited liability company. Qufu Natural Green owns a 100% interest in Qufu Shengwang; and 
       
 
-
  
“Qufu Shengren” refers to Qufu Shengren Pharmaceutical Co., Ltd., a Chinese limited liability company, and a wholly owned subsidiary of Qufu Natural Green.
       
We also use the following terms when referring to certain related and other parties:
       
 
-
  
“Pharmaceutical Corporation” refers to Shandong Shengwang Pharmaceutical Co., Ltd., a Chinese limited liability company which is controlled by Mr. Laiwang Zhang,  President, Chairman and a principal shareholder of our company;
       
 
-
  
"Qufu Shengwang Import and Export" refers to Qufu Shengwang Import and Export Co., Ltd., a Chinese limited liability company, controlled by Mr. Zhang;
       
 
-
  
“Shandong Group” refers to Shandong Shengwang Group Co., Ltd., a Chinese limited liability company, which is controlled by Mr. Zhang,   and
       
 
-
  
“WILD Flavors” refers to WILD Flavors, Inc., a Delaware corporation.
       

 
iii
 
 
 
PART I - FINANCIAL INFORMATION
 
ITEM 1.  FINANCIAL STATEMENTS

SUNWIN STEVIA INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 
   
July 31, 2012
    
April 30, 2012
  
   
(Unaudited)
        
ASSETS
            
CURRENT ASSETS:
            
Cash and cash equivalents
   $ 1,449,454     $ 2,958,895  
Investment in real estate held for resale
     1,915,591       1,919,665  
Accounts receivable, net of allowance for doubtful accounts of $783,298 and $933,678, respectively
     2,304,073       2,370,573  
Accounts receivable - related party
     941,805       550,740  
Notes receivable
     40,700       105,906  
Loans receivable
     1,852,892       1,962,118  
Inventories, net
     4,573,538       4,305,381  
Prepaid expenses and other current assets
     864,465       633,522  
    Total Current Assets
     13,942,518       14,806,800  
Property and equipment, net
     14,426,213       14,023,368  
Land use rights
     2,280,051       2,298,973  
    Total Assets
   $ 30,648,782     $ 31,129,141  
LIABILITIES AND STOCKHOLDERS' EQUITY
                
CURRENT LIABILITIES:
                
Accounts payable and accrued expenses
   $ 4,060,546     $ 4,052,598  
Due to related party
     66,529       79,351  
Taxes payable
     11,707       73,327  
    Total Current Liabilities
     4,138,782       4,205,276  
STOCKHOLDERS' EQUITY:
                
Preferred stock, $0.001 par value; 1,000,000 shares authorized; no shares issued and outstanding
     -       -  
Common stock, $0.001 par value, 200,000,000 shares authorized; 157,356,137 shares issued and outstanding as of July 31, 2012 and April 30, 2012
     157,356       157,356  
Additional paid-in capital
     30,965,222       30,445,222  
Accumulated deficit
     (9,695,314 )     (8,818,978 )
Accumulated other comprehensive income
     5,082,736       5,140,265  
    Total Stockholders' Equity
     26,510,000       26,923,865  
      Total Liabilities and Stockholders' Equity
   $ 30,648,782     $ 31,129,141  


The accompanying notes are an integral part of these unaudited financial statements.


 
- 1 -
 
 


 SUNWIN STEVIA INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

 (UNAUDITED)

   
For the Three Months Ended July 31,
  
   
2012
    
2011
  
Revenues
   $ 2,236,548     $ 2,627,051  
Revenues - related party
     1,011,079       221,395  
Total revenues
     3,247,627       2,848,446  
Cost of revenues
     2,590,425       2,484,590  
Gross profit
     657,202       363,856  
Operating expenses:
                
Selling expenses
     297,555       149,083  
General and administrative expenses
     1,242,033       1,251,345  
Total operating expenses
     1,539,588       1,400,428  
Operating loss
     (882,386 )     (1,036,572 )
Other income:
                
Other income
     6,466       24  
Interest income
     5,737       16,229  
Total other income
     12,203       16,253  
Loss before income taxes and noncontrolling interest
     (870,183 )     (1,020,319 )
Income taxes
     (6,153 )     -  
Net loss
     (876,336 )     (1,020,319 )
Less: loss attributable to noncontrolling interest
     -       34,579  
Net loss attributable to Sunwin Stevia International, Inc.
   $ (876,336 )   $ (985,740 )
Comprehensive loss:
                
Net loss
   $ (876,336 )   $ (1,020,319 )
Foreign currency translation
     (57,529 )     398,339  
Total comprehensive loss
   $ (933,865 )   $ (621,980 )
Net loss per common share:
                
Loss per share - basic and diluted
   $ (0.01 )   $ (0.01 )
Weighted average common shares outstanding - basic and diluted
     157,356,137       156,316,287  

The accompanying notes are an integral part of these unaudited financial statements.

 
- 2 -
 
 



SUNWIN STEVIA INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

   
For Three Months Ended July 31,
  
   
2012
    
2011
  
CASH FLOWS FROM OPERATING ACTIVITIES:
            
Net loss
   $ (876,336 )   $ (1,020,319 )
Adjustments to reconcile net loss to net cash (used in ) provided by operating activities
                
Depreciation expense
     398,460       364,257  
Amortization of land use right
     13,862       13,648  
Stock issued for services
     520,000       343,000  
Allowance for doubtful accounts
     (147,133 )     139,509  
Changes in operating assets and liabilities:
                
Accounts receivable and notes receivable
     272,506       628  
Accounts receivable - related party
     (388,890 )     (27,418 )
Inventories
     (274,928 )     381,396  
Prepaid expenses and other current assets
     (230,271 )     (125,855 )
Tax receivable
     -       38,748  
Accounts payable and accrued expenses
     16,339       282,795  
Taxes payable
     (60,940 )     (63,850 )
Other current liabilities
     -       (140,391 )
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES
     (757,331 )     186,148  
CASH FLOWS FROM INVESTING ACTIVITIES:
                
Purchases of property and equipment
     (828,599 )     (7,446 )
Increase in loan receivable
     (1,718 )     -  
Proceeds from loan receivable
     107,459       -  
NET CASH USED IN INVESTING ACTIVITIES
     (722,858 )     (7,446 )
CASH FLOWS FROM FINANCING ACTIVITIES:
                
Repayment of related party advances
     (12,546 )     -  
NET CASH USED IN FINANCING ACTIVITIES
     (12,546 )     -  
EFFECT OF EXCHANGE RATE CHANGES ON CASH
     (16,706 )     149,319  
NET CHANGE IN CASH
     (1,509,441 )     328,021  
Cash at the beginning of the period
     2,958,895       10,563,413  
Cash at the end of the period
   $ 1,449,454     $ 10,891,434  
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:                
Cash paid for income taxes   $ 6,153     $ -  

The accompanying notes are an integral part of these unaudited financial statements.


 
- 3 -
 
SUNWIN STEVIA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) 

NOTE 1 - ORGANIZATION AND OPERATIONS
 
DESCRIPTION OF BUSINESS

Sunwin Stevia International, Inc., a Nevada corporation, and its subsidiaries are referred to in this report as “we”, “us”, “our”, or “Sunwin”.

We sell stevioside, a natural sweetener, as well as herbs used in traditional Chinese medicines and veterinary products. Substantially all of our operations are located in the People’s Republic of China (the “PRC”). We have built an integrated company with the sourcing and production capabilities designed to meet the needs of our customers.

Our operations are organized into two operating segments related to our Stevioside and Chinese Medicine product lines.

In June 2010 we elected to streamline our product offerings to focus on our core business of producing and selling stevia and other herb-based products, including herb extracts and herb medicines.  Consequently, we have exited all business activities related to our veterinary medicines and sold our 100% interest in our Shengya Veterinary Medicine subsidiary to Mr. Laiwang Zhang, our President and Chairman of the Board of Directors on July 31, 2010.  

Name change

We changed our name from Sunwin Neutraceuticals International Inc. to Sunwin Stevia International, Inc. on April 23, 2012 to more accurately reflect our business operations.

Stevioside Segment

Stevioside, whose content includes rebaudioside, is an all natural, low calorie sweetener extracted from the leaves of the stevia rebaudiana plant.  Stevioside is a safe and natural alternative to sugar for people needing low sugar or low calorie diets.

Chinese Medicine Segment

In our Chinese Medicine Segment, we manufacture and sell a variety of traditional Chinese medicine formula extracts which are used in products made for use by both humans and animals.

Qufu Shengwang

In fiscal 2009, Qufu Natural Green acquired a 60% interest in Qufu Shengwang from its shareholder, Shandong Group, for $4,026,851. The purchase price represented 60% of the value of the net tangible assets of Qufu Shengwang as of April 30, 2008. Shandong Group is owned by Laiwang Zhang, our President and Chairman of the Board of Directors.  Qufu Shengwang manufactures and sells stevia -based fertilizers and feed additives.

On September 30, 2011, Qufu Shengwang purchased the 40% equity interest in Qufu Shengwang owned by our Korean partners, Korea Stevia Company, Limited, for $626,125 in cash, and as a result of this repurchase transaction we now own 100% equity interest in all of the net assets of our subsidiary Qufu Shengwang. Therefore, the non-controlling interest of $2,109,028 in our balance sheet as of April 30, 2012 has been eliminated to reflect our 100% interest in Qufu Shengwang. We plan to use these assets to produce bio-bacterial fertilizers from our stevia residues along with the strain and formula provided by our cooperation partner Beijing Hegeng Organic Farm Technology Co., Ltd (“Hegeng”). Our facility has an estimated annual capacity to produce 10,000 metric tons of bio-bacterial fertilizers. We expect to start production in fiscal 2013.

