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 period ended July 31, 2013

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 10, 2013 there were 173,882,803 shares of the registrant's common stock issued and outstanding.

 
 
 


SUNWIN STEVIA INTERNATIONAL, INC. AND SUBSIDIARIES
FORM 10-Q
 QUARTERLY PERIOD ENDED JULY 31, 2013
 
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
17
   
Item 3.    Quantitative and Qualitative Disclosures About Market Risk
22
   
Item 4.    Controls and Procedures
22
   
PART II-OTHER INFORMATION
  
Item 1.     Legal Proceedings
22
   
Item 1A.  Risk Factors
 23
 
  
Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds
23
   
Item 3.     Defaults Upon Senior Securities
23
   
Item 4.     Mine Safety Disclosures
23
   
Item 5.     Other Information
23
   
Item 6.     Exhibits
23


 
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, 2013 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, 2013 is referred to as “fiscal 2013” and the year ending April 30, 2014 is referred to as “fiscal 2014.”  Also, the three month period ending July 31, 2013 is our first quarter and is referred to as the “first quarter of fiscal 2014”. Likewise, the three month period ending July 31, 2012 is referred to as the “first quarter of fiscal 2013”.

  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;
       
 
-
  
“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.
       
The information which appears on our website at www.sunwininternational.com is not part of this report.

 
iii
 

PART I - FINANCIAL INFORMATION
 
ITEM 1.  FINANCIAL STATEMENTS

SUNWIN STEVIA INTERNATIONAL, INC. AND SUBSIDIARIES
  
CONDENSED CONSOLIDATED BALANCE SHEETS
  
             
   
July 31,
    
April 30,
  
   
2013
    
2013
  
   
(Unaudited)
        
ASSETS
            
CURRENT ASSETS:
            
Cash and cash equivalents
   $ 423,821     $ 517,106  
Accounts receivable, net of allowance for doubtful accounts of $1,156,193 and $1,000,291, respectively
     1,516,717       1,614,152  
Accounts receivable - related party
     1,019,863       1,239,222  
Notes receivable
     -       41,851  
Loans receivable
     8,614       43,614  
Inventories, net
     4,988,534       4,927,971  
Due from related party
     313,606       -  
Prepaid expenses and other current assets
     1,373,842       1,189,416  
                 
Total Current Assets
     9,644,997       9,573,332  
                 
Investment in real estate held for resale
     1,959,120       1,947,042  
Property and equipment, net
     15,392,547       15,725,384  
Intangible assets, net
     1,327,795       1,409,090  
Land use rights, net
     2,289,629       2,289,544  
                 
Total Assets
   $ 30,614,088     $ 30,944,392  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
                
CURRENT LIABILITIES:
                
Accounts payable and accrued expenses
   $ 3,894,102     $ 3,626,117  
Loan payable
     809,822       804,829  
Due to related party
     -       174,404  
                 
Total Current Liabilities
     4,703,924       4,605,350  
                 
Commitments
                
                 
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; 173,882,803 and 173,882,803 shares issued and outstanding as of July 31, 2013 and April 30, 2013, respectively
     173,883       173,883  
Additional paid-in capital
     33,479,529       33,479,529  
Accumulated deficit
     (13,415,081 )     (12,829,706 )
Accumulated other comprehensive income
     5,671,833       5,515,336  
                 
Total Stockholders' Equity
     25,910,164       26,339,042  
                 
Total Liabilities and Stockholders' Equity
   $ 30,614,088     $ 30,944,392  
                 
                 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
  


 
- 1 -
 


SUNWIN STEVIA INTERNATIONAL, INC. AND SUBSIDIARIES
  
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
  
(Unaudited)
  
             
   
For the Three Months Ended July 31,
  
   
2013
    
2012
  
             
Revenues
   $ 1,573,595     $ 2,236,548  
Revenues - related party
     1,143,311       1,011,079  
                 
Total revenues
     2,716,906       3,247,627  
                 
Cost of revenues
     2,266,692       2,590,425  
                 
Gross profit
     450,214       657,202  
                 
Operating expenses:
                
Selling expenses
     283,178       297,555  
General and administrative expenses
     846,830       1,242,033  
                 
Total operating expenses
     1,130,008       1,539,588  
                 
Loss from operations
     (679,794 )     (882,386 )
                 
Other income (expenses):
                
Other income
     109,808       6,466  
Interest (expenses) income
     (15,388 )     5,737  
                 
Total other income
     94,420       12,203  
                 
Loss before income taxes
     (585,374 )     (870,183 )
                 
Income taxes expense
     -       (6,153 )
                 
Net loss
   $ (585,374 )   $ (876,336 )
                 
Comprehensive loss:
                
Net loss
   $ (585,374 )   $ (876,336 )
                 
Foreign currency translation adjustment
     156,497       (57,529 )
                 
Total comprehensive loss
   $ (428,877 )   $ (933,865 )
                 
Net loss per common share:
                
Net loss per share - basic and diluted
   $ (0.003 )   $ (0.01 )
Weighted average common shares outstanding - basic and diluted
     173,882,803       157,356,137  
                 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
  


 
- 2 -
 


SUNWIN STEVIA INTERNATIONAL, INC. AND SUBSIDIARIES
  
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
  
(Unaudited)
  
   
For the Three Months Ended July 31,
  
   
2013
    
2012
  
CASH FLOWS FROM OPERATING ACTIVITIES:
            
Net loss
   $ (585,374 )   $ (876,336 )
Adjustments to reconcile net loss to net cash provide by (used in) operating activities
                
