Attached files

file filename
EX-32.1 - SECTION 906 CERTIFICATE OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER - SUNWIN STEVIA INTERNATIONAL, INC.exh32-1.htm
EX-31.2 - SECTION 302 CERTIFICATE OF CHIEF FINANCIAL OFFICER - SUNWIN STEVIA INTERNATIONAL, INC.exh31-2.htm
EX-31.1 - SECTION 302 CERTIFICATE OF THE CHIEF EXECUTIVE OFFICER - SUNWIN STEVIA INTERNATIONAL, INC.exh31-1.htm
EX-21.1 - SUBSIDIARIES OF THE REGISTRANT - SUNWIN STEVIA INTERNATIONAL, INC.exh21-1.htm


 UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K
 (Mark One)
 
[ü
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the year ended April 30, 2014

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)

 Securities registered under Section 12(b) of the Act:

Title of each class
 
Name of each exchange on which registered
None
 
Not applicable

Securities Registered Under Section 12(g) of the Act:

Common stock, par value $0.001
(Title of class)
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. [  ]Yes [ ü ]No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. [  ]Yes  [ü ]No

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 [ü] 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 [ü] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  Yes [ü] 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 [ü]

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

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked prices of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter. The aggregate market value on October 31, 2013 was $15,215,567.

Indicate the number of shares outstanding of each of the issuer's classes of common equity as of the latest practicable date: As of July 28, 2014 there were 173,882,803 shares of the registrant's common stock issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

List hereunder the following documents if incorporated by reference and the Part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is incorporated: (1) Any annual report to security holders; (2) Any proxy or information statement; and (3) Any prospectus filed pursuant to Rule 424(b) or (c) under the Securities Act of 1933.  The listed documents should be clearly described for identification purposes (e.g., annual report to security holders for fiscal year ended December 24, 1980).  None.


 
 

 

TABLE OF CONTENTS
       
Page No.
Part I
       
Item 1.
 
Business.
 
1
Item 1A.
 
Risk Factors
 
10
Item 1B.
 
Unresolved Staff Comments.
 
17
Item 2.
 
Properties.
 
17
Item 3.
 
Legal Proceedings.
 
17
Item 4.
 
Mine Safety Disclosures.
 
17
         
Part II
       
Item 5.
 
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
 
18
Item 6.
 
Selected Financial Data.
 
18
Item 7.
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
18
Item 7A.
 
Quantitative and Qualitative Disclosures About Market Risk.
 
25
Item 8.
 
Financial Statements and Supplementary Data.
 
25
Item 9.
 
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
 
25
Item 9A.
 
Controls and Procedures.
 
26
Item 9B.
 
Other Information.
 
26
         
Part III
       
Item 10.
 
Directors, Executive Officers and Corporate Governance.
 
27
Item 11.
 
Executive Compensation.
 
29
Item 12.
 
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
 
32
Item 13.
 
Certain Relationships and Related Transactions, and Director Independence.
 
33
Item 14.
 
Principal Accountant Fees and Services.
 
34
 
Part IV
       
Item 15.
 
Exhibits, Financial Statement Schedules.
 
35
   
Signatures
 
38


 
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" appearing later in this report:

 
-
 
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

Our fiscal year end is April 30. The fiscal year ended April 30, 2013 is referred to as “fiscal 2013”, the fiscal year ended April 30, 2014 is referred to as “fiscal 2014”, and the coming fiscal year ending April 30, 2015 is referred to as “fiscal 2015.”

  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, 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 parties:
 
-
 
“Pharmaceutical Corporation” refers to Shandong Shengwang Pharmaceutical Co., Ltd., a Chinese limited liability company which is controlled by Mr. Laiwang Zhang,  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, 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

ITEM 1.
BUSINESS

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.

During fiscal 2014 and 2013, our operations were organized into two operating segments related to our product lines:

 
-
 
Stevioside, and
 
-
 
Chinese medicines.

STEVIOSIDE - A NATURAL SWEETENER

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. In fiscal years 2014 and 2013, our Stevioside segment generated revenues of $10.4 million and $7.2 million, representing 81% and 73% of our total consolidated revenues, respectively.

The steviol glycosides are extracted from the leaves of the stevia rebaudiana plant of the Aster/Chrysanthemum family. The sweetness of the stevia leaves is caused by eight glycosides contained within the leaves including stevioside, rebaudioside A, C, D, E and F, steviolbioside and dulcoside A. Stevioside is the most abundant of these components and the main cause for the sweetness of the stevia leaves. Stevioside, rebaudiosides A and C as well as dulcoside A are known as the four most important steviol glycosides. Rebaudioside A is the sweetest and least bitter ingredient among the four. The higher purity of rebaudioside A brings better sensory attributes of the sweetener products.

The leaves of the stevia rebaudiana plant have been used for centuries to sweeten bitter beverages and to make tea in the plant’s native Paraguay. Stevia is grown commercially in Brazil, Paraguay, Uruguay, Central America, Israel, Thailand and China. The stevia rebaudiana plant was first introduced to China in 1977 and commercial harvesting of stevia started in the mid-1980’s. There are two major species of stevia grown in China; one was cultivated by Chinese researchers and another was introduced from Japan. Most stevioside produced in China is exported throughout Asia, primarily to Japan and South Korea meanwhile Chinese domestic market demand is also gradually building up in recent years.

Worldwide use of Stevioside and Related Approvals

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 man-made chemical based sweetener replacements are not suitable. Stevioside may be used in a wide variety of consumer products including soft drinks, vegetable products, tabletop sweeteners, confectioneries, fruit products and processed seafood products in the United States, Japan, Korea, China, Taiwan, India, Indonesia, Israel, Germany, France, Brazil, Paraguay, Malaysia, Russia, Switzerland Australia and New Zealand. 

We believe worldwide demand for alternative sweeteners, such as our stevia based products, will increase as more countries permit the use of stevioside as a food additive. Stevioside has been sanctioned by the Ministry of Health of China to be used as a food additive, and is listed in the Sanitation Standard of Food Additives.

The ongoing advocacy to eliminate the European Union's (EU) ban on the consumption of stevia was confirmed by the European Commission in November 2011. The European Stevia Research Center and the European Stevia Association are EU based organizations that focus on stevioside research and the elimination of the EU’s ban on the consumption of stevioside.  These organizations have determined that stevia is safe for use in foods.  In addition, in June 2007, the Joint Expert Committee on Food Additives concluded that steviol glycoside showed no adverse affects and was stable for use in food and acidic beverages under normal conditions and in June 2008 extended its recommendation for acceptable daily intake of up to 4 mg per kg body weight per day. 

 
- 1 -

 


In April 2010, at the request from the European Commission, the European Food Safety Authority’s scientific Panel on additives known as the ANS Panel assessed the safety of steviol glycosides, sweeteners extracted from plant leaves, and established an acceptable daily intake for their safe use. This assessment is being considered by the European Commission in deciding whether or not to authorize the substances in the EU for their proposed use, particularly in sugar free or reduced energy foods such as certain flavored drinks, confectionery with no added sugar or energy reduced soups. The toxicological testing conducted by the ANS Panel showed that the stevia based substances are neither genotoxic nor carcinogenic, nor are they linked to any adverse effects on the human reproductive system or for the developing child. The ANS Panel set an acceptable daily intake of 4 mg per kg body weight per day for steviol glycosides, a level consistent with that already established by the Joint Expert Committee on Food Additives.

In July 2011, the EU Standing Committee on Food Chain and Animal Health announced that steviol glucoside derived from the stevia plant was safe for use in food ingredients throughout the 27 counties of the EU.  In November 2011, the European Commission formally authorized the use of steviol glucoside derived from the stevia plant as a non-caloric sweetener for EU-wide use.

On March 23, 2010, we received a “no objection letter” from the U.S. Food and Drug Administration (“FDA”) regarding our request for FDA Generally Recognized As Safe (GRAS) status on five of our stevia extract products, including Rebaudioside A 98, Rebaudioside A 95, Rebaudioside A 80, Rebaudioside A 60, and Stevioside 90 Stevia Extracts. The FDA affirmed GRAS status confirms that these stevia extracts are considered safe for use as a general purpose sweetener in foods, excluding meat and poultry products. This affirmation was based on our conclusion which is supported by the extensive independent review of our production processes and the overall quality of these stevia products by a panel of qualified scientists.

In furtherance of our efforts to move toward production of organic, all natural and low calorie products and to enhance our international position and market penetration as a stevia producer along with our distribution partners around the world, we underwent an extensive audit in 2011 by CERES GmbH, an international organization that specializes in inspection and certification in the areas of organic farming and food processing. Upon completion of their audit in November 2011, CERES GmbH notified us that our stevia extracts production process had been certified organic and free of synthetic chemical inputs and uses clean and sanitized procedures that avoid chemical contamination under standards established by the USDA National Organic Program and European Commission (EC) 834/2007 and EC 889/2008.

Steviosin

Steviosin is a natural low calorie stevia extract for medicinal use, containing stevioside 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

OnlySweet is an all natural, zero calorie, tabletop sweetener comprised of three natural ingredients, including stevioside. In June 2008 we began production of a new blend of OnlySweet increasing its sweetness. We believe this new OnlySweet formulation represented a significant advancement in quality resulting in a sweeter and more natural taste compared to other manufacturers of stevioside based sweeteners. We believe consumers are attracted to these improvements in taste, absence of aftertaste and overall mouth feel of this new blend of OnlySweet. OnlySweet is manufactured in the United States at an FDA approved blending facility.

In March 2014, we entered an exclusively 5-year distribution agreement with Qingdao Dongfang Tongxiang International Trading Co., Ltd, and authorized them to use the trademark “OnlySweet” to sell the Company’s Stevia products.

Our Customers

The majority of our stevioside is sold on a wholesale basis to domestic food and drug manufacturers and ingredient distributor foreign trade companies. Our top 10 customers accounted for 60.3% of our sales in the Stevioside segment in fiscal 2014. Our biggest customers Qufu Shengwang Import and Export Trade Co., Ltd. accounted for 28.8% of our stevioside sales in fiscal 2014. We do not have long term supply agreements with our customers and sales are generally made under a purchase order arrangement. The payment terms are generally 60 to 90 days after receipt of products.  We control the default risk by conducting due diligence on the customers’ credit record before acceptance of a purchase order.

 
- 2 -

 


Sources and Availability of Raw Materials - Stevioside

The Shandong Province is a primary harvesting base of stevia leaves as well as the main region for the production of stevioside in China. We purchase all raw materials directly from local suppliers at market prices and pay for the leaves at the time of purchase. We test stevia leaves prior to purchase in an effort to maintain quality control. Our internal policy is to purchase leaves with stevioside content in excess of 9%.

Manufacturing, Extraction and Packaging

We have been engaged in the continuous production of stevioside since 1998. We use a traditional extraction technology process known as “aqueous extraction” which involves the use of purified water extraction and air dehydration to produce stevioside. The extraction process for stevioside generally takes seven days. The plant leaves are first dried and then inspected to insure quality leaves are used in the extraction process. We then use a combined process involving a solid/liquid extraction procedure, followed by a liquid-purifying step that is traditionally used to extract the stevioside from the stevia leaves. This all natural method results in a pure white stevia crystal, with no brownish coloring. Once the extraction process has been completed, the final product is ready for packaging and shipment to our customers. We bulk package our stevioside in 10 kilogram packages, two per box.

In July 2008, our stevioside manufacturing facility located in the Shuyuan Economic Zone of Qufu City, of the Shandong Province received a Certificate of Good Manufacturing Practices (GMP) from the PRC.  

In early 2011, our stevia production facility operated by Qufu Shengren received ISO 22000 and ISO 9001:2008 integrated process and systems certifications, in addition to HACCP (Hazard Analysis and Critical Control Points) certification from SGS S.A. and its country head offices in UK and China for this facility. SGS is one of the world’s leading inspection, verification, testing and certification companies.

The ISO certifications cover all of the processes throughout the production cycle that deal directly or indirectly with the end product being consumed and quality management principles.  These certifications together with our comprehensive management system demonstrate the safety of our stevia products and our compliance with the requirements for food safety management systems by incorporating all the elements of GMP and HACCP.   HACCP Certification is an international principle defining the requirements for effective control of food safety.  HACCP compliance and certification demonstrates our focus on the hazards that affect food safety and hygiene and systematic identification of such by setting up control limits at critical points during the food production process.  By achieving these high level certifications, we have further demonstrated our commitment to quality, safety and continuous improvement.

In December 2012, Qufu Shengren finished the construction of a new stevia extraction line in the same location of its current stevioside manufacturing facility. This line facility applies a new stevia extraction technology to produce both high and low grade stevioside. The annual production capacity of this line facility is 500 metric tons including 300 metric tons of high purity rebaudioside A products and 200 metric tons of low purity Rebaudioside A product.

Since January 2014, our facilities have the capability of producing A3-99 stevia products, which is the highest quality stevioside extracts produced in the world and are used in the pharmaceutical and food industries. We generated $937,825 revenue  from producing over 10.6 tons of A3-99 in fiscal 2014.

Since fiscal 2014, our facilities have the capability of producing Enzyme treated stevia, which is one of the most advanced types of steviosides produced in the world for use in the food and beverage industries. We generated $205,458 revenue from producing over 3.6 tons of Enzyme treated stevia in fiscal 2014.

We set our production schedules based on the market demand and our capacity. Our total stevioside production capacity is approximately 800 metric tons annually which we believe is sufficient to meet demand.  In fiscal 2014, we manufactured approximately 311 metric tons of stevioside, an increase of 79 metric tons from the prior year, to better supply the market demand.


 
- 3 -

 

CHINESE MEDICINE SEGMENT

In our Chinese medicine segment, we manufacture and sell traditional Chinese medicine formula extracts which are used in products made for use by both humans and animals. In fiscal 2014 and 2013, this segment generated revenues of $2.4 million and $2.6 million, representing 19% and 27% of our total consolidated revenues, respectively.

Chinese herbal medicine has been applied as a means of both the prevention and treatment of illness and disease. We believe many modern chemical medicines contain high toxicities and present numerous side effects. Purely chemical based medicines are difficult, time consuming and expensive to develop. We believe natural Chinese traditional medicines represent an alternative approach offering advantages over a variety of chemical medicines and the process of combining herbal extraction and chemical medicines is becoming a popular alternative, following the current trends of “natural” and “green” products in a variety of industries.

We manufactured and sold approximately 204 different extracts in fiscal 2014, compared to 189 different extracts in fiscal 2013. These extracts, 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 Customers

We sell our traditional Chinese medicine formula extracts on a wholesale basis to domestic traditional Chinese medicine manufacturers and animal pharmaceutical manufacturers primarily located in China. In both fiscal years 2014 and 2013, no single customer represented more than 10% of our total revenues from this segment. We do not have contracts with our customers and sales are made under a purchase order arrangement. We deliver upon the acceptance of a purchase order with no deposit required. The payment terms are generally 60 to 90 days after receipt of products. We control the default risk by conducting due diligence on the customers’ credit record before acceptance of a purchase order.

Sources and Availability of Raw Materials – Chinese Medicines

We purchase raw materials for our traditional Chinese medicine formula extracts on the open market at market prices.  The prices of raw materials for Chinese medicines fell back to and steadily stay on the downward track since fiscal 2012 due to effective measures by Chinese governments to tame speculations on raw materials and the increase of market supply from harvest season.

In fiscal 2014, our top five suppliers represented approximately 51.2% of our purchases of raw materials used in our Chinese medicine segment, including Shandong Heze Zhongshun Pharmaceutical Co., Ltd., Gansu Fanzhi Bio Tech Co., Ltd and Qufu Longheng Fuel Material Co., Ltd. respectively accounting for 10.1%, 11.4% and 14.2% of our total supply purchase. In fiscal 2013, our top five suppliers represented approximately 48.78% of our purchases of raw materials used in our Chinese medicine segment, including Shandong Heze Zhongshun Pharmaceutical Co., Ltd. and Qufu Longheng Fuel Material Co., Ltd. respectively accounting for 16.63% and 14.87%.