Qufu Shengren

In fiscal 2009, Qufu Natural Green acquired Qufu Shengren for $3,097,242. The purchase price was equal to the value of the assets of Qufu Shengren as determined by an independent asset appraisal in accordance with asset appraisal principles in the PRC. Prior to being acquired by us, Qufu Shengren was engaged in the production and distribution of bulk drugs and pharmaceuticals.  Subsequent to the acquisition, Qufu Shengren produces and distributes steviosides with a full range of grades from rebaudioside-A 10 to 98.


 
- 4 -
 
SUNWIN STEVIA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) 

Sunwin USA

In fiscal 2009, we entered into a distribution agreement with WILD Flavors to assist our 55% owned Sunwin USA in the marketing and worldwide distribution of our stevioside based sweetener products and issued WILD Flavors a 45% interest in Sunwin USA.  In exchange WILD Flavors agreed to provide Sunwin USA with sales, marketing, logistics and supply chain management, product development and regulatory services valued at $1,000,000 over a period of two years beginning on February 5, 2009. Refer to Note 14 - Subsequent Event- regarding our acquisition of 45% interest in Sunwin USA from WILD Flavors and new distribution agreement.
 
NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC") for interim financial reporting. The accompanying consolidated financial statements for the interim periods presented are unaudited and reflect all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial position and operating results for the periods presented. Certain financial statement amounts relating to prior periods have been reclassified to conform to the current period presentation.

These unaudited consolidated interim financial statements should be read in conjunction with the financial statements and footnotes for the year ended April 30, 2012 included in our Form 10-K as filed with the SEC. The results of operations and cash flows for the three months ended July 31, 2012 are not necessarily indicative of the results of operations or cash flows which may be reported for future periods or the full fiscal year.

Our consolidated financial statements include the accounts for the parent company and all our wholly owned and majority owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

Our subsidiaries include the following:

-             Qufu Natural Green;
-             Qufu Shengren;
-             Qufu Shengwang; and
-             Sunwin Tech.
 
USE OF ESTIMATES

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Significant estimates include the estimated useful lives of property and equipment, the allowance for doubtful accounts.  Actual results could differ from those estimates.

CASH AND CASH EQUIVALENTS

We consider all highly liquid investments with maturities of three months or less at the time of purchase to be cash and equivalents. As of July 31, 2012, we held $1,447,311 of our cash and cash equivalents with commercial banking institutions in the PRC, and $2,143 with banks in the United States. As of April 30, 2012, we held $2,938,981 of our cash and cash equivalents with commercial banking institution in PRC, and $19,914 in the United States. In China, there is no equivalent federal deposit insurance as in the United States, so the amounts held in banks in China are not insured. We have not experienced any losses in such bank accounts through July 31, 2012.

ACCOUNTS RECEIVABLE

Accounts receivable are reported at net realizable value. We have established an allowance for doubtful accounts based upon factors pertaining to the credit risk of specific customers, historical trends, and other information. Delinquent accounts are written off when it is determined that the amounts are uncollectible. At July 31, 2012 and April 30, 2012, the allowance for doubtful accounts was $783,298 and $933,678, respectively.


 
- 5 -
 
SUNWIN STEVIA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) 

INVENTORIES

Inventories, consisting of raw materials, work in process, and finished goods related to our products, are stated at the lower of cost or market (estimated net realizable value) utilizing the weighted average method.
 
PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Depreciation and amortization are provided using the straight line method over the estimated economic lives of the assets, which range from five to twenty years. Expenditures for major renewals and betterments that extend the useful lives of property and equipment are capitalized. Expenditures for maintenance and repairs are charged to expense as incurred. In accordance with paragraph 360-10-35-17 of the Financial Accounting Standards Board (FASB) Accounting Standards Codification (“ASC”), we examine the possibility of decreases in the value of fixed assets when events or changes in circumstances reflect the fact that their recorded value may not be recoverable.

LONG-LIVED ASSETS

We review and evaluate on an annual basis our long-lived assets, including property and equipment and land use rights, for impairment or when events or changes in circumstances indicate that the related carrying amounts may not be recoverable. An impairment is considered to exist if the total estimated future cash flows on an undiscounted basis are less than the carrying amount of the assets, including goodwill, if any. An impairment loss is measured and recorded based on discounted estimated future cash flows. In estimating future cash flows, assets are grouped at the lowest level for which there is identifiable cash flows that are largely independent of future cash flows from other asset groups. Our estimates of future cash flows are based on numerous assumptions and it is possible that actual future cash flows will be significantly different than the estimates.

TAXES PAYABLE

We are required to charge for and to collect value added taxes (VAT) on our sales. In addition, we pay value added taxes on our primary purchases, recorded as a receivable. These amounts are presented as net amounts for financial statement purposes. Taxes payable at July 31, 2012 and April 30, 2012 amounted to $11,707 and $73,327, respectively, consisting primarily of VAT taxes payable.

FAIR VALUE OF FINANCIAL INSTRUMENTS

We follow the FASB ASC Section 825-10-50-10 for disclosures regarding the fair value of financial instruments and have adopted ASC Section 820-10-35-37 to measure the fair value of our financial instruments. ASC Section 820-10-35-37 establishes a common definition for fair value to be applied to existing generally accepted accounting principles that require the use of fair value measurements, establishes a framework for measuring fair value, and expands disclosure about such fair value measurements. The adoption of ASC Section 820-10-35-37 did not have an impact on our financial position or operating results, but did expand certain disclosures.

ASC Section 820-10-35-37 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Additionally, ASC Section 820-10-35-37 requires the use of valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized below:

Level 1:
Observable inputs such as quoted market prices in active markets for identical assets or liabilities
Level 2:
Observable market-based inputs or unobservable inputs that are corroborated by market data
Level 3:
Unobservable inputs for which there is little or no market data, which require the use of the reporting entity’s own assumptions.

The carrying amounts of our financial assets and liabilities, such as cash, accounts receivable, notes receivable, prepayments and other current assets, accounts payable, taxes payable and accrued expenses, approximate their fair values because of the short maturity of these instruments.  

With the exception of derivative liabilities, we do not have any other assets or liabilities measured at fair value on a recurring or a non-recurring basis. Consequently, we did not have any fair value adjustments for assets and liabilities measured at fair value at July 31, 2012 and April 30, 2012, nor were any gains or losses reported in the statement of operations that were attributable to the change in unrealized gains or losses relating to those assets and liabilities still held at the reporting date for the year then ended.


 
- 6 -
 
SUNWIN STEVIA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) 

INCOME TAXES

We file federal and state income tax returns in the United States for our corporate operations, and file separate foreign tax returns for our Chinese subsidiaries. We account for income taxes under the provisions of ASC Section 740-10-30, which is an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in our financial statements or tax returns.

BASIC AND DILUTED EARNINGS PER SHARE

Pursuant to ASC Section 260-10-45, basic income (loss) per common share is computed by dividing income (loss) available to common shareholders by the weighted average number of shares of common stock outstanding for the periods presented. Diluted income (loss) per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that would then share in the income of us, subject to anti-dilution limitations.

   
For Three Months Ended July 31,
   
2012
    
2011
  
Numerator:
            
Net loss
  
$
(876,336
)
  
$
(1,020,319
)
Numerator for basic EPS, loss applicable to common stock holders
  
$
(876,336
)
  
$
(1,020,319
)
Denominator:
                
Denominator for basic earnings per share - weighted average number of common shares outstanding
    
157,356,137
      
156,316,287
  
 Stock awards, options, and warrants
    
-
      
-
  
Denominator for diluted earnings per share - adjusted weighted average outstanding average number of common shares outstanding
    
157,356,137
      
156,316,287
  
Basic and diluted loss per common share:
                
Loss per share - basic
  
$
(0.01
)
  
$
(0.01
)
Loss per share - diluted
  
$
(0.01
)
  
$
(0.01
)

At July 31, 2012 and 2011 the effect of our outstanding common stock purchase warrants was anti-dilutive as we reported a net loss applicable to our common shareholders for both periods; additionally, outstanding purchase warrants which could have resulted in the issuance of 26,666,666 additional common shares were also anti-dilutive as the exercise price of the warrants exceeded the average market price.  As a result, basic loss per share was equal to diluted loss per share for the three months ended July 31, 2012 and 2011.

FOREIGN CURRENCY TRANSLATION

Transactions and balances originally denominated in U.S. dollars are presented at their original amounts. Transactions and balances in other currencies are converted into U.S. dollars in accordance with ASC Section 830-20-35 and are included in determining net income or loss.

Our functional currency is the Chinese Renminbi (“RMB”).  In accordance with ASC 830-20-35, the financial statements were translated into United States dollars using balance sheet date rates of exchange for assets and liabilities, and average rates of exchange for the period for the income statements. Net gains and losses resulting from foreign exchange transactions are included in the consolidated statements of operations.  Translation adjustments resulting from the process of translating the local currency financial statements into U.S. dollars are included in other comprehensive income or loss.

RMB is not a fully convertible currency. All foreign exchange transactions involving RMB must take place either through the People’s Bank of China (the “PBOC”) or other institutions authorized to buy and sell foreign exchange. The exchange rate adopted for the foreign exchange transactions are the rates of exchange quoted by the PBOC, which are determined largely by supply and demand. Translation of amounts from RMB into United States dollars (“$”) was made at the following exchange rates for the respective periods:
 
As of April 30, 2012
RMB 6.30 to $1.00
As of July 31, 2012
RMB 6.31 to $1.00
   
Three months ended July 31, 2012
RMB 6.31 to $1.00
Three months ended July 31, 2011
RMB 6.41 to $1.00


 
- 7 -
 
SUNWIN STEVIA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) 

CONCENTRATIONS OF CREDIT RISK

Financial instruments which potentially subject us to concentrations of credit risk consist principally of cash and trade accounts receivable. We place our cash with high credit quality financial institutions in the United States and China. At July 31, 2012, we had $1,447,311 on deposit in China, which is not insured. We have not experienced any losses in such accounts through July 31, 2012.

