Yew Bio-Pharm Group, Inc. - FORM 10-Q

Attached files

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EX-32.1 - CERTIFICATION - Yew Bio-Pharm Group, Inc.	f10q0620ex32-1_yewbio.htm
EX-31.2 - CERTIFICATION - Yew Bio-Pharm Group, Inc.	f10q0620ex31-2_yewbio.htm
EX-31.1 - CERTIFICATION - Yew Bio-Pharm Group, Inc.	f10q0620ex31-1_yewbio.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2020

☐ 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 000-54701

YEW BIO-PHARM GROUP, INC.

(Exact name of registrant as specified in its charter)

Nevada		26-1579105
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

9460 Telstar Avenue, Suite 6

El Monte, California 91731

(Address of principal executive offices) (Zip Code)

(626) 401-9588

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data 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 ☒ No ☐

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

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging Growth Company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, par value $0.001 per share		YEWB		OTC Markets Group

As of August 13, 2020, there were 51,700,000 shares, $0.001 par value per share, of the registrant’s common stock outstanding.

YEW BIO-PHARM GROUP, INC.

FORM 10-Q

FOR THE THREE-MONTH PERIOD ENDED JUNE 30, 2020

TABLE OF CONTENTS

		Page Number

PART I. FINANCIAL INFORMATION

ITEM 1.	CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)	1

	CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2020 (UNAUDITED) AND DECEMBER 31, 2019	1

	CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED) FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020 AND 2019	2

	CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30, 2020 AND 2019	3

	CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30, 2020 AND 2019	4

	NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS	5

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	25

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	37

ITEM 4.	CONTROLS AND PROCEDURES	37

PART II. OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS	38

ITEM 1A.	RISK FACTORS	38

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	38

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	38

ITEM 4.	MINE SAFETY DISCLOSURES	38

ITEM 5.	OTHER INFORMATION	38

ITEM 6.	EXHIBITS	38

Forward-Looking Statements

This document contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical fact are “forward-looking statements”, including, but not limited to, any projections of earnings, revenue or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements concerning proposed new services or developments; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing.

Forward-looking statements may include the words “may,” “could,” “will,” “estimate,” “intend,” “continue,” “believe,” “expect” or “anticipate” or other similar words. These forward-looking statements present our estimates and assumptions only as of the date of this report. Except for our ongoing obligation to disclose material information as required by the federal securities laws, we do not intend, and undertake no obligation, to update any forward-looking statement.

Although we believe that the expectations reflected in any of our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any of our forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and inherent risks and uncertainties. Some of the key factors impacting these risks and uncertainties include, but are not limited to:

	●	risks related to our ability to collect amounts owed to us by some of our largest customers;

	●	our ability to continue to purchase yew cuttings from our various suppliers at relatively stable prices;

	●	our dependence on a small number of customers for our yew raw materials, including a related party ;

	●	our dependence on a small number of customers for our yew trees for reforestation;

	●	our ability to market successfully yew raw materials used in the manufacture of traditional Chinese medicine (“TCM”);

	●	industry-wide market factors and regulatory and other developments affecting our operations;

	●	our ability to sustain revenues should the Chinese economy slow from its current rate of growth;

	●	continued preferential tax treatment for the sale of yew trees and potted yew trees;

	●	uncertainties about involvement of the Chinese government in business in the People’s Republic of China (the “PRC” or “China”) generally; and

	●	any change in the rate of exchange of the Chinese Renminbi (“RMB”) to the U.S. dollar, which could affect currency translations of our results of operations, which are earned in RMB but reported in dollars;

	●	industry-wide market factors and regulatory and other developments affecting our operations;

	●	any impairment of any of our assets;

	●	a slowdown in the Chinese economy; and

	●	risks related to changes in accounting interpretations.

For a detailed description of these and other factors that could cause actual results to differ materially from those expressed in any forward-looking statement, please see the section entitled “Risk Factors”, beginning on page 13 of our Annual Report on Form 10-K for the year ended December 31, 2019 filed with the Securities & Exchange Commission (“SEC”) on May 14, 2020.

PART I

FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

YEW BIO-PHARM GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	June 30,			December 31,
	2020			2019
	(Unaudited)
ASSETS
CURRENT ASSETS:
Cash	$	1,668,509		$	742,294
Accounts receivable		4,168,478			7,692,613
Accounts receivable - related parties, net		4,320,000			193,000
Inventories, net		1,819,551			2,637,389
Prepaid expenses - related parties		-			5,829
Prepaid expenses and other assets		222,982			51,140
VAT recoverable		751,865			349,096

Total Current Assets		12,951,385			11,671,361

LONG-TERM ASSETS:
Long-term inventories, net		1,160,306			1,579,615
Property and equipment, net		492,517			474,903
Intangible assets, net		30,404			32,325
Land use rights and yew forest assets, net		40,170,425			40,048,696
Long-term advances for yew forest assets		600,299			-
Operating lease right-of-use assets		339,080			399,817

Total Long-term Assets		42,793,031			42,535,356

Total Assets	$	55,744,416		$	54,206,717

LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable for acquisition of yew forests and others	$	1,324,718		$	920,459
Accounts payable for acquisition of yew forests and others - related parties		420,103			16,629
Advances from customers		407,208			50,071
Advances from customers - related parties		110,349			-
Accrued expenses and other payables		403,015			266,749
Due to related parties		630,724			633,779
Short-term borrowings		8,487,119			8,541,517
Operating lease liabilities, current		59,799			52,104

Total Current Liabilities		11,843,035			10,481,308

NONCURRENT LIABILITIES:
Taxes payable, noncurrent		1,088,194			1,088,194
Long-term deferred income		1,119,142			892,375
Operating lease liabilities, noncurrent		296,940			351,145
Total Noncurrent Liabilities		2,504,276			2,331,714

Total Liabilities		14,347,311			12,813,022

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS’ EQUITY:
Common Stock: $0.001 par value; 140,000,000 shares authorized; 51,700,000 shares issued and outstanding at June 30, 2020 and December 31, 2019		51,700			51,700
Additional paid-in capital		9,648,014			9,819,828
Retained earnings		30,839,702			29,950,723
Statutory reserves		3,762,288			3,762,288
Accumulated other comprehensive loss		(2,904,599	)		(2,190,844	)

Total Shareholders’ Equity		41,397,105			41,393,695

Total Liabilities and Shareholders’ Equity	$	55,744,416		$	54,206,717

See notes to these unaudited consolidated financial statements.

YEW BIO-PHARM GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

	For the Three Months Ended June 30						For the Six Months Ended June 30
	2020			2019			2020			2019
REVENUES:
Revenues	$	159,709		$	9,782,457		$	181,498		$	9,815,938
Revenues - related parties		9,402,448			2,782,765			11,409,841			14,263,288

Total Revenues		9,562,157			12,565,222			11,591,339			24,079,226

COST OF REVENUES:
Cost of revenues		341,204			9,829,839			382,570			9,856,507
Cost of revenues - related parties		7,935,570			2,089,325			9,481,131			12,418,132

Total Cost of Revenues		8,276,774			11,919,164			9,863,701			22,274,639

GROSS PROFIT		1,285,383			646,058			1,727,638			1,804,587

OPERATING EXPENSES:
Selling, general and administrative		235,417			218,433			516,944			513,404
Bad debt expense		193,466			(708,576	)		196,806			(390,292	)

Total Operating Expenses		428,883			(490,143	)		713,750			123,112
					-
INCOME FROM OPERATIONS		856,500			1,136,201			1,013,888			1,681,475

OTHER INCOME (EXPENSES):
Interest expense		(123,617	)		(93,035	)		(235,594	)		(181,744	)
Other (expense) income		(73	)		248,768			13,417			291,785
Foreign currency transaction gains		4,757			174,370			97,268			73,436

Total Other (Expense) Income		(118,933	)		330,103			(124,909	)		183,477

INCOME BEFORE PROVISION FOR INCOME TAXES		737,567			1,466,304			888,979			1,864,952
PROVISION FOR INCOME TAXES		-			(29,881	)		-			(51,487	)
NET INCOME	$	737,567		$	1,436,423		$	888,979		$	1,813,465

COMPREHENSIVE INCOME (LOSS):
NET INCOME(LOSS)	$	737,567		$	1,436,423		$	888,979		$	1,813,465
OTHER COMPREHENSIVE INCOME (LOSS):
Foreign currency translation adjustment		102,289			(976,156	)		(713,755	)		48,728

COMPREHENSIVE INCOME	$	839,856		$	460,267		$	175,224		$	1,862,193

NET INCOME PER COMMON SHARE:
Basic	$	0.01		$	0.03		$	0.02		$	0.03
Diluted	$	0.01		$	0.03		$	0.02		$	0.03
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic		51,700,000			51,700,000			51,700,000			51,822,238
Diluted		51,700,000			51,700,000			51,700,000			51,822,238

See notes to these unaudited consolidated financial statements.

YEW BIO-PHARM GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	For the Six Months Ended June 30,
	2020			2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	888,979		$	1,813,465
Adjustments to reconcile net income to net cash provided by operating activities:
Bad debt expense (recovery)		196,806			(390,292	)
Depreciation and amortization		14,820			30,239
Other Income- DMSU		-			(241,404	)
Inventory reserves		369,757			133,012
Amortization of land use rights and yew forest assets		1,271,620			791,954
Amortization of intangible assets		1,921			-
Sale of yew forest assets as inventory		4,330,465			3,814,313
Changes in operating assets and liabilities:
Accounts receivable		3,429,536			(9,696,019	)
Accounts receivable - related parties		(4,347,634	)		(992,849	)
Prepaid expenses and other current assets		(158,911	)		(410,680	)
Prepaid expenses - related parties		5,774			14,553
Inventories		827,706			6,169,697
Long-term advances for yew forest assets		(603,355	)		-
VAT recoverable		(409,926	)		(188,275	)
Accounts payable		(42,751	)		(179,578	)
Accounts payable - related parties		(188,284	)		-
Accrued expenses and other payables		138,844			244,372
Advances from customers		359,687			-
Advances from customers - related parties		110,910			2,776,697
Long-term deferred income		240,976			-
Due to related parties		(2,573	)		1,622

NET CASH PROVIDED BY OPERATING ACTIVITIES		6,434,367			3,690,827

CASH FLOWS FROM INVESTING ACTIVITIES:
Prepayments made for purchase of yew forest assets		-			(7,665	)
Prepayments made to related parties for purchase of yew forest assets		-			(132,667	)
Purchase of property and equipment		(39,349	)		(379	)
Purchase of land use rights and yew forest assets		(5,427,104	)		(6,296,954	)

NET CASH USED IN INVESTING ACTIVITIES		(5,466,453	)		(6,437,665	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term borrowings		5,299,883			5,234,081
Repayments of short-term borrowings		(5,229,963	)		(2,850,000	)
Proceeds from related parties		1,040			30,000

NET CASH PROVIDED BY FINANCING ACTIVITIES		70,960			2,414,081

EFFECT OF EXCHANGE RATE ON CASH		(112,659	)		(32,476	)

NET INCREASE (DECREASE) IN CASH		926,215			(365,233	)

CASH - Beginning of the year		742,294			521,670

CASH - End of the year	$	1,668,509		$	156,437

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Interest	$	235,594		$	159,559
Income taxes	$	-		$	136,034

NON-CASH INVESTING AND FINANCING ACTIVITIES
Operating expense paid by related party	$	853		$	884
Payable for acquisition of yew forests	$	-		$	1,791,687
Payable for acquisition of yew forests – related party	$	171,814		$	-

See notes to these unaudited consolidated financial statements.