Formulation, Manufacturing and Packaging

The extract formulas used in our manufacturing are either commonly used formulas published in the National Medicine Dictionary or industry standard formulas which may have been developed by university research scientists or internally developed by our research and development personnel. Internally developed formulas must be approved by the Shandong Bureau of Quality and Technical Supervision prior to public use. 

NEW PRODUCT DEVELOPMENT

    We engage in new product development both through our internal research facilities, industry consultants and specialists to provide research and development for the planting of stevia plants, for the development of biological methods to improve lower-grade stevia product to higher grade stevia, and applying biological method to change the taste of stevia to meet market demand.  In partnership with a number of research facilities in the PRC including:

 
- 4 -

 


 
-
 
Tianfulai Bio-Tech Technology Co., Ltd. (Beijing), where we are seeking to develop the traditional Chinese medicine polysaccharide anthone extract powder for forage;
 
-
 
Beijing Medical University and China Agriculture University; and
  -   Shandong Chinese Medicine University.

We pay for the use of these facilities on an as needed basis and the costs are included in our research and development expenses. In fiscal 2014 and fiscal 2013 we spent $1.5 million and $0.1 million, respectively, on research and development.  

In addition, as part of WILD Flavors’ investment in our company, WILD Flavors provided product development services as part of a broader services agreement with Sunwin USA LLC as discussed later in this section. 

In fiscal 2014, we launched a new product line which help us to provide RA 99 products and enzyme treated stevia products, which is well accepted in the food and medicine industry.

In fiscal 2014, we transferred $1.4 million inventory to Shandong Chinese Medicine University for the research collaboration project with Professor Jingzhen Tian, the project is named “development and research on new kinds of stevia for pharmaceutical use”, and this project is related to total grant we received in January 2014 of approximately $1,146,921 (RMB7,000,000).

Competition

Our subsidiaries and the business segments operate with unique challenges and extensive competition.

Stevioside.  There are approximately 30 stevioside manufacturers operating on a continuing basis in China. Our primary competitors in the stevioside market are Ganzhou Julong High Technology Food Industry Co., Ltd., GLG Live Tech Corp. and PureCircle Limited. While these competitors have production capacity similar to ours, we believe we are able to compete effectively with them based on our production capabilities and product quality. In addition, other companies periodically enter the market depending upon demand. These intermittent producers may choose to stop production when raw materials are not readily available in the marketplace. The sporadic oversupply of product from these competitors can adversely affect our market share. Furthermore, if demand wanes these competitors may reduce the price of their products, which can adversely affect market prices. In addition to competing with other Chinese companies, we also compete with foreign growers and processors.

We are one of the few steviosin manufacturers that are GMP certified and granted with drug approval number. We believe that the combination of eligibility to supply pharmaceutical ingredients and capability for stevia extraction provides us with a competitive advantage compared to our competitors, most of whom are either not eligible to supply pharmaceutical ingredients or not experienced in large-scale stevia extraction.

Chinese medicine.  The market in the PRC for traditional Chinese medicine extracts is extremely competitive. We believe there are more than 500 companies engaged in herb extraction in the PRC. Companies in many different industries, including pharmaceutical companies, chemical companies, health products companies, herb extraction companies, biological engineering companies and research and development institutions, are now engaged in herb extraction. Our major competitors include Anhui Xuancheng Baicao Plants Industry & Trade Co., Ltd., Sichuan Shifangkangyuan Medicine Materials Co., Ltd. and Lanzhou Lantai Bio-Engineering Tech Co., Ltd. Most products from these companies are exported to overseas markets. Competitive factors primarily include price and quality. We believe our ability to compete is related to our product quality and reputation in the market place. Globally, we believe we will be able to effectively compete against similar companies from other countries as a result of our lower labor costs and China’s soil and growing conditions, which enable us to produce higher quality products.

WILD Flavors and Sunwin USA

On February 5, 2009, we entered into a securities purchase agreement with WILD Flavors to purchase 20,000,000 shares of our common stock at $0.15 per share together with five year warrants to purchase 26,666,666 shares of our common stock with an exercise price of $0.35 per share.  In connection with the securities purchase agreement we paid fees of $100,000 in cash and 1,000,000 shares of our common stock and paid legal fees of $10,000.   We used the net proceeds from this transaction for expansion of our production facilities in China and general corporate purposes. In February 2014, the warrants expired were cancelled.

 
- 5 -

 


Pursuant to the terms of the securities purchase agreement, we converted our Sunwin Stevia International subsidiary into a limited liability company called Sunwin USA. In exchange for our contribution of Sunwin Stevia International‘s capital, we received 5,500 membership units in Sunwin USA, representing a 55% interest after giving effect to the issuance of 4,500 membership units to WILD Flavors. In addition, WILD Flavors provided sales, marketing, logistics and supply chain management, product development and regulatory services to Sunwin USA over a period of two years beginning on February 5, 2009. We valued the services at $1,000,000 over the two year period.  WILD Flavors agreed to act as the sole manager of Sunwin USA and is responsible for all of its business and affairs. WILD Flavors has the right of first refusal to purchase additional membership units in Sunwin USA at $222.22 per unit to provide any additional capital required by Sunwin USA as mutually determined by us and WILD Flavors.

Under the terms of the securities purchase agreement, WILD Flavors had the option to exchange its 45% interest in Sunwin USA into 6,666,666 shares of our common stock at any time until December 31, 2010.  This exchange option expired unexercised. WILD Flavors is also entitled to a bonus option which would entitle it to receive the greater of:

•           6% of the issued and outstanding membership units of Sunwin USA or
•           the number of membership units of Sunwin USA necessary to increase WILD Flavor’s ownership interest to 51% if Sunwin USA achieved cumulative pre-tax profits of $3,000,000 on or before December 31, 2011 computed in accordance with U.S. GAAP exclusive of the cost of product liability insurance.

The bonus option expired unexercised as the threshold profit criteria was not reached.

On February 5, 2009 as part of the transactions we entered into a distributorship agreement with WILD Flavors for the worldwide distribution of our stevioside products. The distributorship agreement is for an initial term of 60 months with automatic renewal terms of 12 successive 36 month renewal periods.

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.

 
- 6 -

 


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.

INTELLECTUAL PROPERTY

Our success depends in part on our ability to protect our intellectual property which includes various raw materials purification technologies used in our products. We have received a trademark from the U.S. Patent and Trademark Office covering the trade name “Only Sweet”, which we are using for the North American distribution of our stevia based tabletop sweetener product.

To protect our proprietary rights outside the PRC we generally rely on confidentiality agreements with employees and third parties, and agreements with consultants, vendors and customers, although we have not signed such agreements in every case. We do not have any similar agreements with any of our employees or consultants in the PRC. Despite such protections, a third party could, without authorization, utilize our propriety technologies without our consent. In the past three of our traditional Chinese medicine products have been copied by our competitors. We can give no assurance that our agreements with employees, consultants and others who participate in the production of our products will not be breached, or that we will have adequate remedies for any breach, or that our proprietary technologies will not otherwise become known or independently developed by competitors.

GOVERNMENT REGULATION

Our business and operations are primarily located in the PRC. We are subject to state and local environmental laws related to certification of water release. We are subject to registration and inspection by the State Food and Drug Administration of China (“SFDA”) with respect to the manufacturing and distribution of traditional Chinese medicine extracts and steviosides. In addition, we are licensed by the Shandong Provincial Government to manufacture stevioside. We believe we are in compliance with all provisions of those registrations, inspections and licenses and have no reason to believe that they will not be renewed as required by the applicable rules of the Central Government and the Shandong Province. In addition, our operations must conform to general governmental regulations and rules for private (non-state owned) companies doing business in China. 

The production, distribution and sale of our products in the United States is subject to various federal and state regulations, including but not limited to: the Federal Food, Drug and Cosmetic Act (“FDCA”); the Dietary Supplement Health and Education Act of 1994; the Occupational Safety and Health Act; various environmental statutes; and various other federal, state and local statutes and regulations applicable to the production, transportation, sale, safety, advertising, labeling and ingredients of such products.

Compliance with applicable federal and state regulations is essential to our business. Although we believe that we are in compliance with applicable regulations, should the FDA or any state in which we operate amend its guidelines or impose more stringent interpretations of current laws or regulations, we may not be able to comply with these new guidelines. Such regulations could require the reformulation of certain products to meet new standards, market withdrawal or discontinuation of certain products we are unable to reformulate, imposition of additional record keeping requirements, expanded documentation regarding the properties of certain products, expanded or different labeling and/or additional scientific substantiation. Failure to comply with applicable requirements could result in sanctions being imposed on us or the manufacturers of any of our products, including but not limited to fines, injunctions, product recalls, seizures and criminal prosecution.

The FDCA generally regulates ingredients added to foods and requires that such ingredients making up a food product are themselves safe for their intended uses.  In this regard, when a company adds an ingredient to a food, the FDCA generally requires that the ingredient either be determined by the company to be generally regarded as safe by qualified experts or go through FDA’s review and approval process as a food additive.

 
- 7 -

 


PRC Legal System

Despite efforts to develop its legal system over the past several decades, including but not limited to legislation dealing with economic matters such as foreign investment, corporate organization and governance, commerce, taxation and trade, the PRC continues to lack a comprehensive system of laws. Further, the laws that do exist in the PRC are often vague, ambiguous and difficult to enforce, which could negatively affect our ability to do business in China and compete with other companies in our segments.

In September 2006, the Ministry of Commerce (“MOFCOM”) promulgated the Regulations on Foreign Investors' Mergers and Acquisitions of Domestic Enterprises (M&A Regulations) in an effort to better regulate foreign investment in China. The M&A Regulations were adopted in part as a needed codification of certain joint venture formation and operating practices, and also in response to the government's increasing concern about protecting domestic companies in perceived key industries and those associated with national security, as well as the outflow of well-known trademarks, including traditional Chinese brands.

As a U.S. based company doing business in China, we seek to comply with all PRC laws, rules and regulations and pronouncements, and endeavor to obtain all necessary approvals from applicable PRC regulatory agencies such as the MOFCOM, the State Assets Supervision and Administration Commission, the State Administration for Taxation, the State Administration for Industry and Commerce, the China Securities Regulatory Commission, and the State Administration of Foreign Exchange (“SAFE”).

Currency

 The value of the Renminbi (“RMB”), the main currency used in China, fluctuates and is affected by, among other things, changes in China’s political and economic conditions. The conversion of RMB into foreign currencies such as the U.S. dollar have generally been based on rates set by the People’s Bank of China, which are set daily based on the previous day’s interbank foreign exchange market rates and current exchange rates on the world financial markets.

OUR CORPORATE HISTORY

We were incorporated in Nevada in August 1987 under the name Network USA, Inc. for the purposes of completing a merger or other business combination with an operating entity.  From our inception through April 2002 we did not conduct business.  On April 9, 2002, we acquired 20% of One Genesis, Inc., a privately-held Texas real estate corporation, from one of our then principal stockholders in exchange for approximately 4,333,332 shares of our common stock. The shares of One Genesis, Inc. were sold on July 31, 2002 for $120,000 in cash.

Effective on April 30, 2004, we acquired 100% of the issued and outstanding shares of Sunwin Tech from its stockholders in exchange for approximately 17,000,000 shares of our common stock which resulted in a change of control of our company. Sunwin Tech was organized in January 2004 before its acquisition of 80% of Qufu Natural Green. Prior to the acquisition of Qufu Natural Green, we did not have any business and operations. Concurrent with the closing of the acquisition of Qufu Natural Green, our officers and directors resigned and current officers and directors of Qufu Natural Green were appointed to their positions. In connection with the transaction, Sunwin Tech purchased 4,500,000 shares of our common stock owned by our former principal stockholders for $175,000, and, at the closing, Sunwin Tech distributed the 4,500,000 shares to Messrs. Baozhong Yuan, Laiwang Zhang, Xianfeng Kong and Lei Zhang, pro-rata to their ownership of Sunwin Tech immediately prior to the closing. Following the transactions, the former Sunwin Tech stockholders owned approximately 68 % of our issued and outstanding capital stock.

Prior to our acquisition of Sunwin Tech, effective February 1, 2004, Sunwin Tech acquired 80% of Qufu Natural Green from Pharmaceutical Corporation, a company controlled by Mr. Laiwang Zhang, our President and Chairman, in exchange for 32,500,000 shares of Sunwin Tech’s common stock. At the time of this merger the minority stockholders of Qufu Natural Green included Pharmaceutical Corporation (17%) and Shandong Group (2.5%), both of which are controlled by Mr. Laiwang Zhang, our President and Chairman. The remaining minority stockholder, Qufu Veterinary Medicine Company, Ltd. (0.5%) was controlled by a Chinese state owned agency.

In July 2004 following the transaction with Sunwin Tech, we changed the name of our company from Network USA, Inc. to Sunwin International Neutraceuticals, Inc.

 
- 8 -

 


Subsequent to the acquisition of 80% of Qufu Natural Green, Shandong Group acquired the 17% interest of Qufu Natural Green owned by Pharmaceutical Corporation, and ultimately the Shandong Group acquired the 0.5% Qufu Natural Green interest owned by Qufu Veterinary Medicine Company, Ltd., after it was dissolved. These events resulted in Shandong Group owning 20% of Qufu Natural Green.

In February 2006, we acquired the remaining 20% of Qufu Natural Green from Shandong Group in exchange for 5,000,000 shares of our common stock valued at $2,775,000. At the request of Mr. Zhang, the control person of Shandong Group, 2,000,000 shares were issued to Ms. Dongdong Lin, our Chief Executive Officer, and the remaining 3,000,000 shares were issued to Mr. Zhang. Of the total purchase price, approximately $179,994 was allocated to consulting expenses paid to Mr. Zhang and Ms. Lin as it represented the difference between the purchase price and the valuation of the minority interest purchased.
 
On June 30, 2008, Qufu Natural Green, agreed to acquire a 60% interest in Qufu Shengwang from Shandong Group for $7,016,200. This purchase price was based on 60% of the value of the net tangible assets of Qufu Shengwang as of April 30, 2008. Upon completion of the acquisition of Qufu Shengwang in June 2008, Shandong Group agreed to purchase 29,000,000 shares of our common stock at a price of $.25 per share.

On September 2, 2008, Qufu Natural Green amended its June 30, 2008 acquisition agreement with Qufu Shengwang and Shandong Group. Under the terms of the amendment, Qufu Natural Green agreed to acquire Shandong Group's 60% interest in Qufu Shengwang for $6,200,413. The purchase price was based on 60% of the revised value of the net tangible assets of Qufu Shengwang of $10,334,022 as of April 30, 2008. The net tangible assets of Qufu Shengwang were reduced from $11,693,666 to $10,334,022 as a result of the application of generally accepted accounting principles (“U.S. GAAP”) which require elimination of the difference between the fair market value and cost basis of the land use rights recorded by Qufu Shengwang upon completion of an audit of its financial statements as of April 30, 2008.

In addition, on September 2, 2008, we entered into an amendment to the June 30, 2008 stock sale and purchase agreement with Shandong Group to purchase 29,525,776 shares of the common Stock at $0.21 per share, representing approximately 34% of our issued and outstanding common stock. In addition, the amendment provided that in the event Qufu Shengwang did not earn a minimum of $5,000,000 in net income as determined in accordance with U.S. GAAP (the “Target Amount”) over a period of 36 consecutive months beginning the first day of the month following the closing (the “Earnings Target Period”), then Shandong Group was obligated to return to us a number of shares of our common stock equal to an amount computed by multiplying (i) a fraction, the numerator of which was the Target Amount less the amount of Qufu Shengwang’s net income earned over the Earnings Target Period and the denominator was the Target Amount; by 29,525,776, the number of shares purchase under the amendment. As set forth below, the provision for the possible return of shares to us was terminated in November 2008 a subsequent amendment to this amended agreement.

On November 18, 2008, Qufu Natural Green entered into a second amendment to the June 30, 2008 acquisition agreement with Qufu Shengwang and its shareholder, Shandong Group, to further reduce the purchase price for the acquisition of a 60% interest in Qufu Shengwang to $4,026,851. The revised purchase price represents 60% of the revised value of the net assets of Qufu Shengwang of $6,711,418 as of April 30, 2008.  The net assets of Qufu Shengwang were further revised to account for a $698,115 decrease in the value of inventory and a $2,924,489 decrease in the value of intangible assets as of April 30, 2008.