Almost all of our sales are credit sales which are primarily to customers whose ability to pay is dependent upon the industry economics prevailing in these areas; however, we believe that the concentration of credit risk with respect to trade accounts receivable is limited due to generally short payment terms. We also perform ongoing credit evaluations of our customers to help further reduce potential credit risk.

STOCK BASED COMPENSATION

We account for the grant of stock, stock options, warrants and restricted stock awards in accordance with ASC Section 718, “Compensation - Stock Compensation” and the applicable provisions of ASC Section 505, “Equity”, which requires entities to recognize in the statement of operations the grant-date fair value of stock options and other equity-based compensation.

RESEARCH AND DEVELOPMENT

Research and development costs are expensed as incurred and are included in general and administrative expenses in the accompanying statements of operations. Research and development costs are incurred on a project specific basis. Research and development cost were $62,604 and $850 for the three months ended July 31, 2012 and 2011, respectively.

REVENUE RECOGNITION

In general, we record revenue when persuasive evidence of an arrangement exists, services have been rendered or product delivery has occurred, the sales price to the customer is fixed or determinable, and collectability is reasonably assured.

RECENT ACCOUNTING PRONOUNCEMENTS

In September 2011, the FASB issued Accounting Standards Update ("ASU") No. 2011-08, Intangibles – Goodwill and Other, which simplifies how an entity is required to test goodwill for impairment. This ASU would allow an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. Under the ASU, an entity would not be required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. The ASU includes a number of factors to consider in conducting the qualitative assessment.  The ASU is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011.  Early adoption is permitted. The adoption of ASU 2011-08 did not have an impact on our consolidated financial statements.

In June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income. Under the amendments, an entity has the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The presentation option under current GAAP to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity has been eliminated. The amendments in this Update should be applied retrospectively. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. Early adoption is permitted because compliance with amendments is already permitted. We already comply with this presentation.

A variety of proposed or otherwise potential accounting standards are currently under study by standard setting organizations and various regulatory agencies. Due to the tentative and preliminary nature of those proposed standards, we have not determined whether implementation of such proposed standards would be material to our consolidated financial statements.


 
- 8 -
 
SUNWIN STEVIA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) 

NOTE 3 –INVESTMENT IN REAL ESTATE HELD FOR RESALE

On August 25, 2011, Qufu Natural Green entered into an agreement with Qufu Jinxuan Real Estate Development Co., Ltd., an unaffiliated third party, to purchase thirty apartment units in China for investment. The total area of the apartment complex units is 41,979 square feet, with 6,458 square feet of storage area for a total purchase price of RMB15,120,000 (approximately $2,390,325) (the “Purchase Price”). Under the terms of the agreement, the apartment units are expected to be delivered by December 30, 2012. We prepaid 30% of the Purchase Price, approximately $717,097, upon signing the agreement on August 25, 2011. An additional 50% of the Purchase Price, or approximately $1,195,162, was paid on December 8, 2011, with the balance, or approximately $478,066 due upon completion of the ownership documents and transfer of the apartment units to us.  As of July 31, 2012 and April 30, 2012, we had investment in real estate held for resale of $1,915,591 and $1,919,665, respectively.

NOTE 4 - INVENTORIES

At July 31, 2012 and April 30, 2012, inventories consisted of the following:
 
   
July 31, 2012
    
April 30, 2012
  
   
(unaudited)
        
Raw materials
  
$
937,142
    
$
844,327
  
Work in process
    
414,324
      
298,221
  
Finished goods
    
3,929,464
      
3,871,730
  
     
5,280,930
      
5,014,278
  
Less: reserve for obsolete inventory
    
(707,392
)
    
(708,897
)
   
$
4,573,538
    
$
4,305,381
  

NOTE 5 - PROPERTY AND EQUIPMENT

At July 31, 2012 and April 30, 2012, property and equipment consisted of the following:

 
Estimated Life
  
July 31, 2012
    
April 30, 2012
  
     
(unaudited)
        
Office Equipment
5-7 Years
  
$
44,173
    
$
44,268
  
Auto and Trucks
10 Years
    
870,040
      
871,897
  
Manufacturing Equipment
20 Years
    
11,294,866
      
11,311,505
  
Buildings
20 Years
    
7,165,935
      
7,177,694
  
Construction in Process
      
1,694,672
      
872,864
  
Gross Property and Equipment
      
21,069,686
      
20,278,228
  
Less: Accumulated Depreciation
      
(6,643,473
)
    
(6,254,860
)
 Net Property and Equipment
    
$
14,426,213
    
$
14,023,368
  
 
For the three months ended July 31, 2012 and 2011, depreciation expense totaled $398,460 and $364,257, respectively.

NOTE 6- LAND USE RIGHTS

Intangible assets consisted of the following:
 
 
Estimated Life
  
July 31, 2012
    
April 30, 2011
  
     
(unaudited)
        
Land Use Right
41.65 Years
  
$
2,517,729
    
$
2,523,146
  
Less: Accumulated Amortization
      
(237,678
)
    
(224,173
)
     
$
2,280,051
    
$
2,298,973
  

 For the three month periods ended July 31, 2012 and 2011, amortization expense amounted to $13,862 and $13,648, respectively.

 
- 9 -
 
SUNWIN STEVIA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) 


NOTE 7 – LOAN RECEIVABLE

In December 2011, we entered into a short-term loan agreement with Shandong Anda Biotech Co., Ltd. ( "Shandong Anda"), a third party. According to the terms of the agreement, we agreed to lend Shandong Anda approximately $3,181,016 (RMB 20,000,000). The loan will be due on December 18, 2012 and bears no interest. Shandong Anda is a major supplier of stevia leaves to the Company. During the fourth quarter of fiscal 2012 Shandong Anda returned $1.5 million and the balance of the loan was $1,639,085 as of July 31, 2012.

On December 22, 2010, we loaned $500,000 to CDI China, Inc., a subsidiary of CD International Enterprises, Inc.,  and an affiliate of China Direct Investments, Inc. (“CDI”) our corporate management services provider. The loan bears interest at the rate of 3% per annum and the principal balance and accrued interest were due March 30, 2011. Part of the principal of $305,459 was repaid to us by CDI China, Inc. during fiscal 2012. At July 31, 2012, the balance of this loan was $213,807, which is comprised of $194,541 in principal and $19,266 in accrued interest. Both the principal and accrued interest are now due on demand.

NOTE 8 - RELATED PARTY TRANSACTIONS

Accounts Receivable – related party

At July 31, 2012 and April 30, 2012, we reported $941,805 and $550,740 in accounts receivable – related party, respectively.  Accounts receivable – related party reflected amounts due from Qufu Shengwang Import and Export Corporation, a Chinese entity owned by our Chairman, Mr. Laiwang Zhang, for merchandise that has been delivered. Total related party revenues for the three months ended July 31, 2012 and 2011 were $1,011,079 and $221,395, respectively.
 
Due to related parties

We pay management fees to Pharmaceutical Corporation. For the three month ended July 31, 2012, we paid Pharmaceutical Corporation $246,506 for management compensation, which is included in general and administrative expense. At July 31, 2012, we owed Pharmaceutical Corporation $66,529 for management fee compensation.
 

NOTE 9 - PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets at July 31, 2012 and April 30, 2012 totaled $864,465 and $633,522, respectively. As of July 31, 2012, prepaid expenses and other current assets includes $764,337 prepayments to suppliers for merchandise that had not been shipped to us and services that had not been provided to us and $100,128 for employee advances and others. We recognize prepayments in inventory as suppliers make delivery of goods, and as an expense when providers provide the services.

NOTE 10 - STOCKHOLDERS' EQUITY

Common stock

At July 31, 2012, we are authorized to issue 200,000,000 shares of common stock. We had 157,356,137 shares outstanding at July 31, 2012 and April 30, 2012.

On May 9, 2011, we issued Yefu Sun 333,328 shares of our common stock for legal services pursuant to an agreement we entered into with Mr. Sun in December 2009 and amended in March 2010.  The shares were part of our agreement to issue Mr. Sun a total of 1,000,000 shares as compensation for services over a 24 month period because there was no performance commitment at the date of the agreement. We recognized compensation expense based on the fair value of our common stock at each interim reporting date.  In connection with this share issuance, $103,332 in stock-based consulting expense was recognized during the year ended April 30, 2012.  

On April 22, 2011 we entered into a consulting agreement with  a subsidiary of CD International Enterprises, Inc., to perform consulting services for fiscal 2012 and agreed to a consulting fee of 1,500,000 shares of our common stock.  On May 6, 2011 we issued 1,000,000 shares of our common stock valued at $343,000 to CDI. On November 21, 2011 we issued another 500,000 shares of our common stock valued at $181,800 to CDI as consulting expenses pursuant to this agreement. During the year ended April 30, 2012, we recognized a total of $524,800 in stock-based consulting expenses. We recognized $183,127 in stock-based consulting expenses during the year ended April 30, 2011. These amounts are reflected in general and administrative expenses in the accompanying consolidated statements of operations.

 
- 10 -
 
SUNWIN STEVIA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) 


Common stock purchase warrants

In February 2009, we issued 20,000,000 shares of our common stock at a price of $0.15 per share together with five year warrants to purchase 26,666,666 shares of common stock with an exercise price of $0.35 per share in connection with a securities purchase agreement in which subsequently Wild Flavors owned approximately 15.7% of the issued and outstanding of our common stock.  As part of the securities purchase agreement, we also entered into a stockholders agreement with Wild Flavors and certain of our stockholders, including Laiwang Zhang, Dongdong Lin, Xingyuan Li, Junzhen Zhang, Xiangsheng Kong, Weidong Chai, and Fanjun Wu who then owned approximately 34.12% of our common stock. The stockholders agreement provides that so long as Wild Flavors owns at least 4,000,000 shares of our common stock, the parties will vote or cause their shares of our common stock to be voted to elect two members of our Board of Directors designated by Wild Flavors and three members designated by our stockholders who are a party to the stockholders agreement.
 