YEW BIO-PHARM GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(UNAUDITED)

	Common Stock, Par Value $0.001						Additional							Accumulated Other			Total
	Number of Shares			Amount			paid-in Capital			Retained Earnings		Statutory Reserve		Comprehensive Income (Loss)			Shareholders’ Equity

Balance, December 31, 2018		52,075,000		$	52,075		$	9,953,494		$	28,965,217	$	3,762,288	$	(1,646,035	)	$	41,087,039
Cancellation of common stocks		(375,000	)		(375	)		375			-		-		-			-

Net income		-			-			-			1,813,465		-					1,813,465

Purchase of yew forest assets from entity under common control with price over carrying amount		-			-			(272,881	)		-		-		-			(272,881	)

Foreign currency translation adjustment		-			-			-			-		-		48,728			48,728

Balance, June 30, 2019		51,700,000		$	51,700		$	9,680,988		$	30,778,682	$	3,762,288	$	(1,597,307	)	$	42,676,351

	Common Stock, Par Value $0.001				Additional							Accumulated Other			Total
	Number of Shares		Amount		paid-in Capital			Retained Earnings		Statutory Reserve		Comprehensive Income (Loss)			Shareholders’ Equity

Balance, December 31, 2019		51,700,000	$	51,700	$	9,819,828		$	29,950,723	$	3,762,288	$	(2,190,844	)	$	41,393,695

Net income		-		-		-			888,979		-		-			888,979

Purchase of yew forest assets from entity under common control with price over carrying amount		-		-		(171,814	)		-		-		-			(171,814	)

Foreign currency translation adjustment		-		-		-			-		-		(713,755	)		(713,755	)

Balance, June 30, 2020		51,700,000	$	51,700	$	9,648,014		$	30,839,702	$	3,762,288	$	(2,904,599	)	$	41,397,105

See notes to these unaudited consolidated financial statements

YEW BIO-PHARM GROUP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

NOTE 1 - ORGANIZATION AND PRINCIPAL ACTIVITIES

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted as permitted by rules and regulations of the Securities and Exchange Commission (“SEC”). The consolidated balance sheet as of December 31, 2019 was derived from the audited consolidated financial statements of Yew Bio-Pharm Group, Inc. (individually “YBP” and collectively with its subsidiaries and operating variable interest entity, the “Company”). The accompanying unaudited interim consolidated financial statements should be read in conjunction with the summary of significant accounting policies and notes to consolidated financial statements included in the Company’s annual report on Form 10-K for the year ended December 31, 2019.

In the opinion of management, all adjustments (which include normal recurring adjustments) necessary to present a fair statement of the financial position as of June 30, 2020, and the results of operations and cash flows for the six months ended June 30, 2020 and 2019, have been presented.

The preparation of consolidated financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company continually evaluates its estimates, including those related to bad debts, inventories, income taxes, and the valuation of equity transactions. The Company bases its estimates on historical experience and on various other assumptions that it believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Any future changes to these estimates and assumptions could cause a material change to our reported amounts of revenues, expenses, assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions.

Certain amounts from prior period financial statements have been reclassified to conform to the current period presentation. This reclassification has resulted in no changes to the Company’s financial position or results of operations presented.

Details of the Company’s subsidiaries, variable interest entity (“VIE”) and VIE’s subsidiary are as follows:

Name	Domicile and Date of Incorporation	Registered Capital	Effective Ownership	Principal Activities
Heilongjiang Jinshangjing Bio-Technology Development Co., Limited (“JSJ”)	PRC October 29, 2009	US$100,000	100%	Holding company
Yew Bio-Pharm Holdings Limited (“Yew Bio-Pharm (HK)”)	Hong Kong November 29, 2010	HK$10,000	100%	Holding company of JSJ
Harbin Yew Science and Technology Development Co., Ltd. (“HDS”)	PRC August 22, 1996	RMB45,000,000	Contractual arrangements	Sales of yew tree components for use in pharmaceutical industry; sales of yew tree seedlings; the manufacture of yew tree wood handicrafts; and the sales of candle, pine needle extract, yew essential oil soap, complex taxus cuspidate extract, and northeast yew extract
Harbin Yew Food Co., Ltd (“HYF”)	PRC November 4, 2014	RMB100,000	100%(1)	Sales of wood ear mushroom drink
MC Commerce Holding Inc. (“MC”)	State of California, United State June 8, 2016		100%(2)	Sales of yew oil candles and yew oil soaps
Harbin Jingchibai Bio-Technology Development Co., Limited (“JCB”)	PRC March 18, 2020	RMB1,000,000	51%	Sales of yew oil candles and yew oil soaps, no active operation since its incorporation

(1)	Wholly-owned subsidiary of HDS

(2)	51% owned by YBP and 49% owned by HDS

NOTE 2 - PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the financial statements of YBP, its subsidiaries and operating VIE and its subsidiary in which the Company is the primary beneficiary. All significant intercompany balances and transactions have been eliminated on consolidation.

Pursuant to a restructuring plan intended to ensure compliance with applicable PRC laws and regulations (the “Second Restructure”), on November 5, 2010, JSJ entered into a series of contractual arrangements (the “Contractual Arrangements”) with HDS and/or Zhiguo Wang, his wife Guifang Qi and Xingming Han (collectively with Mr. Wang and Madame Qi, the “HDS Shareholders”), as described below:

●

Exclusive Business Cooperation Agreement. Pursuant to the Exclusive Business Cooperation Agreement between JSJ and HDS (the “Business Cooperation Agreement”), JSJ has the exclusive right to provide to HDS general business operation services, including advice and strategic planning, as well as consulting services related to technology, research and development, human resources, marketing and other services deemed necessary (collectively, the “Services”). Under the Business Cooperation Agreement, JSJ has exclusive and proprietary rights and interests in all rights, ownership, interests and intellectual properties arising out of or created during the performance of the Business Cooperation Agreement, including but not limited to copyrights, patents, patent applications, software and trade secrets. HDS shall pay to JSJ a monthly consulting service fee (the “Service Fee”) in RMB that is equal to 100% of the monthly net income of HDS. Upon the prior written consent by JSJ, the rate of Service Fee may be adjusted pursuant to the operational needs of HDS. Within 30 days after the end of each month, HDS shall (a) deliver to JSJ the management accounts and operating statistics of HDS for such month, including the net income of HDS during such month (the “Monthly Net Income”), and (b) pay 80% of such Monthly Net Income to JSJ (each such payment, a “Monthly Payment”). Within ninety (90) days after the end of each fiscal year, HDS shall (a) deliver to JSJ financial statements of HDS for such fiscal year, which shall be audited and certified by an independent certified public accountant approved by JSJ, and (b) pay an amount to JSJ equal to the shortfall, if any, of the aggregate net income of HDS for such fiscal year, as shown in such audited financial statements, as compared to the aggregate amount of the Monthly Payments paid by HDS to JSJ in such fiscal year. HDS also granted an irrevocable and exclusive option to JSJ to purchase any and all of the assets of HDS, to the extent permitted under PRC law, at the lowest price permitted by PRC law. Unless earlier terminated in accordance with the provisions of the Business Cooperation Agreement or other agreements separately executed between JSJ and HDS, the Business Cooperation Agreement is for a term of ten years and expires on November 5, 2020; however, the term of the Business Cooperation Agreement may be extended if confirmed in writing by JSJ prior to the expiration of the term thereof. The period of the extended term shall be determined exclusively by JSJ and HDS shall accept such extended term unconditionally. Unless JSJ commits gross negligence, or a fraudulent act, against HDS, HDS shall not terminate the Business Cooperation Agreement prior to the expiration of the term, including any extended term. Notwithstanding the foregoing, JSJ shall have the right to terminate the Business Cooperation Agreement at any time upon giving 30 days’ prior written notice to HDS.

●

Exclusive Option Agreement. Under an Exclusive Option Agreement among JSJ, HDS and each HDS Shareholder (individually, an “Option Agreement”), the terms of which are substantively identical to each other, each HDS Shareholder has granted JSJ or its designee the irrevocable and exclusive right to purchase, to the extent permitted under PRC law, all or any part of the HDS Shareholder’s equity interests in HDS (the “Equity Interest Purchase Option”) for RMB10. If an appraisal is required by PRC laws at the time when and if JSJ exercises the Equity Interest Purchase Option, the parties shall negotiate in good faith and, based upon the appraisal, make a necessary adjustment to the purchase price so that it complies with any and all then applicable PRC laws. Without the consent of JSJ, the HDS Shareholders shall not sell, transfer, mortgage or dispose of their respective shares of HDS stock. Additionally, without the prior consent of JSJ, the HDS Shareholders shall not in any manner supplement, change or amend the articles of association and bylaws of HDS, increase or decrease its registered capital, change the structure of its registered capital in any other manner, or engage in any transactions that could materially affect HDS’ assets, liabilities, rights or operations, including, without limitation, the incurrence or assumption of any indebtedness except incurred in the ordinary course of business, execute any major contract over RMB500,000, sell or purchase any assets or rights, incur of any encumbrance on any of its assets or intellectual property rights in favor of a third party or transfer of any agreements relating to its business operation to any third party. The term of each Option Agreement is ten years commencing on November 5, 2020 and may be extended at the sole election of JSJ.

	●	Equity Interest Pledge Agreement. In order to guarantee HDS’s performance of its obligations under the Business Cooperation Agreement, each HDS Shareholder, JSJ and HDS entered into an Equity Interest Pledge Agreement (individually, a “Pledge Agreement”), the terms of which are substantially similar to each other. Pursuant to the Pledge Agreement, each HDS Shareholder pledged all of his or her equity interest in HDS to JSJ. If HDS or the HDS Shareholders breach their respective contractual obligations and such breach is not remedied to the satisfaction of JSJ within 20 days after the giving of notice of breach, JSJ, as pledgee, will be entitled to exercise certain rights, including the right to foreclose upon and sell the pledged equity interests. During the term of the Pledge Agreement, the HDS Shareholder shall not transfer his or her equity interest in HDS or place or otherwise permit any other security interest of other encumbrance to be placed on such equity interest. Upon the full payment of the Service Fee under the Business Cooperation Agreement and upon the termination of HDS’s obligations thereunder, the Pledge Agreement shall be terminated.

	●	Power of Attorney. Under the Power of Attorney executed by each HDS Shareholder (each, a “Power of Attorney”), the terms of which are substantially similar to each other, JSJ has been granted an exclusive, irrevocable power of attorney to take actions in the place and stead of the HDS Shareholders, to act on behalf of the HDS Shareholder as his or her exclusive agent and attorney with respect to all matters concerning the HDS Shareholder’s equity interests in HDS, including without limitation, the right to: 1) attend shareholders’ meetings of HDS; 2) exercise all the HDS Shareholders’ rights, including voting rights under PRC laws and HDS’s Articles of Association, including but not limited to the sale or transfer or pledge or disposition of the HDS Shareholder’s equity interests in HDS in whole or in part; and 3) designate and appoint on behalf of the HDS Shareholders the legal representative, executive director, supervisor, manager and other senior management of HDS.

To the extent that the Contractual Arrangements are enforceable under PRC law, as from time to time interpreted by relevant state agencies, they constitute the valid and binding obligations of each of the parties to each such agreement.

The Company believes that HDS is considered a VIE under ASC 810 “Consolidation”, because the equity investors in HDS no longer have the characteristics of a controlling financial interest, and the Company, through JSJ, is the primary beneficiary of HDS and controls HDS’s operations. Accordingly, HDS has been consolidated as a deemed subsidiary into YBP as a reporting company under ASC 810.

YBP has no direct or indirect legal or equity ownership interest in HDS. However, through the Contractual Arrangements, the stockholders of HDS have assigned all their rights as stockholders, including voting rights and disposition rights of their equity interests in HDS to JSJ, our indirect, wholly-owned subsidiary. YBP is deemed to be the primary beneficiary of HDS and the financial statements of HDS are consolidated in the Company’s consolidated financial statements. At June 30, 2020 and December 31, 2019, the carrying amount and classification of the assets and liabilities in the Company’s balance sheets that relate to the Company’s variable interest in the VIE and VIE’s subsidiary are as follows:

	June 30, 2020		December 31, 2019
Assets
Cash	$	1,656,284	$	688,863
Accounts receivable		4,168,465		7,692,600
Accounts receivable - related parties, net		4,320,000		193,000
Inventories (current and noncurrent), net		2,190,433		2,991,237
Prepaid expenses and other assets		207,859		37,202
Prepaid expenses - related parties		-		5,829
Advance to suppliers		600,299		-
Property and equipment, net		485,050		466,025
Long-term investment in an affiliate		3,562,322		3,009,527
Land use rights and yew forest assets, net		40,170,425		40,048,696
Operating lease right of use		221,248		259,331
VAT recoverable		751,865		349,096
Total assets of VIE and its subsidiary	$	58,334,250	$	55,741,406

Liabilities
Accounts Payable for acquisition of yew forests and others	$	1,249,805	$	796,346
Accounts Payable for acquisition of yew forests and others - related parties		420,103		16,629
Advances from customers		407,208		50,071
Advances from customers - related parties		110,349		-
Short-term borrowings		8,416,199		8,541,517
Accrued expenses and other payables		259,571		131,420
Operating lease liability, current and noncurrent		238,165		262,763
Long-term deferred income		1,119,142		892,375
Due to related parties and VIE holding companies		99,903		614,265
Total liabilities of VIE and its subsidiary	$	12,320,445	$	11,305,386

Recently Adopted Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board ("FASB") issued new leasing guidance ("Topic 842") that replaced the existing lease guidance ("Topic 840"). Topic 842 established a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and lease liability on the balance sheet for all leases with terms longer than 12 months. Leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in the statement of operations. This guidance also expanded the requirements for lessees to record leases embedded in other arrangements and the required quantitative and qualitative disclosures surrounding leases.