In addition, on November 18, 2008, we entered into a second amendment to the stock sale and purchase agreement to reduce the total number of shares of common stock to be purchased by Shandong Group from 29,525,776 shares to 19,175,480 shares at $0.21 per share. As a result of the second amendment, we cancelled 10,350,296 shares of our common stock issued to Shandong Group, reduced the amount due from Shandong Group by $2,173,562 reflecting the difference between the purchase price under the first amendment and the purchase price for the shares under the second amendment and eliminated the requirement for the earnings target amount provided for in the first amendment.  In satisfaction of this term, the purchase was completed by Shandong Group’s delivery of the 60% interest in Qufu Shengwang. The 19,175,480 shares of common stock purchased by Shandong Group represented approximately 22% of the issued and outstanding shares of our common stock prior to completion of the transaction.

On March 25, 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 PRC issued asset appraisal principles in China. Qufu Shengren is engaged in the production and distribution of bulk drugs and pharmaceuticals.
 
Upon completion of the acquisition of Qufu Shengren in March 2009, the shareholders of Qufu Shengren purchased 21,434,201 shares of our common stock at $0.145 per share representing approximately 14.4% of our issued and outstanding common stock at the time of the sale. In satisfaction of this term, the purchase was completed by delivery of the 100% interest in Qufu Shengren by its shareholders.

 
- 9 -

 


In July 2010 Qufu Natural Green sold its 100% ownership interest in Shengya Veterinary Medicine to Mr. Laiwang Zhang, our president and chairman of our board of directors.  Shengya Veterinary Medicine historically represented less than 20% of our total revenues and represented approximately 12% of our total revenues in fiscal 2010, compared to 16.7% in fiscal 2009.  Under the terms of the agreement, Mr. Zhang tendered to us for cancellation 7,818,545 shares of our common stock he owned, valued at $3,674,716, based on the closing stock price at July 31, 2010.  The carrying value of Shengya Veterinary Medicine’s net assets totaled $4,906,747 at July 31, 2010 and we recognized a foreign currency translation gain of $1,243,481 that had previously been reflected in accumulated other comprehensive income.  As a result, we booked a gain on sale of subsidiary of $11,450 in fiscal 2011.  

                  On September 30, 2011, Qufu Shengwang purchased the 40% equity interest in Qufu Shengwang owned by our Korean partners, Korea Stevia Company, Limited, for $626,125 in cash, and as a result of this repurchase transaction we now own 100% equity interest in all of the net assets of our subsidiary Qufu Shengwang. Therefore, the non-controlling interest of $2,109,028 in our balance sheet as of April 30, 2012 has been eliminated to reflect our 100% interest in Qufu Shengwang. Qufu Shengwang has resumed production in the last quarter of fiscal 2014 for the products including bio-fermentation bacterial fertilizers, foliar fertilizers, and biological pesticides.

In April 2012 we changed our corporate name to Sunwin Stevia International, Inc.

In August 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").

EMPLOYEES

As of July 9, 2014, we have 203 full time employees. All of our employees are primarily based in Qufu, China while some managerial and sales staff occasionally work in other Chinese cities or overseas on different projects. Each full-time Chinese employee is a member of a local trade union. Labor relations have remained positive and we have not had any employee strikes or major labor disputes. Unlike trade union in western countries, trade unions in most parts of China are organizations mobilized jointly by the government and the management of the corporation.

ITEM 1A.
RISK FACTORS

An investment in our common stock involves a significant degree of risk. You should not invest in our common stock unless you can afford to lose your entire investment. You should consider carefully the following risk factors and other information in this report before deciding to invest in our common stock.  If any of the following risks and uncertainties develops into actual events, our business, financial condition or results of operations could be materially adversely affected and you could lose your entire investment in our company.

RISKS RELATED TO OUR COMPANY

OUR FUTURE REVENUES DEPEND UPON CONTINUED MARKET ACCEPTANCE OF OUR STEVIOSIDE PRODUCTS AND APPLICATION OF STEVIOSIDE IN MAINSTREAM CONSUMER PRODUCTS.

    Currently we derive a majority of our revenue from the sale of stevioside and stevioside based products, and we expect this will continue for the foreseeable future.  If manufacturers and producers of products that use stevioside as a sweetener do not increase their purchases and the market does not continue to accept these products, our revenues will decline significantly, which would negatively affect our results of operations, financial condition and cash flows.

    Factors that may affect the market acceptance of our stevioside based sweetener products include the taste, price, availability of supply, competing products, the development of stevioside-based flavors, and its applications in mainstream consumer products. Many of these factors, especially research and development activities related to stevioside-based flavors and mainstream consumer products, are beyond our control.

 
- 10 -

 


EACH OF OUR TWO MAIN PRODUCT GROUPS OPERATES IN HIGHLY COMPETITIVE MARKETS WHERE THE BARRIER TO ENTRY IS LOW.

Each of our product groups is subject to competition from other manufacturers of those products and the barriers to entry in the markets in which we compete are relatively low. While we believe we are one of the leading manufacturers of stevioside in the PRC, from time to time there is a sporadic oversupply of this product which can decrease our market share and competitive position in this product group. Because there are no assurances we will be successful in this endeavor, we may never attain a competitive position in this product group. In addition, our competition within the traditional Chinese medicine formula extract portion of our business is the most intense. There are over 500 companies in China against whom we compete in the sale of traditional Chinese medicine formula extracts and the barriers to entry in this product segment are relatively low. If these other companies successfully market their products or market their products better than we market ours, we may have a difficult time marketing and selling our products. As a result, we cannot assure you that we will be able to effectively compete in any of our product segments.

WE ARE DEPENDENT ON OUR PRESIDENT AND THE LOSS OF HIS SERVICES COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

We are dependent upon the services of Mr. Laiwang Zhang, our president and chairman of the board of directors, for the continued growth and operation of our company because of his experience in the industry and his personal and business contacts in the PRC. We do not have an employment agreement with Mr. Zhang. We also have done business with several companies which are affiliated with Mr. Zhang as described later in this report under “Certain Relationships and Related Party Transactions.”  Although we have no reason to believe that Mr. Zhang would discontinue his services with us, the interruption or loss of his services would adversely affect our ability to effectively run our business and pursue our business strategy as well as our results of operations.

WE CANNOT CONTROL THE COST OF OUR RAW MATERIALS, WHICH MAY ADVERSELY IMPACT OUR PROFIT MARGIN AND FINANCIAL POSITION.

Our principal raw materials are stevia used to make stevioside and herbs used in the formulation of traditional Chinese medicine extracts. The prices for these raw materials are subject to market forces largely beyond our control, including availability and competition in the market place. The prices for these raw materials have varied significantly in the past and may vary significantly in the future. Our cost of sales as a percentage of revenues was 81% in fiscal 2014 and 79% in fiscal 2013, and we may experience significantly higher costs in the future. Because of increased competition in all of our business segments, we may not be able to pass along potential raw material price increases to our customers and, accordingly, our gross profit margins would be adversely impacted.

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.

We are subject to state and local environmental laws related to certification of water release. We are subject to registration and inspection under the PRC Food Safety Laws by the SFDA with respect to the manufacturing and distribution of traditional Chinese medicine extracts and steviosides. We are also licensed by the Shandong Provincial Government to manufacture stevioside. While we are in substantial compliance with all provisions of these laws, inspections and licenses and have no reason to believe that any licenses will not be renewed as required by the applicable rules of the PRC Central Government and the Shandong Province, any non-renewal of these licenses could result in the cessation of our business activities. In addition, any change in those laws and regulations could impose costly compliance requirements on us or otherwise subject us to future liabilities.

OUR RECOGNITION OF UNREALIZED GAINS (LOSS) ON FOREIGN CURRENCY TRANSACTION CAN MATERIALLY IMPACT OUR INCOME FROM PERIOD TO PERIOD.

As described elsewhere herein, the functional currency of our Chinese subsidiaries is the RMB. As required by generally accepted accounting principles, net gains and losses resulting from foreign exchange transactions are included in the consolidated statements of operations. In fiscal 2014 the effect of the foreign exchange transaction was $0.4 million and in fiscal 2013 it was $0.9 million. The recording of these non-cash gains, which is required under generally accepted accounting principles in the United States, could have a material impact on our financial statements.

 
- 11 -

 


WE HAVE NOT VOLUNTARILY IMPLEMENTED VARIOUS CORPORATE GOVERNANCE MEASURES, IN THE ABSENCE OF WHICH STOCKHOLDERS MAY HAVE LESS PROTECTIONS AGAINST INTERESTED DIRECTOR TRANSACTIONS, CONFLICTS OF INTEREST AND OTHER MATTERS.

The Sarbanes-Oxley Act of 2002 and other federal legislation has resulted in the adoption of various corporate governance measures designed to promote the integrity of corporate management and the securities markets. Some of these measures have been adopted in response to legal requirements. Others have been adopted by companies in response to the requirements of national securities exchanges, such as the NYSE MTK LLC or The Nasdaq Stock Market, on which their securities are listed. Among the corporate governance measures that are required under the rules of national securities exchanges are those that address board of directors’ independence, audit committee oversight, the adoption of a code of ethics and the adoption of a related persons transaction policy. Although we have adopted a Code of Ethics, we have not yet adopted any of these other corporate governance measures and, since our securities are not yet listed on a national securities exchange, we are not required to do so. We have not adopted corporate governance measures such as an audit committee or other independent committees of our board of directors as we presently do not have any independent directors. It is possible that if we were to adopt some or all of these corporate governance measures, stockholders would benefit from somewhat greater assurances that internal corporate decisions were being made by disinterested directors and that policies had been implemented to define responsible conduct. For example, in the absence of audit, nominating and compensation committees comprised of at least a majority of independent directors and our lack of independent directors, decisions concerning matters such as the terms of related party transactions, the amount of management fee paid to a related party, compensation packages to our senior officers and recommendations for director nominees may be made by a majority of directors who have an interest in the outcome of the matters being decided. Prospective investors should bear in mind our current lack of corporate governance measures in formulating their investment decisions. 

OUR ACCOUNTING PERSONNEL HAVE LIMITED EXPERIENCE WITH U.S. GAAP AND WE ARE DEPENDENT UPON THE SERVICES OF CDI TO ENSURE THAT OUR FINANCIAL STATEMENTS ARE PROPERLY PREPARED. 

Although our Chief Financial Officer and members of our accounting staff have significant experience with the application of accounting principles and the relevant financial regulations applicable to enterprises established in the PRC, these individuals have limited experience in the application of U.S. GAAP.  Since 2005, CDI has been providing various accounting and other corporate management services to us and we are materially dependent upon this firm to assist us in the preparation of our financial statements and reports we file with the Securities and Exchange Commission. If we were to lose the services of CDI, or any similar firm which we may engage in the future, our ability to prepare our financial statements in conformity with U.S. GAAP and to timely file our annual and quarterly reports with the Securities and Exchange Commission would be materially and adversely impacted.  If we are unable to properly and timely file these reports, our common stock would be removed from quotation on the OTC Bulletin Board and we could become subject to an enforcement action by the Securities and Exchange Commission.


RISKS RELATED TO DOING BUSINESS IN CHINA

UNCERTAINTIES WITH RESPECT TO THE PRC LEGAL SYSTEM COULD HARM US.

Our operations in China are governed by PRC laws and regulations. The PRC legal system is a civil law system based on written statutes. Unlike common law systems, prior court decisions have limited precedential value.  We are subject to laws and regulations applicable to foreign investments in China and, in particular, laws applicable to wholly foreign-owned enterprises. Since 1979, PRC legislation and regulations have significantly enhanced the protections afforded to various forms of foreign investments in China. However, China has not developed a fully integrated legal system and recently-enacted laws and regulations may not sufficiently cover all aspects of economic activities in China. In particular, because these laws and regulations are relatively new, and because of the limited volume of published decisions and their nonbinding nature, the interpretation and enforcement of these laws and regulations involve uncertainties. In addition, the PRC legal system is based in part on government policies and internal rules (some of which are not published on a timely basis or at all) that may have a retroactive effect. As a result, we may not be aware of our violation of these policies and rules until some-time after the violation has occurred. Moreover, some regulatory requirements issued by certain PRC government authorities may not be consistently applied by other government authorities, including local government authorities, thus making strict compliance with all regulatory requirements impractical, or in some circumstances, impossible. In addition, any litigation in China may be protracted and result in substantial costs and diversion of resources and management attention.

 
- 12 -

 


Further, on August 29, 2008, SAFE promulgated Circular 142, a notice regulating the conversion by a foreign-invested company of its capital contribution in foreign currency into RMB. The notice requires that the capital of a foreign-invested company settled in RMB converted from foreign currencies shall be used only for purposes within the business scope as approved by the authorities in charge of foreign investment or by other competent authorities and as registered with the Administration for Industries and Commerce and, unless set forth in the business scope or in other regulations, may not be used for equity investments within the PRC. In addition, SAFE strengthened its oversight of the flow and use of the capital of a foreign-invested company settled in RMB converted from foreign currencies. The use of such RMB capital may not be changed without SAFE’s approval, and may not in any case be used to repay RMB loans if the proceeds of such loans have not been used. Violations of Circular 142 will result in severe penalties, including heavy fines. As a result, Circular 142 may significantly limit our ability to capitalize our PRC operations, which could adversely affect our ability to invest in or acquire any other PRC companies.

RESTRICTIONS ON CURRENCY EXCHANGE MAY LIMIT OUR ABILITY TO RECEIVE AND USE OUR REVENUE EFFECTIVELY.

Because all of our revenue is denominated in RMB, restrictions on currency exchange may limit our ability to use revenue generated in RMB to fund any business activities we may ultimately have outside China or to make dividend payments to our shareholders in U.S. dollars. The principal regulation governing foreign currency exchange in China is the Foreign Currency Administration Rules (1996), as amended. Under these rules, RMB is freely convertible for trade and service-related foreign exchange transactions, but not for direct investment, loan or investment in securities outside China unless the prior approval of SAFE is obtained. Although the PRC government regulations now allow greater convertibility of RMB for current account transactions, significant restrictions still remain. For example, foreign exchange transactions under our subsidiaries capital accounts, including principal payments in respect of foreign currency-denominated obligations, remain subject to significant foreign exchange controls. These limitations could affect our ability to obtain foreign exchange for capital expenditures. We cannot be certain that the PRC regulatory authorities will not impose more stringent restrictions on the convertibility of RMB, especially with respect to foreign exchange transactions.

FLUCTUATIONS IN THE VALUE OF THE RMB MAY HAVE A MATERIAL ADVERSE EFFECT ON YOUR INVESTMENT.

The change in value of the RMB against the U.S. dollar and other currencies is affected by, among other things, changes in China’s political and economic conditions. On July 21, 2005, the PRC government changed its decade-old policy of pegging the value of the RMB to the U.S. dollar. Under the current policy, the RMB is permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies. Recently, the PRC has decided to proceed further with reform of the RMB exchange regime and to enhance the RMB exchange rate flexibility. There remains significant international pressure on the PRC government to adopt a more flexible currency policy, which could result in a further and more significant adjustment of the RMB against the U.S. dollar.  Any significant revaluation of the RMB may have a material adverse effect on the value of, and any dividends payable on, our common stock in foreign currency terms. More specifically, if we decide to convert our RMB into U.S. dollars for the purpose of making payments for dividends on our common stock or for other business purposes, appreciation of the U.S. dollar against the RMB would have a negative effect on the U.S. dollar amount available to us. Consequently, appreciation or depreciation in the value of the RMB relative to the U.S. dollar could materially adversely affect our financial results reported in U.S. dollar terms without giving effect to any underlying change in our business or results of operations.

RECENT SAFE REGULATIONS COULD ADVERSELY IMPACT OUR COMPANY AND SUBJECT US TO FINES.