Up until February 5, 2011, Wild Flavors had a right of first refusal with respect to subsequent offers, if any, by us for the sale of our securities or debt obligations. The right of first refusal did not apply with respect to certain limited exceptions, including strategic license agreements, mergers and similar acquisitions and certain option programs.

During fiscal 2012, we did not issue any shares of our common stock for the exercise of purchase warrants.

A summary of the changes to our outstanding stock warrants during the three months ended July 31, 2012 is as follows:

   
Shares
    
Weighted Average
 Exercise Price
  
Outstanding at April 30, 2012
    
26,666,666
    
 $
0.35
  
       Granted
    
-
      
-
  
       Exercised
    
-
      
-
  
       Forfeited
    
-
      
-
  
Warrants exercisable at July 31, 2012 (unaudited)
    
26,666,666
    
 $
0.35
  

The following information applies to all warrants outstanding at July 31, 2012:
 
   
Warrants Outstanding
  
Warrants Exercisable
Exercise Prices
  
Shares
Weighted Average Remaining
Contractual Life
Weighted Average Exercise Price
  
Shares
Weighted Average Exercise Price
$
0.35
  
26,666,666
1.50
$0.35
  
26,666,666
$0.35
     
26,666,666
  
$0.35
  
26,666,666
$0.35

Additional paid in capital

On May 1, 2012 we entered into a consulting agreement with CDI to perform consulting services for fiscal 2013 and agreed to a consulting fee of 2,500,000 shares of our common stock which includes the reimbursement of $92,341 paid by CDI to Wild Flavors on our behalf in connection with our purchase of the minority interest of Sunwin USA as described in Note 14.  As of July 31, 2012, no shares had been issued and we recorded 2,000,000 shares with a total value of $520,000 as additional paid in capital.

NOTE 11 - SEGMENT INFORMATION

The following information is presented in accordance with ASC Topic 280, “Segment Reporting”, for the three months ended July 31, 2012 and 2011, we operated in two reportable business segments - (1) natural sweetener (stevioside) and (2) traditional Chinese medicines. Our reportable segments are strategic business units that offer different products and are managed separately based on the fundamental differences in their operations.

 
- 11 -
 
SUNWIN STEVIA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) 


Condensed financial information with respect to these reportable business segments for the three months ended July 31, 2012 and 2011 is as follows:

   
Chinese Medicines
    
Stevioside
    
Corporate and Other
    
Consolidated
  
(Unaudited)
  
2012
    
2011
    
2012
    
2011
    
2012
    
2011
    
2012
    
2011
  
Net revenues
  
$
755,472
    
$
757,315
    
$
2,492,155
    
$
2,091,131
    
$
-
    
$
-
    
$
3,247,627
    
$
2,848,446
  
Interest income
  
$
-
    
$
2,006
    
$
4,019
    
$
10,442
    
$
1,718
    
$
3,781
    
$
5,737
    
$
16,229
  
Depreciation and amortization
  
$
19,676
    
$
19,387
    
$
392,646
    
$
358,518
    
$
-
    
$
-
    
$
412,322
    
$
377,905
  
Loss before taxes and noncontrolling interest
  
$
(84,126
)
  
$
(215,595
)
  
$
(148,237
)
  
$
(374,352
)
  
$
(637,820
)
  
$
(430,372
)
  
$
(870,183
)
  
$
(1,020,319
)
Segment assets
  
$
3,797,123
    
$
3,574,625
    
$
26,622,581
    
$
28,792,387
    
$
229,078
    
$
525,769
    
$
30,648,782
    
$
32,892,781
  

NOTE 12-COMMITMENTS AND CONTINGENCIES

We lease office and manufacturing space under leases in Shandong, China that expire through 2014.

All facilities related to traditional Chinese medicine segment are leased from Pharmaceutical Corporation, a related party. The term of this lease will expire on October 1, 2012 and provides for annual lease payments of $23,400. We have paid the rent for this facility in fiscal 2012 which was included in the management fee we paid to Pharmaceutical Corporation during fiscal 2012. We expect to renew the lease under similar terms after the current agreement expires in October 2012. Pharmaceutical Corporation agreed to waive the lease payments due in fiscal 2011.

On August 25, 2011, Qufu Natural Green entered into an agreement with Qufu Jinxuan Real Estate Development Co., Ltd., an unaffiliated third party, to purchase thirty apartment units in China for investment. The total area of the apartment complex units is 41,979 square feet, with 6,458 square feet of storage area for a total purchase price of RMB15,120,000 (approximately $2,390,325) (the “Purchase Price”). Under the terms of the agreement, the apartment units are expected to be delivered by December 30, 2012. We prepaid 30% of the Purchase Price, approximately $717,097, upon signing the agreement on August 25, 2011. An additional 50% of the Purchase Price, or approximately $1,195,162, was paid on December 8, 2011, with the balance, or approximately $478,066, upon completion of the ownership documents and transfer of the apartment units to us.

NOTE 13 – CONCENTRATIONS AND CREDIT RISK
 
(i)    Customer Concentrations
 
Customer concentrations for the three months ended July 31, 2012 and 2011 are as follows:
 
   
Net Sales
  
   
For the three months ended July 31, 2012
    
For the three months ended July 31, 2011
  
   
Chinese Medicine
    
Stevioside
    
Chinese Medicine
    
Stevioside
  
Qufu Shengwang Import and Export Trade Co., Ltd (1)
    
-
      
43.4
%
    
-
      
10.6
%
Qingdao Shangming International Trading Co., Ltd
    
-
      
-
      
-
      
21.1
%
Qingdao RuiChi Medicine Industry Limited Company
    
-
      
10.1
%
    
10.0
 %
    
11.1
 %
Guangdong Tengjun Veterinary Medicine Co., Ltd
    
16.7
%
    
-
      
-
      
-
  
Total
    
16.7
%
    
53.5
%
    
10.0
%
    
42.8
%
 
 
(1)
Qufu Shengwang Import and Export Trade Co., Ltd is a related party, a Chinese entity owned by our Chairman, Mr. Laiwang Zhang.
 

 
- 12 -
 
SUNWIN STEVIA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) 

(ii)    Vendor Concentrations
 
   
Net Purchases
  
   
For the three months ended July 31, 2012
    
For the three months ended July 31, 2011
  
   
Chinese Medicine
    
Stevioside
    
Chinese Medicine
    
Stevioside
  
Shandong Heze Zhongshun Pharmaceutical Co., Ltd
    
49.3
%
    
-
      
56.9
%
    
-
  
Bozhou Weitao Pharmaceutical Co., Ltd
    
15.5
%
    
-
      
29.4
%
    
-
  
Qufu Longheng Materials Co., Ltd
    
35.2
%
    
-
      
13.7
%
    
-
  
Jiuquan Jiale Biotech Co., Ltd
    
-
      
28.3
%
    
-
      
-
  
Zhucheng Haotian Pharmaceutical Co., Ltd
    
-
      
11.1
%
    
-
      
-
  
Chuzhou Hairun Stevia Technology Co., Ltd
    
-
      
12.1
%
    
-
      
-
  
Qingdao Runhao Stevia Technology Co., Ltd
    
-
      
10.8
%
    
-
      
-
  
Shandong Anda Biotech Co., Ltd
    
-
      
-
      
-
      
27.9
%
Linyuan City Chengde Stevia Leaves Planting Cooperative
    
-
      
-
      
-
      
20.9
%
Total
    
100
%
    
62.3
%
    
100
%
    
48.8
%
 
(iii)    Credit Risk
 
Financial instruments which potentially subject us to concentrations of credit risk consist principally of cash and trade accounts receivable. We place our cash with high credit quality financial institutions in the United States and the PRC. At July 31, 2012, we had $1.4 million on deposit in the PRC, where there is no equivalent of federal deposit insurance as in the United States. As a result, cash held in PRC financial institutions is not insured. We have not experienced any losses in such accounts through July 31, 2012.
 
Almost all of our sales are credit sales which are primarily to customers whose ability to pay is dependent upon the industry economics prevailing in these areas; however, we believe that the concentration of credit risk with respect to trade accounts receivable is limited due to generally short payment terms. We also perform ongoing credit evaluations of our customers to help further reduce potential credit risk.

NOTE 14 - SUBSEQUENT EVENTS
 
On August 8, 2012 we entered into an Exchange Agreement with WILD Flavors pursuant to which we purchased its 45% membership interest in Sunwin USA for an aggregate consideration of approximately $1,472,541, which includes the issuance of 7,666,666 shares of our common stock valued at approximately $1,380,000 and a cash payment of $92,541.  The transaction closed on August 20, 2012.  On August 22, 2012, we issued 7,666,666 shares of our common stock and paid $92,541 cash to WILD Flavors.

Under the terms of the agreement, WILD Flavors assumed certain pre-closing obligations of Sunwin USA totaling approximately $694,000, including trade accounts receivable, loans, health care and monthly expenses of an employee, potential chargebacks, bank fees and broker commissions incurred prior to the closing date.  The agreement also contained customary joint indemnification and general releases.  As a result of this transaction, we will begin consolidating the operations of Sunwin USA with ours from the date of acquisition (August 20, 2012).