The Company adopted Topic 842 on its effective date of January 1, 2019 using a modified retrospective transition approach; as such, Topic 842 will not be applied to periods prior to adoption and the adoption had no impact on the Company's previously reported results. The Company elected the package of practical expedients permitted under the transition guidance within Topic 842, which allowed the Company to carry forward its identification of contracts that are or contain leases, its historical lease classification and its accounting for initial direct costs for existing leases. The impact of adopting Topic 842 was not material to the Company’s result of operations or cash flows for the three and six months ended June 30, 2020 and 2019. The Company recognized operating lease liabilities of approximately $350,000 upon adoption, with corresponding ROU assets on its balance sheet as of January 1, 2019.

Recently Issued Accounting Pronouncements Not Yet Adopted

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments—Credit Losses”. The standard, including subsequently issued amendments (ASU 2018-19, ASU 2019-04, ASU 2019-05, ASU 2019-10 and ASU 2019-11), requires a financial asset measured at amortized cost basis, such as accounts receivable and certain other financial assets, to be presented at the net amount expected to be collected based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. In November 2019, the FASB issued ASU No. 2019-10 to postpone the effective date of ASU No. 2016-13 for public business entities eligible to be smaller reporting companies defined by the SEC to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company is evaluating the impact of this guidance on its consolidated financial statements.

NOTE 3 - REVENUE RECOGNITION

The Company accounts for revenue arising from contracts and customers in accordance with Accounting Standards Update (ASU or Update) No. 2014-09, Revenue from Contracts with Customers (“ASC 606”), which was adopted on January 1, 2018 using the full retrospective method. The adoption of ASC 606 did not impact the Company’s previously reported financial statements in any prior period nor did it result in a cumulative effect adjustment to retained earnings.

Under ASC 606, the Company recognizes revenue when its customer obtains control of promised goods, in an amount that reflects the consideration which the Company expects to receive in exchange for those goods. To determine revenue recognition for arrangements that the Company determines are within the scope of ASC 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that Company will collect the consideration it is entitled to in exchange for the goods it transfers to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods promised within each contract and determines those that are performance obligations and assesses whether each promised good is distinct. The Company then recognizes as revenue the amount of the transaction price, which is allocated to the respective performance obligation, when the performance obligation is satisfied. Generally, the Company’s performance obligations are satisfied when the customers take possession of the products, which normally occurs upon shipment or delivery depending on the terms of the contracts.

In general, the Company's products within its segments are aligned according to the nature and economic characteristics of its products and provide meaningful disaggregation of each business segment's results of operations. Disaggregation of revenue by business segment are included in Note 12 - SEGMENT INFORMATION.

NOTE 4 – INVENTORIES, NET

Inventories consisted of raw materials, finished goods including handicrafts, yew essential oil soap, complex cuspidate extract, composite northeast yew extract, yew candles and pine needle extracts, yew seedlings and other trees, which consist of larix, spruce and poplar trees. The Company classifies its inventories based on its historical and anticipated levels of sales; any inventory in excess of its normal operating cycle of one year is classified as long-term on its consolidated balance sheets. As of June 30, 2020 and December 31, 2019 inventories consisted of the following:

	June 30, 2020									December 31, 2019
	Current portion			Long-term portion			Total			Current portion			Long-term portion			Total
Raw materials	$	16,517		$	89,732		$	106,249		$	16,761		$	91,056		$	107,817
Finished goods		1,946,551			2,568,705			4,515,256			2,770,352			2,613,724			5,384,076
Total		1,963,068			2,658,437			4,621,505			2,787,113			2,704,780			5,491,893

Inventory reserves		(143,517	)		(1,498,131	)		(1,641,648	)		(149,724	)		(1,125,165	)		(1,274,889	)
Inventories, net	$	1,819,551		$	1,160,306		$	2,979,857		$	2,637,389		$	1,579,615	)	$	4,217,004

Inventories as of June 30, 2020 and December 31, 2019 consisted of inventories purchased from related parties are as follows:

	June 30,		December 31,
	2020		2019
Inventories, net	$	45,094	$	-
Inventories - related parties, net		1,774,457		2,637,389
Total	$	1,819,551	$	2,637,389

	June 30,		December 31,
	2020		2019
Long-term inventories, net	$	395,263	$	395,032
Long-term inventories - related parties, net		765,043		1,184,583
Total	$	1,160,306	$	1,579,615

NOTE 5 - TAXES

(a) Federal Income Tax and Enterprise Income Taxes

The table below summarizes the difference between the U.S. statutory federal tax rate and the Company’s effective tax rate for the six months ended June 30, 2020 and 2019:

	Six Months Ended June 30,
	2020			2019
U.S. federal income tax rate		21.0	%		21.00	%
State income tax rate		8.8	%		8.8	%
Tax rate difference		6.9	%		4.81	%
PRC tax exemption and reduction		(58.7	)%		(30.16	)%
GILTI		-	%		(1.60	)%
Valuation allowance		22.0	%		2.9	%
Others		-	%		0.29	%
Effective tax rate		-	%		(2.76	)%

The U.S. Tax Cuts and Jobs Act (the “Tax Act”) was enacted on December 22, 2017. The Tax Act among other changes, reduces the U.S. federal corporate tax rate from 35% to 21%. The Company recognized provisional tax impacts related to the revaluation of deferred tax assets and liabilities and corresponding valuation allowances in its consolidated financial statements for the year ended December 31, 2018. Accordingly, the Company recognized a one-time transition tax of $1,431,835 during 2018 that represented management’s estimate of the amount of U.S. corporate income tax based on the deemed repatriation to the United States of the Company’s share of previously deferred earnings of certain non-U.S. subsidiaries of the Company mandated by the U.S. Tax Reform. The Company elected to pay the one-time transition tax over eight years commencing in 2018. The actual impact of the U.S. Tax Reform on the Company may differ from management’s estimates, and management may update its judgments based on future regulations or guidance issued or changes in the interpretations taken that would adjust the provisional amounts recorded. As of June 30, 2020 and December 31, 2019, the Company had current income tax payable of $115,264 and $116,440 and noncurrent income tax payable of $1,088,194 and $1,088,194, respectively. The Company made income tax payment of $115,264 subsequently on July 2020.

In addition, the 2017 Tax Act also creates a new requirement that certain income (i.e., Global Intangible Low-Taxed Income (“GILTI”)) earned by controlled foreign corporations (“CFCs”) must be included currently in the gross income of the CFCs’ U.S. shareholder income. GILTI is the excess of the shareholder’s net CFC tested income over the net deemed tangible income return, which is currently defined as the excess of (1) 10 percent of the aggregate of the U.S. shareholder’s pro rata share of the qualified business asset investment of each CFC with respect to which it is a U.S. shareholder over (2) the amount of certain interest expense taken into account in the determination of net CFC-tested income. The Company has elected to recognize the tax on GILTI as a period expense in the period the tax is incurred. For the six months ended June 30, 2020 and 2019, the GILTI tax expense was nil. As of June 30, 2020 and December 31, 2019, the Company had no GILTI tax payable outstanding.

The Company’s subsidiary, JSJ, and VIE and its subsidiary, HDS and HYF, incorporated in the PRC, are subject to PRC’s Enterprise Income Tax. Pursuant to the PRC Income Tax Laws, Enterprise Income Taxes (“EIT”) is generally imposed at 25%. However, HDS has been named as a leading enterprise in the agricultural industry and awarded with a tax exemption through December 31, 2058 with an exception of sales of handicrafts, yew candle, pine needle extracts and yew essential oil soap which are not within the scope of agricultural area.

(b) Value Added Taxes (“VAT”)

The applicable VAT tax rate is 13% for agricultural products, 17% and 16% for handicrafts, yew candles complex taxus cuspidate extract, composite northeast yew extract and pine needle extracts sold in the PRC prior to and after May 1, 2018, respectively. In accordance with VAT regulations in the PRC, the Company is exempt from paying VAT on its yew raw materials and yew trees sales as an agricultural corps cultivating company. The company’s sales of yew candles, handmade essence oil soaps, and pine needle extracts and export products are under VAT tax-exempt treaty and thus are eligible for return of VAT-IN. VAT payable in the PRC is charged on an aggregated basis at the applicable rate on the full price collected for the goods sold or taxable services provided and less any deductible VAT already paid by the taxpayer on purchases of goods in the same fiscal year.

NOTE 6 - SHORT-TERM BORROWINGS

On December 22, 2016, HDS entered into a credit agreement with China Everbright Bank (“CEB”) which agreed to provide a line of credit of $2,800,000 (approximately RMB20,000,000) to the Company for the period of three years. On February 25, 2020, the Company entered into another credit agreement with CEB, pursuant to which CEB provides another line of credit of RMB20,000,000 (approximately $2,820,000) to the Company for the period of three years. These loans carry interest rates ranging from 4.30% to 5.65% per annum and the interests are payable when the loans are due. The loans with CEB are secured by properties and land use rights of Yew Pharmaceutical. In addition, Zhiguo Wang, Madame Qi, Yew Pharmaceutical, and ZTC provided personal guarantees to the loans. HDS paid two $1,400,000 back in March and April 2020, totaling $2,800,000 under the initial line of credit, through which the initial line of credit was paid off in its entirety. As of June 30, 2020 and December 31, 2019, the Company held $2,758,250 and $2,800,000 loans from CEB, respectively. During the three and six months ended June 30, 2020, the Company recorded $37,190 and $70,794 interest expense in connection with the CEB loans, respectively.

On August 6, 2018, HDS entered into a loan agreement with Bank of Yingkou Harbin Branch (“Yingkou Bank”), pursuant to which HDS obtained a bank loan in the amount of RMB15,000,000 (approximately $2,153,000), payable on August 5, 2019. The loan carries an interest rate of 5.4375% per annum and is payable monthly. Heilongjiang Zishan Technology Co., Ltd. (“ZTC”), a related party controlled by Zhiguo Wang and his wife Madame Qi, collateralized its buildings and land use right with Yingkou Bank to secure the loan. In addition, HEFS, HBP, Yew Pharmaceutical, and ZTC provided guarantees to the loan. HDS paid off the loan in full on July 24, 2019.

On August 27, 2018, HDS entered into a loan agreement with Yingkou Bank, pursuant to which HDS obtained a bank loan in the amount of RMB5,000,000 (approximately $718,000), payable on August 26, 2019. The loan carries an interest rate of 5.4375% per annum and is payable monthly. ZTC, a related party controlled by Zhiguo Wang and his wife Madame Qi, collateralized its buildings and land use right with Yingkou Bank to secure the loan. In addition, HEFS, HBP, Yew Pharmaceutical, and ZTC provided guarantees to the loan. HDS paid off the loan in full on August 14, 2019.

On May 13, 2019, HDS entered into a credit agreement with Postal Saving Bank of China which agreed to provide a line of credit of RMB20,000,000 (approximately $2,830,000) to the Company for the period of ten years. These loans have interest rate of 5.22% per annum payable monthly. Zhiguo Wang and his wife Madame Qi, pledged buildings and land use rights they owned with Postal Saving Bank of China to secure the loans. In addition, Zhiguo Wang and his wife Madame Qi, Yicheng Wang and Lei Zhang provided personal guarantees to the loans. During the six months ended June 30, 2020, HDS renewed RMB15,400,000 (approximately $2,190,000) loan under the RMB 20 million line of credit. As of June 30, 2020 and December 31, 2019, $2,828,974 and $2,870,758 were outstanding under the loan agreements, respectively. HDS recorded $32,680 and $70,489 interest expense associated with the loan for the three and six months ended June 30, 2020, respectively.

On July 26, 2019, HDS entered into a loan agreement with Bank of Yingkou Harbin Branch (“Yingkou Bank”), pursuant to which HDS obtained a bank loan in the amount of RMB15,000,000 (approximately $2,153,000 at December 31, 2019), payable on July 25, 2020. The loan carries an interest rate of 6.525% per annum and is payable monthly. Heilongjiang Zishan Technology Co., Ltd. (“ZTC”), a related party controlled by Zhiguo Wang and his wife Madame Qi, collateralized its buildings and land use right with Yingkou Bank to secure the loan. In addition, HEFS, HBP, Yew Pharmaceutical, and ZTC provided guarantees to the loan. As of June 30, 2020 and December 31, 2019, $2,121,731 and $2,153,069 were outstanding under the loan agreement, respectively. HDS recorded $39,225 and $70,733 interest expense associated with the loan for the three and six months ended June 30, 2020, respectively.