Recent PRC regulations relating to offshore investment activities by PRC residents and employee stock options granted by overseas-listed companies may increase our administrative burden, restrict our overseas and cross-border investment activity or otherwise adversely affect the implementation of our acquisition strategy. If our shareholders who are PRC residents, or our PRC employees who are granted or exercise stock options, fail to make any required registrations or filings under such regulations, we may be unable to distribute profits and may become subject to liability under PRC laws. In 2005, SAFE promulgated regulations that require PRC residents and PRC corporate entities to register with local branches of SAFE in connection with their direct or indirect offshore investment activities. These regulations apply to our shareholders who are PRC residents and may apply to any offshore acquisitions that we make in the future.

 
- 13 -

 


Under the SAFE regulations, PRC residents who make, or have previously made, direct or indirect investments in offshore companies, will be required to register those investments. In addition, any PRC resident who is a direct or indirect shareholder of an offshore company is required to file or update the registration with the local branch of SAFE, with respect to that offshore company, any material change involving its round-trip investment, capital variation, such as an increase or decrease in capital, transfer or swap of shares, merger, division, long-term equity or debt investment or creation of any security interest. If any PRC shareholder fails to make the required SAFE registration, the PRC subsidiary of that offshore parent company may be prohibited from distributing their profits and the proceeds from any reduction in capital, share transfer or liquidation, to their offshore parent company, and the offshore parent company may also be prohibited from injecting additional capital into their PRC subsidiary. Moreover, failure to comply with the various SAFE registration requirements described above could result in liability under PRC laws for evasion of applicable foreign exchange restrictions.

We cannot provide any assurances that all of our shareholders who are PRC residents will make or obtain any applicable registrations or approvals required by these SAFE regulations. The failure or inability of our PRC resident shareholders to comply with the registration procedures set forth in the SAFE regulations may subject our company fines and legal sanctions, restrict our cross-border investment activities, or limit our ability to distribute dividends to or obtain foreign-exchange dominated loans from our company.  As it is uncertain how the SAFE regulations will be interpreted or implemented, we cannot predict how these regulations will affect our business operations or future strategy. For example, we may be subject to a more stringent review and approval process with respect to our foreign exchange activities, such as remittance of dividends and obtaining foreign currency denominated borrowings, which may harm our results of operations and financial condition. In addition, if we decide to acquire a PRC domestic company, we cannot assure you that we or the owners of such company, as the case may be, will be able to obtain the necessary approvals or complete the necessary filings and registrations required by the SAFE regulations. This may restrict our ability to implement our acquisition strategy and could adversely affect our business and prospects.

THE NEW M&A RULES ESTABLISH MORE COMPLEX PROCEDURES FOR SOME ACQUISITIONS OF CHINESE COMPANIES BY FOREIGN INVESTORS, WHICH COULD MAKE IT MORE DIFFICULT FOR US TO PURSUE GROWTH THROUGH ACQUISITION IN CHINA.

The New M&A Rules that became effective on September 8, 2006 established additional procedures and requirements that could make merger and acquisition activities by foreign investors more time-consuming and complex, including requirements in some instances that the Ministry of Commerce be notified in advance of any change-of-control transaction in which a foreign investor takes control of a PRC domestic enterprise. Complying with the requirements of the M&A Rules to complete such transactions could be time-consuming, and any required approval processes, including obtaining approval from the Ministry of Commerce, may delay or inhibit our ability to complete such transactions, which could materially adversely affect our ability to grow our business through acquisitions in China.

UNDER PRC LAWS, ARRANGEMENTS AND TRANSACTIONS AMONG RELATED PARTIES MAY BE SUBJECT TO A HIGH LEVEL OF SCRUTINY BY THE PRC TAX AUTHORITIES.

Under PRC laws, arrangements and transactions among related parties may be subject to audit or challenge by the PRC tax authorities. Under the Regulation on the Implementation of the Enterprise Income Tax Law of the PRC, the “related party” means the enterprises, other organizations or individuals that have any of the following relations with an enterprise:

 
direct or indirect control relationship with respect to capital, management, sale or purchase, etc.;
 
directly or indirectly controlled by a common third-party;
 
any other relationship of interest.

We engage in a number of transactions with related parties.  If any of the transactions we enter into with related parties are found not to be on an arm’s-length basis, or to result in an unreasonable reduction in tax under PRC law, the PRC tax authorities have the authority to disallow any tax savings, adjust the profits and losses of such possible future PRC entities and assess late payment interest and penalties. A finding by the PRC tax authorities that we are ineligible for any such tax savings would in all likelihood substantially increase our possible future taxes and thus reduce our net income in future periods.

 
- 14 -

 


WE FACE RISKS RELATED TO NATURAL DISASTERS AND HEALTH EPIDEMICS IN CHINA, WHICH COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS AND RESULTS OF OPERATIONS.

Our business could be materially adversely affected by natural disasters or the outbreak of health epidemics in China. For example, in May 2008, Sichuan Province suffered a strong earthquake measuring approximately 8.0 on the Richter scale that caused widespread damage and casualties. In addition, in the last decade, the PRC has suffered health epidemics related to the outbreak of avian influenza and severe acute respiratory syndrome, or SARS. In April 2009, an outbreak of the H1N1 virus, also commonly referred to as “swine flu” occurred in Mexico and has spread to other countries. Cases of swine flu have been reported in Hong Kong and mainland China. The Chinese government and certain regional governments within China have enacted regulations to address the H1N1 virus, which may have an effect on our business. If the outbreak of swine flu were to become widespread in China or increase in severity, it could have an adverse effect on economic activity in China, and could require the temporary closure of our facilities. Such events could severely disrupt our business operations and harm our results of operations. Any future natural disasters or health epidemics in the PRC could also have a material adverse effect on our business and results of operations.

CERTAIN AGREEMENTS TO WHICH WE ARE A PARTY AND WHICH ARE MATERIAL TO OUR OPERATIONS LACK VARIOUS LEGAL PROTECTIONS WHICH ARE CUSTOMARILY CONTAINED IN SIMILAR CONTRACTS PREPARED IN THE UNITED STATES.

Although we are a U.S. company, substantially all of our business and operations are conducted in the PRC. We are a party to certain material contracts, including the leases for the facilities used by our stevioside and our Chinese medicine segments. While these contracts contain the basic business terms of the agreements between the parties, these contracts do not contain certain provisions which are customarily contained in similar contracts prepared in the U.S., such as representations and warranties of the parties, confidentiality and non-compete clauses, provisions outlining events of defaults, and termination and jurisdictional clauses. Because our material contracts omit these types of clauses, notwithstanding the differences in Chinese and U.S. laws we may not have the same legal protections as we would if the contracts contained these additional provisions. We anticipate that contracts we enter into in the future will likewise omit these types of legal protections. While we have yet to experience any adverse consequences as a result of the omission of these types of clauses, and we consider the contracts to which we are a party to contain all the material terms of our business arrangements with the other party, we cannot assure you that future events will not occur which could have been avoided if the contracts were prepared in conformity with U.S. standards, or what the impact, if any, of these hypothetical future events could have on our company.

IT MAY BE DIFFICULT FOR STOCKHOLDERS TO ENFORCE ANY JUDGMENT OBTAINED IN THE UNITED STATES AGAINST US, WHICH MAY LIMIT THE REMEDIES OTHERWISE AVAILABLE TO OUR STOCKHOLDERS.

Substantially all of our assets are located outside the United States and substantially all of our current operations are conducted in the PRC. Moreover, all of our directors and officers are nationals or residents of the PRC. All or a substantial portion of the assets of these persons are located outside the United States. As a result, it may be difficult for our stockholders to effect service of process within the United States upon these persons. In addition, there is uncertainty as to whether the courts of the PRC would recognize or enforce judgments of U.S. courts obtained against us or such officers and/or directors predicated upon the civil liability provisions of the securities law of the United States or any state thereof, or be competent to hear original actions brought in the PRC against us or such persons predicated upon the securities laws of the United States or any state thereof.

FAILURE TO COMPLY WITH THE UNITED STATES FOREIGN CORRUPT PRACTICES ACT COULD SUBJECT US TO PENALTIES AND OTHER ADVERSE CONSEQUENCES.

We are subject to the United States Foreign Corrupt Practices Act which generally prohibits United States companies from engaging in bribery or other prohibited payments to foreign officials for the purpose of obtaining or retaining business. Corruption, extortion, bribery, pay-offs, theft and other fraudulent practices occur from time-to-time in the PRC. We can make no assurance, however, that our employees or other agents will not engage in such conduct for which we might be held responsible. If our employees or other agents are found to have engaged in such practices, we could suffer severe penalties and other consequences that may have a material adverse effect on our business, financial condition and results of operations.

 
- 15 -

 


RISKS RELATED TO OUR COMMON STOCK

DUE TO RECENT CHINESE ACCOUNTING SCANDALS, THE PRICE OF OUR COMMON STOCK MIGHT FLUCTUATE SIGNIFICANTLY AND IF OUR STOCK PRICE DROPS SHARPLY, WE MAY BE SUBJECT TO SHAREHOLDER LITIGATION, WHICH COULD CAUSE OUR STOCK PRICE TO FALL FURTHER.

In the past few years, there have been well-publicized accounting problems at several U.S.-listed Chinese companies that have resulted in significant drops in the trading prices of their shares and, in some cases, have led to the resignation of outside auditors, trading halts or share delistings by NASDAQ or the New York Stock Exchange, and investigations by the Division of Enforcement of the Securities and Exchange Commission. Many, but not all, of the companies involved in these scandals had entered the U.S. trading market through “reverse mergers” into publicly traded shells. The scandals have had a broad effect on Chinese companies with shares listed or quoted in the United States.  Past or future accounting scandals in other Chinese companies could have a material adverse effect on the market for shares of our common stock and the interest of investors in our company or generally in PRC companies.  In this event, the fluctuations in the market prices of our common stock could result in decreased liquidity and/or declining stock prices unrelated to our results of operation or business. In addition, as set forth in the risk factor immediately below, we do not have any audit committee financial experts on our Board of Directors and, accordingly, the risk of future errors in our financial statements is increased.

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.

Provisions of our articles of incorporation and bylaws may be deemed to have anti-takeover effects, which include when and by whom special meetings of our stockholders may be called, and may delay, defer or prevent a takeover attempt. In addition, certain provisions of the Nevada Revised Statutes also may be deemed to have certain anti-takeover effects which include that control of shares acquired in excess of certain specified thresholds will not possess any voting rights unless these voting rights are approved by a majority of a corporation’s disinterested stockholders.

In addition, our articles of incorporation authorize the issuance of up to 1,000,000 shares of preferred stock with such rights and preferences as may be determined from time to time by our Board of Directors, of which no shares are currently outstanding. Our Board of Directors may, without stockholder approval, issue preferred stock with dividends, liquidation, conversion, voting or other rights that could adversely affect the voting power or other rights of the holders of our common stock. Collectively, these provisions may prevent a change of control of our company in situations where a change of control would be beneficial to our stockholders.

BECAUSE OUR STOCK CURRENTLY TRADES BELOW $5.00 PER SHARE, AND IS QUOTED ON THE OTC BULLETIN BOARD, OUR STOCK COULD BE CONSIDERED A “PENNY STOCK” WHICH CAN ADVERSELY AFFECT ITS LIQUIDITY.

As the trading price of our common stock is less than $5.00 per share, our common stock could be considered a “penny stock,” and trading in our common stock could be subject to the requirements of Rule 15g-9 under the Securities Exchange Act of 1934. Under this rule, broker/dealers who recommend low-priced securities to persons other than established customers and accredited investors must satisfy special sales practice requirements. The broker/dealer must make an individualized written suitability determination for the purchaser and receive the purchaser’s written consent prior to the transaction. SEC regulations also require additional disclosure in connection with any trades involving a “penny stock”, including the delivery, prior to any penny stock transaction, of a disclosure schedule explaining the penny stock market and its associated risks. These requirements severely limit the liquidity of securities in the secondary market because few broker or dealers are likely to undertake these compliance activities. In addition to the applicability of the penny stock rules, other risks associated with trading in penny stocks could also be price fluctuations and the lack of a liquid market.

A LARGE PORTION OF OUR OUTSTANDING COMMON SHARES ARE “RESTRICTED SECURITIES” AND FUTURE SALES OF THOSE SHARES BY OUR STOCKHOLDERS COULD ADVERSELY IMPACT THE MARKET PRICE OF OUR COMMON STOCK.

At July 28, 2014 we had 173,882,803 shares of common stock outstanding, of which approximately 62,295,305 shares are "restricted securities." Future sales of restricted common stock under Rule 144 or otherwise could negatively impact the market price of our common stock.

 
- 16 -

 


ITEM 1B.
UNRESOLVED STAFF COMMENTS

Not applicable for smaller reporting companies.

ITEM 2.
PROPERTIES
 
        All of our facilities described below are located in the Shuyuan Economic Zone of Qufu City, of the Shandong Province except our traditional Chinese medicine facility located in 6 Youpeng Road of Qufu City.

Our principal executive offices and stevioside manufacturing facility is comprised of approximately 64,000 square feet situated on land which we hold land use rights.  The land use rights expire on March 14, 2054.

In October 2002 Qufu Natural Green entered into a lease agreement with Pharmaceutical Corporation, an affiliate, which covers the approximately 54,000 square foot facility used in our traditional Chinese medicine business. The lease expired on October 1, 2012, after that, Pharmaceutical Corporation allows Qufu Natural Green to use the facility for free.

Qufu Shengwang owns an 89,000 square foot facility which includes 30,000 square feet of manufacturing space, a 21,500 square foot warehouse and 38,000 square feet of office space. Qufu Shengwang occupies this facility pursuant to land use rights which expire in March 2054.  

Qufu Shengren occupies approximately 4.9 acres of land at no cost pursuant to a March 13, 2004 land use agreement with Shandong Group that expires on March 14, 2054.  Located on this land is a 33,000 square foot manufacturing facility we are converting to a high grade stevioside production facility, an 18,000 square foot warehouse facility and approximately 3.74 acres (approximately 163,000 square feet) of vacant land.

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 30 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 apartment units are expected to be delivered by December 30, 2014.  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 in December 2011, with the balance, or approximately $478,066, upon completion of the ownership documents and transfer of the apartment units to us.

ITEM 3.
LEGAL PROCEEDINGS

We are not a party to any pending legal proceedings, and to our knowledge, none of our officers, directors or principal stockholders are party to any legal proceeding in which they have an interest adverse to us.

ITEM 4.
MINE SAFETY DISCLOSURES.

Not applicable for our operations.

 
- 17 -

 

PART II

ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock is quoted on the OTC Bulletin Board under the symbol “SUWN”. The following table sets forth the reported high and low closing prices for our common stock as reported on the OTCBB for the following periods. These prices do not include retail mark-ups, markdowns or commissions, and may not necessarily represent actual transactions.

   
High
   
Low
 
Fiscal 2013
               
May 1, 2012 through July 31, 2012
 
$
0.30
   
$
0.13
 
August 1, 2012 through October 31, 2012
 
$
0.25
   
$
0.13
 
November 1, 2012 through January 31, 2013
 
$
0.30
   
$
0.16
 
February 1, 2014 through April 30, 2013
 
$
0.24
   
$
0.14
 
                 
Fiscal 2014
               
May 1, 2013 through July 31, 2013
 
$
0.18
   
$
0.13
 
August 1, 2013 through October 31, 2013
 
$
0.21
   
$
0.12
 
November 1, 2013 through January 31, 2014
 
$
0.14
   
$
0.07
 
February 1, 2014 through April 30, 2014
 
$
0.18
   
$
0.08
 

On July 28, 2014, the last reported sale price of the common stock on OTC Bulletin Board was $0.23 per share. As of July 28, 2014 there were 753 stockholders of record of the common stock. The number of record holders does not include beneficial owners of common stock whose shares are held in the names of banks, brokers, nominees or other fiduciaries.

Transfer Agent

Our transfer agent is Colonial Stock Transfer Company, Inc. which is located at 66 Exchange Place, Salt Lake City, Utah 84111. The phone number is (801) 355-5740 and its website is www.colonialstock.com.