Depreciation expense
     450,085       398,460  
Amortization of intangible assets
     81,294       -  
Amortization of land use right
     14,286       13,862  
Realized comprehensive loss
     1,535       -  
Stock issued for services
     -       520,000  
Allowance for doubtful accounts
     149,560       (147,133 )
Changes in operating assets and liabilities:
                
Accounts receivable and notes receivable
     (137 )     272,506  
Accounts receivable - related party
     (86,480 )     (388,890 )
Inventories
     (29,965 )     (274,928 )
Prepaid expenses and other current assets
     (232,342 )     (230,271 )
Accounts payable and accrued expenses
     245,289       16,339  
Taxes payable
     55,374       (60,940 )
                 
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
     63,125       (757,331 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
                
Purchases of property and equipment
     (16,495 )     (828,599 )
Increase in loan receivable
     -       (1,718 )
Proceeds from loan receivable
     35,000       107,459  
                 
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
     18,505       (722,858 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
                
Repayment of related party advances
     (175,327 )     (12,546 )
                 
NET CASH USED IN FINANCING ACTIVITIES
     (175,327 )     (12,546 )
                 
EFFECT OF EXCHANGE RATE ON CASH
     412       (16,706 )
                 
NET DECREASE IN CASH
     (93,285 )     (1,509,441 )
                 
Cash at the beginning of year
     517,106       2,958,895  
                 
Cash at the end of period
   $ 423,821     $ 1,449,454  
                 
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
                
Cash paid for income taxes
   $ -     $ 6,153  
                 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
  


 
- 3 -
 
SUNWIN STEVIA INTERNATIONAL, INC. AND SUBSIDIARIES
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
July 31, 2013
 

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”, "ur”, or “Sunwin”. 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.

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.

Stevioside Segment

In our Stevioside segment, we produce and sell a variety of purified steviol glycosides with rebaudioside A and stevioside as the principal components, an all natural, low calorie sweetener, and OnlySweet, a stevioside based table top sweetener.

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 partner, 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. 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 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.  No additional investment in the facility would be required. During the third quarter of fiscal 2013, we decided to suspend the agreement with Hegeng due to a lack of sales since the reaction to the products was lower than anticipated in fertilizer market. Currently we plan to use these assets to manufacture a variety of traditional Chinese medicine formula extracts. We expect to start production in fiscal 2014.

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.

Sunwin USA

In fiscal 2009, we entered into a distribution agreement with WILD Flavors to assist our 55% owned subsidiary, 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.

 
- 4 -
 
SUNWIN STEVIA INTERNATIONAL, INC. AND SUBSIDIARIES
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
July 31, 2013
 


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 $1,625,874, which includes the issuance of 7,666,666 shares of our common stock valued at approximately $1,533,333 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. The $92,541 cash payment was paid by China Direct Investment, Inc. (“CDI”), our corporate management services provider, and reimbursed by us to CDI through the issuance of our common shares as part of the terms of the consulting agreement with CDI dated May 1, 2012. The net tangible assets of Sunwin USA were reduced from $1,825,804 to $1,625,874 as a result of the application of generally accepted accounting principles (“U.S. GAAP”) which requires elimination of the difference between the purchase price of the 45% membership interest in Sunwin USA and cost basis of the intangible assets recorded by Sunwin USA. Intangible assets include the product development and supply chain for OnlySweet.

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 began consolidating the operations of Sunwin USA 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 cancelled 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
 
•           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.
 

 
- 5 -
 
SUNWIN STEVIA INTERNATIONAL, INC. AND SUBSIDIARIES
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
July 31, 2013
 

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The accompanying unaudited condensed 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 unaudited condensed 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 condensed consolidated interim financial statements should be read in conjunction with the financial statements and footnotes for the year ended April 30, 2013 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, 2013 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 unaudited condensed consolidated financial statements include the accounts of Sunwin and all our wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. Our subsidiaries include the following:
 
-       Qufu Natural Green;
-       Qufu Shengren;
-       Qufu Shengwang;
-       Sunwin Tech; and
-       Sunwin USA

As reflected in the accompanying unaudited condensed consolidated financial statements, during the first three months of fiscal year 2014, the Company had a net loss of $585,374 and net cash provided by operations of $63,125. At July 31, 2013, we had working capital of $4.9 million, including cash of $0.4 million. We believe the Company has the ability to further implement its business plan, raise additional capital, generate more revenues, and collect receivables from the third party and related parties to increase the working capital.

USE OF ESTIMATES

The preparation of unaudited condensed consolidated 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 unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.  Significant estimates include the allowance for doubtful accounts, the allowance for obsolete inventory, the useful life of property and equipment and intangible assets, assumptions used in assessing impairment of long-term assets and valuation of deferred tax assets, and the value of stock-based compensation.  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, 2013, we held $423,022 of our cash and cash equivalents with commercial banking institutions in the PRC, and $799 with banks in the United States. As of April 30, 2013, we held $516,071 of our cash and cash equivalents with commercial banking institution in PRC, and $1,035 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, 2013.

ACCOUNTS RECEIVABLE

Accounts receivable and other 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, 2013 and April 30, 2013, the allowance for doubtful accounts was $1,156,193 and $1,000,291, respectively.


 
- 6 -
 
SUNWIN STEVIA INTERNATIONAL, INC. AND SUBSIDIARIES
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
July 31, 2013
 


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. An allowance is established when management determines that certain inventories may not be saleable. If inventory costs exceed expected market value due to obsolescence or quantities in excess of expected demand, the Company will record reserves for the difference between the cost and the market value. These reserves are recorded based on estimates. At July 31, 2013 and April 30, 2013, the Company recorded a reserve for obsolete or slow-moving inventories of $960,026 and $954,108, respectively.
 
