YEW BIO-PHARM GROUP, INC. The following discussion of our consolidated results of operations and cash flows for the nine months endedSeptember 30, 2021 and 2020, and consolidated financial conditions as ofSeptember 30, 2021 andDecember 31, 2020 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, HYF and YBT in PRC was managed and reviewed as PRC segment. The business of YBP,Yew Bio-Pharm (HK), and MC was managed and reviewed asUSA segment.
For the three months ended
For the nine months ended
YBP's revenues were mostly generated by HDS and in the PRC. The expenses incurred in theU.S. were primarily related to fulfilling the reporting requirements of public listed company, stock-based compensation, office daily operations and other costs. As ofSeptember 30, 2021 , YBP had$100 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$9,111 , including approximately$9,111 in cash onSeptember 30, 2021 . JSJ also holds the VIE interests in HDS through the contractual arrangements (the "Contractual Arrangements") described in Notes to Unaudited Consolidated Financial Statements. OnNovember 4, 2014 , HDS established a new subsidiary,Harbin Yew Food Co. LTD. ("HYF"), to develop and cultivate wood ear mushroom drink. As ofSeptember 30, 2021 , HYF had started pilot production with a limited amount of sales. OnDecember 24, 2020 , HDS acquired 80% ownership of a new subsidiary,Yew (Guangzhou) Bio-Technology Co., Ltd ("YBT"), to marketing and sell cosmetics. As ofSeptember 30, 2021 , YBT had not started sales. In the event that we are unable to enforce the Contractual Agreements, we may not be able to exert effective control over HDS, HYF and YBT, 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. OnJune 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 nine months endedSeptember 30, 2021 . InDecember 2019 , COVID-19 was reported inChina . Since then, COVID-19 has spread globally, to includethe 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) inChina . The extent to which the coronavirus impacts our results will depend on future developments and reactions inChina , 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 inthe 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 land use rights and yew forest assets, recovery of long-lived assets, 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. 21 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 the risk of loss from HDS activities and is entitled to receive 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. 22 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 has 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 andthe 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. 23 Stock-based compensation
Stock based compensation is accounted for based on the requirements of the Share-Based Payment topic of ASC 718 which requires recognition in the financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the period the employee or director is required to perform the services in exchange for the award. The Accounting Standards Codification also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date
fair value of the award.
The Company accounts for share-based compensation awards to nonemployees in accordance with FASB ASC 718 and FASB ASC 505-50. Under FASB ASC 718 and FASB ASC 505-50, stock compensation granted to non-employees has been determined as the fair value of the consideration received or the fair value of equity instrument issued, whichever is more reliably measured and is recognized as an expense as the goods or services are received.
Recent accounting pronouncements
InFebruary 2016 , theFinancial 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 ofJanuary 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 nine months endedSeptember 30, 2021 . The Company recognized operating lease liabilities of$350,000 upon adoption, with corresponding ROU assets on its