Dividend Policy

We have never paid cash dividends on our common stock. We intend to keep future earnings, if any, to finance the expansion of our business, and we do not anticipate that any cash dividends will be paid in the foreseeable future. Our future payment of dividends will depend on our earnings, capital requirements, expansion plans, financial condition and other relevant factors. Under Nevada law, we are prohibited from paying dividends if the distribution would result in our company not being able to pay its debts as they become due in the usual course of business, or if our total assets would be less than the sum of our total liabilities plus the amount that would be needed, were we to be dissolved at the time of distribution, to satisfy the preferential rights upon dissolution of stockholders whose preferential rights are superior to those receiving the distribution. In addition, as a result of Chinese laws our operating subsidiaries may be subject to restrictions on their ability to make distributions to us, including as a result of restrictions on the conversion of local currency into U.S. dollars, or other hard currency, and other regulatory restrictions.

RECENT SALES OF UNREGISTERED SECURITIES
 
        None, other than as previously reported.

ITEM 6.
SELECTED FINANCIAL DATA

 Not applicable to smaller reporting companies.

ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

The following discussion and analysis of our consolidated financial condition and results of operations for the fiscal years 2014 and 2013 should be read in conjunction with the consolidated financial statements and footnotes,  and other information presented elsewhere in this Form 10-K.

 
- 18 -

 



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 sourcing and production capabilities designed to meet the needs of our customers. 

During fiscal years 2014 and 2013 our operations were organized in two operating segments related to our product lines:

 
-
 
Stevioside; and
 
-
 
Chinese medicine.
 
Recent Developments

Since January 2014, our facilities have the capability of producing A3-99 stevia products, which is the highest quality stevioside extracts produced in the world and are used in the pharmaceutical and food industries.

In March 2014, we entered an exclusively 5-year distribution agreement with Qingdao Dongfang Tongxiang International Trading Co., Ltd, and authorized them to use the trademark “OnlySweet” to sell our Stevia products.

Since fiscal 2014, our facilities have the capability of producing Enzyme treated stevia, which is one of the most advanced types of steviosides produced in the world for use in the food and beverage industries.

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 in collaboration with Domino Sugar 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.

We are currently evaluating alternatives as to the potential disposition of the Chinese medicine segment to further streamline our product offering and focus our business on producing and selling high-quality stevia products. The exit strategy contemplated for the Chinese medicine segment has also been influenced by our concerns regarding the profitability of this segment in the near future. The competition in Chinese medicine market has strengthened over the past few months. In addition, the Chinese government continues to issue more regulations covering the supply of Chinese herbal raw materials and has increased the regulatory manufacturing standards on this segment. These measures are expected to further increase our raw materials and production costs in the coming quarters and beyond. However, this segment is currently operating at full capacity and we do not expect significant growth potential from this segment in the near future. 

 
- 19 -

 


Our Performance

Our revenues totaled $12.9 million in fiscal 2014, an increase of 31.3% as compared with fiscal 2013, while our gross margin decreased slightly to 18.7% from 21.0% primarily due to the higher cost for adoption of the new technology and the adjustment of the products structure. Our total operating expenses in fiscal 2014 increased by approximately $224,000 or 3.9% compared to fiscal 2013 primarily due to an increase of approximately $1.4 million in research and development expenses and an increased of approximately $252,000 or 26.1% in selling expenses, offset a decrease of approximately $572,000, or 14.8% in general and administrative expenses, and a decrease of approximately of $615,000 in stock based consulting expense, as well as a decrease of approximately $210,000 loss on disposition of property and equipment.  Our net loss for fiscal 2014 was $3.1 million, compared to $4.0 million in fiscal 2013.

Our operating performance for fiscal 2014 was primarily driven by an increase of 45.3% in sales revenue from our stevia products in our Stevioside segment and a slightly lower revenue in our Chinese medicine segment.

While we have broadened our stevia product offerings to include a number of higher quality stevia grades needed in new product formulations we are developing to introduce to the U.S. and European food and beverage industry, 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 2014. The increase of revenue in Stevioside segment is primarily due to an increasing demand from the developing domestic and international market. Stevia has been widely accepted by the food industry and many new stevia manufacturers have entered this industry in the past few years, and recently we introduced a new product line. We are now focusing on new types of stevia products, including tablets, liquid, High A products, and others. We expect to consistently increase our sales of our new products; however we cannot quantify this increase and its effects on future periods.
 
The decrease in revenues in our Chinese medicine was primarily due to the depressing market which was caused by the significantly declined production of farms, negatively influencing the demand for our Chinese traditional medicine products since 2012. In addition, the suppliers of some large farms have innovated to operate on the integrative basis, and the monopolized use of medicine, both lead to the decreased demand to our products. Some big clients of ours have changed to produce their own Chinese herbal extracts products; therefore, the orders from those big clients have decreased significantly. Our current orders primarily are low-volume and have mix-varieties. The lost of high volume orders greatly impacted our total sales.

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 2015 and beyond, we will continue to focus on our core business of producing and selling stevioside series products.

  Some of the recent favorable observations related to the stevia markets in fiscal 2014 include:

 
Chinese domestic food and beverages, particularly herbal tea manufacturers and the pharmaceutical industry, have increased the use of steviosides;
 
Southeast and South Asia have renewed and increased their interest in stevia, particularly high grade stevia;
 
The marketing strategy to differentiate ourselves as a producer of higher quality stevia grades and product formulations through these collaboration efforts will lead to sustainable growth in stevia sales volume in the future; and
 
A new stevia extraction line was finished in December 2012. This new line will add additional 500 metric tons to our current annual production capacity;

Meanwhile, we are also facing challenges in competitive pricing and raw materials for fiscal 2014 and 2015. During fiscal 2014, the market prices of stevioside products were impacted by strong price competition among Chinese manufacturers. We expect the pressure from pricing competition to continue in fiscal 2015. We anticipate the price of stevia leaves, the raw material used to produce our stevioside series products, to increase in fiscal 2015.

GOING CONCERN

For the year ended April 30, 2014 and 2013, the Company has incurred a net loss of approximately $3.1 million and $4.0 million, respectively. As of April 30, 2014, the Company also has accumulated deficit of approximately $15.9 million and its cash and its revenues are not currently sufficient and cannot be projected to cover operating expenses in the coming year. These factors raise doubt as to the ability of the Company to continue as a going concern.  Management's plans include attempting to raise funds through debt and equity financings, restructure on-going operations to eliminate inefficiencies to raise cash balance and meet operating needs. Management intends to make every effort to identify and develop sources of funds.

 
- 20 -

 


RESULTS OF OPERATIONS

The following table summarizes our results of operations in fiscal 2014 and fiscal 2013.  The percentages represent each line item as a percent of revenues:

For the Year Ended April 30, 2014
 
   
Chinese Medicine
   
Stevioside
   
Corporate and Other
   
Consolidated
 
Revenues
 
 $
2,429,468
     
100.0
%
 
10,444,189
     
100.0
%
 
 $
-
   
 $
12,873,657
     
100.0
%
Cost of goods sold
   
1,584,147
     
65.2
%
   
8,880,779
     
85.0
%
   
-
     
10,464,926
     
81.3
%
Gross profit
   
845,321
     
34.8
%
   
1,563,410
     
15.0
%
   
-
     
2,408,731
     
18.7
%
Research and development expenses
   
     
   
(1,488,969
   
(14.3)
   
     
(1,488,969
   
(11.6)
Other operating expenses
   
(920,478
)
   
(37.9)
%
   
(3,411,964
   
(32.7)
%
   
(168,276
)
   
(4,500,718
   
(35.0)
%
Other income
   
23,016
     
0.9
%
   
375,641
     
3.6
%
   
116,478
     
515,135
     
4.1
%
Loss before income taxes
 
 (52,141
)
   
(2.2)
 
(2,961,882
   
(28.4)
 
(51,798 
 
(3,065,821
   
(23.8)

For the Year Ended April 30, 2013
   
Chinese Medicine
   
Stevioside
   
Corporate and Other
   
Consolidated
 
Revenues
 
 $
2,614,672
     
100.0
%
 
 $
7,187,856
     
100.0
%
 
 $
-
   
 $
9,802,528
     
100.0
%
Cost of goods sold
   
1,862,545
     
71.2
%
   
5,883,031
     
81.8
%
   
 -
     
7,745,576
     
79.0
%
Gross profit
   
752,127
     
28.8
%
   
1,304,825
     
18.2
%
   
-
     
2,056,952
     
21.0
%
Research and development expenses
   
     
%
   
(120,620 
   
(1.2)
   
     
(120,620
   
(1.2) 
%
Loss on disposal of property and equipment
   
-
     
-
%
   
(209,500
)
   
(2.9)
%
   
-
     
(209,500
)
   
(2.1)
%
Other operating expenses
   
(551,494
)
   
(21.1)
%
   
(3,151,142
)
   
(44.3)
%
   
(1,733,205
)
   
(5,435,841
)
   
(55.5)
%
Other income (expense)
   
7,246
     
0.3
%
   
(275,293
   
(3.8)
%
   
2,916
     
(265,131
)
   
(2.7)
%
Income (loss) before income taxes
 
 $
207,879
     
8.0
%
 
 $
(2,451,730
)
   
(38.4)
%
 
 $
(1,730,289
)
 
 $
(3,974,140
)
   
(40.5)
%

Revenues

Total revenues in fiscal 2014 increased by $3.1 million, or 31.3%, as compared to fiscal 2013. Stevioside revenues, which accounts for 81.1% and 73.3% of our total revenues in fiscal 2014 and fiscal 2013, respectively, increased by $3.3 million, or 45.3%, while Chinese medicine revenues slightly decreased by $0.2 million.

 Within our Stevioside segment, revenues from sales to third parties increased by 43.8% and sales to the related party increased by 48.0% in fiscal 2014, as compared to fiscal 2013. The increase of sales to related party is primarily due to the expansion of our international business and an increase in new product sales of higher grades stevia products. 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. In addition, new launched products including A3-99 and enzyme treated stevia have been well accepted by the market. Even though the demand growth for our intermediate and higher grade stevia products was slower than anticipated in international markets, especially in the U.S., where the adoption rate for stevia in the food and beverage has been slower than expected, we produced 311 metric tons of stevioside for fiscal 2014 as compared to 232 metric tons in fiscal 2013. We generated revenue from the customized orders for restructuring by enzyme based on our Stevioside products which accounted for approximately 1.9% of total Stevioside segment revenues. Additionally, we also generated revenue from the sale of our new products that were developed in the prior year which accounted for approximately 11.6% of total consolidated revenues.

Our unit sale price fluctuated from month to month in fiscal 2014, which was mainly affected by the market environment; the average unit sale price is relatively stable compare to fiscal 2013. However, with the restructure of our product line, the sales of our low grade stevia products significantly changed in fiscal 2014, the sales revenue of A3-40 products decreased by 72.5%. On the contrary, the sales of A3-50 products increased by more than 600%. Our new developed products generated more than 11.6% of total consolidated revenue, but it also affected the sales of some of our original products. For instance, the revenue of A3-95 products and A3-98 products decreased by 49.9% and 46.2% respectively; meanwhile, our newly launched A3-99 product, which is currently the highest grade stevia in the market generated more than $910,000 revenue which is approximately $463,000 more than the reduction of sales generated from A3-95 and A3-98 products.    

 
- 21 -

 


The slightly decrease of sales in Chinese Medicine segment is primarily due to a slight decrease in our sales volume, which was attributable to an oversupply of product in the market. The unit price remains stable compared to fiscal 2013. We expect demand to increase in the future; however, we are not able to quantify this future increase.

Cost of Revenues and Gross Margin

 Cost of revenues in fiscal 2014 increased by $2.7 million, or 35.1%, compared to fiscal 2013. The increase in cost of revenues was primarily due to an increase in sale volume. Gross margin on Stevioside segment for fiscal 2014 was 15.0%, as compared to 18.2% for fiscal 2013. The lower gross margins for Stevioside was primarily due to the higher cost of adoption of our high-efficiency product line and the higher costs of raw materials, as well as increased competition in both the domestic and international markets which resulted in having to charge lower prices for our products to remain competitive. Gross margin on Chinese Medicine was 34.8% in fiscal 2014, compared to 28.8% in fiscal 2013. The higher gross margin for Chinese Medicines was primarily due to lower raw material costs during the period compared with the same period in the prior year.  We believe that the slower market for animal Chinese medicines seen in prior periods has stabilized and the market has improved. Since we purchase our raw materials on the spot market, we are unable to predict with any degree of certainty our raw material costs and their impact on gross margin in future periods. Our consolidated gross margin for fiscal 2014 was 18.7%, as compared to 21.0% in fiscal 2013.   

Total Selling Expenses

We had an increase of approximately $252,000 in selling expenses. The increase was primarily due to the approximately $107,000 increase in shipping and freight and an increase of $82,000 in distributor conference costs.

Total General and Administrative Expenses and Loss on Disposition of Property and Equipment

 Our general and administrative expenses and loss on disposition of property and equipment for fiscal 2014 decreased by approximately $1,397,000, or 29.9% from fiscal 2013. The decrease was primarily due to a decrease of $210,000 in loss on disposition of equipment, a decrease of $810,000 in stock based compensation to employees, a decrease of $615,000 in stock based paid primarily for consulting services, and a decrease of $531,000 in general and administrative expenses, which included a decrease of $448,000 in management fees paid to Pharmaceutical Corporation, a $456,000 decrease in property insurance and a $143,000 decrease in consumable supply purchases, offset by an increase of approximately $309,000 in bad debt expense, and a $182,000 increase in salaries and wages.

Included in our general and administrative expenses for fiscal 2014 and 2013 was $2,628 and $450,631 of management fees paid to Pharmaceutical Corporation, respectively. These fees are for the administrative management of our operations and includes compensation payable to certain of our employees. As described elsewhere herein, Pharmaceutical Corporation is controlled by Mr. Zhang, our President and Chairman.

Research and Development Expenses

For the year ended April 30, 2014, our research and development expensed amounted to $1,488,969 as compared to $120,620 for the year ended April 30, 2013. The increase of approximately $1.4 million was from the inventory that were transferred to Shandong Chinese Medicine University for the collaboration with Professor Jingzhen Tian on the project named “development and research on new kinds of stevia for pharmaceutical use”, this project is related to total grant we received in January 2014 of approximately $1,146,921 (RMB7,000,000).

Other Income (Expense)

For the year ended April 30, 2014, other income amounted to approximately $515,000, an increase of $780,000 as compared to other expense of ($265,000) for the year ended April 30, 2013. The increase was primarily attributable to the recognition of grant income of $506,300 related to a local PRC grant received in January 2014 of approximately $1,146,921 (RMB7,000,000), and a decrease of approximately $85,000 in inventory impairment, offset by an increase of $58,000 in interest expenses due to an $811,794 (RMB5,000,000) short-term loan we borrowed from China Construction Bank and an increase of $35,000 in interest expenses for the $1,298,870 (RMB8,000,000) advance, which was provided by Qufu Rural Credit Cooperatives through Pharmaceutical Corporation, a related party.

 Net Loss

Net loss in fiscal 2014 was $3.1 million, compared to $4.0 million in fiscal 2013. The decrease was primarily due to lower general and administrative expenses offset by higher research and development expenses and slightly higher gross profits.


 
- 22 -

 

LIQUIDITY AND CAPITAL RESOURCES

Liquidity is the ability of a company to generate sufficient cash to meet its operational cash requirements.  
 
At April 30, 2014, we had working capital of $3.3 million, including cash of $1.2 million, as compared to working capital of $5.0 million and cash of $0.5 million at April 30, 2013. The approximate 0.7 million increase in our cash at April 30, 2014 from April 30, 2013 is primarily attributable to net cash provided by operating activities, which we generated revenue from increasing sales in domestic and international market during fiscal 2014. Furthermore, we always try to decrease the inventory on hands to shorten the inventory turnover and account receivable turnover. 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 next twelve months.       

Accounts receivable, net of allowance for doubtful accounts, including accounts receivable from related parties, increased by approximately $112,000 during fiscal 2014. The days for sales outstanding in accounts receivable decreased to 84 days as of April 30, 2014, as compared to 106 days as of April 30, 2013.