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

In accordance with ASC Topic 360, we review and evaluate our long-lived assets, including property and equipment, intangible assets, 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. Based on our evaluation, we recorded an impairment loss of $0 and $209,500 related to impairment of the carrying amounts certain machinery and equipment deemed unusable as of July 31, 2013 and April 30, 2013, respectively.

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.  

TAXES RECEIVABLE

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 receivable at July 31, 2013 and April 30, 2013 amounted to $40,580 and $0, respectively, consisting primarily of VAT taxes receivable.

 
- 7 -
 
SUNWIN STEVIA INTERNATIONAL, INC. AND SUBSIDIARIES
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
July 31, 2013
 


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.

We apply the provisions of ASC 740-10-50, “Accounting for Uncertainty in Income Taxes”, which provides clarification related to the process associated with accounting for uncertain tax positions recognized in our consolidated financial statements. Audit periods remain open for review until the statute of limitations has passed. The completion of review or the expiration of the statute of limitations for a given audit period could result in an adjustment to the Company’s liability for income taxes. Any such adjustment could be material to the Company’s results of operations for any given quarterly or annual period based, in part, upon the results of operations for the given period. As of July 31, 2013, the Company had no uncertain tax positions, and will continue to evaluate for uncertain positions in the future.

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,
   
2013
    
2012
  
Numerator:
            
Net loss attributable to Sunwin Stevia International, Inc.
  
$
(585,374
)
  
$
(876,336
)
Numerator for basic EPS, loss applicable to common stock holders
  
$
(585,374
)
  
$
(876,336
)
Denominator:
                
Denominator for basic earnings per share - weighted average number of common shares outstanding
    
173,882,803
      
157,356,137
  
 Stock awards, options, and warrants
    
-
      
-
  
Denominator for diluted earnings per share - adjusted weighted average outstanding average number of common shares outstanding
    
173,882,803
      
157,356,137
  
Basic and diluted loss per common share:
                
Loss per share - basic
  
$
(0.003
)
  
$
(0.01
)
Loss per share - diluted
  
$
(0.003
)
  
$
(0.01
)

At July 31, 2013 and 2012 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, 2013 and 2012.

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.

The reporting currency of the Company is the U.S. dollar. The functional currency of the parent company is the U.S. dollar and the functional currency of the Company’s operating subsidiaries is the Chinese Renminbi (“RMB”).  In accordance with ASC 830-20-35, the consolidated 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 and cash flows. Equity accounts were stated at their historical rate. 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.

 
- 8 -
 
SUNWIN STEVIA INTERNATIONAL, INC. AND SUBSIDIARIES
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
July 31, 2013
 


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, 2013
RMB 6.21 to $1.00
As of July 31, 2013
RMB 6.17 to $1.00
   
Three months ended July 31, 2013
RMB 6.18 to $1.00
Three months ended July 31, 2012
RMB 6.31 to $1.00

CONCENTRATIONS OF CREDIT RISK

Substantially all of our operations are carried out in the PRC. Accordingly, our business, financial condition and results of operations may be influenced by the political, economic and legal environment in the PRC, and by the general state of the PRC’s economy. Our operations in the PRC are subject to specific considerations and significant risks not typically associated with companies in North America. Our results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.

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, 2013, we had $423,022 on deposit in China, which is not insured. We have not experienced any losses in such accounts through July 31, 2013.

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

Stock-based compensation is accounted for based on the requirements of the Share-Based Payment topic of ASC Topic 718 which requires recognition in the financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the period the employee or director is required to perform the services in exchange for the award (presumptively, the vesting period). “FASB” ASC also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award.

Pursuant to ASC Topic 505-50, for share-based payments to consultants and other third-parties, compensation expense is determined at the “measurement date.” The expense is recognized over the vesting period of the award. Until the measurement date is reached, the total amount of compensation expense remains uncertain. The Company records compensation expense based on the fair value of the award at the reporting date. The awards to consultants and other third-parties are then revalued, or the total compensation is recalculated, based on the then current fair value, at each subsequent reporting date.

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 $57,268 and $62,604 for the three months ended July 31, 2013 and 2012, respectively, and are included in general and administrative expenses on the accompanying statements of operations.

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.


 
- 9 -
 
SUNWIN STEVIA INTERNATIONAL, INC. AND SUBSIDIARIES
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
July 31, 2013
 

RECENT ACCOUNTING PRONOUNCEMENTS

In July 2012, FASB issued Accounting Standards Update ("ASU") No. 2012-02, Intangibles-Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment. ASU No. 2012-02 simplifies the guidance for testing the decline in the realizable value (impairment) of indefinite-lived intangible assets other than goodwill. ASU No. 2012-02 allows an entity the option of first performing a qualitative assessment to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired. The amendments in this ASU are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted. The adoption of ASU No. 2012-02 did not have a material impact on our consolidated financial statements. 

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.


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 were expected to be delivered by December 30, 2012. As of July 31, 2013, we did not receive the deed and other legal documents for the apartment; the apartment units are expected to be delivered by December 31, 2013. 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 of approximately $478,066 due upon completion of the ownership documents and transfer of the apartment units to us. As of July 31, 2013 and April 30, 2013, we classified investment in real estate held for resale as a long-term asset since we do not plan on selling the apartment units within one year. As of July 31, 2013 and April 30, 2013, investment in real estate held for resale amounted to $1,959,120 and $1,947,042, respectively.