In addition to the Exchange Agreement, on August 8, 2012 we entered into the following additional agreements with WILD Flavors or its affiliate:

•           We entered into an Amendment to Operating Agreement with WILD Flavors pursuant to which we are now the sole manager of Sunwin USA and certain sections of the original agreement dated April 29, 2009 were deleted as they were no longer relevant following our purchase of the minority interest in Sunwin USA described above;

•           We entered into a Termination of Distribution Agreement with WILD Flavors and Sunwin USA pursuant to which the Distribution Agreement dated February 5, 2009 was terminated; and
 

 
- 13 -
 
SUNWIN STEVIA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) 

•           We entered into a Distributorship Agreement with WILD Procurement Gmbh, a Swiss corporation (“WILD Procurement”) which is an affiliate of WILD Flavors.  Under the terms of this agreement, we appointed WILD Procurement as a non-exclusive world-wide distributor for the resale of our stevia products.  There are no minimum purchase quantities under the agreement, and the pricing and terms of each order will be negotiated by the parties at the time each purchase order is placed.  The agreement restricts WILD Procurement from purchasing steviosides or other forms of stevia that are included in our products from sources other than our company under certain circumstances.  In addition, at such time as we desire to offer new products, we must first offer WILD Procurement the non-exclusive right to distribute those products and the parties will have 60 days to reach mutually agreeable terms.  The agreement contains certain representations by us as to the quality of the products we may sell WILD Procurement and the products’ compliance with applicable laws and good manufacturing practices, as well as customary confidentiality and indemnification provisions.

In the event WILD Procurement should fund research on stevia used in food, beverage or dietary supplement applications, and as a result of this research it develops new intellectual property, such intellectual property shall be the sole property of WILD Procurement.  In the event we should jointly fund research, any new intellectual property developed from this effort will be jointly owned and each party will have the right to use the developed intellectual property in stevia-based products.

The agreement is for an initial term of 12 months and will automatically renew for successive 12 month terms unless the agreement has been terminated by either party upon 45 days prior written notice.  There are no assurances any purchase orders will be placed under the terms of the Distribution Agreement.  The agreement may also be terminated by either party upon a material breach by the other party, or upon the filing of a bankruptcy petition, both subject to certain cure periods.  In the event the agreement is terminated, WILD Procurement has the right to continue to distribute our products on a non-exclusive basis for 24 months upon terms and conditions to be negotiated by the parties.

On May 1, 2012 we entered into a consulting agreement with CDI to perform consulting services for fiscal 2013 and agreed to a consulting fee of 2,500,000 shares of our common stock which includes the reimbursement of $92,341 paid by CDI to Wild Flavors on our behalf in connection with our purchase of the minority interest of Sunwin USA.  On August 17, 2012, we issued 2,000,000 shares to China Direct Investments with a total value of $520,000.

On August 24, 2012, our board of directors authorized our 2012 Equity Compensation Plan (the “2012 Plan”) covering 10,000,000 shares of common stock.  On August 28, 2012, we filed a registration statement on Form S-8 with the SEC covering the 2012 Plan to permit us to compensate and offer to our employees, officers, directors and consultants whose past, present and/or potential  contributions to our company have been or will be important to our success, an opportunity to acquire proprietary interest in our company.

 
- 14 -
 

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the information contained in the preceding unaudited consolidated financial statements and footnotes and our 2012 Annual Report on Form 10-K for fiscal year ended April 30, 2012.

OVERVIEW
 
We sell stevioside, a natural sweetener, as well as herbs used in traditional Chinese medicines. Substantially all of our operations are located in the PRC. We have built an integrated company with the production and distribution capabilities designed to meet the needs of our customers.
 
During fiscal 2013 and 2012 our operations were organized in two operating segments related to our product lines:
 
 
-
Stevioside, and
 
-
Chinese Medicine.

Recent Developments
 
On July 1, 2012, Qufu Shengwang entered the Cooperation Agreement with Hegeng (Beijing) Organic Farm Technology Co, Ltd. (“Hegeng”), a Chinese manufacturer and distributor of bio-fertilizers and pesticides, to jointly develop the bio-bacterial fertilizers based on the residues from our stevia extraction. Under the Cooperation Agreement, Hegeng provides strain and formula that we apply to the stevia residues to produce bio-bacterial fertilizers in the current facility of Qufu Shengwang. The bio-bacterial fertilizers will be distributed under Qufu Shengwang’s name. We plan to start production in fiscal 2013. No additional investment in the facility would be required. Our facility has an estimated annual capacity to produce 10,000 metric tons of bio-bacterial fertilizers.

In April 2012, Qufu Shengren started the construction of a new stevia extraction line in the same location of its current stevioside manufacturing facility. This line facility will apply a new stevia extraction technology to produce both high and low grade stevioside. The target annual production capacity of this line facility is estimated at 500 metric tons including 300 metric tons of high purity rebaudioside A products and 200 metric tons of low purity rebaudioside A products. We expect that the total cost of this new line will be approximately $4.7 million which will be funded from generated revenues and our working capital. We expect this new line facility to start trial production in October 2012.

On August 20, 2012, we entered into a worldwide stevia distribution agreement with WILD Procurement Gmbh, a Swiss corporation (“WILD Procurement”) which is an affiliate of WILD Flavors. Under the terms of the agreement, WILD is granted the non exclusive worldwide right as a distributor to market and resell all stevia products manufactured by Sunwin and use of all trademarks.  In conjunction with the agreement, we purchased the minority interest in Sunwin USA previously owned by WILD Flavors for an aggregate purchase price of $1,473,000, which included a cash payment of $92,541 and 7,666,666 shares of our common stock valued at $1,380,000. In light of the new distribution agreement, the previous distribution agreement between WILD Flavors and Sunwin USA was terminated.

The acquisition of the minority interest of Sunwin USA in August 2012 will change our accounting beginning in the second quarter of fiscal 2013. Because WILD Flavors had previously maintained certain approval and veto rights and maintained other minority rights to provide for WILD Flavors to effectively participate in significant decisions that would be expected to be made in the ordinary course of business under the terms of these agreements, in accordance with FASB Accounting Standards Codification 810-10-25-5 historically we did not consolidated Sunwin USA’s operations and accounted for our interest in Sunwin USA as an equity method investment. Following the purchase of the minority interest Sunwin USA will now be consolidated with our company in our financial statements.

Stevioside Segment

Stevioside and rebaudioside are all natural low calorie sweeteners extracted from the leaves of the stevia rebaudiana plant. Stevioside is a safe and natural alternative to sugar for people needing low sugar or low calorie diets. Stevioside can be used to replace sugar in beverages and foods, including those that require baking or cooking where synthetic chemical based sweetener replacements are not suitable.

Steviosin is a natural low calorie stevioside extract for medicinal use, containing rebaudioside A at 90% with the total steviol glycosides meeting or exceeding 95% on a dry weight basis. Steviosin is used as an alternative sweetener in the pharmaceutical production in China.

OnlySweet™ is an all natural, zero calorie, dietary supplement comprised of three natural ingredients, including stevioside.  

 
- 15 -
 


In an effort to meet the international food safety standards mandated by larger consumer product companies that we expect to target as customers in the future, we have made capital investments to enhance our manufacturing facilities, equipment and documentation systems, changed certain manufacturing processes and carried out additional personnel training in order to meet these standards.  These investments allowed us to meet the HACCP System Certification, ISO 9001:2008 Certification and ISO 22000:2005 Food Safety Certification. We obtained these certifications in November, 2010.

Chinese Medicine Segment

In our Chinese Medicine segment, we manufacture and sell approximately 354 different extracts, including traditional Chinese medicine extracts and purified extracts, which may include active parts and monomer compounds such as soy isofavone.

While this segment is currently operating at full capacity, we do not expect significant growth potential from this segment in the near future. Accordingly, we continue to evaluate alternatives to the potential disposition of the Chinese Medicine segment with the view of further streamlining our product offerings and focusing our business on producing and selling high-quality stevia products. The exit strategy we are contemplating for the Chinese Medicine segment is also been influenced by our concerns regarding the continued stagnation in revenue growth and profitability of this segment in the near future. The competition in Chinese Medicine market has strengthened over the past year. In addition, the Chinese government continues to issue more regulations covering the supply of Chinese herbal raw materials and has increased the regulatory manufacturing standards on this segment.

OUR PERFORMANCE


 Our total revenues in the first quarter of fiscal 2013 increased by 14.0%, from the same period in fiscal 2012, while our gross margin increased to 20.2% from 12.8% over the same period in fiscal 2012. One of the drivers for the increase in total revenues was due primarily to related party sales which increased by $0.8 million in the first quarter of fiscal 2013 as compared to the same period in fiscal 2012. Our sales revenues, excluding revenues from related party, decreased by 14% in the first quarter of fiscal 2013 as compared to the same period in fiscal 2012. Our operating expenses in the first quarter of fiscal 2013 increased by 9.9% from the comparable period in 2012. Our net loss from continuing operations for the first quarter of fiscal 2013 was $0.9 million, as compared to $1.0 million for the same period in fiscal 2012. 
 