At April 30, 2014 inventories, net of reserve for obsolescence, totaled $3.3 million, as compared to $4.9 million as of April 30, 2013. The decrease is primarily due to increase of sales in our stevioside business as we adjusted our production levels in anticipation of high level product demand and higher overseas demand.

Our accounts payable and accrued expenses were $3.5 million at April 30, 2014, a decrease of approximately $81,000 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 $1.3 million in fiscal 2014, as compared to net cash used in $2.0 million in fiscal 2013. The increase resulting from cash provided by operating activities was due primarily to a $1.7 million decrease in inventory, approximately $633,000 increase in deferred grant income, $297,000 decrease in accounts receivable from related party and $178,000 increase in taxes payables. We also used approximately $556,000 in accounts receivable and notes from third parties, and used $193,000 in accounts payable and accrued expenses.

Net cash used in operating activities was $2.0 million in fiscal 2013, as compared to net cash used of $3.9 million in fiscal 2012. The decrease resulting from cash used in operating activities was due primarily to a $0.8 million increase in accounts receivable and notes receivable due to cash collection coupled with a $0.8 million and 0.6 million increase in non-cash stock compensation expense paid to employees and constants, respectively. In fiscal 2013, we also had $0.5 million increase in prepaid expenses and other current assets, $0.7 million decrease in accounts receivable from related party. We also used $0.8 million of cash to purchase raw materials inventory in stevia to support future sales, and decrease $0.4 million in accounts payable and other accrued expenses.

NET CASH FLOW USED IN INVESTING ACTIVITIES:

Net cash used in investing activities amounted to $808,000 in fiscal 2014, as compared to $1.4 million in fiscal 2013. In fiscal 2014, we spent approximately $852,000 in capital expenditures for property and received $44,000 repayment from the loan receivables.

Net cash used in investing activities amounted to $1.4 million in fiscal 2013, as compared to $4.0 million in fiscal 2012. In fiscal 2013, we spent $3.3 million in capital expenditures for property and received $1.9 million repayment from the loan receivable.

NET CASH FLOW PROVIDED BY FINANCING ACTIVITIES:

Net cash provided by financing activities amounted to approximately $107,000 in fiscal 2014, primarily due to proceed received from related party advanced. During fiscal 2014, from time to time, we received advances from related parties approximately $2.5 million and we also advance funds to related parties approximately $2.3 million for working capital purposes.

Net cash provided by financing activities amounted to $0.8 million in fiscal 2013 primarily due to the short-term loan borrowed. Net cash provided by financing activities amounted to $78,500 in fiscal 2012 primarily due to the management fee owed to Pharmaceutical Corporation.

 
- 23 -

 


 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 April 30, 2014.

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 was as follows: 

 
April 30, 2014
   
April 30, 2013
 
China
 
$
1,194,668
   
$
516,071
 
United States
   
895
     
1,035
 
Total
 
$
1,195,563
   
$
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 is 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 accepted accounting principles generally accepted in the U.S. (“U.S. GAAP”).

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

                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 the company’s financial condition and results of operations, and which require the company 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 consolidated 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.  

 
- 24 -

 


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, knowledge of our industry segment in Asia, and historical bad debt experience.  This evaluation methodology has proven to provide a reasonable estimate of bad debt expense in the past and we intend to continue to employ this approach in our analysis of collectability.  However, we are aware that given the current global economic crises, including that of the PRC, meaningful time horizons may change.  We intend to enhance our focus on the evaluation of our customers' sustainability and adjust our estimates as may be indicted. 

We rely on assumptions such as volatility, forfeiture rate, and expected dividend yield when calculating the fair value of our derivative liability related to common stock purchase warrants. We also rely on assumptions and estimates to calculate our reserve for obsolete inventory and the depreciation of property, plant and equipment. We make assumptions of expiration of our products held as inventory based on historical experience and if applicable, regulatory recommendation. We also group property plant and equipment into similar groups of assets and estimate the useful life of each group of assets.

Further, we rely on certain assumptions and calculations underlying our provision for taxes in the PRC.  Assumptions and estimates employed in these areas are material to our reported financial conditions and results of operations.  These assumptions and estimates have been materially accurate in the past and are not expected to materially change in the future.  Actual results could differ from these estimates.  

Revenue recognition

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

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 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable to smaller reporting company.

ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Our financial statements are contained in pages F-3 through F-19, which appear at the end of this annual report.

ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

None.
 
 

 
- 25 -

 


ITEM 9A.
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”). In designing and evaluating our disclosure controls and procedures, our management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of disclosure controls and procedures are met.  Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures.  The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Based on their evaluation as of the end of the period covered by this Annual Report on Form 10-K, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective 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 Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  Our internal control over financial reporting includes those policies and procedures that:

 
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;
 
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
 
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

Because of the inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our management assessed the effectiveness of our internal control over financial reporting as of April 30, 2014. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework. Management’s assessment included an evaluation of the design of our internal control over financial reporting and testing of the operational effectiveness of these controls. Based on this assessment, our management has concluded that as of April 30, 2014, our internal control over financial reporting was effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. 

Changes in Internal Control

There were no changes in our internal control over financial reporting identified in connection with the evaluation of our controls performed during the fourth quarter ended April 30, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B.
OTHER INFORMATION.

None.


 
- 26 -

 

PART III

ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

Directors and Executive Officers

The following sets forth the names and ages of each of our executive officers and directors and the positions they hold:

Name
 
Age
 
Positions
Laiwang Zhang
   
52
 
President and Chairman
Dongdong Lin
   
40
 
Chief Executive Officer, Secretary and Director
Fanjun Wu
   
40
 
Chief Financial Officer
Chengxiang Yan
   
46
 
Director and General Manager of Qufu Natural Green

Laiwang Zhang. Mr. Zhang has served as our President and Chairman since April 30, 2004 and he has served as Chairman of Qufu Natural Green since January 2003. Mr. Zhang also serves as Chairman of Pharmaceutical Corporation, a company engaged in the sale and distribution of Chinese herb medicines, since April 2000. In 1996, Mr. Zhang founded Shandong Group, a holding company with interests in companies operating in the areas of nutritional products, Chinese herb extracts, packaged products, animal health products, animal medicine and chemical products. Since April 1996, he has been General Manager of this company. From April 1992 to April 1996 Mr. Zhang served as Manager of our subsidiary Shengya Veterinary Medicine. From 1984 to 1992, Mr. Zhang served as President of Shandong Qufu Amylum Plant, a company that manufactures amylum. Mr. Zhang graduated from Shandong Technical University in 1984 with a Masters Degree in Engineering.

Dongdong Lin. Ms. Lin has served as our Chief Executive Officer, Secretary and a member of our Board of Directors since February 2005. Ms. Lin served as Manager of the Technology Information Department of Pharmaceutical Corporation, a company engaged in the sale and distribution of Chinese herb medicines, from January 2003 to December 2004. Ms. Lin joined Shandong Group in 1996, serving as a supervisor from April 1998 to April 2000, and Manager of the Department of Export and Import from April 2000 to December 2002. Ms. Lin holds a Bachelors Degree in Technology English from Haerbin Industry University and a Masters Degree in Economics from the China Academy of Social Science. 

Fanjun Wu. Ms. Wu has been our Chief Financial Officer since April 30, 2004. Since 1997, she has been employed by Qufu Natural Green, serving as Director of Finance from 1997 to 1998 and thereafter as Chief Financial Officer. From 1992 to 1996, Ms. Wu was a Director of Finance for our subsidiary Shengya Veterinary Medicine, which was owned by Shandong Group prior to our acquisition in 2004. Ms. Wu graduated from Qufu Industrial College in 1995 with the Bachelor’s Degree in Accounting. 

Chengxiang Yan. Mr. Yan has been the General Manager of our subsidiary Qufu Natural Green since 1999 and a member of our Board of Directors since April 30, 2004 following our acquisition of Qufu Natural Green. From 1999 to 2004, Mr. Yan was the Director of the Marketing Department for that company. From 1996 to 1998, Mr. Yan was Director of the Marketing Department for Shandong Group, a holding company with interests in companies operating in the areas of nutritional products, Chinese herb extracts, packaged products, animal health products, animal medicine and chemical products, and from 1993 to 1996, he was Director of the Marketing Section for our subsidiary Shengya Veterinary Medicine owned by Shandong Group before our acquisition in 2004. Mr. Yan graduated from Shandong Agriculture University in 1993 with a Bachelor’s Degree in Farming.

There are no family relationship between any of the executive officers and directors. Each director is elected at our annual meeting of stockholders and holds office until the next annual meeting of stockholders, or until his successor is elected and qualified. 

Director Qualifications

The following is a discussion for each director of the specific experience, qualifications, attributes or skills that led to our conclusion that such person should be serving as a member of our Board of Directors as of the date of this annual report in light of our business and structure.  In addition to their individual skills and backgrounds which are focused on our industry as well as financial and managerial experience, we believe that the collective skills and experience of our Board members are well suited to guide us as we continue to grow our company. 

Liawang Zhang.  Mr. Zhang has over 14 years of professional experience in areas of nutritional products, Chinese herb extracts, packaged products, animal health products, animal medicine and chemical products.  He has significant experience in starting companies within our industry segments and has many professional contacts which serve to promote our efforts to expand our business and operations. 

 
- 27 -

 

Dongdong Lin.  Ms. Lin has over 18 years operational experience in our industry. 

Chengxiang Yan.  Mr. Yan has over 18 years marketing experience in our industry and an advanced degree in farming.

Stockholders Agreement – Election of Directors

On February 5, 2009, as part of the Securities Purchase Agreement we entered into with WILD Flavors, we entered into a stockholders agreement with WILD Flavors and certain of our shareholders who owned approximately 34.12% of our common stock at the time the agreement was entered into.  The stockholders agreement provides that so long as WILD Flavors owns at least 4,000,000 shares of our common stock, the parties to that agreement 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 shareholders who are a party to the stockholders agreement.  As of the date of this report, WILD Flavors has not designated anyone to be appointed to our Board of Directors.

Compliance with Section 16(a) of the Exchange Act
 
        Based solely upon a review of Forms 3 and 4 and amendments thereto furnished to us under Rule 16a-3(d) of the Securities Exchange Act of 1934 during the fiscal year ended April 30, 2014 and Forms 5 and amendments thereto furnished to us with respect to the fiscal year ended April 30, 2014, as well as any written representation from a reporting person that no Form 5 is required, we are not aware that any officer, director or 10% or greater shareholder failed to file on a timely basis, as disclosed in the aforementioned Forms, reports required by Section 16(a) of the Securities Exchange Act of 1934 during the fiscal year ended April 30, 2014.

Code of Business Conduct and Ethics

In April 2005, we adopted a Code of Ethics applicable to our Chief Executive Officer, principal financial and accounting officers and persons performing similar functions. A Code of Ethics is a written standard designed to deter wrongdoing and to promote:

 
-
 
honest and ethical conduct;
 
-
 
full, fair, accurate, timely and understandable disclosure in regulatory filings and public statements;
 
-
 
compliance with applicable laws, rules and regulations;
 
-
 
the prompt reporting violation of the code; and
 
-
 
accountability for adherence to the Code.

A copy of our Code of Ethics is filed as an exhibit to this annual report and we will provide a copy, without charge, to any person desiring a copy of the Code of Ethics, by written request to us at our principal offices, attention: Corporate Secretary.

Committees of the Board of Directors and Independence

Our Board of Directors has not yet established an Audit Committee, a Compensation Committee, a Nominating Committee or any committee performing a similar function. The functions of those committees are being undertaken by the entire board as a whole. Because we do not have any independent directors, our Board of Directors believes that the establishment of committees of the Board would not provide any benefits to our company and could be considered more form than substance.

We do not have a policy regarding the consideration of any director candidates which may be recommended by our stockholders, including the minimum qualifications for director candidates, nor has our Board of Directors established a process for identifying and evaluating director nominees. We have not adopted a policy regarding the handling of any potential recommendation of director candidates by our stockholders, including the procedures to be followed. Our Board has not considered or adopted any of these policies as we have never received a recommendation from any stockholder for any candidate to serve on our Board of Directors. Given that all our operations are located in the PRC and our lack of directors and officers insurance coverage, we do not anticipate that any of our stockholders will make such a recommendation in the near future. While there have been no nominations of additional directors proposed, in the event such a proposal is made, all members of our Board will participate in the consideration of director nominees.


 
- 28 -

 

None of our directors is an “audit committee financial expert” within the meaning of Item 407(d)(5) of Regulation S-K. In general, an “audit committee financial expert” is an individual member of the audit committee or Board of Directors who:

 
-
 
understands generally accepted accounting principles and financial statements;
 
-
 
is able to assess the general application of such principles in connection with accounting for estimates, accruals and reserves;
 
-
 
has experience preparing, auditing, analyzing or evaluating financial statements comparable to the breadth and complexity to our financial statements;
 
-
 
understands internal controls over financial reporting; and
 
-
 
understands audit committee functions.

Since the reverse acquisition of our company by Sunwin Tech in April 2004 our Board of Directors has been comprised of individuals who are members of our management or otherwise affiliated with our company. While we would prefer that one or more of our directors be an audit committee financial expert, none of our current directors have professional backgrounds in either finance or accounting.

All of our current management is located in the PRC and no member of our Board of Directors has previously served as an officer or a director of a U.S. public company. As a result of both the cultural differences between doing business in the PRC and doing business as a public company in the U.S., as well as the lack of experience of our Board of Directors with laws, rules and regulations which apply to public companies in the U.S., we are seeking to expand our Board of Directors to include qualified individuals who are also residents of the U.S. to serve as independent directors. At such time as we are able to attract additional members to our Board of Directors which include one or more independent directors, we intend to establish an Audit Committee of our Board of Directors. It is our intention that one or more of these independent directors will also qualify as an audit committee financial expert. Our securities are not quoted on a stock exchange that has requirements that a majority of our Board members be independent and we are not currently otherwise subject to any law, rule or regulation requiring that all or any portion of our Board of Directors include “independent” directors, nor are we required to establish or maintain an Audit Committee or other committee of our Board of Directors.

Board oversight in risk management

Risk is inherent with every business, and how well a business manages risk can ultimately determine its success.  We face a number of risks, including liquidity risk, operational risk, strategic risk and reputation risk.  Our Chief Executive Officer also serves as one of our three directors and we do not have a lead director.  In the context of risk oversight, at the present stage of our operations we believe that our selection of one person to serve in both positions provides the Board with additional perspective which combines the operational experience of a member of management with the oversight focus of a member of the Board. The business and operations of our company are managed by our Board as a whole, including oversight of various risks that our company faces. Because our Board is comprised of members of our management, these individuals are responsible for both the day-to-day management of the risks we face as well as the responsibility for the oversight of risk management.

ITEM 11.
EXECUTIVE COMPENSATION.

Summary Compensation Table

The following table summarizes all compensation recorded by us in fiscal 2014 for:

 
-
 
our principal executive officer or other individual serving in a similar capacity;
 
-
 
our two most highly compensated executive officers other than our principal executive officer who made in excess of $100,000 in fiscal 2014 and who were serving as executive officers at April 30, 2014 as that term is defined under Rule 3b-7 of the Securities Exchange Act of 1934; and
 
-
 
up to two additional individuals for whom disclosure would have been required but for the fact that the individual was not serving as an executive officer at April 30, 2014.


 
- 29 -

 

All compensation was paid in RMB and the amounts below reflect the conversion to U.S. dollar, rounded to the nearest whole dollar, based upon an exchange rate of RMB 6.14 to $1.00. For definitional purposes in this annual report these individuals are sometimes referred to as the “named executive officers.” The value attributable to any option awards is computed in accordance with FASB ASC Topic 718. 

Name and Principal Position
Year
 
Salary ($)
   
Bonus ($)
   
Stock Awards ($)
   
Option Awards ($)
   
Total ($)
 
Laiwang Zhang  (1)
2014
 
$
32,985
   
$
-
     
-
     
-
   
$
32,985
 
 
2013
 
$
190,476
       
-
     
-
     
-
 
$
190,476
 
Dongdong Lin (2)
2014
 
$
63,086
   
$
-
     
-
     
-
   
$
63,086
 
 
2013
 
$
57,143
       
-
   
-
       
-
 
$
57,143
 
 
(1)
Mr. Zhang has served as our President and Chairman of the Board of Directors since April 2004.
(2)  
Ms. Lin has served as our Chief Executive Officer since February 2005.