NOTE 4 - INVENTORIES

At July 31, 2013 and April 30, 2013, inventories consisted of the following:
 
   
July 31, 2013
    
April 30, 2013
  
   
(unaudited)
        
Raw materials
  
$
1,161,202
    
$
1,099,001
  
Work in process
    
456,104
      
659,631
  
Finished goods
    
4,331,254
      
4,123,447
  
     
5,948,560
      
5,882,079
  
Less: reserve for obsolete inventory
    
(960,026
)
    
(954,108
)
   
$
4,988,534
    
$
4,927,971
  


 
- 10 -
 
SUNWIN STEVIA INTERNATIONAL, INC. AND SUBSIDIARIES
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
July 31, 2013
 

NOTE 5 - PROPERTY AND EQUIPMENT

At July 31, 2013 and April 30, 2013, property and equipment consisted of the following:

 
Estimated Life
  
July 31, 2013
    
April 30, 2013
  
     
(unaudited)
        
Office Equipment
5-7 Years
  
$
49,697
    
$
48,741
  
Auto and Trucks
10 Years
    
913,191
      
907,480
  
Manufacturing Equipment
20 Years
    
11,764,720
      
11,687,057
  
Buildings
20 Years
    
10,258,562
      
10,192,769
  
Construction in Process
      
684,126
      
668,330
  
       
23,670,296
      
23,504,377
  
Less: Accumulated Depreciation
      
(8,277,749
)
    
(7,778,993
)
     
$
15,392,547
    
$
15,725,384
  
 
For the three months ended July 31, 2013 and 2012, depreciation expense totaled $450,085 and $398,460, respectively. Depreciation is not taken during the period of construction or equipment installation. Upon completion of the installation of manufacturing equipment or any construction in progress, construction in progress balances will be classified to their respective property and equipment category.

NOTE 6 - INTANGIBLE ASSETS

On August 8, 2012 the Company entered into an Exchange Agreement with WILD Flavors pursuant to which it purchased its 45% membership interest in Sunwin USA for an aggregate consideration of approximately $1,625,874, which includes the issuance of 7,666,666 shares of our common stock valued at approximately $1,533,333 and a cash payment of $92,541. In connection with the Exchange Agreement, WILD Flavor granted, transferred and assigned to Sunwin USA all of its rights, title and interest, and the trade name Only Sweet, including any trademarks, trademark registrations and applications, service marks, service mark registrations and applications, copyrights, copyright registrations and applications, trade dress, trade names (whether or not registered or by whatever name or designation), owned, applied for, or registered in the name of, the WILD Flavor (the "Only Sweet Name Rights"). Additionally, we entered into a new Distributorship Agreement with WILD Procurement which is an affiliate of WILD Flavors, as discussed in Note 1. The transaction closed on August 20, 2012. The tangible assets of Sunwin USA were reduced from $1,825,804 to $1,625,874 as a result of the application of U.S. GAAP which requires elimination of the difference between the purchase price of the 45% membership interest in Sunwin USA and cost basis of the intangible assets recorded by Sunwin USA. Intangible assets have a useful life of five years and consist of the cost of Only Sweet Name Rights and related technologies as well as the fair value of the Wild Flavors distribution Agreement. For the three months ended July 31, 2013 and 2012, amortization expense amounted to $81,294 and $0, respectively.  
 
Intangible assets consisted of the following:

  
Estimated Life
  
July 31, 2013
    
April 30, 2013
  
     
(unaudited)
        
Only Sweet name rights and related technologies
5 Years
  
$
587,183
    
$
587,183
  
Distribution agreement and related distribution channels
5 Years
    
1,038,691
      
1,038,691
  
       
1,625,874
      
    1,625,874
  
Less: accumulated amortization
      
(298,079
)
    
(216,784
) 
Intangible Assets, net
    
$
1,327,795
    
$
1,409,090
  


 
- 11 -
 
SUNWIN STEVIA INTERNATIONAL, INC. AND SUBSIDIARIES
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
July 31, 2013
 
 
NOTE 7 - LAND USE RIGHTS

Land use right consisted of the following:
 
 
Estimated Life
  
July 31, 2013
    
April 30, 2013
  
     
(unaudited)
        
Land use right
41-65 Years
  
$
2,575,604
    
$
2,559,545
  
Less: accumulated amortization
      
(285,975
)
    
(270,001
)
     
$
2,289,629
    
$
2,289,544
  

 In conjunction with our acquisition of Qufu Shengwang, we acquired land use rights for properties located in the PRC until March 14, 2054. For the three month periods ended July 31, 2013 and 2012, amortization expense amounted to $14,286 and $13,862, respectively.

NOTE 8 - LOAN RECEIVABLE

On December 22, 2010, we loaned $500,000 to CDI China, Inc., a subsidiary of CD International Enterprises, Inc., and an affiliate of 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. The principal balance of $305,459 was repaid off and part of accrued interest of $163,106 was repaid to us by CDI China, Inc. during fiscal 2012 and 2013. At July 31, 2013, the balance of accrued interest receivable was $8,614.

NOTE 9 - RELATED PARTY TRANSACTIONS

At July 31, 2013 and April 30, 2013, we reported $1,019,863 and $1,239,222 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, 2013 and 2012 were $1,143,311 and $1,011,079, respectively.
 