RESULTS OF OPERATIONS

The following table summarizes our results from continuing operations for the three month periods ended July 31, 2012 and 2011: 
 
July 31, 2012
     
Chinese Medicine
    
Stevioside
    
Corporate and other
      
Consolidated
  
                                                         
Total revenues
  
$
755,472
      
100.0
%
  
$
2,492,155
      
100.0
%
  
$
-
    
$
3,247,627
      
100.0
%
Cost of revenues
    
573,712
      
75.9
%
    
2,016,713
      
80.9
%
    
-
      
2,590,425
      
79.8
%
Gross profit
    
181,760
      
24.1
%
    
475,442
      
19.1
%
    
-
      
657,202
      
20.2
%
                                                         
Total operating expenses
    
265,906
      
35.2
%
    
634,144
      
25.5
%
    
639,538
      
1,539,588
      
47.4
%
Other income(expenses)
    
20
      
0.0
%
    
10,465
      
0.4
%
    
1,718
      
12,203
      
0.4
%
                                                         
Loss before taxes and noncontrolling interest
  
$
(84,126
)
    
-11.1
%
  
$
(148,237
)
    
-6.0
%
  
$
(637,820
)
  
$
(870,183
)
    
-26.8
%


 
- 16 -
 

 
July 31, 2011
   
Chinese Medicine
    
Stevioside
    
Corporate and other
    
Consolidated
  
Total revenues
  
$
757,315
    
100.0
%
  
$
2,091,131
    
100.0
%
  
$
-
    
$
2,848,446
      
100.0
%
Cost of revenues
    
731,992
    
96.7
%
    
1,752,598
    
83.8
%
    
-
      
2,484,590
      
87.2
%
Gross profit
    
25,323
    
3.3
%
    
338,533
    
16.2
%
    
-
      
363,856
      
12.8
%
                                                     
Total operating expenses
    
241,836
    
31.9
%
    
724,439
    
34.6
%
    
434,153
      
1,400,428
      
49.2
%
Other income (expenses)
    
918
    
0.1
%
    
11,554
    
0.6
%
    
3,781
      
16,253
      
0.6
%
                                                     
Loss before taxes and noncontrolling interest
  
$
(215,595
)
  
-28.5
%
  
$
(374,352
)
  
-17.9
%
  
$
(430,372
)
  
$
(1,020,319
)
    
-35.8
%
                                                     

Revenues

Total revenues in the first quarter of fiscal 2013 increased by $0.4 million, or 14.0%, as compared to the same period in fiscal 2012. Stevioside revenues, which comprised 76.7% and 73.4% of our revenues for the first quarter of fiscal 2013 and fiscal 2012, respectively, increased by19.2%, while revenues in our Chinese Medicine segment decreased slightly by 0.2%. Within our Stevioside segment, revenues from sales to third parties decreased by 20.8% in the first quarter of fiscal 2013 from the first quarter of fiscal 2012, while revenues from sales to a related party increased by 357% in the comparable period. We did not have any sales to related parties in our Chinese medicine segment in either period.

The overall increase in Stevioside revenues was due primarily to higher sales volume of higher grades stevia products in the domestic market to Chinese manufacturers who use our products as raw materials, accompanied with a moderate increase in sales volume in the international market. During the first quarter fiscal 2013, approximately 7.7% of the higher revenues in our Stevioside segment were attributable to greater sales volume in this segment. In addition, the demand growth for our intermediate and higher grade stevia products continue to be slower than anticipated in international markets, especially in the U.S., where the adoption rate for stevia in the food and beverage has been slower than expected, and in the EU, where full approval of stevia did not take place until the fourth quarter of calendar 2011. We produced 87 metric tons of stevioside for the first quarter of fiscal 2013 as compared to 22 metric tons in the same period of fiscal 2012.

During the first quarter of fiscal 2013, the lower sales revenue in our Chinese medicine segment was attributable to approximately 13.1% of lower sales volume and approximately 1.5% were attributable to a decrease in pricing due to competitive pricing in the marketing of the products for this segment.

Cost of Revenues and Gross Margin

Cost of revenues in the first quarter of fiscal 2013 increased by $0.1 million, or 4.3%, as compared to the same period in fiscal 2012. Gross margin on Stevioside segment increased during the first quarter of fiscal 2013 to 19.1%, compared to 16.2% for the same period in fiscal 2012. The Chinese medicine gross margin increased to 24.1% in the first quarter of fiscal 2013, compared to 3.3% for the same period in fiscal 2012, primarily due to a 21.6% decrease in cost of revenues. As a result, consolidated gross margin for the first quarter of fiscal 2013 increased to 20.2%, compared to 12.8% for the same period in fiscal 2012. 

Total Operating Expenses

Total operating expenses for the first quarter of fiscal 2013 increased by 9.9% from the comparable period in 2012. The increase was primarily due to $0.2 million in stock compensation expense paid for consulting services coupled with $0.1 million increase in selling expenses, offset by $0.2 million reduction in general and administrative expenses for planned reductions in office and travel related expenses in the Stevioside segment. Selling expenses as a percentage of revenues was 9.2% in the first quarter of fiscal 2013 as compared to 5.2% in the first quarter of 2012.

 
- 17 -
 
 
Net Loss

Loss from continuing operations in the first quarter of fiscal 2013 was $0.9 million, compared to $1.0 million in the same period in fiscal 2012. The decrease in net loss was primarily due to increased revenues and higher gross margins .

Our Outlook

We believe that there are significant opportunities for worldwide growth in our Stevioside segment, primarily in the U.S. and EU. For fiscal 2013 and beyond, we will continue to focus on our core business of producing and selling stevioside series products.

Some of the recent favorable trends in the stevia segment include:

 
Chinese domestic food and beverages, particularly herbal tea manufacturers and the pharmaceutical industry, have increased the use of steviosides;
 
Southeast and South Asia have renewed and increased their interest in stevia, particularly high grade stevia.
 
We were notified in November of 2011 that our stevia extracts production process has been certified organic under standards established by the USDA National Organic Program and European Commission (EC) 834/2007 and EC 889/2008 which will further expand the use of our organic stevia products in the food and beverage industry market in the US and Europe;
 
The marketing strategy to differentiate ourselves as a producer of higher quality stevia grades and product formulations through these collaboration efforts has begun to lead to growth in stevia sales volume;
 
In April 2012 we began construction of new stevia extraction line with trial production anticipated in October 2012. This new line will add additional 500 metric tons to our current annual production capacity; and
 
On July 1, 2012, Qufu Shengwang entered the Cooperation Agreement with Hegeng, a Chinese manufacturer and distributor of bio-fertilizers and pesticides, to jointly develop the bio-bacterial fertilizers based on the residues from our stevia extraction with production expected to commence in fiscal 2013.

Meanwhile, we are also facing challenges in competitive pricing and raw materials for fiscal 2013 and 2014. During fiscal 2012, the market prices of stevioside series were impacted by strong price competition among Chinese manufacturers. We expect the price pressure to continue in fiscal 2013 and into fiscal 2014. We anticipate the price of stevia leaves, the raw material used to produce our stevioside series products to increase in the coming harvest fall season for calendar year 2012.


LIQUIDITY AND CAPITAL RESOURCES

Liquidity is the ability of a company to generate sufficient cash to meet its operational cash requirements.  

At July 31, 2012 and April 30, 2012, we had working capital of $9.8 million and $10.6 million, respectively.  Our cash balance at July 31, 2012 was $1.4 million, as compared to cash of $3.0 million at April 30, 2012. We believe that our existing cash and cash equivalents and internally generated funds will be sufficient to cover working capital requirements and capital expenditures during the fiscal year. Our commitments for capital expenditures in fiscal 2013 are estimated at $5.2 million, comprised of $0.5 million for last installment on apartment complex unit, which is expected to be sold during fiscal 2013, and $4.7 million estimated for completion of the construction of a new stevia extraction line, as previously discussed. We expect to satisfy these obligations from our working capital.

Accounts receivable, net of allowance for doubtful accounts, excluding accounts receivable from related parties, decreased by less than $0.1 million during the first quarter of fiscal 2013. The days’ sales outstanding in accounts receivable increased to 66 days as of July 31, 2012, as compared to 63 days as of April 30, 2012.

At July 31, 2012, loan receivable amounted to $1.9 million, which represented a decrease of $0.1 million from April 30, 2012. In December 2011, we entered into a loan agreement with Shandong Anda Biotech Co., Ltd. ( Shandong Anda), a third party. According to the terms of the agreement, we lent Shandong Anda approximately $3.1 million. The loan is due on December 18, 2012 and bears no interest. During the fourth quarter of fiscal 2012 Shandong Anda repaid $1.5 million of the loan, and the balance of the loan was $1.6 million as of July 31, 2012. During the third quarter of fiscal 2011 we also lent $0.5 million to CDI China, Inc., an affiliate of CDI, our corporate management services provider. Payment of $0.2 million was received during the third quarter of 2012. The balance of $0.3 million plus accrued interest was extended to an on demand note. In May 2012, in connection with the execution of a new consulting agreement with CDI as described elsewhere herein, the payment terms of the loan were further modified to provide that $113,807 was due before August 25, 2012, which has subsequently been received, and the balance of $100,000 is due by December 31, 2012.

 
- 18 -
 


At July 31, 2012 inventories, net of reserve for obsolescence, amounted to $4.6 million, as compared to $4.3 million as of April 30, 2012. The increase was primarily due to purchases of raw materials for stevia products in anticipation of future demand.

Our accounts payable and accrued expenses remained relatively constant at approximately $4.1 million at July 31, 2012 and April 30, 2012, respectively. This balance, as well as that of V.A.T. taxes payable, is subject to the timing of payments for balances related to raw material purchases made in the ordinary course of business.

Cash Flows Analysis
 
NET CASH FLOW USED IN OPERATING ACTIVITIES:

Net cash used in operating activities was $0.8 million during the first quarter of fiscal 2013, as compared to net cash provided by operating activities of $0.2 million during the same period in fiscal 2012. The increase resulting from cash used in operating activities was due primarily to $0.2 million increase in prepaid expenses and other current assets related to advance payments for stevia raw materials, $0.2 million to purchase raw materials inventory in stevia to support future sales, and $0.4 million in higher accounts receivable to related party due to higher sales during the period.

NET CASH FLOW USED IN INVESTING ACTIVITIES:

Net cash used in investing activities amounted to $0.7 million during the first quarter of fiscal 2013, as compared to less than $8,000 for the same period in fiscal 2012. The increase was primarily due to $0.8 million in capital expenditures for property and equipment offset by proceeds from loan.

NET CASH FLOW PROVIDED BY FINANCING ACTIVITIES:

Net cash used in financing activities amounted to less than $13,000 during the first quarter of fiscal 2013, which represented repayments of advances from related party, with no comparable amount in fiscal 2012.

CASH ALLOCATION BY COUNTRIES

The functional currency of our Chinese subsidiaries is the Chinese RMB. Substantially all of our cash is held in the form of RMB at financial institutions located in the PRC, where there is no equivalent of federal deposit insurance as in the United States. As a result, cash accounts at financial institutions in the PRC are not insured. We have not experienced any losses in such accounts as of July 31, 2012.