Narrative Regarding Executive Compensation

Neither Mr. Zhang nor Ms. Lin is a party to an employment agreement with our company. Their compensation is determined by our Board of Directors, of which Mr. Zhang and Ms. Lin are members. The Board of Directors considers a number of factors in determining the compensation of Mr. Zhang and, Ms. Lin, including the scope of their duties and responsibilities to our company, compensation levels of executives with comparable duties in similar companies such as ours and the time they devote to our business. The Board of Directors did not consult with any experts or other third parties in establishing the compensation for Mr. Zhang or Ms. Lin. The amount of compensation payable to either Mr. Zhang or Ms. Lin can be changed at any time at the discretion of the Board of Directors.

We are required to contribute a portion of our employees’ total salaries to the Chinese government’s social insurance funds, including medical insurance, unemployment insurance and job injuries insurance, and a housing assistance fund, in accordance with relevant regulations.  Mr. Zhang and Ms. Lin are covered by these government sponsored programs.

Outstanding Equity Awards at Fiscal Year End

The following table provides information concerning unexercised options, stock that has not vested and equity incentive plan awards for each named executive officer outstanding as of April 30, 2014: 

OPTION AWARDS
   
STOCK AWARDS
 
Name
 
Number of securities underlying unexercised options (#) exercisable
   
Number of securities underlying unexercised options (#) unexercisable
   
Equity incentive plan awards: Number of securities underlying unexercised unearned options (#)
   
Option exercise price ($)
   
Option expiration
 date
   
Number of shares or units of stock that have not vested (#)
   
Market value of shares or units of stock that have not vested ($)
   
Equity incentive plan awards: Number of unearned shares, units or other rights
 that have not vested (#)
 
   
Equity incentive plan awards: Market or payout value of unearned shares, units or other rights
 that have
 not vested
 (#)
 
 
Laiwang Zhang
   
0
     
0
     
0
     
0
     
0
     
0
     
0
     
0
     
0
 
Dongdong Lin
   
0
     
0
     
0
     
0
     
0
     
0
     
0
     
0
     
0
 


 
- 30 -

 


2005 Equity Compensation Plan

On March 23, 2005, our Board of Directors authorized and adopted our 2005 Equity Compensation Plan. The purpose of the plan is to encourage stock ownership by our officers, directors, key employees and consultants, and to give these persons a greater personal interest in the success of our business and an added incentive to continue to advance and contribute to us. We have currently reserved 5,000,000 of our authorized but unissued shares of common stock for issuance under the plan, and a maximum of 5,000,000 shares may be issued, unless the plan is subsequently amended (subject to adjustment in the event of certain changes in our capitalization), without further action by our Board of Directors and stockholders, as required. Subject to the limitation on the aggregate number of shares issuable under the plan, there is no maximum or minimum number of shares as to which a stock grant or plan option may be granted to any person. Shares used for stock grants and plan options may be authorized and unissued shares or shares reacquired by us, including shares purchased in the open market. Shares covered by plan options which terminate unexercised will again become available for grant as additional options, without decreasing the maximum number of shares issuable under the plan, although such shares may also be used by us for other purposes. As of July 28, 2014, there are no shares available to be issued or options outstanding under the 2005 Equity Compensation Plan.

2006 Equity Compensation Plan

On February 7, 2006, our Board of Directors authorized and adopted our 2006 Equity Compensation Plan. The purpose of the plan is to encourage stock ownership by our officers, directors, key employees and consultants, and to give such persons a greater personal interest in the success of our business and an added incentive to continue to advance and contribute to us. Our Board of Directors administers the 2006 Equity Compensation Plan including, without limitation, the selection of the persons who will be awarded stock grants and granted options, the type of options to be granted, the number of shares subject to each Option and the exercise price. We have currently reserved 6,200,000 of our authorized but unissued shares of common stock for issuance under the 2006 Equity Compensation Plan, and a maximum of 6,200,000 shares may be issued, unless the plan is subsequently amended (subject to adjustment in the event of certain changes in our capitalization). Subject to the limitation on the aggregate number of shares issuable under the plan, there is no maximum or minimum number of shares as to which a stock grant or plan option may be granted to any person. Shares used for stock grants and plan options may be authorized and unissued shares or shares reacquired by us, including shares purchased in the open market. Shares covered by plan options which terminate unexercised will again become available for grant as additional options, without decreasing the maximum number of shares issuable under the 2006 Equity Compensation Plan, although such shares may also be used by us for other purposes. As of July 28, 2014, there are no shares available to be issued or options outstanding under the 2006 Equity Compensation Plan.

2012 Equity Compensation Plan

On August, 2012, our Board of Directors authorized and adopted our 2012 Equity Compensation Plan. The purpose of the plan is to encourage stock ownership by our officers, directors, key employees and consultants, and to give these persons a greater personal interest in the success of our business and an added incentive to continue to advance and contribute to us. We have currently reserved 10,000,000 of our authorized but unissued shares of common stock for issuance under the plan, and a maximum of 10,000,000 shares may be issued, unless the plan is subsequently amended (subject to adjustment in the event of certain changes in our capitalization), without further action by our Board of Directors and stockholders, as required. Subject to the limitation on the aggregate number of shares issuable under the plan, there is no maximum or minimum number of shares as to which a stock grant or plan option may be granted to any person. Shares used for stock grants and plan options may be authorized and unissued shares or shares reacquired by us, including shares purchased in the open market. Shares covered by plan options which terminate unexercised will again become available for grant as additional options, without decreasing the maximum number of shares issuable under the plan, although such shares may also be used by us for other purposes.

Director Compensation

We do not have a policy establishing compensation arrangements for members of our Board of Directors and no Board member received any compensation for his or her services during fiscal 2014 other than their regular employee compensation.

 
- 31 -

 


ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

On July 28, 2014 we had 173,882,803 shares of common stock issued and outstanding. The following table sets forth information known to us as of July 28, 2014 relating to the beneficial ownership of shares of our common stock by:

 
-
 
each person who is known by us to be the beneficial owner of more than five percent of our outstanding common stock;
 
-
 
each director;
 
-
 
each named executive officer; and
 
-
 
all named executive officers and directors as a group.

Unless otherwise indicated, the business address of each person listed is in care of 6 Shengwang Avenue, Qufu, Shandong, China 273100. We believe that all persons named in the table have sole voting and investment power with respect to all shares of common stock shown as being owned by them. Under securities laws, a person is considered to be the beneficial owner of securities owned by them (or certain persons whose ownership is attributed to them) and that can be acquired by them within 60 days from the that date, including upon the exercise of options, warrants or convertible securities. We determine a beneficial owner’s percentage ownership by assuming that options, warrants or convertible securities that are held by them, but not those held by any other person, and which are exercisable within 60 days of the that date, have been exercised or converted.

NAME OF BENEFICIAL OWNER
 
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP
   
% OF CLASS
 
Laiwang Zhang 
   
3,457,154
     
2.0
%
Dongdong Lin 
   
4,984,108
     
2.9
%
Fanjun Wu 
   
1,732,052
     
1.0
%
Chengxiang Yan
   
-
     
-
 
All officers and directors as a group (four persons)
   
10,173,314
     
5.9
%
WILD Flavors, Inc. (1)
   
27,666,666
     
15.9
%
                 

 
(1)
Amount includes 20,000,000 shares of our common stock owned of record according to the purchase agreement with WILD Flavors in February 2009. Michael H. Ponder has voting and dispositive control over securities held by WILD Flavors whose address is 1261 Pacific Avenue, Erlanger, Kentucky 41018.

Securities Authorized for Issuance under Equity Compensation Plans

The following table sets forth securities authorized for issuance under any equity compensation plans approved by our shareholders as well as any equity compensation plans not approved by our shareholders as of April 30, 2014. 

 
- 32 -

 


   
Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)
   
Weighted average exercise price of outstanding options, warrants and rights (b)
   
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)
 
Plan category
                 
Plans approved by our shareholders:
                 
                         
  2005 Equity Compensation Plan
   
  0
     
N/A
     
  0
 
  2006 Equity Compensation Plan
   
  0
     
N/A
     
  0
 
  2008 Equity Compensation Plan
   
 0
     
N/A
     
 0
 
  2012 Equity Compensation Plan
   
0
     
N/A
     
0
 
                         
Plans not approved by shareholders:
                       
   None.
                       

 
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

Related Party Transactions

From time to time we engage in transactions with related parties.  The following is a summary of the related party transactions reflected on our consolidated financial statements as of April 30, 2014 and which have occurred through the date of this report:

From time to time we sell high-grade stevia products to Qufu Shengwang Import and Export Corporation, a Chinese entity owned by our Chairman. In fiscal 2014 and 2013, sales to this related party were $3,705,504 and $2,503,147, respectively.  On April 30, 2014 and 2013, this related party accounts receivable due us from this related party was $953,400 and $1,239,222, respectively.

From time to time, we received advances from related parties and advance funds to related parties for working capital purposes. We paid accrued interest expense of $34,550 in fiscal 2014, which connected the advance of $1,298,870 (RMB 8,000,000) from Shengwang Pharmaceutical Corporation, a Chinese entity owned by our Chairman, Mr. Laiwang Zhang. This advance bears interest at the rate of 9.225% per annum and the principal balance with accrued interest are due on December 13, 2014. The other advances bear no interest and are payable on demand.  On April 30, 2014, the balance we owed Qufu Shengwang Import and Export Corporation $106,308 and $248,873 to Pharmaceutical Corporation for working capital purpose.

At April 30, 2013, we owed Qufu Shengwang Import and Export Corporation $64,386 and $19,704 to Pharmaceutical Corporation for working capital purpose. We also owed Pharmaceutical Corporation $90,317 for the salaries and benefit expenses for management of fiscal 2013. These fees are for the administrative management of our operations and include compensation payable to certain of our employees. We also paid off management fees to Pharmaceutical Corporation, which is included in general and administrative expense. No more any management compensation will be charged by Pharmaceutical Corporation in fiscal 2014.

 Director Independence

None of our directors are considered independent within The NASDAQ Stock Market’s director independence standards pursuant to Marketplace Rule 5605.

 
- 33 -

 


ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES.

RBSM LLP served as our independent registered public accounting firm for fiscal 2014 and fiscal 2013. The following table shows the fees that were billed for the audit and other services provided by such firm for fiscal 2014 and fiscal 2013.

   
2014
   
2013
 
Audit Fees
 
$
90,000
   
$
94,000
 
Audit - Related Fees
   
-
     
 
Tax Fees
   
-
     
6,500
 
All Other Fees
   
-
     
 
   
$
90,000
   
$
100,500
 

Audit Fees - This category includes the audit of our annual financial statements, review of financial statements included in our quarterly reports on Form 10-Q and services that are normally provided by the independent auditors in connection with engagements for those fiscal years. This category also includes advice on audit and accounting matters that arose during, or as a result of, the audit or the review of interim financial statements.

Audit-Related Fees - This category consists of assurance and related services by the independent auditors that are reasonably related to the performance of the audit or review of our financial statements and are not reported above under Audit Fees.” The services for the fees disclosed under this category include consultation regarding our correspondence with the SEC and other accounting consulting.

Tax Fees - This category consists of professional services rendered by our independent auditors for tax compliance and tax advice. The services for the fees disclosed under this category include tax return preparation and technical tax advice.

All Other Fees - This category consists of fees for other miscellaneous items.

Our Board of Directors has adopted a procedure for pre-approval of all fees charged by our independent auditors. Under the procedure, the Board approves the engagement letter with respect to audit, tax and review services. Other fees are subject to pre-approval by the Board, or, in the period between meetings, by a designated member of Board. Any such approval by the designated member is disclosed to the entire Board at the next meeting. 

 
- 34 -

 

PART IV

ITEM 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES.

a) The following documents are filed as a part of this report or are incorporated by reference to previous filings, if so indicated:

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).
 
10.1
 
Share Exchange Agreement dated April 30, 2004 between Network USA, Inc. and the stockholders of Sunwin Tech Group, Inc. (Incorporated by reference to the Report on Form 8-K as filed with on May 12, 2004).
 
10.2
 
Stock Purchase Agreement between Sunwin Tech Group, Inc., Qufu Natural Green Engineering Company, Limited and Shandong Shengwang Pharmaceutical Group Corporation (Incorporated by reference to the Annual Report on Form 10-K for the fiscal year ended April 30, 2004).
 
10.3
+
2005 Equity Compensation Plan (Incorporated by reference to the Report on Form 8-K as filed on April 28, 2005).
 
10.4
 
Lease agreement dated October 1, 2002 between Shandong Shengwang Pharmaceutical Corporation and Qufu Natural Green Engineering Co., Ltd. (Incorporated by reference to the Annual Report on Form 10-KSB/A for the fiscal year ended April 30, 2005).
 
10.5
 
Lease agreement dated October 6, 2002 between Qufu LuCheng Chiya Resident Commitment and Qufu Natural Green Engineering Co., Ltd. (Incorporated by reference to the Annual Report on Form 10-KSB/A for the fiscal year ended April 30, 2005).
 
10.6
 
Lease agreement dated April 1, 2004 between Qufu ShengDa Industry Co., Ltd. and Qufu Natural Green Engineering Co., Ltd.( Incorporated by reference to the Annual Report on Form 10-KSB/A for the fiscal year ended April 30, 2005).
 
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).

 
- 35 -

 

 
 
10.13
 
Amendment to the June 30, 2008 Stock Sale and Purchase Agreement between Sunwin International Neutraceuticals, Inc. and Shandong Shengwang Group Co., Ltd. dated September 2, 2008 (Incorporated by reference Exhibit 10.16 to the Current Report on Form 8-K as filed on September 8, 2008).
 
10.14
 
November 18, 2008 Second Amendment to Acquisition Agreement by and among Qufu Natural Green Engineering Co., Ltd. and Qufu Shengwang Stevia Biology and Science Co., Ltd. and Shandong Shengwang Group, Co., Ltd. dated as of June 30, 2008 (Incorporated by reference Exhibit 10.19 to the Current Report on Form 8-K as filed on November 26, 2008).
 
10.15
 
November 18, 2008 Second Amendment to Stock Sale And Purchase Agreement between Sunwin International Neutraceuticals, Inc. and Shandong Shengwang Group Co., Ltd. dated as of June 30, 2008 (Incorporated by reference Exhibit 10.20 to the Current Report on Form 8-K as filed on November 26, 2008).
 
10.16
 
Securities Purchase Agreement between Sunwin International Neutraceuticals, Inc. and Wild Flavors, Inc. dated February 5, 2009 (Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K as filed on February 11, 2009).
 
10.17
 
Form of Operating Agreement between Sunwin International Neutraceuticals, Inc. and Wild Flavors, Inc. (Incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K as filed on February 11, 2009).
 
10.18
 
Distributorship Agreement dated February 5, 2009 among Sunwin International Neutraceuticals, Inc., Sunwin Stevia International Corp. and Wild Flavors, Inc. (Incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K as filed on February 11, 2009).
 
10.19
 
Consulting and Management Agreement between Sunwin International Neutraceuticals, Inc. and China Direct Investments, Inc. dated as of April 29, 2009. (Incorporated by reference to Exhibit 10.24 to the Annual Report on Form 10-K filed on July 29, 2009).
 
10.20
 
Stock Sale and Purchase Agreement dated June 29, 2010 among Qufu Natural Green Engineering, Shengya Veterinary Medicine Co., Ltd., and Mr. Laiwang Zhang (Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on July 7, 2010).
 
10.21
 
Stock Transfer Agreement between Korea Stevia Co, Ltd. and Qufu Shengwang Stevia Biology and Science Co., Ltd. dated September 30, 2011 (Incorporated by reference to Exhibit 10.22 to the Quarterly Report on Form 10-Q for the period ended October 31, 2011).
 
10.22
 
Commercial Housing Purchase and Sale Contract between Qufu Jinxuan Real Estate Development Co., Ltd. and Qufu Natural Green Engineering Co., Ltd. dated August 25, 2011 (Incorporated by reference to Exhibit 10.23 to the Quarterly Report on Form 10-Q for the period ended October 31, 2011).
 