At July 31, 2013, we reported $313,606 of due from Qufu Shengwang Import and Export Corporation for working capital purpose. At April 30, 2013, we owed Qufu Shengwang Import and Export Corporation $64,386 and $19,716 to Pharmaceutical Corporation for working capital purpose. We also owed Pharmaceutical Corporation $90,302 for salaries and benefit expenses for management during fiscal 2013. These fees are for the administrative management of our operations and include compensation payable to certain of our employees.

NOTE 10 - PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets at July 31, 2013 and April 30, 2013 totaled $1,373,842 and $1,189,416, respectively. As of July 31, 2013, prepaid expenses and other current assets includes $948,298 prepayments to suppliers for merchandise that had not been shipped to us and services that had not been provided to us; $167,205 for employee advances; $40,580 prepaid VAT and a $217,759 deposit for renewing land use rights. During the third quarter of fiscal 2013, Qufu Shengwang paid Qufu Public Auction Center $591,495 as deposit for renewing the land use right. The deposit is required for the Center to do the appraisal of the land use right. In the fourth quarter of fiscal 2013, we received a refund of this deposit of $375,078.

As of April 30, 2013, prepaid expenses and other current assets includes $718,437 prepayments to suppliers for merchandise that had not been shipped to us and services that had not been provided to us; $159,149 for employee advances; $95,413 prepaid VAT and a $216,417 deposit for renewing land use rights.

NOTE 11 - LOAN PAYABLE

In March 18, 2013 we borrowed short-term loan of $809,822 (RMB5,000,000) from China Construction Bank. According to the terms of the agreement with China Construction Bank, the loan bears interest at the rate of 7.8% per annum and the principal balance with accrued interest are due on March 17, 2014.

 
- 12 -
 
SUNWIN STEVIA INTERNATIONAL, INC. AND SUBSIDIARIES
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
July 31, 2013
 
 
NOTE 12 - STOCKHOLDERS' EQUITY

Common stock

At July 31, 2013, we are authorized to issue 200,000,000 shares of common stock. We had 173,882,803 and 173,882,803 shares outstanding at July 31, 2013 and April 30, 2013, respectively.

On September 14, 2012 we entered into a consulting agreement with Dore Scott Perler to perform consulting services from August 1, 2012 to July 31, 2013. According to the terms of the agreement, we agreed to pay Mr. Perler a consulting fee of 90,000 shares of our common stock each quarter. On September 27, 2012, we issued 180,000 shares of our common stock at $0.135 per share to Mr. Perler for July 2012 to December 2012 consulting services. On January 8, 2013, we issued 180,000 shares of our common stock at $0.24 per share to Mr. Perler for January 2013 to June 2013 consulting services. In connection with this share issuance, $67,500 in stock-based consulting expense was recognized during the year ended April 30, 2013.  
 
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 a proprietary interest in our company. On September 27, 2012, we issued 6,000,000 shares of our common stock at $0.135 per share to three employees in China as bonus. In connection with this share issuance, $810,000 in stock-based compensation expense was recognized during the year ended April 30, 2013.  

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 $1,625,874, which includes the issuance of 7,666,666 shares of our common stock valued at approximately $1,533,333 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. The $92,541 cash payment was paid by CDI and reimbursed by us through shares as part of the terms in the terms in the consulting agreement with CDI dated May 1, 2012.

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 $92,541 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 1. On August 21, 2012, we issued 2,000,000 shares to CDI with a total value of $520,000. On January 8, 2013, we issued 500,000 shares to CDI with a total value of $120,000.

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.

 
- 13 -
 
SUNWIN STEVIA INTERNATIONAL, INC. AND SUBSIDIARIES
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
July 31, 2013
 

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.
 
Since 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, 2013 is as follows:

   
Shares
    
Weighted Average
 Exercise Price
  
Outstanding at April 30, 2013
    
26,666,666
    
 $
0.35
  
       Granted
    
-
      
-
  
       Exercised
    
-
      
-
  
       Forfeited
    
-
      
-
  
Warrants exercisable at July 31, 2013 (unaudited)
    
26,666,666
    
 $
0.35
  

The following information applies to all warrants outstanding at July 31, 2013:
 
   
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
  
0.51
  
$0.35
  
26,666,666
  
$0.35
     
26,666,666
      
$0.35
  
26,666,666
  
$0.35


NOTE 13 - SEGMENT INFORMATION

The following information is presented in accordance with ASC Topic 280, “Segment Reporting”, for the three months ended July 31, 2013 and 2012; 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.

Condensed financial information with respect to these reportable business segments for the three months ended July 31, 2013 and 2012 is as follows:
 
   
Chinese Medicines
    
Stevioside
    
Corporate and Other
    
Consolidated
  
(Unaudited)
  
2013
    
2012
    
2013
    
2012
    
2013
    
2012
    
2013
    
2012
  
Net revenues
  
$
571,560
    
$
755,472
    
$
2,145,346
    
$
2,492,155
    
$
-
    
$
-
    
$
2,716,906
    
$
3,247,627
  
Interest income (expense)
  
$
144
    
$
-
    
$
(15,532
 )   
$
4,019
    
$
-
    
$
1,718
    
$
(15,388
 )   
$
5,737
  
Depreciation and amortization
  
$
-
    
$
19,676
    
$
545,665
    
$
392,646
    
$
-
    
$
-
    
$
545,665
    
$
412,322
  
(Loss) income before taxes
  
$
(8,858
)
  
$
(84,126
)
  
$
(623,506
)
  
$
(148,237
)
  
$
46,990
    
$
(637,820)
    
$
(585,374
)
  
$
(870,183
)
Segment assets
  
$
3,012,487
    
$
3,797,123
    
$
27,502,188
    
$
26,622,581
    
$
99,413
    
$
229,078
    
$
30,614,088
    
$
30,648,782
  


 
- 14 -
 
SUNWIN STEVIA INTERNATIONAL, INC. AND SUBSIDIARIES
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
July 31, 2013
 


NOTE 14 - 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 in October, 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. After October 1, 2012 Pharmaceutical Corporation agreed to waive the lease payments.