In 1996, the Chinese government introduced regulations which relaxed restrictions on the conversion of the RMB; however restrictions still remain, including but not limited to restrictions on foreign invested entities. Foreign invested entities may only buy, sell or remit foreign currencies after providing valid commercial documents at only those banks authorized to conduct foreign exchanges. Furthermore, the conversion of RMB for capital account items, including direct investments and loans, is subject to PRC government approval. Chinese entities are required to establish and maintain separate foreign exchange accounts for capital account items. We cannot be certain Chinese regulatory authorities will not impose more stringent restrictions on the convertibility of the RMB, especially with respect to foreign exchange transactions. Accordingly, cash on deposit in banks in the PRC is not readily deployable by us for purposes outside of the PRC. Our cash position by geographic area is as follows:

 
July 31, 2012
  
April 30, 2012
  
   
(Unaudited)
        
China
$
1,447,311
  
$
2,938,981
  
United States
  
2,143
    
19,914
  
Total
$
1,449,454
  
$
2,958,895
  


 
- 19 -
 

Off Balance Sheet Arrangements

Under SEC regulations, we are required to disclose our off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, such as changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. An off-balance sheet arrangement means a transaction, agreement or contractual arrangement to which any entity that is not consolidated with us as a party, under which we have:

 
•
  
Any obligation under certain guarantee contracts,
 
•
  
Any retained or contingent interest in assets transferred to an unconsolidated entity or similar arrangement that serves as credit, liquidity or market risk support to that entity for such assets,
 
•
  
Any obligation under a contract that would be accounted for as a derivative instrument, except that it is both indexed to our stock and classified in stockholder’s equity in our statement of financial position, and
 
•
  
Any obligation arising out of a material variable interest held by us in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to us, or engages in leasing, hedging or research and development services with us.

We do not have any off-balance sheet arrangements that we are required to disclose pursuant to these regulations. In the ordinary course of business, we enter into operating lease commitments, purchase commitments and other contractual obligations. These transactions are recognized in our financial statements in accordance with U.S. GAAP.

CRITICAL ACCOUNTING POLICIES
 
The preparation of financial statements in conformity with U.S. GAAP requires estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities in the consolidated financial statements and accompanying notes. The SEC has defined a company’s critical accounting policies as the ones that are most important to the portrayal of our financial condition and results of operations, and which require us to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Based on this definition, we have identified the critical accounting policies and judgments addressed below. We also have other key accounting policies, which involve the use of estimates, judgments and assumptions that are significant to understanding our results, which are described in Note 1 to our financial statements. Although we believe that our estimates, assumptions and judgments are reasonable, they are based upon information presently available. Actual results may differ significantly from these estimates under different assumptions, judgments or conditions.

Estimates

Significant estimates for the periods reported include the allowance for doubtful accounts which is based on an evaluation of our outstanding accounts receivable including the age of amounts due, the financial condition of our specific customers and historical bad debt experience. This evaluation methodology has proven to provide a reasonable estimate of bad debt expense in the past and we intend to continue to employ this approach in our analysis of collectability.  However, we are aware that given the current global economic crises, including that of the PRC, meaningful time horizons may change.  We intend to enhance our focus on the evaluation of our customers' sustainability and adjust our estimates as may be indicted.
 
We rely on assumptions such as volatility, forfeiture rate, and expected dividend yield when calculating the fair value of our derivative liability related to common stock purchase warrants. We also rely on assumptions and estimates to calculate our reserve for obsolete inventory and the depreciation of property, plant and equipment. We make assumptions of expiration of our products held as inventory based on historical experience and if applicable, regulatory recommendation. We also group property plant and equipment into similar groups of assets and estimate the useful life of each group of assets.
 
Further, we rely on certain assumptions and calculations underlying our provision for taxes in the PRC.  Assumptions and estimates employed in these areas are material to our reported financial conditions and results of operations.  These assumptions and estimates have been materially accurate in the past and are not expected to materially change in the future.  Actual results could differ from these estimates.
 
Revenue recognition

We follow the guidance of ASC 605, "Revenue Recognition,” and the Securities and Exchange Commission's Staff Accounting Bulletin (“SAB”) No. 104 and SAB Topic 13 for revenue recognition. In general, we record revenue when persuasive evidence of an arrangement exists, services have been rendered or product delivery has occurred, the sales price to the customer is fixed or determinable, and collectability is reasonably assured.
 

 
- 20 -
 

Long-lived assets

We review the carrying value of long-lived assets for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of long-lived assets is measured by comparison of its carrying amount to the undiscounted cash flows that the asset or asset group is expected to generate. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the property, if any, exceeds its fair value.
 
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
Not applicable to smaller reporting company.
 
ITEM 4. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

 We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”) that are designed to ensure that information required to be disclosed by us in reports that we file under the Exchange Act is recorded, processed, summarized and reported as specified in the SEC’s rules and forms and that such information required to be disclosed by us in reports that we file under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer,("CEO"), and our Chief Financial Officer("CFO"), to allow timely decisions regarding required disclosure.

Management, with the participation of our CEO and CFO, performed an evaluation of the effectiveness of our disclosure controls and procedures as of July 31, 2012.  

Based on this evaluation our management concluded that our disclosure controls and procedures were effective as of July 31, 2012 such that the information relating to our company, required to be disclosed in our Securities and Exchange Commission reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and (ii) is accumulated and communicated to our management, including our CEO, to allow timely decisions regarding required disclosure.
 
Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting identified in connection with the evaluation of our controls performed during the quarter ended July 31, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS.

None.

ITEM 1A. RISK FACTORS.

Risk factors describing the major risks to our business can be found under Item 1A, “Risk Factors”, in our fiscal 2012 Annual Report on Form 10-K. There has been no material change in our risk factors from those previously discussed in the fiscal 2012 Annual Report on Form 10-K.

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

As partial compensation under the terms of the consulting agreement described later in Item 5, on August 17, 2012 we issued CDI 2,000,000 shares of our common stock valued at $520,000. The recipient was an accredited investor and the issuance was exempt from registration under the Securities Act of 1933 in reliance on an exemption provided by Section 4(2) of that act.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4.  MINE SAFETY DISCLOSURE.
 
None.

 
- 21 -
 


ITEM 5.  OTHER INFORMATION.
 
On May 1, 2012 we entered into a consulting agreement with CDI for fiscal 2013 pursuant to which CDI is to provide us with a variety of consulting services, including, but not limited to, coordinating the preparation and filing of our various reports under the Securities Exchange Act of 1934, assistance in improving our internal control over financial reporting, advice concerning the disposition of our Chinese medicine segment, assistance in maintaining our relationship with Domino Foods, Inc. and WILD Procurement, investor and public relations, and advice in our capital raising efforts, among other services.  As compensation, we agreed to issue CDI an aggregate of 2,500,000 shares of our common stock valued at $650,000, of which 2,000,000 shares were to be issued within 10 business days from the execution of the agreement and the remaining 500,000 shares are to be issued by December 31, 2012. Under the terms of this agreement, CDI is responsible for the payment of all of our legal, accounting, travel and related third party expenses we might incur during the period, and the amount of shares we agreed to issue included reimbursement of $92,341 paid on our behalf to WILD Flavors as partial compensation for our purchase of the minority interest in Sunwin USA described elsewhere herein.  Under the terms of the agreement CDI also modified the payment terms of a loan we had previously made to CDI China, Inc., its sister company, which had an outstanding balance of $213,807, to provide that $113,807 of this amount was due by August 25, 2012 and the balance is due by December 30, 2012.  We have subsequently received the initial payment.

The description of this agreement in qualified in its entirety by reference to the contract, a copy of the English translation of which is filed as Exhibit 10.32 to this report.

ITEM 6.  EXHIBITS
 
Exhibit No.
  
Description of Exhibit
 
2.1
  
Agreement and Plan of Merger dated March 28, 2012 between Sunwin International Neutraceuticals, Inc. and Sunwin Stevia International, Inc. (Incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K as filed on April 20, 2012).
 
3.1
  
Articles of Incorporation (Incorporated by reference to the Annual Report on Form 10-KSB for the fiscal year ended April 30, 2000).
 
3.2
  
Certificate of Amendment to Articles of Incorporation (Incorporated by reference to the Form 8-K/A as filed on July 30, 2004).
 
3.3
  
By-Laws (Incorporated by reference to the Annual Report on Form 10-KSB for the fiscal year ended April 30, 2000).
 
3.4
  
Articles of Merger as filed with the Secretary of State of Nevada on March 29, 2012 (Incorporated by reference to Exhibit 3.3 to the Current Report on Form 8-K as filed on April 20, 2012).
 
4.1
  
Form of $0.65 common stock purchase warrant (Incorporated by reference to the Report on Form 8-K as filed on March 23, 2007).
 
4.2
  
Common Stock Purchase Warrant between Sunwin International Neutraceuticals, Inc. and Wild Flavors, Inc. dated February 5, 2009 (Incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K as filed on February 11, 2009).
 
4.3
  
Stockholders Agreement dated February 5, 2009 Sunwin International Neutraceuticals, Inc., Laiwang Zhang, Dongdong Lin, Xingyuan Li, Junzhen Zhang, Xiangsheng Kong, Weidong Chai, Laiwang Zhang, Fanjun Wu and Wild Flavors, Inc. (Incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K as filed on February 11, 2009).
 
4.4
  
2012 Equity Compensation Plan (Incorporated by reference to Exhibit 4.4 to the Current Report on Form 8-K as filed on August 24, 2012).
 
10.1
  
Share Exchange Agreement dated April 30, 2004 between Network USA, Inc. and the stockholders of Sunwin Tech Group, Inc. (Incorporated by reference to the Report on Form 8-K as filed with on May 12, 2004).
 
10.2
  
Stock Purchase Agreement between Sunwin Tech Group, Inc., Qufu Natural Green Engineering Company, Limited and Shandong Shengwang Pharmaceutical Group Corporation (Incorporated by reference to the Annual Report on Form 10-K for the fiscal year ended April 30, 2004).
 