balance sheet. Currency exchange rates
Our functional currency is theU.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 ofU.S. dollars and RMB affect our reported levels of revenues and profitability as the results of our operations are translated intoU.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 theU.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 inU.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 inU.S. dollars, any appreciation of the RMB against theU.S. dollar could result in a charge in our statement of operations and a reduction in the value of ourU.S. dollar denominated assets. On the other hand, a decline in the value of RMB against theU.S. dollar could reduce theU.S. dollar equivalent amounts of
our financial results. 24 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 Nine Months Ended
September 30, September 30,
2021 2020 2021 2020
Revenues - third parties $ - $ 498,346 $ 6,804,702 $ 679,844
Revenues - related parties 110,106 9,856,869 16,886,287 21,266,710
Total revenues 110,106 10,355,215 23,690,989 21,946,554
Cost of revenues - third parties 2,814 463,359 6,948,445 845,929
Cost of revenues - related parties 947,360 8,366,498 16,853,667 17,847,629
Total cost of revenues 950,174 8,829,857 23,802,112 18,693,558 Gross profit (840,068 ) 1,525,358 (111,123 ) 3,252,996 Operating expenses 718,200 31,180 (1,088,921 ) 744,930
Income from operations (1,558,268 ) 1,494,178 977,798 2,508,066 Other expenses, net (426 ) (471,052 )
(170,264 ) (595,961 )
Income taxes - (27,152 ) (1,859 ) (27,152 )
Net income (1,558,694 ) 995,974 805,675 1,884,953
Other comprehensive income (loss):
Foreign currency translation adjustment 39,056 1,671,103 510,185 957,348
Comprehensive income (loss) $ (1,519,638 ) $ 2,667,077 $ 1,315,860 $ 2,842,301 25
Three and Nine Months Ended
Revenues For the three months endedSeptember 30, 2021 , we had total revenues of$110,106 , as compared to$10,355,215 for the three months endedSeptember 30, 2020 , a decrease of$10,245,109 or 98.94%. The decrease in total revenue was attributable to the decrease in revenues of extracts and TCM raw materials. For the nine months endedSeptember 30, 2021 , we had total revenues of$23,690,989 , as compared to$21,946,554 , for the nine months endedSeptember 30, 2020 , an increase of$ 1,744,435 or 7.95%. The increase in total revenue was attributable to the increase in revenues of extracts which was partially offset by the decrease in revenues of TCM raw materials.
Total revenue is summarized as follows:
Three Months Ended
September 30, Increase Percentage
2021 2020 (Decrease) Change
TCM raw materials $ - $ 6,844,205 $ (6,844,205 ) (100.00 )%
Handicrafts 114,296 9,599 104,697 1,090.71 %
Extracts - 3,482,058 (3,482,058 ) (100.00 )
Others (4,190 ) 19,353 (23,543 ) (121.65 )%
Total $ 110,106 $ 10,355,215 $ (10,245,109 ) (98.94 )%
Nine Months Ended
September 30, Increase Percentage
2021 2020 (Decrease) Change
TCM raw materials $ 9,935,074 $ 13,927,843 $ (3,992,769 ) (28.67 )%
Handicrafts 114,296 9,599 104,697 1,090.71 %
Extracts 13,575,521 7,808,261 5,767,259 73.86
Others 66,098 200,851 (134,752 ) (67.09 )%
Total $ 23,690,989 $ 21,946,554 $ 1,744,435 7.95 %
For the three months ended September 30, 2021 compared to September 30, 2020 ,
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 decrease in revenue of TCM raw material was mainly attributable
to the decrease in demand from our related party, Yew Pharmaceutical.
For the nine months ended September 30, 2021 compared to September 30, 2020 , the
increase in extracts was mainly attributable to the increase in demand of pine
needle extract, complex taxus cuspidate extract, and composite northeast yew
extract. The decrease in revenue of TCM raw material was mainly attributable to
the decrease in demand from our related party, Yew Pharmaceutical.