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 were expected to be delivered by December 30, 2012. As of April 30, 2013, we did not receive the deed and other legal documents for the apartment. ; the apartment units are expected to be delivered by December 31, 2013. 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 July 31, 2013 and April 30, 2013, we classified investment in real estate held for resale as a long-term asset since we do not plan on selling the apartment units within one year. As of July 31, 2013 and April 30, 2013, investment in real estate held for resale amounted to $1,959,120 and $1,947,042, respectively.

NOTE 15 - CONCENTRATIONS AND CREDIT RISK
 
(i)    Customer Concentrations
 
The top customer concentrations, which the sales income is over 5% of total sales for the three months ended July 31, 2013 and 2012 are as follows:
 
   
Net Sales
  
   
For the three months ended July 31, 2013
    
For the three months ended July 31, 2012
  
   
Chinese Medicine
    
Stevioside
    
Chinese Medicine
    
Stevioside
  
Qufu Shengwang Import and Export Trade Co., Ltd (1)
    
-
      
53.3
%
    
-
      
43.4
%
                                 
Qingdao RuiChi Medicine Industry Limited Company
    
-
      
5.8
%
    
-
      
10.1
 %
Guangdong Tengjun Veterinary Medicine Co., Ltd
    
11.7
%
    
-
      
16.7
 %
    
-
  
Shanxi Henfeng Animal Medicine Co., Ltd
    
9.4
%
    
-
      
-
      
-
  
Total
    
21.1
%
    
59.1
%
    
16.7
%
    
53.5
%
 
 
(1)
Qufu Shengwang Import and Export Trade Co., Ltd is a related party, a Chinese entity owned by our Chairman, Mr. Laiwang Zhang.

 
- 15 -
 
SUNWIN STEVIA INTERNATIONAL, INC. AND SUBSIDIARIES
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
July 31, 2013
 
 
(ii)    Vendor Concentrations

The top vendor concentrations, which the purchase from those vendor is over 5% of total cost of goods sold, for the three months ended July 31, 2013 and 2012 are as follows:
 
   
Net Purchases
  
   
For the three months ended July 31, 2013
    
For the three months ended July 31, 2012
  
   
Chinese Medicine
    
Stevioside
    
Chinese Medicine
    
Stevioside
  
Shandong Heze Zhongshun Pharmaceutical Co., Ltd
    
17.2
%
    
-
      
49.3
%
    
-
  
Bozhou Weitao Pharmaceutical Co., Ltd
    
15.5
%
    
-
      
15.5
%
    
-
  
Qufu Longheng Materials Co., Ltd
    
21.6
%
    
-
      
35.2
%
    
-
  
Jiuquan Jiale Biotech Co., Ltd
    
-
         -      
-
      
28.3
%
Gansu Fanzhi Biology Techonology Co.,Ltd
    
23.1
%
       -         -         -  
Sichuan Shifang Pukang Biology Co., Ltd
    
5.7
%
       -         -         -  
Zhucheng Haotian Pharmaceutical Co., Ltd
    
-
         -      
-
      
11.1
%
Gansu DunHuang Agriculture Products Co.,Ltd
       -      
15.1
%
       -         -  
Jiuquan Deyizhi Ecological Argriculture Co.,Ltd
       -      
12.9
%
       -         -  
Qingdao Runde Biological Technology Co.Ltd
       -      
8.2
%
       -         -  
Shandong Jinhuaxia Environment Engineering Co. Ltd.
       -      
26.2
%
       -         -  
Chuzhou Hairun Stevia Technology Co., Ltd
    
-
         -      
-
      
12.1
%
Qingdao Runhao Stevia Technology Co., Ltd
    
-
         -      
-
      
10.8
%
Total
    
83.1
%
    
62.4
%
    
100
%
    
62.3
%
 
(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, 2013, we had $423,022 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, 2013.
 
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 16 - SUBSEQUENT EVENTS

The Company has evaluated subsequent events from July 31, 2013 through the date whereupon the financial statements were issued and has determined that there are no items to disclose.
 

 
- 16 -
 


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 condensed consolidated financial statements and footnotes and our 2013 Annual Report on Form 10-K for fiscal year ended April 30, 2013.

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 2014 and 2013 our operations were organized in two operating segments related to our product lines:
 
  -  
Stevioside, and
  -  
Chinese Medicine.

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.  Based on our strategy to develop new products that contain our stevia products, we are evaluating our strategy for the sale and distribution of OnlySweet™.

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, which can be divided into the following three general categories:

 
-
  
single traditional Chinese medicine extracts;
 
-
  
compound traditional Chinese medicine extracts; and
 
-
  
purified extracts, including active parts and monomer compounds such as soy isoflavone.

OUR PERFORMANCE
 
 Our total revenues in the first quarter of fiscal 2014 decreased by 16.3%, from the same period in fiscal 2013, while our gross margin remained relatively constant at 20% in both periods. Our sales revenues, excluding revenues from related party, decreased by 29.6% in the first quarter of fiscal 2014 as compared to the same period in fiscal 2013. Revenues from related parties increased 13% in the first quarter of fiscal 2014 from the comparable period in fiscal 2013. Our operating expenses in the first quarter of fiscal 2014 decreased by 26.6% from the comparable period in 2013. Our net loss for the first quarter of fiscal 2014 was $585,000, as compared to $876,000 for the same period in fiscal 2013. 