On August 20, 2019, HDS entered into a loan agreement with Yingkou Bank, pursuant to which HDS obtained a bank loan in the amount of RMB5,000,000 (approximately $718,000 at December 31, 2019), payable on August 19, 2020. The loan carries an interest rate of 6.525% per annum and is payable monthly. ZTC, a related party controlled by Zhiguo Wang and his wife Madame Qi, collateralized its buildings and land use right with Yingkou Bank to secure the loan. In addition, HEFS, HBP, Yew Pharmaceutical, and ZTC provided guarantees to the loan. As of June 30, 2020 and December 31, 2019, $707,244 and $717,690 were outstanding under the loan agreement, respectively. HDS recorded $7,824 and $23,578 interest expense associated with the loan for the three and six months ended June 30, 2020, respectively.

On January 30, 2020, Yicheng Wang entered into a loan agreement with the Company, pursuant to which the Company lent RMB600,000 to Yicheng Wang for the period from January 30, 2020 to January 29, 2021 at the interest rate of 5.00%. On February 24 and 25, 2020, Yicheng Wang paid the entire loan amount off.

On May 1, 2020, the Company got a Promissory Note (the “Note”) in the amount of $70,920 approved from the Paycheck Protection Program (the “PPP Loan”) through Bank of America (the “Lender”). The PPP loan is a loan program of U.S. Small Business Administration (the “SBA”) designated to provide a direct incentive for small business to keep their workers on the payroll due to the COVID-19 crisis. The interest rate on this Note is a fixed rate of 1.00% per annum. The loan will be due in one payment of all outstanding principal plus all accrued unpaid interest in two years after the date of this Note (“Maturity Date”). In addition, the Company will start to pay regular monthly payments in an amount equal to one month’s accrued interest commencing from the seventh month after the date of this Note. According to SBA’s PPP description, the PPP loan will be fully forgiven if the funds are used for payroll costs, interest on mortgages, rent, and utilities (due to likely high subscription, at least 75% of the forgiven amount must have been used for payroll). Loan payments will also be deferred for six months. No collateral or personal guarantees are required. Neither the government nor lenders will charge small businesses any fees. Forgiveness is based on the employer maintaining or quickly rehiring employees and maintaining salary levels. Forgiveness will be reduced if full-time headcount declines, or if salaries and wages decrease. The Company received $70,920 PPP Loan on May 4, 2020, which was outstanding as of June 30, 2020.

On July 2020, the Company received advances of the SBA Economic Injury Disaster Loans (“EIDL”) totaling $9,000 under the CARES Act. The advances will reduce the amount that will ultimately be forgiven under the PPP program.

For the three months ended June 30, 2020 and 2019, interest expense were approximately $124,000 and $93,000, respectively. For the six months ended June 30, 2020 and 2019, interest expense were approximately $236,000 and $182,000, respectively.

NOTE 7 - STOCKHOLDERS’ EQUITY

On February 28, 2019, the Company entered into an agreement with Chineseinvestors.com, Inc., pursuant to which the Company cancelled the common shares of 375,000 issued to Chineseinvestors.com, Inc.

Stock option activities for the six months ended June 30, 2020 and 2019 were summarized in the following table.

	Six Months Ended June 30, 2020				Six Months Ended June 30, 2019
	Number of Stock Options		Weighted Average Exercise Price		Number of Stock Options		Weighted Average Exercise Price
Balance at beginning of period		7,738,737	$	0.22		7,738,737	$	0.22
Issued		-		-		-		-
Exercised		-		-		-		-
Expired		-		-		-		-
Forfeited		-		-		-		-
Balance at end of period		7,738,737	$	0.22		7,738,737	$	0.22
Option exercisable at end of period		7,738,737	$	0.22		7,738,737	$	0.22

The following table summarizes the shares of the Company’s common stock issuable upon exercise of options outstanding at June 30, 2020:

Stock Options Outstanding

Stock Options Exercisable

Range of

Exercise
Price

Number

Outstanding

June 30,

2020

Weighted

Average

Remaining

Contractual

Life (Years)

Weighted

Average

Exercise
Price

Number

Exercisable

June 30,

2020

Weighted

Average

Exercise
Price

0.22-0.25

7,738,737

1.5

0.22

7,738,737

0.22

The Company’s outstanding stock options and exercisable stock options had intrinsic value in the amount of $Nil, based upon the Company’s closing stock price of $0.199 as of June 30, 2020.

NOTE 8 - EARNINGS PER SHARE

Under the provisions of ASC 260, “Earnings Per Share”, basic income per common share is computed by dividing net income attributable to common shareholders by the weighted average number of shares of common stock outstanding for the periods presented. Diluted income per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that would then share in the income of the company, subject to anti-dilution limitations.

The following table presents a reconciliation of basic and diluted net income per share for the three and six months ended June 30, 2020 and 2019:

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2020		2019		2020		2019
Net income available to common stockholders for basic and diluted net income per share of common stock	$	737,567	$	1,436,423	$	888,979	$	1,813,465
Weighted average common stock outstanding - basic		51,700,000		51,700,000		51,700,000		51,822,238
Effect of dilutive securities:
Non-vested restricted common stock		-		-		-		-
Stock options issued to directors/officers/employees		-		-		-		-
Weighted average common stock outstanding - diluted		51,700,000		51,700,000		51,700,000		51,822,238
Net income per common share - basic	$	0.01	$	0.03	$	0.02	$	0.03
Net income per common share - diluted	$	0.01	$	0.03	$	0.02	$	0.03

For the three months ended June 30, 2020 and 2019, and for the six months ended June 30, 2020 and 2019, outstanding options of 7,738,737 were excluded from the computation of diluted net income per share as the impact of including those option shares would be anti-dilutive.

NOTE 9 - LEASES

The Company leases office space from third parties and related parties.

Leases is classified as operating at inception of the lease. Operating leases result in the recognition of ROU assets and lease liabilities on the balance sheet. ROU assets represent the Company's right to use the leased asset for the lease term and lease liabilities represent the obligation to make lease payments. The liability is calculated as the present value of the remaining minimum rental payments for existing operating leases using either the rate implicit in the lease or, if none exists, the Company's incremental borrowing rate. The Company uses incremental borrowing rate at 6.44% annum. Lease expense for these leases is recognized on a straight-line basis over the lease term.

The components of lease expense consist of the following:

	Classification	Six Months Ended June 30, 2020		Six Months Ended June 30, 2019
Operating lease cost	Selling, general and administrative expense	$	38,686	$	38,480
Net lease cost		$	38,686	$	38,480

Balance sheet information related to leases consists of the following:

	Classification	June 30, 2020			December 31, 2019
Assets
Operating lease ROU assets	Right-of-use assets	$	339,080		$	399,817
Total leased assets		$	339,080		$	399,817
Liabilities
Current Operating	Current maturities of operating lease liabilities	$	59,799		$	52,104
Non-current Operating	Operating lease liabilities		296,940			351,145
Total lease liabilities		$	356,739		$	403,249

Weighted average remaining lease term
Operating leases			9.96 years			6.11 years

Weighted average discount rate
Operating leases			6.44	%		6.44	%

Cash flow information related to leases consists of the following:

	Six Months Ended June 30, 2020		Six Months Ended June 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	52,674	$	48,322

The minimum future lease payments as of June 30, 2020 are as follows:

Years Ending December 31,	Operating Leases
The remaining of 2020	$	25,909
2021		79,191
2022		79,559
2023		32,826
2024		28,564
2025		25,625
Thereafter		206,283
Total lease payments		477,957
Less: Interest		(125,556	)
Present value of lease liabilities	$	352,401

NOTE 10 - CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS

Customers

For the six months ended June 30, 2020 and 2019, the major customers whose sales accounted for 10% or more of the Company’s total revenue were as follows:

	For the Six Months Ended June 30,
Customer	2020			2019
A (Yew Pharmaceutical, a related party)		61.1	%		29.0	%
B (HongKong YIDA Commerce Co., Limited, a related party)		-	%		30.2	%
C (GOLDEN PEACH TRAVEL SERVICE COMPANY LTD)		-	%		40.2	%
D (DMSU, a related party)		22.4	%		-	%
E (LIFEFORFUN LIMITED, a related party)		14.9	%		-	%

	Accounts receivable as of
Customer	June 30, 2020			December 31, 2019
A (Yew Pharmaceutical, a related party)		-%			-	%
B (HongKong YIDA Commerce Co., Limited, a related party)		-%			2.5	%
C (GOLDEN PEACH TRAVEL SERVICE COMPANY LTD)		48.6	%		97.5	%
D (DMSU, a related party)		30.5	%		-
E (LIFEFORFUN LIMITED, a related party)		20.4	%		-

Suppliers

For the six months ended June 30, 2020 and 2019, major suppliers accounting for 10% or more of the Company’s total purchase were as follows:

	For the Six Months Ended June 30,
Supplier	2020			2019
A (Yew Pharmaceutical, a related party)		35.6	%		58	%
B (Heilongjiang Zishan Technology Co., Ltd., a related party)		10.6	%		-	%

No suppliers’ accounts payables as of June 30, 2020 and December 31, 2019 accounted 10% and more of the total accounts payable.

At June 30, 2020 and December 31, 2019, the Company’s cash balances by geographic area were as follows:

	June 30, 2020		December 31, 2019
Country
United States	$	8,119	$	46,855
China		1,660,390		695,439
Total Cash	$	1,668,509	$	742,294

In China, a depositor has up to RMB500,000 insured by the People’s Bank of China Financial Stability Bureau (“FSD”). In the United States, the standard insurance amount is $250,000 per depositor in a bank insured by the Federal Deposit Insurance Corporation (“FDIC”). As of June 30, 2020 and December 31, 2019, approximately $236,000 and $216,000 of the Company’s cash held by financial institutions was insured, and the remaining balance of approximately $1,432,000 and $526,000 was not insured, respectively.

NOTE 11 - RELATED PARTY TRANSACTIONS

In addition to several of the Company’s officers and directors, the Company conducted transactions with the following related parties:

Company		Ownership
Heilongjiang Zishan Technology Co., Ltd. (“ZTC”)		51% owned by Heilongjiang Hongdoushan Ecology Forest Co., Ltd., 34% owned by Zhiguo Wang, Chairman and Chief Executive Officer, 11% owned by Guifang Qi, the wife of Mr. Wang and director of the Company, and 4% owned by third parties.

Heilongjiang Yew Pharmaceutical Co., Ltd. (“Yew Pharmaceutical”)		95% owned by Heilongjiang Hongdoushan Ecology Forest Stock Co., Ltd., and 5% owned by Madame Qi.

Shanghai Kairun Bio-Pharmaceutical Co., Ltd. (“Kairun”)		60% owned by Heilongjiang Zishan Technology Co., Ltd., 20% owned by Heilongjiang Hongdoushan Ecology Forest Stock Co., Ltd., and 20% owned by Mr. Wang.

Heilongjiang Hongdoushan Ecology Forest Co., Ltd. (“HEFS”)		63% owned by Mr. Wang, 34% owned by Madame Qi, and 3% owned by third parties.

Hongdoushan Bio-Pharmaceutical Co., Ltd. (“HBP”)		30% owned by Mr. Wang, 19% owned by Madame Qi and 51% owned by HEFS

Heilongjiang Pingshan Hongdoushan Development Co., Ltd. (“HDS Development”)		80% owned by HEFS and 20% owned by Kairun

Wuchang City Xinlin Forestry Co., Ltd. (Xinlin)		98% owned by ZTC and 2% owned by HEFS

Wonder Genesis Global Ltd.		Jinguo Wang is the Company’s director.