10.23
 
Loan Agreement dated November 18, 2011 by and between Qufu Natural Green Engineering Co., Ltd. and Shandong Shengwang Pharmaceutical Co., Ltd. (Incorporated by reference to Exhibit 10.24 to the Quarterly Report on Form 10-Q for the period ended January 31, 2012).
 
10.24
 
Supplier Agreement dated December 2, 2012 by and between Sunwin International Neutraceuticals, Inc. and Domino Foods, Inc. (Incorporated by reference to Exhibit 10.25 to the Quarterly Report on Form 10-Q for the period ended January 31, 2012).
 
10.25
 
Loan Agreement dated December 16, 2011 by and between Qufu Natural Green Engineering Co., Ltd. and Shandong Anda Bio-Tech Co., Ltd. (Incorporated by reference to Exhibit 10.26 to the Quarterly Report on Form 10-Q for the period ended January 31, 2012).
 
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. *
 
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).
 
16.1
 
Letter dated December 6, 2013 from RBSM LLP (incorporated by reference to the Current Report on Form 8-K as filed on December 9, 2013).
 
21.1
 
Subsidiaries of the registrant.*(incorporated by reference to the Annual Report on Form 10-K for the year ended Ajpril 30, 2013)
 
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.*


 
- 36 -

 

 
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**
 
+ Management contract or compensatory plan or arrangement.
* filed herewith
** In accordance with Regulation S-T, the XBRL-formatted interactive data files that comprise Exhibit 101 to this Annual Report on Form 10-K shall be deemed “furnished” and not “filed”.


 
- 37 -

 

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 
Sunwin Stevia International, Inc.
     
 July 29, 2014
By:
/s/ Dongdong Lin
   
Dongdong Lin, Chief Executive Officer
     
 July 29, 2014
By:
/s/ Fanjun Wu
   
Fanjun Wu, Chief Financial Officer

 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature
Title
Date
     
/s/ Laiwang Zhang 
President and Chairman of the Board of Directors
July 29, 2014
Laiwang Zhang 
   
     
/s/ Dongdong Lin 
Chief Executive Officer and director (principal executive officer)
July 29, 2014
Dongdong Lin 
   
     
/s/ Fanjun Wu 
Chief Financial Officer (principal financial and accounting officer)
July 29, 2014
Fanjun Wu 
   
     
/s/ Chengxiang Yan 
Director
July 29, 2014
Chengxiang Yan 
   


 
- 38 -

 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 
 
 Page
Report of Independent Registered Public Accounting Firm
F – 2
Consolidated Financial Statements:
 
   Consolidated Balance Sheets
F – 3
   Consolidated Statements of Operations and Comprehensive Loss
F – 4
   Consolidated Statement of Changes in Stockholders’ Equity
F – 5
   Consolidated Statements of Cash Flows
F – 6
Notes to Consolidated Financial Statements
F - 7 to F - 19


 
F - 1

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Shareholders and Directors 
Sunwin Stevia International, Inc. and Subsidiaries 

We have audited the accompanying consolidated balance sheets of Sunwin Stevia International, Inc. (the “Company”) as of April 30, 2014 and 2013 and the related consolidated statements of operations and comprehensive loss, changes in stockholders’ equity and cash flows for each of the two years in the period ended April 30, 2014. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We are not engaged to perform an audit of the Company’s internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purposes of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of April 30, 2014 and 2013 and the results of its operations and its cash flows for each of the two years in the period ended April 30, 2014, in conformity with accounting principles generally accepted in the United States. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has incurred significant losses. This raises substantial doubt about the Company's ability to continue as a going concern. Management's plans, with respect to these matters are also described in Note 1 to the consolidated financial statements. The consolidated financial statements do not include any adjustments that might result should the Company be unable to continue as a going concern.

 
/s/ RBSM LLP
 
Certified Public Accountants
   
  New York, NY
  July 29, 2014
 
 


 
F - 2

 


SUNWIN STEVIA INTERNATIONAL, INC. AND SUBSIDIARIES
 
CONSOLIDATED BALANCE SHEETS
 
             
   
April 30,
 
   
2014
   
2013
 
ASSETS
           
CURRENT ASSETS:
           
Cash and cash equivalents
  $ 1,195,563     $ 517,106  
Accounts receivable, net of allowance for doubtful accounts of $1,143,550 and $1,000,291, respectively
    2,012,036       1,614,152  
Accounts receivable - related party
    953,400       1,239,222  
Notes receivable
    -       41,851  
Loans receivable
    -       43,614  
Inventories, net
    3,253,365       4,927,971  
Prepaid expenses and other current assets
    1,192,649       1,189,416  
                 
Total Current Assets
    8,607,013       9,573,332  
                 
Investment in real estate held for resale
    1,963,891       1,947,042  
Property and equipment, net
    14,938,358       15,725,384  
Intangible assets, net
    1,083,915       1,409,090  
Land use rights, net
    2,252,275       2,289,544  
                 
     Total Assets
  $ 28,845,452     $ 30,944,392  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
               
CURRENT LIABILITIES:
               
Accounts payable and accrued expenses
  $ 3,545,377     $ 3,626,117  
Loan payable
    811,794       804,829  
Deferred grant income
    631,395       -  
Due to related party
    355,181       174,404  
                 
    Total Current Liabilities
    5,343,747       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 April 30, 2014 and 2013, respectively
    173,883       173,883  
Additional paid-in capital
    33,479,529       33,479,529  
Accumulated deficit
    (15,895,527 )     (12,829,706 )
Accumulated other comprehensive income
    5,743,820       5,515,336  
                 
    Total Stockholders' Equity
    23,501,705       26,339,042  
                 
      Total Liabilities and Stockholders' Equity
  $ 28,845,452     $ 30,944,392  
                 
The accompanying notes are an integral part of these consolidated financial statements
 


 
F - 3

 


SUNWIN STEVIA INTERNATIONAL, INC. AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
 
             
   
For the Years Ended April 30,
 
   
2014
   
2013
 
Revenues
  $ 9,168,153     $ 7,299,381  
Revenues - related party
    3,705,504       2,503,147  
Total revenues
    12,873,657       9,802,528  
Cost of revenues
    10,464,926       7,745,576  
Gross profit
    2,408,731       2,056,952  
Operating expenses:
               
Loss on disposition of property and equipment
    -       209,500  
Selling expenses
    1,217,284       965,293  
General and administrative expenses
    3,283,434       4,470,548  
Research and development expenses
    1,488,969       120,620  
                 
Total operating expenses
    5,989,687       5,765,961  
Loss from operations
    (3,580,956 )     (3,709,009 )
                 
Other income (expenses):
               
Other income (expenses)
    125,954       (239,828 )
Grant income
    506,300       -  
Interest income
    3,025       2,490  
Interest expense - related party
    (34,550 )     -  
Interest expense
    (85,594 )     (27,793 )
Total other income (expenses)
    515,135       (265,131 )
Loss before income taxes
    (3,065,821 )     (3,974,140 )
Income taxes expense
    -       (36,588 )
Net loss
  $ (3,065,821 )   $ (4,010,728 )
Comprehensive loss:
               
Net loss
  $ (3,065,821 )   $ (4,010,728 )
Foreign currency translation adjustment
    228,484       375,071  
Total comprehensive loss
  $ (2,837,337 )   $ (3,635,657 )
Net loss per common share:
               
Net loss per share - basic and diluted
  $ (0.02 )   $ (0.02 )
Weighted average common shares outstanding - basic and diluted
    173,882,803       167,886,887  
                 
The accompanying notes are an integral part of these consolidated financial statements
 


 
F - 4

 


SUNWIN STEVIA INTERNATIONAL, INC. AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
 
For the Years Ended April 30, 2014 and 2013
 
                                     
   
Number of shares
   
Amount
   
Additional Paid-in Capital
   
Accumulated Deficit
   
Accumulated Other Comprehensive Income
   
Total Stockholders' Equity
 
Balance, April 30, 2012
    157,356,137     $ 157,356     $ 30,445,222     $ (8,818,978 )   $ 5,140,265     $ 26,923,865  
                                                 
Common stock issued for services and debt
    2,860,000       2,860       704,640       -       -       707,500  
Common stock issued for employee compensation
    6,000,000       6,000       804,000       -       -       810,000  
Acquisition of 45% equity interest of Sunwin USA
    7,666,666       7,667       1,525,667       -       -       1,533,334  
Net loss for the period
    -       -       -       (4,010,728 )     -       (4,010,728 )
Foreign currency translation adjustment
    -       -       -       -       375,071       375,071  
Balance, April 30, 2013
    173,882,803       173,883       33,479,529       (12,829,706 )     5,515,336       26,339,042  
                                                 
Common stock issued for services and debt
    -       -       -       -       -       -  
Common stock issued for employee compensation
    -       -       -       -       -       -  
Net loss for the period
    -       -       -       (3,065,821 )     -       (3,065,821 )
Foreign currency translation adjustment
    -       -       -       -       228,484       228,484  
Balance, April 30, 2014
    173,882,803     $ 173,883     $ 33,479,529     $ (15,895,527 )   $ 5,743,820     $ 23,501,705  
                                                 
The accompanying notes are an integral part of these consolidated financial statements
 


 
F - 5

 


SUNWIN STEVIA INTERNATIONAL, INC. AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
   
   
For the Years Ended April 30,
 
   
2014
   
2013
 
CASH FLOWS FROM OPERATING ACTIVITIES:
           
Net loss
  $ (3,065,821 )   $ (4,010,728 )
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
               
Depreciation expense
    1,781,938       1,587,892  
Amortization of intangible assets
    325,175       216,784  
Amortization of land use right
    57,469       42,084  
Loss on disposition of property and equipment
    -       209,500  
Stock issued for employee compensation
    -       810,000  
Stock issued for services
    -       614,959  
Inventory impairment change
    -       232,079  
Allowance for doubtful accounts
    166,332       52,021  
Changes in operating assets and liabilities:
               
Accounts receivable and notes receivable
    (555,780 )     792,181  
Accounts receivable - related party
    297,241       (671,878 )
Inventories
    1,721,277       (786,053 )
Prepaid expenses and other current assets
    (42,443 )     (523,007 )
Accounts payable and accrued expenses
    (193,443 )     (400,067 )
Deferred grant income
    632,875       -  
Taxes payable
    177,560       (167,604 )
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
    1,302,380       (2,001,837 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Purchases of property and equipment
    (851,624 )     (3,271,922 )
Decrease in loan receivable
    -       (3,245 )
Proceeds from loan receivable
    43,614       1,923,759  
NET CASH (USED IN) INVESTING ACTIVITIES
    (808,010 )     (1,351,408 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Proceeds from short-term loan
    -       794,483  
Advance due from related party
    2,454,872       3,560  
Repayment for related party advances
    (2,348,345 )     -  
NET CASH PROVIDED BY FINANCING ACTIVITIES
    106,527       798,043  
                 
EFFECT OF EXCHANGE RATE ON CASH
    77,560       113,413  
NET INCREASE (DECREASE) IN CASH
    678,457       (2,441,789 )
                 
Cash at the beginning of year
    517,106       2,958,895  
Cash at the end of year
  $ 1,195,563     $ 517,106  
                 
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
               
Cash paid for income taxes
  $ -     $ 41,486  
Cash paid for interest
  $ 120,144     $ 27,793  
NON-CASH INVESTING AND FINANCING ACTIVITIES:
               
Intangible assets acquired from acquisition
  $ -     $ 1,625,874  
Shares issued for acquisition
  $ -     $ 1,625,874  
                 
The accompanying notes are an integral part of these consolidated financial statements
 

 
F - 6

 
SUNWIN STEVIA INTERNATIONAL, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 2014 AND 2013
 

 
NOTE 1 - ORGANIZATION, NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
DESCRIPTION OF BUSINESS

Sunwin Stevia International, Inc., a Nevada corporation, and its subsidiaries are referred to in this report as “we”, “us”, “our”, or “Sunwin”. We 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 2014, 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 use these assets to manufacture a variety of traditional Chinese medicine formula extracts. We started production in last quarter of 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 99.


 
F - 7

 
SUNWIN STEVIA INTERNATIONAL, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 2014 AND 2013
 


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.  

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.

 
F - 8

 
SUNWIN STEVIA INTERNATIONAL, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 2014 AND 2013
 

BASIS OF PRESENTATION

The accompanying consolidated financial statements have been prepared in accordance with U.S. GAAP and pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC") for interim financial reporting. The accompanying consolidated financial statements for the interim periods presented are audited 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.

Our consolidated financial statements include the accounts of Sunwin and all our wholly-owned and majority- owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. Our subsidiaries include the following:

-                                Qufu Natural Green;
-                                Qufu Shengren;
-                                Qufu Shengwang;
-                                Sunwin Tech; and
-                                Sunwin USA

As reflected in the accompanying consolidated financial statements, the Company had a net loss of $3,065,821 for the year ended April 30, 2014 and has cash and cash equivalents and an accumulated deficit of $1,195,563 and $15,895,527 at April 30, 2014, respectively. These matters raise substantial doubt about the company’s ability to continue as a going concern.  The ability of the Company to continue as a going concern is dependent on the Company’s ability to further implement its business plan, raise additional capital, and generate more revenues. The consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

USE OF ESTIMATES

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the 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 April 30, 2014, we held $1,194,668, of our cash and cash equivalents with commercial banking institutions in the PRC, and $895 with banks in the United States. In the PRC, there is no equivalent federal deposit insurance as in the United States, so the amounts held in banks in the PRC are not insured. We have not experienced any losses in such bank accounts through April 30, 2014.

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. On April 30, 2014 and 2013, the allowance for doubtful accounts was $1,143,550 and $1,000,291, respectively.

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. On April 30, 2014 and 2013, the Company recorded a reserve for obsolete or slow-moving inventories of $635,644 and $954,108, respectively.

 
F - 9

 
SUNWIN STEVIA INTERNATIONAL, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 2014 AND 2013
 

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 Accounting Standards Codification (“ASC”), 360-10-35-17 of the Financial Accounting Standards Board (FASB), we examine the possibility of decreases in the value of property and equipment when events or changes in circumstances reflect the fact that their recorded value may not be recoverable.

LONG-LIVED ASSETS

In accordance with ASC 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 April 30, 2014 and 2013, respectively. (See Note 5).

FAIR VALUE OF FINANCIAL INSTRUMENTS

We follow the 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, loans receivable, prepayments and other current assets, accounts payable and accrued expenses, and taxes payable, approximate their fair values because of the short maturity of these instruments.  

TAXES PAYABLE

We are required to charge for and to collect value added taxes (VAT) on our sales. In addition, we pay value added taxes on our primary purchases, recorded as a receivable. These amounts are presented as net amounts for financial statement purposes. Taxes payable (receivable) on April 30, 2014 and April 30, 2013 amounted to $69,298 and $(95,413), respectively, consisting primarily of VAT taxes.

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.

GRANT INCOME

Grants received from PRC government agencies are recognized as deferred grant income and recognized in the consolidated statements of operations and comprehensive loss as and when they are earned for the specific research and development projects for which these grants are received.

 
F - 10

 
SUNWIN STEVIA INTERNATIONAL, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 2014 AND 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 April 30, 2014, the Company had no uncertain tax positions, and will continue to evaluate for uncertain positions in the future.

BASIC AND DILUTED LOSS PER SHARE

Pursuant to ASC 260-10-45, basic loss per common share is computed by dividing loss available to common shareholders by the weighted average number of shares of common stock outstanding for the periods presented. Diluted 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. The following table presents a reconciliation of basic and diluted net income per ordinary share:

   
For Fiscal Years Ended April 30,
   
2014
   
2013
 
Numerator:
           
Net loss
 
$
(3,065,821
)
 
$
(4,010,728
)
Numerator for basic EPS, loss applicable to common stockholders
 
$
(3,065,821
)
 
$
(4,010,728
)
Denominator:
               
Denominator for basic earnings per share - weighted average number of common shares outstanding
   
173,882,803
     
167,886,887
 
Effect of dilutive securities:
               
  Warrants