Our operating performance for the three months ended July 31, 2013 was primarily driven by a continued decrease in sales revenue from lower volume of our lower and higher grades stevia products in our Stevioside segment and lower revenues in our Chinese medicine segment.
 
 
- 17 -
 


While we have broadened our stevia product offerings to include a number of higher quality stevia grades which are needed in new product formulations we are developing to introduce to the U.S. and European food and beverage market, the demand for higher grade stevia products has yet to materialize to the degree we had anticipated, and thus our sales volume in higher grade stevia products was lower than expected for fiscal 2013. The decline of revenue in Stevoside segment is primarily due to two factors. One is the highly competitive market. Stevia has been widely accepted by food industry and many new stevia manufacturers have entered this industry in the past few years, and the stevia market became more competitive, which caused a negative influence to our Stevoside segment. The other is we are currently in a transition phase, with our new product lines. We are now more focusing on new types of stevia products, including tablets, liquid, High A products, etc. This transition led to a lower production of our original products and also our revenue. That may affect our revenue in the following year as well.

 The decrease in revenues in our Chinese medicine was primarily due to the depressing market which was caused by the outbreak of a new strain of bird flu which was first reported in March 2013. Since 2012, the price of general raw material has kept an increasing trend; meanwhile, many animal epidemic diseases have been found in China, which higher both cost and risk of the livestock breeding industry. . Consequently, in China, many small livestock farms have been closed, and led to a decrease of Chinese Medicine's market demand.
 
RESULTS OF OPERATIONS

The following table summarizes our results from continuing operations for the three month periods ended July 31, 2013 and 2012: 
 
July 31, 2013
     
Chinese Medicine
    
Stevioside
    
Corporate and other
      
Consolidated
  
                                                         
Total revenues
  
$
571,560
      
100.0
%
  
$
2,145,346
      
100.0
%
  
$
 -    
$
2,716,906
      
100.0
%
Cost of revenues
    
386,883
      
67.7
%
    
1,879,809
      
87.6
%
     -      
2,266,692
      
83.4
%
Gross profit
    
184,677
      
32.3
%
    
265,537
      
12.4
%
    
-
      
450,214
      
16.6
%
                                                         
Total operating expenses
    
193,879
      
33.9
%
    
866,641
      
40.4
%
    
69,488
      
1,130,008
      
41.6
%
Other income(expenses)
    
344
      
0.1
%
    
(22,402)
      
-1.0
%
    
116,478
      
94,420
      
3.5
%
                                                         
Loss before income taxes
  
$
(8,858
)
    
-1.5
%
  
$
(623,506
)
    
-29.1
%
  
$
46,990
    
$
(585,374
)
    
-21.6
%

 
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 income taxes
  
$
(84,126
)
    
-11.1
%
  
$
(148,237
)
    
-6.0
%
  
$
(637,820
)
  
$
(870,183
)
    
-26.8
%


 
- 18 -
 

Revenues

Total revenues in the first quarter of fiscal 2014 decreased 16.3% as compared to the same period in fiscal 2013. Stevioside revenues, which comprised 79.0% and 76.7% of our revenues for the first quarter of fiscal 2014 and fiscal 2013, respectively, decreased by 13.9%, while revenues in our Chinese Medicine segment decreased by 24.3%. Within our Stevioside segment, revenues from sales to third parties decreased by 32.3% in the first quarter of fiscal 2014 from the first quarter of fiscal 2013, while revenues from sales to a related party increased by 13.1% in the comparable period. The increase of sales to related party is primarily due to the expand of our international business. Since we do not have the authorization to export products from China, we outsourced all of our exporting business to our certified related party Qufu Shengwang Import and Export Corporation. We did not have any sales to related parties in our Chinese medicine segment in either period.

  The decline of revenues in Stevoside segment is primarily due to two factors. One is the highly competitive market which caused a negative influence to our Stevoside segment. The other is we are currently in a transition phase, with our new product line, we are now more focusing on new types of Stevia products, including tablets, liquid, and High A products. This transition led to a lower production of our original products and also our revenue. It may affect our revenue in the following year as well.

The decrease of sales in Chinese Medicine segment is primarily due to the depressing market. Since 2012, the price of general raw material has kept an increasing trend; meanwhile, many animal epidemic diseases have been found in China, which increased both the cost and risk of livestock breeding industry. Consequently, in China, many small livestock farms have been closed, and led to a decrease of Chinese Medicine's market demand, the related industries have been shrinking in the past few months.
 
Cost of Revenues and Gross Margin

 The consolidated gross margin remained relatively constant between periods at approximately 20%. Gross margin on Stevioside segment decreased during the first quarter of fiscal 2014 to 12.4%, compared to 19.1% for the same period in fiscal 2013. The decrease was primarily due to the decrease of approximately 5% in the sales prices. The Chinese medicine gross margin increased to 32.3% in the first quarter of fiscal 2014, compared to 24.1% for the same period in fiscal 2013, primarily due to a 32.6% decrease in cost of revenues. 