DMSU Digital Technology Limited(“DMSU”)		Significantly influenced by the Company

HongKong YIDA Commerce Co., Limited(“YIDA”)		Significantly influenced by the Company

LIFEFORFUN LIMITED		Significantly influenced by the Company

Jinguo Wang		Management of HDS and Legal person of Xinlin

Zhiguo Wang		Principal shareholder and CEO of the Company

Guifang Qi		Principal shareholder and the wife of CEO

Cai Wang		Employee of the Company

Weihong Zhang		Employee of the Company

Xue Wang		Employee of the Company

Chunping Wang		Employee of the Company

Jimin Lu		Employee of the Company

Transactions with Yew Pharmaceutical

On January 9, 2010, the Company entered into a Cooperation and Development Agreement (the “Development Agreement”) with Yew Pharmaceutical. Pursuant to the Development Agreement, for a period of ten years expiring on January 9, 2020, the Company shall supply cultivated yew raw materials to Yew Pharmaceutical that will be used by Yew Pharmaceutical to make traditional Chinese medicines and other pharmaceutical products, at price of RMB 1,000,000 (approximately $146,000) per metric ton. In addition, the Company entered into a series of wood ear mushroom selling agreements with Yew Pharmaceuticals, pursuant to which the Company sells wood ear mushroom collected from local peasants to Yew Pharmaceuticals for manufacturing of wood ear mushroom products. Furthermore, the Company entered into a series of yew candles, yew essential oil soaps, complex taxus cuspidate extract, composite northeast yew extract and pine needle extracts purchase agreements with Yew Pharmaceuticals, pursuant to which the Company purchases yew candles and pine needle extracts as finished goods and then sells to third party and related party.

For the six months ended June 30, 2020 and 2019, total revenues from Yew Pharmaceutical under the above agreement amounted to $7,083,638 and $6,988,782, and the corresponding cost of revenues amounted to $6,197,045 and $5,911,265, respectively. At June 30, 2020 and December 31, 2019, the Company had $110,349 and $Nil advance from Yew Pharmaceutical, respectively.

For the six months ended June 30, 2020 and 2019, the Company purchased various products from Yew Pharmaceutical totalling $3,490,294 and $10,870,922, respectively, such as pine needle extracts, composite northeast yew extract and mixed essential oil and etc.

Transactions with DMSU

On February 10, 2020, the Company entered a payment schedule agreement with DMSU regarding the outstanding accounts receivable under 2018 and 2020 sales contracts. Pursuant to the payment schedule, DMSU agreed to make payments in 2020 totalling of $1,000,000 out of total $5,304,000 receivable balance under 2018 sales contracts and the remaining will be paid within next three years. Regarding the 2020 sales contracts entered, DMSU will arrange payments of the entire transaction within six months after goods are delivered. For the six months ended June 30, 2020, total revenues from DMSU amounted to $2,592,000, which was outstanding as of June 30, 2020. Subsequently, DMSU paid approximately $1,050,000 cash to HDS in July 2020.

For the six months ended June 30, 2019, there was $Nil sales transaction the Company conducted with DMSU. During the six months ended June 30, 2019, the Company recovered approximately $240,000 of accounts receivable previously written off from DMSU. The recovered amount was recorded in other income as of June 30, 2020 and was received in July 2019.

Transactions with HBP

As of June 30, 2020 and December 31, 2019, HYF had due to HBP in the amount of $88,967 and $103,158, respectively, which were included in due to related parties in the accompanying consolidated balance sheets.

Transactions with ZTC

During the six months ended June 30, 2020 and 2019, HDS purchased yew forest assets from ZTC in the amount of $1,037,831 and $1,422,486, respectively. Since the purchases were conducted between entities under common control, the Company recorded the assets received at the carrying costs of $918,335 and $1,149,605 by ZTC, respectively. The differences of $119,496 and $272,881 between the actual purchase amounts and carrying costs were recorded as a deduction of additional paid-in capital. At June 30, 2020 and December 31, 2019, the Company had $Nil balance payable to ZTC.

Transactions with Xinlin

During the six months ended June 30, 2020 and 2019, HDS purchased yew forest assets from ZTC in the amount of $454,940 and $Nil, respectively. Since the purchase were conducted between entities under common control, the Company recorded the assets received at the carrying costs of $402,622 and $Nil by Xinlin, respectively. The differences of $52,318 and $Nil between the actual purchase price and carrying costs were recorded as a deduction of additional paid-in capital. At June 30, 2020 and December 31, 2019, the Company had $Nil balance payable to Xinlin.

Transactions with YIDA

For the six months ended June 30, 2020 and 2019, total revenues from YIDA amounted to $Nil and $7,274,506. At June 30, 2020 and December 31, 2019, the Company had $Nil and $193,000 accounts receivable from YIDA, respectively.

Transactions with Lifeforfun Limited

For the six months ended June 30, 2020 and 2019, total revenues from Lifeforfun Limited amounted to $1,728,000 and $Nil. At June 30, 2020 and December 31, 2019, the Company had $1,728,000 and $Nil accounts receivable, respectively.

Transactions with Jinguo Wang

During the six months ended June 30, 2020 and 2019, HDS purchased yew forest assets from Jinguo Wang in the amount of $710,843 and $906,086, respectively. At June 30, 2020 and December 31, 2019, payable to Jinguo Wang for purchase of yew forest assets amounted to $14,145 and $Nil, respectively, included in payable for acquisition of yew forests in the accompanying consolidated balance sheets.

Transactions with Weihong Zhang

During the six months ended June 30, 2020 and 2019, HDS purchased yew forest assets from Weihong Zhang in the amount of $28,434 and $Nil, respectively. At June 30, 2020 and December 31, 2019, payable to Weihong Zhang for purchase of yew forest assets amounted to $28,290 and $Nil, respectively, included in payable for acquisition of yew forests in the accompanying consolidated balance sheets.

Transactions with Chunping Wang

During the six months ended June 30, 2020 and 2019, HDS purchased yew forest assets from Chunping Wang in the amount of $453,518 and $711,980, respectively. At June 30, 2020 and December 31, 2019, payable to Chunping Wang for purchase of yew forest assets amounted to $14,145 and $Nil, respectively, included in payable for acquisition of yew forests in the accompanying consolidated balance sheets.

Transactions with Xue Wang

During the six months ended June 30, 2020 and 2019, HDS purchased yew forest assets from Xue Wang in the amount of $351,157 and $Nil respectively. At June 30, 2020 and December 31, 2019, payable to Xue Wang for purchase of yew forest assets amounted to $349,378 and $Nil, respectively, included in payable for acquisition of yew forests in the accompanying consolidated balance sheets.

Transactions with Cai Wang

During the six months ended June 30, 2020 and 2019, HDS purchased yew forest assets from Cai Wang in the amount of $383,855 and $Nil, respectively. At June 30, 2020 and December 31, 2019, payable to Cai Wang for purchase of yew forest assets amounted to $14,145 and $Nil, respectively, included in payable for acquisition of yew forests in the accompanying consolidated balance sheets.

Operating Leases

On March 25, 2005, the Company entered into an Agreement for the Lease of Seedling Land with ZTC (the “ZTC Lease”). Pursuant to the ZTC Lease, the Company leased 361 mu of land from ZTC for a period of 30 years, expiring on March 24, 2035. Annual payments under the ZTC Lease are RMB 162,450 (approximately $24,000). The payment for the first five years of the ZTC Lease was due prior to December 31, 2010 and beginning in 2011, the Company is required to make full payment for the land use rights in advance for each subsequent five-year period. For the six months ended June 30, 2020 and 2019, rent expense related to the ZTC Lease approximately amounted to $12,000 and $12,000, respectively. At June 30, 2020 unpaid rent to ZTC amounted to approximately $5,700, which was included in due to related parties in the accompanying consolidated balance sheets. At December 31, 2019, prepaid rent to ZTC amounted to approximately $5,800, which was included in prepaid expenses-related parties in the accompanying consolidated balance sheets.

On March 2002, January 2010 and July 2015, the Company entered three office lease agreements with HDS Development and Mr. Wang in the lease terms of 23 years, 3 years and 15 years. The total annual payments of the three office leases are RMB 50,000 (approximately $7,000). For the six months ended June 30, 2020 and 2019, the total rent expense related to the three office leases approximately amounted to $3,600 and $3,650 respectively. As of June 30, 2020 and December 31, 2019, the unpaid rent was approximately $4,300 and $700, respectively, which were included in due to related parties in the accompanying consolidated balance sheets.

On January 1, 2015, HYF leases from HBP a warehouse, with an area of 225 square meters, and a workshop, with an area of 50 square meters, both of which are located at No.1 Zisan Road, Shangzhi economic development district, Shangzhi City, Heilongjiang Province, in exchange for no consideration for the period from January 1, 2015 to December 31, 2020.

The Company leased an apartment in the Nangang district (the “Jixing Lease”) in Harbin from Ms. Qi on October 1, 2016. The initial lease term of Jixing Lease is one year and renewed twice currently with the expiration date on September 30, 2019. For the six months ended June 30, 2020 and 2019, rent expense related to the Jixing Lease amounted $Nil and $700, respectively.

Due to Related Parties

The following summarized the Company’s due to related parties as of June 30, 2020 and December 31, 2019:

	June 30, 2020		December 31, 2019
Zhiguo Wang and Guifang Qi	$	534,244	$	530,621
HBP		88,967		103,158
Others		7,513		-
Total	$	630,724	$	633,779	*

*:	The amounts due to related parties bear no interest and are payable on demand.

NOTE 12 - SEGMENT INFORMATION

ASC 280 requires use of the “management approach” model for segment reporting. The management approach model is based on the way a company’s management organizes segments within the company for making operating decisions and assessing performance. Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company.

The Company managed and reviewed its business as two operating segments starting from year 2018. The business of HDS, JSJ and HYF in PRC was managed and reviewed as PRC segment. The business of YBP, Yew Bio-Pharm (HK), and MC was managed and reviewed as USA segment. PRC and USA segments retain all of the reported consolidated amounts.

The geographical distributions of the Company’s financial information for the six months ended June 30, 2020 and 2019 were as follows:

	For the Six Months Ended June 30,
Geographic Areas	2020			2019
Revenue
PRC	$	11,569,496		$	23,960,179
USA		76,863			119,047
Elimination Adjustment		(55,020	)
Total Revenue	$	11,591,339		$	24,079,226

Income (Loss) from operations
PRC	$	1,663,125		$	2,110,465
USA		(649,237	)		(428,990	)
Total Income from operations	$	1,013,888		$	1,681,475

Net income (loss)
PRC	$	1,536,836		$	2,223,232
USA		(647,857	)		(409,767	)
Total net income	$	888,979		$	1,813,465

The geographical distributions of the Company’s financial information for the three months ended June 30, 2020 and 2019 were as follows:

	For the Three Months Ended June 30,
Geographic Areas	2020			2019
Revenue
PRC	$	9,562,103		$	12,479,508
USA		54			85,714
Elimination Adjustment		-
Total Revenue	$	9,562,157		$	12,565,222

Income (Loss) from operations
PRC	$	1,294,086		$	1,361,205
USA		(437,586	)		(225,004	)
Total Income from operations	$	856,500		$	1,136,201

Net income (loss)
PRC	$	1,175,153		$	1,684,287
USA		(437,586	)		(247,864	)
Total net income	$	737,567		$	1,436,423

The geographical distribution of the Company’s financial information as of June 30, 2020 and December 31, 2019 were as follows:

	As of June 30,			As of December 31,
Geographic Areas	2020			2019
Long-term assets
PRC	$	45,434,607		$	44,547,842
USA		920,746			1,363,586
Elimination adjustment		(3,562,322	)		(3,376,072	)
Total long-term assets	$	42,793,031		$	42,535,356

Reportable assets
PRC	$	57,638,866		$	55,407,391
USA		1,747,312			2,146,518
Elimination adjustment		(3,641,762	)		(3,347,192	)
Total reportable assets	$	55,744,416		$	54,206,717

NOTE 13 - COMMITMENTS AND CONTINGENCIES

Operating Lease

See future minimum lease payments in Note 9.

NOTE 14 - SUBSEQUENT EVENTS

The Company has evaluated all subsequent events through the date these consolidated financial statements were issued and determine that there were no subsequent events or transactions except disclosed in Note 6 and 11 that require recognition or disclosures in the consolidated financial statements.

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

The following discussion of our consolidated results of operations and cash flows for the six months ended June 30, 2020 and 2019, and consolidated financial conditions as of June 30, 2020 and December 31, 2019 should be read in conjunction with our unaudited consolidated financial statements and the related notes included elsewhere in this document.

Overview

We are a major grower and seller of yew trees and manufacturer of products made from yew trees, we also sell branches and leaves of yew trees for the manufacture of TCM containing taxol, which TCM has been approved in the PRC for use as a secondary treatment of certain cancers, meaning it must be administered in combination with other pharmaceutical drugs. The yew industry is highly regulated in the PRC because the Northeast yew tree is considered an endangered species. In the third quarter of 2016, we started to sell handmade yew essence oil soaps and candles.

We operated in two reportable business segments. The business of HDS, JSJ and HYF in PRC was managed and reviewed as PRC segment. The business of YBP, Yew Bio-Pharm (HK), and MC was managed and reviewed as USA segment.