10.3
+
2005 Equity Compensation Plan (Incorporated by reference to the Report on Form 8-K as filed on April 28, 2005).
 
10.4
  
Lease agreement dated October 1, 2002 between Shandong Shengwang Pharmaceutical Corporation and Qufu Natural Green Engineering Co., Ltd. (Incorporated by reference to the Annual Report on Form 10-KSB/A for the fiscal year ended April 30, 2005).
 
10.5
  
Lease agreement dated October 6, 2002 between Qufu LuCheng Chiya Resident Commitment and Qufu Natural Green Engineering Co., Ltd. (Incorporated by reference to the Annual Report on Form 10-KSB/A for the fiscal year ended April 30, 2005).
 
10.6
  
Lease agreement dated April 1, 2004 between Qufu ShengDa Industry Co., Ltd. and Qufu Natural Green Engineering Co., Ltd.( Incorporated by reference to the Annual Report on Form 10-KSB/A for the fiscal year ended April 30, 2005).

 
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10.7
  
Stock Purchase Agreement dated February 7, 2006 between Sunwin International Neutraceuticals, Inc., Qufu Natural Green Engineering Company and Shandong Shengwang Pharmaceutical Group Corporation (Incorporated by reference to the Quarterly Report on Form 10-QSB for the period ended January 31, 2006).
 
10.8
+
2006 Equity Compensation Plan (Incorporated by reference to the Quarterly Report on Form 10-QSB for the period ended January 31, 2006).
 
10.9
  
Consulting Agreement between China Direct Investments, Inc. and Sunwin International Neutraceuticals, Inc. dated April 22, 2011 (Incorporated by reference to the Exhibit 10.21 to the Quarterly Report on Form 10-Q for the period ended July 31, 2011).
 
10.10
  
Acquisition Agreement by and among Qufu Natural Green Engineering Co., Ltd. and Qufu Shengwang Stevia Biology and Science Co., Ltd. and Shandong Shengwang Group, Co., Ltd. dated June 30, 2008 (Incorporated by reference to Exhibit 10.13 to the Current Report on Form 8-K as filed on July 7, 2008).
 
10.11
  
Stock Sale And Purchase Agreement between Sunwin International Neutraceuticals, Inc. and Shandong Shengwang Group Co., Ltd. (Incorporated by reference to Exhibit 10.14 to the Current Report on Form 8-K as filed on July 7, 2008).
 
10.12
  
Amendment to the June 30, 2008 Acquisition Agreement by and among Qufu Natural Green Engineering Co., Ltd. and Qufu Shengwang Stevia Biology and Science Co., Ltd. and Shandong Shengwang Group Co., Ltd. dated September 2, 2008. (Incorporated by reference to Exhibit 10.15 to the Current Report on Form 8-K as filed on September 8, 2008).
 
10.13
  
Amendment to the June 30, 2008 Stock Sale and Purchase Agreement between Sunwin International Neutraceuticals, Inc. and Shandong Shengwang Group Co., Ltd. dated September 2, 2008 (Incorporated by reference Exhibit 10.16 to the Current Report on Form 8-K as filed on September 8, 2008).
 
10.14
  
November 18, 2008 Second Amendment to Acquisition Agreement by and among Qufu Natural Green Engineering Co., Ltd. and Qufu Shengwang Stevia Biology and Science Co., Ltd. and Shandong Shengwang Group, Co., Ltd. dated as of June 30, 2008 (Incorporated by reference Exhibit 10.19 to the Current Report on Form 8-K as filed on November 26, 2008).
 
10.15
  
November 18, 2008 Second Amendment to Stock Sale And Purchase Agreement between Sunwin International Neutraceuticals, Inc. and Shandong Shengwang Group Co., Ltd. dated as of June 30, 2008 (Incorporated by reference Exhibit 10.20 to the Current Report on Form 8-K as filed on November 26, 2008).
 
10.16
  
Securities Purchase Agreement between Sunwin International Neutraceuticals, Inc. and Wild Flavors, Inc. dated February 5, 2009 (Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K as filed on February 11, 2009).
 
10.17
  
Form of Operating Agreement between Sunwin International Neutraceuticals, Inc. and Wild Flavors, Inc. (Incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K as filed on February 11, 2009).
 
10.18
  
Distributorship Agreement dated February 5, 2009 among Sunwin International Neutraceuticals, Inc., Sunwin Stevia International Corp. and Wild Flavors, Inc. (Incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K as filed on February 11, 2009).
 
10.19
  
Consulting and Management Agreement between Sunwin International Neutraceuticals, Inc. and China Direct Investments, Inc. dated as of April 29, 2009. (Incorporated by reference to Exhibit 10.24 to the Annual Report on Form 10-K filed on July 29, 2009).
 
10.20
  
Stock Sale and Purchase Agreement dated June 29, 2010 among Qufu Natural Green Engineering, Shengya Veterinary Medicine Co., Ltd., and Mr. Laiwang Zhang (Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on July 7, 2010).
 
10.21
  
Stock Transfer Agreement between Korea Stevia Co, Ltd. and Qufu Shengwang Stevia Biology and Science Co., Ltd. dated September 30, 2011 (Incorporated by reference to Exhibit 10.22 to the Quarterly Report on Form 10-Q for the period ended October 31, 2011).
 
10.22
  
Commercial Housing Purchase and Sale Contract between Qufu Jinxuan Real Estate Development Co., Ltd. and Qufu Natural Green Engineering Co., Ltd. dated August 25, 2011 (Incorporated by reference to Exhibit 10.23 to the Quarterly Report on Form 10-Q for the period ended October 31, 2011).
 
10.23
  
Loan Agreement dated November 18, 2011 by and between Qufu Natural Green Engineering Co., Ltd. and Shandong Shengwang Pharmaceutical Co., Ltd. (Incorporated by reference to Exhibit 10.24 to the Quarterly Report on Form 10-Q for the period ended January 31, 2012).
 
10.24
  
Supplier Agreement dated December 2, 2012 by and between Sunwin International Neutraceuticals, Inc. and Domino Foods, Inc. (Incorporated by reference to Exhibit 10.25 to the Quarterly Report on Form 10-Q for the period ended January 31, 2012).
 
10.25
  
Loan Agreement dated December 16, 2011 by and between Qufu Natural Green Engineering Co., Ltd. and Shandong Anda Bio-Tech Co., Ltd. (Incorporated by reference to Exhibit 10.26 to the Quarterly Report on Form 10-Q for the period ended January 31, 2012).

 
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10.26
  
Confirmation of Amendment to Loan Agreement with Shandong Shengwang Pharmaceutical Co., Ltd. (Incorporated by reference to Exhibit 10.27 to the Quarterly Report on Form 10-Q for the period ended January 31, 2012).
 
10.27
  
Loan agreement dated December 22, 2010 between Sunwin International Neutraceuticals, Inc. and CDI China, Inc.
 
10.28
  
Cooperation Agreement dated July 1, 2012 by and between Hegeng (Beijing) Organic Farm Technology Co., Ltd. and Qufu Shengwang Stevia Biology and Science Co. Ltd. (Incorporated by reference to Exhibit 10.28 to the Annual Report on Form 10-K for the year ended April 30, 2012).
  10.29  
Exchange Agreement dated August 8, 2012 by and between WILD Flavors, Inc. and Sunwin Stevia International, Inc. (Incorporated by reference to Exhibit 10.29 to the Current Report on Form 8-K as filed on August 24, 2012).
  10.30  
Amendment to Operating Agreement dated August 8, 2012 by and between WILD Flavors, Inc. and Sunwin Stevia International, Inc. (Incorporated by reference to Exhibit 10.30 to the Current Report on Form 8-K as filed on August 24, 2012).
  10.31  
Termination of Distribution Agreement dated August 8, 2012 by and between WILD Flavors, Inc., Sunwin Stevia International, Inc. and Sunwin USA, LLC (Incorporated by reference to Exhibit 10.31 to the Current Report on Form 8-K as filed on August 24, 2012).
  10.32  
Fiscal Year 2013 Consulting Agreement (English Translation) dated May 2, 2012 between Sunwin Stevia International, Inc. and China Direct Investments, Inc.*
 
14.1
  
Code of Ethics (Incorporated by reference to Exhibit 14 to the Registration Statement on Form SB-2 as filed on May 27, 2005).
 
21.1
  
Subsidiaries of the registrant.(Incorporated by reference to Exhibit 21.1 to the Annual Report on Form 10-K for the year ended April 30, 2012).
 
31.1
  
Section 302 Certificate of the Chief Executive Officer.*
 
31.2
  
Section 302 Certificate of Chief Financial Officer.*
 
32.1
  
Section 906 Certificate of Chief Executive Officer and Chief Financial Officer.*
101.INS
  
XBRL INSTANCE DOCUMENT**
101.SCH
  
XBRL TAXONOMY EXTENSION SCHEMA**
101.CAL
  
XBRL TAXONOMY EXTENSION CALCULATION LINKBASE**
101.DEF
  
XBRL TAXONOMY EXTENSION DEFINITION LINKBASE**
101.LAB
  
XBRL TAXONOMY EXTENSION LABEL LINKBASE**
101.PRE
  
XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE**
 
* - Filed herewith.
** - In accordance with Regulation S-T, the XBRL-formatted interactive data files that comprise Exhibit 101 to this Quarterly Report on Form 10-Q/A shall be deemed “furnished” and not “filed”.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 
SUNWIN STEVIA INTERNATIONAL, INC.
   
   
Dated: September 12, 2012
By: /s/ Dongdong Lin
 
Dongdong Lin,
 
Chief Executive Officer
   
   
Dated: September 12, 2012
By: /s/ Fanjun Wu 
 
Fanjun Wu, 
 
Chief Financial Officer 
 
 
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