Total Operating Expenses

Total operating expenses for the first quarter of fiscal 2014 decreased by 26.6% from the comparable period in 2013. The decrease was primarily due to a decrease of $570,000 of expenses for corporate consulting services during the first quarter of fiscal 2014, a decrease of $15,000 in sales commissions, a decreased of $70,000 in marketing and sales meeting expenses, an increased by $298,000 in bad debt expense and a decreased of $247,000 in management fees, offset by an increase of $38,000 in shipping and freight fees. Selling expenses as a percentage of revenues was 10.4% in the first quarter of fiscal 2014 as compared to 9.2% in the first quarter of fiscal 2013. The general and administrative expense as a percentage of revenue was 31.2% in the first quarter of fiscal 2014 as compared to 38.2% in the first quarter of fiscal 2013.

 Other Income (Expenses)

For the three months ended July 31, 2013, other income amounted to approximately more than $94,000 as compared to other income of $12,000 for the same period ended July 31, 2012, an increase of $82,000. The increase was primarily attributable to repayment for the export case settlement, offset by the increased interest expense. In March 18, 2013 we borrowed $809,822 (RMB5,000,000) from a commercial bank under a loan due in March 2014. We used the proceeds for our working capital.

Net Loss

Net loss from operations in the first quarter of fiscal 2014 was $585,000, compared to $876,000 in the same period in fiscal 2013. The decrease in net loss was primarily due to decrease in operating expenses.

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 2014 and beyond, we will continue to focus on our core business of producing and selling stevioside series products.

Meanwhile, we are also facing challenges in competitive pricing and raw materials for fiscal 2014. During fiscal 2013, the market prices of stevioside series were impacted by strong price competition among Chinese manufacturers. We expect the price pressure to continue in 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 2013.


 
- 19 -
 
 
LIQUIDITY AND CAPITAL RESOURCES

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

At July 31, 2013, we had working capital of $4.9 million, including cash of $0.4 million, as compared to working capital of $5.0 million and cash of $0.5 million at April 30, 2013. The approximate 18.0% decline in our cash at July 31, 2013 from April 30, 2013 is primarily attributable to funds advanced to a related party as well as funds advanced to the suppliers for the inventories that had not shipped to us and services that had not provided to us. We believe that our existing cash and cash equivalents and internally generated funds will be sufficient to cover working capital requirements and capital expenditures for the fiscal year.       

Accounts receivable, net of allowance for doubtful accounts, including accounts receivable from related parties, decreased by approximately $317,000 during the three months ended July 31, 2013. The days’ sales outstanding in accounts receivable increased to 80 days as of July 31, 2013, as compared to 63 days as of April 30, 2013.

At July 31, 2013 inventories, net of reserve for obsolescence, totaled $5.0 million, as compared to $4.9 million as of April 30, 2013. The increase is primarily due to increase of finished goods inventory and an increase in raw materials inventory in our stevioside business as we adjusted our production levels in anticipation of higher overseas and domestic demand in fiscal year 2014.
 
At July 31, 2013, we reported $313,606 of due from Qufu Shengwang Import and Export Corporation, our related party, for working capital purpose. At April 30, 2013, we owed Qufu Shengwang Import and Export Corporation $64,386 and $19,716 to Pharmaceutical Corporation for working capital purpose. We also owed Pharmaceutical Corporation $90,302 for salaries and benefit expenses for management during fiscal 2013. These fees are for the administrative management of our operations and include compensation payable to certain of our employees.

Our accounts payable and accrued expenses were less than $3.9 million at July 31, 2013, an increase of $268,000 from April 30, 2013. The balance was primarily due 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 PROVIDED BY (USED IN) OPERATING ACTIVITIES:

Net cash provided by operating activities was approximately $63,000 during the first quarter of fiscal 2014, as compared to net cash used in operating activities of $757,000 during the same period in fiscal 2013. The increase resulting from cash provided by operating activities was due primarily to $245,000 increase in accounts payable and accrued expenses, depreciation expense of $450,000, allowance of doubtful accounts of $150,000 offset by net loss of $585,000, $232,000 increase in prepaid expenses and other current assets related to advance payments for stevia raw materials.

NET CASH FLOW PROVIDED BY (USED IN) INVESTING ACTIVITIES:

Net cash provided by investing activities amounted to $19,000 during the first quarter of fiscal 2014, as compared to net cash used in $723,000 for the same period in fiscal 2013. This was primarily due to $35,000 proceeds from loan offset by $16,500 capital expenditures for property and equipment.

NET CASH FLOW USED IN FINANCING ACTIVITIES:

Net cash used in financing activities amounted to less than $175,400 during the first quarter of fiscal 2014, which represented repayments of advances from related party, as compared to less than $13,000 for the same period in fiscal 2013.

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, 2013.

 
- 20 -
 


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, 2013
  
April 30, 2013
  
   
(Unaudited)
        
China
$
423,022
  
$
516,071
  
United States
  
799
    
1,035
  
Total
$
423,821
  
$
517,106
  

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.
 

 
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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.

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, 2013.  

Based on this evaluation our management concluded that our disclosure controls and procedures were effective as of July 31, 2013 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, 2013 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.

 
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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 2013 Annual Report on Form 10-K.

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

None.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4.  MINE SAFETY DISCLOSURE.
 
None.
 
ITEM 5.  OTHER INFORMATION.

At July 31, 2013, we reported $313,606 of due from Qufu Shengwang Import and Export Corporation, our related party for working capital purpose.
 
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).

 
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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).
 
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).

 
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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).
  
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).
 
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”.


 
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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, 2013
By: /s/ Dongdong Lin
 
Dongdong Lin,
 
Chief Executive Officer
   
   
Dated: September 12, 2013
By: /s/ Fanjun Wu 
 
Fanjun Wu, 
 
Chief Financial Officer 



 
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