For the three months ended June 30, 2020 and 2019, revenues from the PRC segment accounted for approximately 99.999% and 99.320% of consolidated revenue, respectively; revenues from USA segment accounted for approximately 0.001% and 0.680% of consolidated revenue, respectively.

For the six months ended June 30, 2020 and 2019, revenues from the PRC segment accounted for approximately 99.81% and 99.51% of consolidated revenue, respectively; revenues from USA segment accounted for approximately 0.19% and 0.49% of consolidated revenue, respectively.

The Company’s revenues were mostly generated by HDS and in the PRC. The expenses incurred in the U.S. were primarily related to fulfilling the reporting requirements of public listed company, stock-based compensation, office daily operations and other costs. As of June 30, 2020, the Company had $1,668,509 in cash and held the 100% equity interests in its subsidiaries Yew HK and JSJ. Yew HK itself has no business operations or assets other than holding of equity interests in JSJ. JSJ has no business operations and assets with a book value of approximately $6,000, including approximately $4,000 in cash at June 30, 2020. JSJ also holds the VIE interests in HDS through the contractual arrangements (the “Contractual Arrangements”) described in Notes to Consolidated Financial Statements. On November 4, 2014, HDS established a new subsidiary, Harbin Yew Food Co. LTD. (“HYF”), to develop and cultivate wood ear mushroom drink. As of June 30, 2020, HYF had started pilot production with limited amount of sales. In the event that we are unable to enforce the Contractual Agreements, we may not be able to exert effective control over HDS and HYF, and our ability to conduct our business may be materially and adversely affected. If the applicable PRC authorities invalidate our Contractual Agreements for any violation of PRC laws, rules and regulations, we would lose control of the VIE and its subsidiary resulting in its deconsolidation in financial reporting and severe loss in our market valuation. On June 8, 2016, YBP established a new subsidiary, MC Commerce Holding Inc. (MC), to sales the Company’s yew products in American market. MC had limited operation activities for the six months ended June 30, 2020.

In December 2019, COVID-19 was reported in China. Since then, COVID-19 has spread globally, to include the United States and several European countries. Many countries around the world have imposed quarantines and restrictions on travel and mass gatherings to slow the spread of the virus and have closed non-essential businesses. The pandemics could result in increased travel restrictions, market downturns and changes in the behavior of the terminal customers of our products related to pandemic fears. In addition, our certain customers could decrease the demand on our products due to the outbreak of the COVID-19. To date, our business is impact by the outbreak of the coronavirus (COVID-19) in China, which resulted the decrease of our revenue during the first half of 2020. The extent to which the coronavirus impacts our results will depend on future developments and reactions in China, which are highly uncertain and will include emerging information concerning the severity of the coronavirus and the actions taken by governments to attempt to contain the coronavirus. Any decreased collectability of accounts receivable, or reduction of purchase orders could further negatively impact our results of operations.

Critical accounting policies and estimates

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We continually evaluate our estimates, including those related to bad debts, allowance for obsolete inventory, and the classification of short and long-term inventory, the useful life of property and equipment and intangible assets, recovery of long-lived assets, income taxes, write-down in value of inventory, and the valuation of equity transactions. We base our estimates on historical experience and on various other assumptions that we believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Any future changes to these estimates and assumptions could cause a material change to our reported amounts of revenues, expenses, assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies affect our significant judgments and estimates used in the preparation of the financial statements.

Variable interest entities

Pursuant to ASC 810 and related subtopics related to the consolidation of variable interest entities, we are required to include in our consolidated financial statements the financial statements of VIEs. The accounting standards require a VIE to be consolidated by a company if that company is subject to the risk of loss for the VIE or is entitled to receive the VIE’s residual returns. VIEs are those entities in which we, through contractual arrangements, bear the risk of, and enjoy the rewards normally associated with ownership of the entity, and therefore we are the primary beneficiary of the entity. HDS is considered a VIE, and we are the primary beneficiary. We entered into agreements with HDS pursuant to which we shall receive 100% of HDS’s net income. In accordance with these agreements, HDS shall pay consulting fees equal to 100% of its net income to our wholly-owned subsidiary, JSJ. JSJ shall supply the technology and administrative services needed to service the HDS.

The accounts of HDS are consolidated in the accompanying financial statements. As a VIE, HDS’ sales are included in our total sales, its income from operations is consolidated with ours, and our net income includes all of HDS’ net income, and their assets and liabilities are included in our consolidated balance sheets. The VIEs do not have any non-controlling interest and, accordingly, we did not subtract any net income in calculating the net income attributable to us. Because of the contractual arrangements, we have pecuniary interest in HDS that requires consolidation of HDS’ financial statements with our financial statements.

As required by ASC 810-10, we perform a qualitative assessment to determine whether we are the primary beneficiary of HDS which is identified as a VIE of us. A quality assessment begins with an understanding of the nature of the risks in the entity as well as the nature of the entity’s activities including terms of the contracts entered into by the entity, ownership interests issued by the entity and the parties involved in the design of the entity. The significant terms of the agreements between us and HDS are discussed above in the “Corporate Structure and Recapitalization - Second Restructure” section. Our assessment on the involvement with HDS reveals that we have the absolute power to direct the most significant activities that impact the economic performance of HDS. JSJ, our wholly own subsidiary, is obligated to absorb a majority of the risk of loss from HDS activities and is entitled to receive a majority of HDS’s expected residual returns. In addition, HDS’ shareholders have pledged their equity interest in HDS to JSJ, irrevocably granted JSJ an exclusive option to purchase, to the extent permitted under PRC Law, all or part of the equity interests in HDS and agreed to entrust all the rights to exercise their voting power to the person(s) appointed by JSJ. Under the accounting guidance, we are deemed to be the primary beneficiary of HDS and the results of HDS’ operation are consolidated in our consolidated financial statements for financial reporting purposes.

Accordingly, as a VIE, HDS’ sales are included in our total sales, its income from operations is consolidated with our income from operations and our net income includes all of HDS’ net income. All the equity (net assets) and profits (losses) of HDS are attributed to us. Therefore, no non-controlling interest in HDS is presented in our consolidated financial statements. As we do not have any non-controlling interest and, accordingly, did not subtract any net income in calculating the net income attributable to us. Because of the Contractual Arrangements, YBP has a pecuniary interest in HDS that requires consolidation of HDS’ financial statements with those of ours.

Additionally, pursuant to ASC 805, as YBP and HDS are under the common control of the HDS Shareholders, the Second Restructure was accounted for in a manner similar to a pooling of interests. As a result, our historical amounts in the accompanying consolidated financial statements give retrospective effect to the Second Restructure, whereby our assets and liabilities are reflected at the historical carrying values and their operations are presented as if they were consolidated for all periods presented, with our results of operations being consolidated from the date of the Second Transfer Agreement. The accounts of HDS are consolidated in the accompanying financial statements.

Accounts receivable

Accounts receivable are presented net of an allowance for doubtful accounts. We maintain allowances for doubtful accounts for estimated losses. We review the accounts receivable balance on a periodic basis and make general and specific allowances when there is doubt as to the collectability of individual balances. In evaluating the collectability of individual receivable balances, we consider many factors, including the age of the balance, a customer’s historical payment history, its current credit-worthiness and current economic trends. Accounts are written off after exhaustive efforts at collection. We recognize the probability of the collection for each customer.

Inventories

Inventories consisted of raw materials, work-in-progress, finished goods-handicrafts, yew seedlings, yew candles and other trees (consisting of larix, spruce and poplar trees). We classify our inventories based on our historical and anticipated levels of sales; any inventory in excess of its normal operating cycle of one year is classified as long-term on our consolidated balance sheets. Inventories are stated at the lower of cost or market value utilizing the weighted average method. Raw materials primarily include yew timber used in the production of products such as handicrafts, furniture and other products containing yew timber. Finished goods-handicraft and yew seedlings include direct materials and direct labor.

We estimate the amount of the excess inventories by comparing inventory on hand with the estimated sales that can be sold within our normal operating cycle of one year. Any inventory in excess of our current requirements based on historical and anticipated levels of sales is classified as long-term on our consolidated balance sheets. Our classification of long-term inventory requires us to estimate the portion of inventory that can be realized over the next 12 months.

To estimate the amount of slow-moving or obsolete inventories, we analyze movement of our products, monitor competing products and technologies and evaluate acceptance of our products. Periodically, we identify inventories that cannot be sold at all or can only be sold at deeply discounted prices. An allowance will be established if management determines that certain inventories may not be saleable. If inventory costs exceed expected market value due to obsolescence or quantities in excess of expected demand, we will record reserves for the difference between the carrying cost and the estimated market value.

Our handicraft and yew furniture products are hand-made by traditional Chinese artisans.

In accordance with ASC 905, “Agriculture”, our costs of growing yew seedlings are accumulated until the time of harvest and are reported at the lower of cost or market.

Property and equipment

Property and equipment are carried at cost and are depreciated on a straight-line basis (after taking into account their respective estimated residual value) over the estimated useful lives of the assets. The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in income in the year of disposition. We examine the possibility of decreases in the value of fixed assets when events or changes in circumstances reflect the fact that their recorded value may not be recoverable. The estimated useful lives are as follows:

Building			10 - 20 years
Machinery and equipment			3 - 10 years
Office equipment			2 - 5 years
Motor vehicles			4 - 10 years

Land use rights and yew forest assets

All land in the PRC is owned by the PRC government and cannot be sold to any individual or company. We have recorded the amounts paid to the PRC government to acquire long-term interests to utilize land and yew forests as land use rights and yew forest assets. This type of arrangement is common for the use of land in the PRC. Yew trees on land containing yew tree forests are used to supply raw materials such as branches, leaves and fruit to us that will be used to manufacture our products. We amortize these land and yew forest use rights over the term of the respective land and yew forest use right, which ranges from 15 to 50 years. The lease agreements do not have any renewal option and we have no further obligations to the lessor. We record the amortization of these land and forest use rights as part of our cost of revenues.

Revenue recognition

We generate our revenue from sales of yew seedling products, sales of yew raw materials for medical application, sales of yew handicraft products, sales of “Others” including yew candles, yew essential oil soap, pine needle extract, complex taxus cuspidate extract, and composite northeast yew extract. Pursuant to the guidance of ASC 606, we recognize revenue when obligations under the terms of a contract with customer are satisfied; generally this occurs with the transfer of control of the products sold. Transfer of control to the customer is based on the standardized shipping terms in the contract as this determines when we have the right to payment, the customer has legal title to the asset and the customer has the risks of ownership.

Income taxes

We are governed by the Income Tax Law of the PRC, Hong Kong and the United States. We account for income tax using the liability method prescribed by ASC 740, “Income Taxes”. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the year in which the differences are expected to reverse. We record a valuation allowance to offset deferred tax assets if based on the weight of available evidence; it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is recognized as income or loss in the period that includes the enactment date.

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 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 our liability for income taxes. Any such adjustment could be material to our results of operations for any given quarterly or annual period based, in part, upon the results of operations for the given period. Currently, we have no uncertain tax positions, and will continue to evaluate for uncertain positions in the future.

Stock-based compensation

The Company accounts for equity-based compensation cost in accordance with ASC 718, Compensation-Stock Compensation after adoption of ASC 2018-07, which requires the measurement and recognition of compensation expense related to the fair value of equity-based compensation awards that are ultimately expected to vest. Stock-based compensation expense recognized includes the compensation cost for all share-based compensation payments granted to employees and nonemployees, net of estimated forfeitures, over the employees requisite service period or the non-employee performance period based on the grant date fair value estimated in accordance with the provisions of ASC 718. ASC 718 is also applied to awards modified, repurchased, or cancelled during the periods reported.

Recent accounting pronouncements

In February 2016, the Financial Accounting Standards Board (“FASB”) issued new leasing guidance (“Topic 842”) that replaced the existing lease guidance (“Topic 840”). Topic 842 established a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and lease liability on the balance sheet for all leases with terms longer than 12 months. Leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in the statement of operations. This guidance also expanded the requirements for lessees to record leases embedded in other arrangements and the required quantitative and qualitative disclosures surrounding leases.

The Company adopted Topic 842 on its effective date of January 1, 2019 using a modified retrospective transition approach; as such, Topic 842 will not be applied to periods prior to adoption and the adoption had no impact on the Company’s previously reported results. The Company elected the package of practical expedients permitted under the transition guidance within Topic 842, which allowed the Company to carry forward its identification of contracts that are or contain leases, its historical lease classification and its accounting for initial direct costs for existing leases. The impact of adopting Topic 842 was not material to the Company’s result of operations or cash flows for the three and six months ended June 30, 2020 and 2019. The Company recognized operating lease liabilities of approximately $350,000 upon adoption, with corresponding ROU assets on its balance sheet at January 1, 2019.