Cost of Revenues
For the three months endedSeptember 30, 2021 , cost of revenues amounted to$950,174 as compared to$8,829,857 for the three months endedSeptember 30, 2020 , a decrease of$7,879,683 or 89.24%. For the three months endedSeptember 30, 2021 , cost of revenues accounted for 862.964% of total revenues compared to 85,27% of total revenues for the three months endedSeptember 30, 2020 . For the nine months endedSeptember 30, 2021 , cost of revenues amounted to$23,802,112 as compared to$18,693,558 for the nine months endedSeptember 30, 2020 , an increase of$5,108,554 or 27.33%. For the nine months endedSeptember 30, 2021 , cost of revenues accounted for 100.47% of total revenues compared to 85.17% of total revenues for the nine months endedSeptember 30, 2020 . 26
Cost of revenues by product categories is as follows:
Three Months Ended
September 30, Increase Percentage
2021 2020 (Decrease) Change
TCM raw materials $ (707,858 ) $ 5,255,828 $ (5,963,686 ) (113.47 )%
Handicrafts 111,001 9,452 101,550 1,074.41 %
Extracts (2,899 ) 3,647,661 (3,650,560 ) (100.08 )
Others 1,549,930 (83,084 ) 1,633,014 (1,965.50 )%
Total $ 950,174 $ 8,829,857 $ (7,879,683 ) (89.24 )%
Nine months Ended
September 30, Increase Percentage
2021 2020 (Decrease) Change
TCM raw materials $ 8,500,022 $ 10,825,135 $ (2,325,113 ) (21.48 )%
Handicrafts 111,001 9,452 101,550 1,074.41 %
Extracts 13,395,265 7,497,537 5,897,728 78.66
Others 1,795,823 361,434 1,434,389 396.86 %
Total $ 23,802,112 $ 18,693,558 $ 5,108,554 27.33 %
The decrease and increase in our cost of revenues for the three and nine months
ended September 30, 2021 as compared to the three months and nine months ended
September 30, 2020 were in line with the increase in revenue.
Gross Profit
For the three months endedSeptember 30, 2021 , gross profit was$(840,068) as compared to$1,525,358 for the three months endedSeptember 30, 2020 , representing gross profit margins of (762.96)% and14.73%, respectively. For the nine months endedSeptember 30, 2021 , gross profit was$(111,123) as compared to$3,252,996 for the nine months endedSeptember 30, 2020 , representing gross profit margins of (0.47)% and 14.82%, respectively. Gross profit margins by categories are as follows: Three Months Ended Nine months Ended September 30, September 30, (Decrease) (Decrease) 2021 2020 Increase 2021 2020 Increase TCM raw materials (32.823.62 )% 23.21 % (32,846.83 )% 14.44 % 22.28 % (7.84 )% Handicrafts 2.88 % 1.54 % 1.34 % 2.88 % 1.54 % 1.34 % Extracts 1.33 % (4.76 )% 6.09 % 1.33 % 3.98 % (2.65 )% Others (172.442.63 )% 529.32 % (172,971.95 )% (2,616.90 )% (79.95 )% (2,536.95 )% Total (762.96 )% 14.73 % (777.69 )% (0.47 )% 14.82 % (15.29 )% The decrease in our overall gross profit margin for the three and nine months endedSeptember 30, 2021 as compared to the three and nine months endedSeptember 30, 2020 were primarily attributable to the lower gross margin yields of TCM raw materials. 27 Operating Expenses
For the three months endedSeptember 30, 2021 , operating expenses amounted to$718,200 , as compared to$31,180 for the three months endedSeptember 30, 2020 , an increase of$687,020 or 2203.4%. The increase was mainly due to the bad debt expense occurred during the three months endedSeptember 30, 2021 , compares with the bad debt recovery occurred during the three months endedSeptember 30, 2020 . For the nine months endedSeptember 30, 2021 , operating expenses amounted to$(1,088,921) as compared to$744,930 for the nine months endedSeptember 30, 2020 , a decrease of$1,833,851 or 246.18%. The decrease was mainly due to the bad debt recovery occurred during the nine months endedSeptember 30, 2021 , compares with the bad debt expense occurred during the nine months endedSeptember 30, 2020 . Income from Operations
For the three months ended
For the nine months ended
Other Expenses
For the three months endedSeptember 30, 2021 , total other expense was$426 as compared to total other expense of$471,052 for the three months endedSeptember 30, 2020 . The decrease was primarily attributable to the increase of other income and exchange gain. For the nine months endedSeptember 30, 2021 , total other expense was$170,264 as compared to total other expense of$595,561 for the nine months endedSeptember 30, 2020 . The decrease was primarily attributable to the increase of other income, and the decrease of exchange loss. Net Income
As a result of the factors described above, our net income was$(1,558,694) or$(0.03) (basic and diluted), for the three months endedSeptember 30, 2021 , as compared to net income of$995,974 or$0.02 (basic and diluted), for the three months endedSeptember 30, 2020 . As a result of the factors described above, our net income was$805,675 or$0.02 (basic and diluted), for the nine months endedSeptember 30, 2021 , as compared to net income of$1,884,953 or$0.04 (basic and diluted), for the nine months endedSeptember 30, 2020 .
Foreign Currency Translation Adjustment
For the three months endedSeptember 30, 2021 , we reported an unrealized gain on foreign currency translation of$39,056 , as compared to an unrealized gain of$1,671,103 for the three months endedSeptember 30, 2020 . For the nine months endedSeptember 30, 2021 , we reported an unrealized gain on foreign currency translation of$510,185 , as compared to an unrealized gain of$957,348 for the nine months endedSeptember 30, 2020 . The change reflects the effect of the value of theU.S. dollar in relation to the RMB. As described elsewhere herein, the functional currency of our subsidiary, JSJ, and our VIE, HDS, is the RMB. The accompanying consolidated financial statements have been translated and presented inU.S. dollars using period end rates of exchange for assets and liabilities, and average rates of exchange for the period for net revenues, costs, and expenses. Net gains resulting from foreign exchange transactions, if any, are included in the consolidated statements of income and comprehensive income. Comprehensive Income For the three months endedSeptember 30, 2021 , comprehensive income of$(1,519,638) was derived from the sum of our net income of$(1,558,694) with foreign currency translation gain of$39,056 . For the three months endedSeptember 30, 2020 , comprehensive income of$2,667,077 was derived from the sum of our net income of$995,974 with foreign currency translation gain of$1,671,103 . For the nine months endedSeptember 30, 2021 , comprehensive income of$1,315,860 was derived from the sum of our net income of$805,675 with foreign currency translation gain of$510,185 . For the nine months endedSeptember 30, 2020 , comprehensive income of$2,842,301 was derived from the sum of our net income of$1,884,953 with foreign currency translation gain of$957,348 . Segment Information For the three and nine months endedSeptember 30, 2021 as compared to the three and nine months endedSeptember 30, 2020 , we operated in two reportable business segments. The business of HDS, JSJ, HYF and YBT in PRC was managed and reviewed as PRC segment. The business of YBP,Yew Bio-Pharm (HK), and MC was managed
and reviewed asUSA segment. 28
Information with respect to these reportable business segments for the three
months ended
For the three months For the three months
September 30, 2021 September 30, 2020
Revenues- Revenues - Revenues- Revenues -
third related third related
parties party Total parties party Total
Revenues:
PRC $ (1,470 ) $ 110,666 $ 109,196 $ 481,661 $ 9,856,869 $ 10,338,530
USA 910 - 910 16,685 - 16,685
Total revenues $ (560 ) $ 110,666 $ 110,106 $ 498,346 $ 9,856,869 $ 10,355,215 Information with respect to these reportable business segments for the nine
months ended
For the nine months For the nine months
September 30, 2021 September 30, 2020
Revenues- Revenues - Revenues- Revenues -
third related third related
parties party Total parties party TotalRevenues: PRC$ 6,790,616 $ 16,886,287 $ 23,676,903 $ 641,316 $ 21,266,710 $ 21,908,026 USA 14,086 - 14,086 38,528 - 38,528 Total revenues$ 6,804,702 $ 16,886,287 $ 23,690,989 $ 679,844 $ 21,266,710 $ 21,946,554
During the three months endedSeptember 30, 2021 and 2020, the revenue from PRC segment was$101,196 and$10,338,530 , respectively, decrease of$10,229,334 or 98.94% due to the decrease demand onAsia market. The decrease in PRC segment was mainly due to the decrease in revenue from related parties in the amount of$9,746,203 , and the decrease in revenue from third parties in the amount of 483,131. During the three months endedSeptember 30, 2021 and 2020, the revenue fromUSA segment was$910 and$16,685 , respectively, decrease of$15,775 or 94.55%. The decrease in USA segment was due to the decrease in revenue from third parties in the amount of$15,775 attributable to ourChina customers' increased oversea demand.