Currency exchange rates

Our functional currency is the U.S. dollar, and the functional currency of our operating subsidiaries and VIE is the RMB. All of our sales are denominated in RMB. As a result, changes in the relative values of U.S. dollars and RMB affect our reported levels of revenues and profitability as the results of our operations are translated into U.S. dollars for reporting purposes. In particular, fluctuations in currency exchange rates could have a significant impact on our financial stability due to a mismatch among various foreign currency-denominated sales and costs. Fluctuations in exchange rates between the U.S. dollar and RMB affect our gross and net profit margins and could result in foreign exchange and operating losses.

Our exposure to foreign exchange risk primarily relates to currency gains or losses resulting from timing differences between signing of sales contracts and settling of these contracts. Furthermore, we translate monetary assets and liabilities denominated in other currencies into RMB, the functional currency of our operating subsidiaries. Our results of operations and cash flow are translated at average exchange rates during the period, and assets and liabilities are translated at the unified exchange rate at the end of the period. Translation adjustments resulting from this process are included in accumulated other comprehensive income in our statement of shareholders’ equity. We have not used any forward contracts, currency options or borrowings to hedge our exposure to foreign currency exchange risk. We cannot predict the impact of future exchange rate fluctuations on our results of operations and may incur net foreign currency losses in the future.

Our financial statements are expressed in U.S. dollars, which is the functional currency of our parent company. The functional currency of our operating subsidiaries and affiliates is RMB. To the extent we hold assets denominated in U.S. dollars, any appreciation of the RMB against the U.S. dollar could result in a charge in our statement of operations and a reduction in the value of our U.S. dollar denominated assets. On the other hand, a decline in the value of RMB against the U.S. dollar could reduce the U.S. dollar equivalent amounts of our financial results.

Results of Operations

The following tables set forth key components of our results of operations for the periods indicated, in dollars. The discussion following the table is based on these results:

	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Revenues - third parties	$	159,709		$	9,782,457		$	181,498		$	9,815,938
Revenues - related parties		9,402,448			2,782,765			11,409,841			14,263,288
Total revenues		9,562,157			12,565,222			11,591,339			24,079,226
Cost of revenues - third parties		341,204			9,829,839			382,570			9,856,507
Cost of revenues - related parties		7,935,570			2,089,325			9,481,131			12,418,132
Total cost of revenues		8,276,774			11,919,164			9,863,701			22,274,639
Gross profit		1,285,383			646,058			1,727,638			1,804,587
Operating expenses		428,883			(490,143	)		713,750			123,112
Income from operations		856,500			1,136,201			1,013,888			1,681,475
Other (expenses) income		(118,933	)		330,103			(124,909	)		183,477
Net income before income taxes		737,567			1,466,304			888,979			1,864,952
Income taxes		-			(29,881	)		-			(51,487	)
Net income		737,567			1,436,423			888,979			1,813,465
Other comprehensive income (loss):
Foreign currency translation adjustment		102,289			(976,156	)		(713,755	)		48,728
Comprehensive income (loss)	$	839,856		$	460,267		$	175,224		$	1,862,193

Three and Six Months Ended June 30, 2020 Compared to Three and Six Months Ended June 30, 2019

Revenues

For the three months ended June 30, 2020, we had total revenues of $9,562,157, as compared to $12,565,222 for the three months ended June 30, 2019, a decrease of $3,003,065 or 23.90%. The decrease in total revenue was attributable to the decrease in revenues of extracts, partially offset by increase in revenues of TCM raw materials.

For the six months ended June 30, 2020, we had total revenues of $11,591,339, as compared to $24,079,226, for the six months ended June 30, 2019, a decrease of $12,487,887 or 51.86%. The decrease in total revenue was attributable to the decrease in revenues of extracts.

Total revenue is summarized as follows:

	Three Months Ended June 30,				Increase			Percentage
	2020		2019		(Decrease)			Change
TCM raw materials	$	5,076,245	$	2,825,347	$	2,250,898			79.67	%
Handicrafts		-		3,823		(3,823	)		(100.00	)%
Extracts		4,326,203		9,690,744		(5,364,541	)		(55.36	)
Others		159,709		45,308		114,401			252.50	%
Total	$	9,562,157	$	12,565,222	$	(3,003,065	)		(23.90	)%

	Six Months Ended June 30,				Increase			Percentage
	2020		2019		(Decrease)			Change
TCM raw materials	$	7,083,638	$	6,988,782	$	94,856			1.36	%
Handicrafts		-		6,118		(6,118	)		(100.00	)%
Extracts		4,326,203		16,965,250		(12,639,047	)		(74.50	)
Others		181,498		119,076		62,422			52.42	%
Total	$	11,591,339	$	24,079,226	$	(12,487,887	)		(51.86	)%

For the three months ended June 30, 2020 compared to June 30, 2019, the decrease in extracts was mainly attributable to the decrease in demand of pine needle extract, complex taxus cuspidate extract, and composite northeast yew extract. The increase in revenue of TCM raw material was mainly attributable to the increase in demand from our related party, Yew Pharmaceutical.

For the six months ended June 30, 2020 compared to June 30, 2019, the decrease in extracts was mainly attributable to the decrease in demand of pine needle extract, complex taxus cuspidate extract, and composite northeast yew extract.

Cost of Revenues

For the three months ended June 30, 2020, cost of revenues amounted to $8,276,774 as compared to $11,919,164 for the three months ended June 30, 2019, a decrease of $3,642,390 or 30.56%. For the three months ended June 30, 2020, cost of revenues accounted for 86.56% of total revenues compared to 94.86% of total revenues for the three months ended June 30, 2019.

For the six months ended June 30, 2020, cost of revenues amounted to $9,863,701 as compared to $22,274,639 for the six months ended June 30, 2019, a decrease of $12,410,938 or 55.72%. For the six months ended June 30, 2020, cost of revenues accounted for 85.10% of total revenues compared to 92.51% of total revenues for the six months ended June 30, 2019.

Cost of revenues by product categories is as follows:

	Three Months Ended June 30,				Increase			Percentage
	2020		2019		(Decrease)			Change
TCM raw materials	$	3,873,423	$	2,126,883	$	1,746,540			82.12	%
Handicrafts		-		3,778		(3,778	)		(100.00	)%
Extracts		3,849,876		9,652,672		(5,802,796	)		(60.12	)
Others		553,475		135,831		417,644			307.47	%
Total	$	8,276,774	$	11,919,164	$	(3,642,390	)		(30.56	)%

	Six Months Ended June 30,				Increase			Percentage
	2020		2019		(Decrease)			Change
TCM raw materials	$	5,569,307	$	5,144,317	$	424,990			8.26	%
Handicrafts		-		975		(975	)		(100.00	)%
Extracts		3,849,876		16,926,486		(13,076,610	)		(77.26	)
Others		444,518		202,861		241,657			119.12	%
Total	$	9,863,701	$	22,274,639	$	(12,410,938	)		(55.72	)%

The decrease in our cost of revenues for the three and six months ended June 30, 2020 as compared to the three months and six months ended June 30, 2019 was in line with the increase in revenue.

Gross Profit

For the three months ended June 30, 2020, gross profit was $1,285,383 as compared to $646,058 for the three months ended June 30, 2019, representing gross profit margins of 13.44% and 5.14%, respectively. For the six months ended June 30, 2020, gross profit was $1,727,638 as compared to $1,804,587 for the six months ended June 30, 2019, representing gross profit margins of 14.90% and 7.49%, respectively. Gross profit margins by categories are as follows:

	Three Months Ended June 30,									Six Months Ended June 30,
	2020			2019			(Decrease) Increase			2020			2019			(Decrease) Increase
TCM raw materials		23.70	%		24.72	%		(1.02	)%		21.38	%		26.39	%		(5.01	)%
Handicrafts		-	%		1.18	%		-	%		-	%		84.06	%		-	%
Extracts		11.01	%		0.39	%		10.62	%		11.01	%		0.23	%		10.78	%
Others		(246.55	)%		(199.80	)%		(46.75	)%		(114.92	)%		(70.36	)%		(74.56	)%
Total		13.44	%		5.14	%		8.30	%		14.90	%		7.49	%		7.41	%

The increase in our overall gross profit margin for the three and six month ended June 30, 2020 as compared to the three and six months ended June 30, 2019 were primarily attributable to the higher gross margin yields of extracts.

Operating Expenses

For the three months ended June 30, 2020, operating expenses amounted to $428,883, as compared to $(490,143) for the three months ended June 30, 2019, an increase of $919,026 or 187.50%. The increase was mainly due to the bad debt recovery occurred during the three months ended June 30, 2019, no such event occurred during the three months ended June 30, 2020.

For the six months ended June 30, 2020, operating expenses amounted to $713,750 as compared to $123,112 for the six months ended June 30, 2019, an increase of $590,638 or 479.76%. The increase was mainly due to the bad debt recovery occurred during the six months ended June 30, 2019, no such event occurred during the six months ended June 30, 2020.

Income from Operations

For the three months ended June 30, 2020, income from operations was $856,500, as compared to income from operations of $1,136,201 for the three months ended June 30, 2019, a decrease of $279,701, or 24.62%. The decrease was primarily attributable to the increase of bad debt expenses and long-term inventory reserve after offset by the increase in gross profit from TCM raw materials and extracts.

For the six months ended June 30, 2020, income from operations was $1,013,888, as compared to income from operations of $1,681,475 for the six months ended June 30, 2019, a decrease of $667,587, or 39.70%. The decrease was primarily attributable to the increase of bad debt expenses and long-term inventory reserve after offset by the increase in gross profit from TCM raw materials and extracts.

Other (Expense) Income

For the three months ended June 30, 2020, total other expense was $118,933 as compared to total other expense of $330,103 for the three months ended June 30, 2019. The decrease was primarily attributable to the increase of interest expense and the decrease of exchange gain.

For the six months ended June 30, 2020, total other expense was $124,909 as compared to total other expense of $183,477 for the six months ended June 30, 2019. The decrease was primarily attributable to the increase of interest expense.

Net Income

As a result of the factors described above, our net income was $737,567 or $0.01 (basic and diluted), for the three months ended June 30, 2020, as compared to net income of $1,436,423 or $0.03 (basic and diluted), for the three months ended June 30, 2019. As a result of the factors described above, our net income was $888,979 or $0.02 (basic and diluted), for the six months ended June 30, 2020, as compared to net income of $1,813,465 or $0.03 (basic and diluted), for the six months ended June 30, 2019.

Foreign Currency Translation Adjustment

For the three months ended June 30, 2020, we reported an unrealized gain on foreign currency translation of $102,289, as compared to an unrealized loss of $976,156 for the three months ended June 30, 2019. For the six months ended June 30, 2020, we reported an unrealized loss on foreign currency translation of $713,755, as compared to an unrealized gain of $48,728 for the six months ended June 30, 2019. The change reflects the effect of the value of the U.S. dollar in relation to the RMB. As described elsewhere herein, the functional currency of our subsidiary, JSJ, and our VIE, HDS, is the RMB. The accompanying consolidated financial statements have been translated and presented in U.S. dollars using period end rates of exchange for assets and liabilities, and average rates of exchange for the period for net revenues, costs, and expenses. Net gains resulting from foreign exchange transactions, if any, are included in the consolidated statements of income and comprehensive income.

Comprehensive Income

For the three months ended June 30, 2020, comprehensive income of $839,856 was derived from the sum of our net income of $737,567 with foreign currency translation gain of $102,289. For the three months ended June 30, 2019, comprehensive income of $460,267 was derived from the sum of our net income of $1,436,423 with foreign currency translation loss of $976,156.

For the six months ended June 30, 2020, comprehensive income of $175,224 was derived from the sum of our net income of $888,979 with foreign currency translation loss of $713,976755. For the six months ended June 30, 2019, comprehensive income of $1,862,193 was derived from the sum of our net income of $1,813,465 with foreign currency translation gain of $48,728.

Segment Information

For the three and six months ended June 30, 2020 as compared to the three and six months ended June 30, 2019, we operated in two reportable business segments. The business of HDS, JSJ and HYF in PRC was managed and reviewed as PRC segment. The business of YBP, Yew Bio-Pharm (HK), and MC was managed and reviewed as USA segment.