During the nine months endedSeptember 30, 2021 and 2020, the revenue from PRC segment was$23,676,903 and$21,908,026 , respectively, increase of$1,768,877 or 8.07% due to the increase demand onAsia market. The increase in PRC segment was mainly due to the increase in revenue from third parties in the amount of$6,149,300 , and partially offset by the decrease in revenue from related parties in the amount of 4,380,423.
During the nine months endedSeptember 30, 2021 and 2020, the revenue fromUSA segment was$14,086 and$38,528 , respectively, decrease of$24,442 or 63.44%. The decrease in USA segment was due to the decrease in revenue from third parties in the amount of$24,442 attributable to ourChina 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. OnSeptember 30, 2021 andDecember 31, 2020 , we had cash balances of$28,453 and$563,792 , respectively. These funds are primarily located in various financial institutions located inChina . 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. Our working capital increased by$1,925,307 to$1,389,581 onSeptember 30, 2021 , from working capital of$(535,726) onDecember 31, 2020 . For the nine months endedSeptember 30, 2021 , net cash flow provided by operating activities was$6,930,855 , as compared to net cash flow provided by operating activities of$12,210,618 for the nine months endedSeptember 30, 2020 , a decrease of$5,279,763 . 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 nine months ended
? net income of approximately
items, such as bad debt recovery of approximately
land use rights and yew forest assets of approximately
yew forest assets as inventory of approximately 8,000,000; and
? changes in operating assets and liabilities, such as an increase in accounts
receivable of approximately $2,500,000 .
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For the nine months ended
? net income of approximately
items, such as sale of yew forest assets as inventory of approximately
8,800,000 and amortization of land use rights and yew forest assets of
approximately
? Changes in operating assets and liabilities, such as a decrease in accounts
receivable of approximately $5,600,000 , and an increase in accounts
receivable-related parties of approximately $6,900,000 .
Net cash flow used in investing activities was approximately$7,400,000 for the nine months endedSeptember 30, 2021 . During the nine months endedSeptember 30, 2021 , our prepayment in purchase of yew forest assets to related parties decreased by approximately$4,800,000 and approximately$666,000 government grants received for afforestation. We also have made payment in approximately$13,000,000 for purchase of land use right and yew forest assets. Net cash flow used in investing activities was approximately$11,000,000 for the nine months endedSeptember 30, 2020 . During the nine months endedSeptember 30, 2020 , we have made payment in approximately$11,000,000 for purchase of yew forest assets. Net cash flow provided by financing activities was approximately$80,000 for the nine months endedSeptember 30, 2021 due to proceeds of approximately$10,500,000 from short-term borrowings and approximately$100,000 from related parties, and partially offset by repayment of short-term borrowings of approximately$10,500,000 . Net cash flow provided by financing activities was approximately$420,000 for the nine months endedSeptember 30, 2020 and consisted of proceeds of$10,900,000 from banks and offset by repayments of approximately$10,400,000 . We have historically financed our operations and capital expenditures through cash flows from operations, bank loans and advances from related parties. FromMarch 2008 toSeptember 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 theU.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 ofChina , from time to time, in order to fund our corporate activities in theU.S. ,Guifang Qi , our President and CEO, advanced funds to us in theU.S. and we repaid the amounts owed to him in RMB in the PRC. The majority of our funds are maintained in RMB in bank accounts inChina . 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 fromChina'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 ofChina 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 ofSeptember 30, 2021 andDecember 31, 2020 , approximately$52.2 million and$50.3 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 theU.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. 30
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