Information with respect to these reportable business segments for the three months ended June 30, 2020 and 2019 was as follows:

	For the three months June 30, 2020						For the three months June 30, 2019
	Revenues- third parties		Revenues - related party		Total		Revenues- third parties		Revenues - related party		Total
Revenues:
PRC	$	159,655	$	9,402,448	$	9,562,103	$	9,696,743	$	2,782,765	$	12,479,508

USA		54		-		54		85,714		-		85,714

Total revenues	$	159,709	$	9,402,448	$	9,562,157	$	9,782,457	$	2,782,765	$	12,565,222

Information with respect to these reportable business segments for the six months ended June 30, 2020 and 2019 was as follows:

	For the six months June 30, 2020						For the six months June 30, 2019
	Revenues- third parties		Revenues - related party		Total		Revenues- third parties		Revenues - related party		Total
Revenues:
PRC	$	159,655	$	11,409,841	$	11,569,496	$	9,696,891	$	14,263,288	$	23,960,179

USA		21,843		-		21,843		119,047		-		119,047

Total revenues	$	181,498	$	11,409,841	$	11,591,339	$	9,815,938	$	14,263,288	$	24,079,226

During the three months ended June 30, 2020 and 2019, the revenue from PRC segment was $9,562,103 and $12,479,508, respectively, decrease of $2,917,405 or 23.38% due to the decrease demand on Asia market. The decrease in PRC segment was mainly due to the decrease in revenue from third parties in the amount of $9,537,088, offset by the increase in revenue from related parties in the amount of 6,619,683.

During the three months ended June 30, 2020 and 2019, the revenue from USA segment was $54 and $85,714, respectively, decrease of $85,660 or 99.94%. The decrease in USA segment was due to the decrease in revenue from third parties in the amount of $85,660 attributable to our China customers’ decreased oversea demand.

During the six months ended June 30, 2020 and 2019, the revenue from PRC segment was $11,569,496 and $23,960,179, respectively, decrease of $12,390,683 or 51.71% due to the decrease demand on Asia market. The decrease in PRC segment was mainly due to the decrease in revenue from third parties in the amount of $9,537,236, and the decrease in revenue from related parties in the amount of 2,853,447.

During the six months ended June 30, 2020 and 2019, the revenue from USA segment was $21,843 and $119,047, respectively, decrease of $97,204 or 81.65%. The decrease in USA segment was due to the decrease in revenue from third parties in the amount of $97,204 attributable to our China customers’ decreased oversea demand.

Liquidity and Capital Resources

Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations and otherwise operate on an ongoing basis. At June 30, 2020 and December 31, 2019, we had cash balances of $1,668,509 and $742,294, respectively. These funds are primarily located in various financial institutions located in China. Our primary uses of cash have been for the purchase of yew trees, land use rights and yew forest assets. Additionally, we use cash for employee compensation and working capital.

The following table sets forth information as to the principal changes in the components of our working capital from December 31, 2019 to June 30, 2020:

Category	June 30, 2020		December 31, 2019		Change			Percentage change
Current assets:
Cash	$	1,668,509	$	742,294	$	926,215			124.78	%
Accounts receivable		4,168,478		7,692,613		(3,524,135	)		(45.81	)%
Accounts receivable - related parties, net		4,320,000		193,000		4,127,000			2,138.34	%
Inventories, net		1,819,551		2,637,389		(817,838	)		(31.01	)%
Prepaid expenses – related parties		-		5,829		(5,829	)		(100.00	)%
Prepaid expenses and other assets		222,982		51,140		171,842			336.02	%
VAT recoverable		751,865		349,096		402,769			115.37	%
Current liabilities:
Accounts payable for acquisition of yew forests and others		1,324,718		920,459		404,259			43.92	%
Accounts payable for acquisition of yew forests and others - related parties		420,103		16,629		403,474			2426.32	%
Advances from customers		407,208		50,071		357,137			713.26	%
Advances from customers - related parties		110,349		-		110,349			100.00	%
Accrued expenses and other payables		403,015		266,749		136,266			33.81	%
Taxes payable		115,264		116,440		(1,176	)		(1.01	)%
Due to related parties		630,724		633,779		(3,055	)		(0.48	)%
Short-term borrowings		8,487,119		8,541,517		(54,398	)		(0.64	)%
Operating lease liabilities, current		59,799		52,104		7,695			14.77	%
Working capital:
Total current assets	$	12,951,385	$	11,671,361	$	1,280,024			10.97	%
Total current liabilities		11,843,035		10,481,308		1,363,483			13.01	%
Working capital	$	1,108,350	$	1,190,053	$	(81,703	)		(6.87	)%

Our working capital decreased by $81,703 to $1,108,350 at June 30, 2020, from working capital of $1,190,053 at December 31, 2019. This decrease in working capital is primarily attributable to:

	●	a decrease in accounts receivable of $3,524,135
	●	an increase in accounts payable for acquisition of yew forests and others of $404,259
	●	an increase in accounts payable for acquisition of yew forests and others - related parties of $403,474
	●	an increase in advances from customers of $357,137
	●	a decrease in inventories of $817,838

partially offset by:

	●	an increase in accounts receivable - related parties of $4,127,000
	●	an increase in cash of $926,215
	●	an increase in VAT recoverable of $402,769

For the six months ended June 30, 2020, net cash flow provided by operating activities was $6,434,367, as compared to net cash flow provided by operating activities of $3,690,827 for the six months ended June 30, 2019, an increase of $2,743,540. Because the exchange rate conversion is different for the balance sheet and the statements of cash flows, the changes in assets and liabilities reflected on the statements of cash flows are not necessarily identical with the comparable changes reflected on the balance sheets.

For the six months ended June 30, 2020, net cash flow provided by operating activities was $6,434,367 was primarily attributable to:

	●	net income of approximately $889,000 adjusted for the add-back of non-cash items, such as inventory additional reserves of approximately $370,000, sale of yew forest assets as inventory of approximately 4,330,000, amortization of land use rights and yew forest assets of approximately $1,272,000 and bad debt expense of approximately $197,000; and

	●	Changes in operating assets and liabilities, such as a decrease in accounts receivable of approximately $3,430,000, an increase in accounts receivable-related parties of approximately $4,348,000, and a decrease in inventories of approximately $828,000

For the six months ended June 30, 2019, net cash flow provided by operating activities of $3,690,827 was primarily attributable to:

	●	net income of approximately $1,813,000 adjusted for the add-back of non-cash items, such as inventory write-down of approximately $133,000, sale of yew forest assets as inventory of approximately 3,814,000, amortization of land use rights and yew forest assets of approximately $792,000 and bad debt recovery of approximately $390,000; and

	●	Changes in operating assets and liabilities, such as an increase in accounts receivable of approximately $9,696,000, an increase in accounts receivable-related parties of approximately $993,000, a decrease in inventories of approximately $6,170,000, and an increase in advance from customers-related party of approximately $2,777,000.

Net cash flow used in investing activities was approximately $5,466,000 for the six months ended June 30, 2020. During the six months ended June 30, 2020, we have made payment in approximately $5,427,000 for purchase of yew forest assets, and made payment for purchase of property and equipment $39,000. Net cash flow used in investing activities was approximately $6,438,000 for the six months ended June 30, 2019. During the six months ended June 30, 2019, we have made payment in approximately $6,297,000 for purchase of yew forest assets, and made prepayments for purchases of yew forest assets of approximately $133,000.

Net cash flow provided by financing activities was approximately $71,000 for the six months ended June 30, 2020 and consisted of proceeds of $5,300,000 from banks, and offset by repayments of approximately $5,230,000. Net cash flow provided by financing activities was approximately $2,414,000 for the six months ended June 30, 2019 and consisted of proceeds of $5,234,000 from banks, and offset by repayments of approximately $2,850,000.

We have historically financed our operations and capital expenditures through cash flows from operations, bank loans and advances from related parties. From March 2008 to September 2009, we received approximately $2.9 million of proceeds in the aggregate from offerings and sales of our common stock. Except for the portion used to pay for professional and other expenses in the U.S., substantial portions of the proceeds we received through sales of our common stock were retained in the PRC and used to fund our working capital requirements. As the PRC government imposes controls on PRC companies’ ability to convert RMB into foreign currencies and the remittance of currency out of China, from time to time, in order to fund our corporate activities in the U.S., Zhiguo Wang, our President and CEO, advanced funds to us in the U.S. and we repaid the amounts owed to him in RMB in the PRC.

It is management’s intention to expand our operations as quickly as reasonably practicable to capitalize on the demand opportunity for our products. We regularly review our cash funding requirements and attempt to meet those requirements through a combination of cash on hand, cash provided by operations and any potential available bank borrowings. We believe that we can continue meeting our cash funding requirements for our business in this manner over at least the next twelve months. The majority of our funds are maintained in RMB in bank accounts in China. We receive most of our revenue in the PRC. Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and expenditures from trade related transactions, can be made in foreign currencies by complying with certain procedural requirements. However, approval from China’s State Administration of Foreign Exchange (“SAFE”) or its local counterparts is required where RMB is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies. The PRC government may also, at its discretion, restrict access to foreign currencies for current account transactions. As of June 30, 2020 and December 31, 2019, approximately $45.6 million and $44.6 million, respectively, of our net assets are located in the PRC. If the foreign exchange control system in the PRC prevents us from obtaining sufficient foreign currency to satisfy our currency demands, we may not be able to transfer funds deposited within the PRC to fund working capital requirements in the U.S. or pay any dividends in currencies other than the RMB, to our shareholders.

Off-Balance Sheet Arrangements

We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as shareholder’s equity or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Foreign Currency Exchange Rates Risk

Substantially all of our operating revenues and expenses are denominated in RMB. We operate using RMB and the effects of foreign currency fluctuations are largely mitigated because local expenses in the PRC are also denominated in the same currency. We do not believe that we currently have any significant direct foreign exchange risk and have not hedged exposures denominated in foreign currencies or any other derivative financial instruments. Because we generally receive cash flows denominated in RMB, our exposure to foreign exchange risks should be limited.

Our assets and liabilities, of which the functional currency is the RMB, are translated into USD using the exchange rates in effect at the balance sheet date, resulting in translation adjustments that are reflected as cumulative translation adjustment in the shareholders’ equity section on our consolidated balance sheets. A portion of our net assets are impacted by changes in foreign currencies translation rates in relation to the U.S. dollar. We recorded a foreign currency translation loss of $714,975 for the six months ended June 30, 2020 and a gain of $48,728 for the six months ended June 30, 2019, respectively, to reflect the impact of the fluctuation of the RMB against the U.S. dollar.

The value of the RMB against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in China’s political and economic conditions. The conversion of the RMB into foreign currencies, including U.S. dollars, has been based on rates set by the People’s Bank of China.

To the extent that we decide to convert RMB denominated cash amounts into U.S. dollars for the purpose of making any dividend payments, which we have not declared but may declare in the future, 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. Conversely, if we need to convert U.S. dollars into RMB for operations, appreciation of the RMB against the U.S. dollar would have an adverse effect on the RMB amount it received from the conversion. We have not used, and do not currently expect to use in the future, any forward contracts or currency borrowings to hedge exposure to foreign currency exchange risk.

Interest Rate Risk

We have not been, nor do we currently anticipate being, exposed to material risks due to changes in interest rates.

ITEM 4. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures.

The Company’s management has evaluated, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were not effective as of the end of the period covered by this report.

(b) Changes in Internal Control over Financial Reporting.

There have not been any changes in the Company’s internal control over financial reporting that occurred during the Company’s fiscal quarter ended June 30, 2020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II

OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are not currently a party to any lawsuit or proceeding which, in the opinion of management, is likely to have a material adverse effect on us or our business.

ITEM 1A. RISK FACTORS

No material change.

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

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

The following exhibits are attached hereto and filed herewith:

31.1*	Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934.

31.2*	Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934.

32.1*	Certification of Periodic Financial Report by the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS	XBRL Instance Document

101.SCH	XBRL Taxonomy Extension Schema Document

101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF	XBRL Taxonomy Extension Definition Linkbase Document

101.LAB	XBRL Taxonomy Extension Label Linkbase Document

101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

*	Filed herewith.

SIGNATURE

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

	YEW BIO-PHARM GROUP, INC.

	By:	/s/ ZHIGUO WANG
		Zhiguo Wang
		Chief Financial Officer

Date: August 14, 2020

EXHIBIT INDEX

Exhibit Number		Description of Exhibit
31.1*		Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934.

31.2*		Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934.

32.1*		Certification of Periodic Financial Report by the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

*	Filed herewith.

Yew Bio-Pharm Group, Inc. - FORM 10-Q - August 14, 2020

Attached files

Yew Bio-Pharm Group, Inc. Reports