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SUWN > SEC Filings for SUWN > Form 10-Q on 24-Mar-2014All Recent SEC Filings

Show all filings for SUNWIN STEVIA INTERNATIONAL, INC.

Form 10-Q for SUNWIN STEVIA INTERNATIONAL, INC.


24-Mar-2014

Quarterly Report


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

The following discussion should be read in conjunction with the information contained in the preceding unaudited condensed consolidated financial statements and footnotes. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under "Risk Factors" in our Annual Report on Form 10-K for the year ended April 30, 2013 as filed with the Securities and Exchange Commission. We use words such as "anticipate," "estimate," "plan," "project," "continuing," "ongoing," "expect," "believe," "intend," "may," "will," "should," "could," and similar expressions to identify forward-looking statements.

OVERVIEW

We sell stevioside, a natural sweetener, as well as herbs used in traditional Chinese medicines. Substantially all of our operations are located in the PRC. We have built an integrated company with the production and distribution capabilities designed to meet the needs of our customers.

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

- Stevioside, and
- Chinese Medicine.

Stevioside Segment

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

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

OnlySweet™ is an all natural, zero calorie, dietary supplement comprised of three natural ingredients, including stevioside. Based on our strategy to develop new products that contain our stevia products, we are evaluating our strategy for the sale and distribution of OnlySweet™.

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

Chinese Medicine Segment

In our Chinese medicine segment, we manufacture and sell approximately 354 different extracts, which can be divided into the following three general categories:

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

Three and nine months ended January 31, 2014 compared to the comparable period in 2013

Our total revenues in the third quarter of fiscal 2014 increased by 63.8%, from the same period in fiscal 2013, while our gross margin increased to 21.0% from 20.2% compared to the same period in fiscal 2013. Our sales revenues, excluding revenues from related party, increased by 33.1% in the third quarter of fiscal 2014 as compared to the same period in fiscal 2013. Revenues from related parties increased 386.0% in the third quarter of fiscal 2014 from the comparable period in fiscal 2013. Our operating expenses in the third quarter of fiscal 2014 decreased by 2.3% from the comparable period in 2013. Our net loss for the third quarter of fiscal 2014 was $166,000, as compared to $827,000 for the same period in fiscal 2013.

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Our total revenue for the first nine months of fiscal 2014 increased by 14.4% from the same period in fiscal 2013, while our gross margin decreased to 16.3% from 19.0% over the same period in fiscal 2013. Our sales revenues, excluding revenues from related party, increased by 1.8%, in the first nine months of fiscal 2014 as compared to the same period in fiscal 2013. Our operating expenses during the first nine months of fiscal 2014 decreased by 21.3% compared with the same period in fiscal 2013. Our net loss for the first nine months of fiscal 2014 was $1.7 million, compared to $3.1million for the same period in fiscal 2013.

Our operating performance for the nine months ended January 31, 2014 was primarily driven by an expected increase in sales revenue attributable to increase export sales volume and our new product sales volume for higher grades stevia products in our Stevioside segment and lower revenues in our Chinese medicine segment. The increase of sales to related party is primarily due to the expansion of our international business and increase new product sales in higher grades stevia products. Since we do not have the authorization to export products from China, we outsourced all of our exporting business to our certified related party Qufu Shengwang Import and Export Corporation. We did not have any sales to related parties in our Chinese medicine segment in either period.

Total revenues for the first nine months of fiscal 2014 increased 14.4% as compared to the same period in fiscal 2013. Stevioside revenues, which comprised 78.8% and 67.7% of our revenues for the first nine months of fiscal 2014 and fiscal 2013, respectively, increased by 33.0% while revenues in our Chinese Medicine segment decreased by 24.8%.

While we have broadened our stevia product offerings to include a number of higher quality stevia grades which are needed in new product formulations we are developing to introduce to the U.S. and European food and beverage market, the demand for higher grade stevia products has yet to materialize to the degree we had anticipated, and thus our sales volume in higher grade stevia products was lower than expected during the fiscal 2014 and 2013 periods. The increase of revenue in Stevioside segment is primarily due to a developing the domestic and international market. Stevia has been widely accepted by food industry and many new stevia manufacturers have entered this industry in the past few years, and recently we introduced a new product line. We are now focusing on new types of stevia products, including tablets, liquid, High A products, and others. We expect to consistently increase our sales of our new products; however we cannot quantify this increase and its effects on future periods.

The decrease in revenues in our Chinese medicine was primarily due to the depressing market which was caused by the significantly declined production of farms, negatively influencing the demand for our Chinese traditional medicine products since 2012. In addition, the suppliers of some large farms have innovated to operate on the integrative basis, and the monopolized use of medicine, both lead to the decreased demand to our products. Some big clients of ours have changed to produce their own Chinese herbal extracts products; therefore, the orders from those big clients have decreased significantly. Our current orders primarily are low-volume and have mix-varieties. The lost of high volume orders greatly impacted our total sales.

Our Outlook

We believe that there are significant opportunities for worldwide growth in our Stevioside segment, primarily in the U.S. and EU. For fiscal 2014 and beyond, we will continue to focus on our core business of producing and selling stevioside series products. Meanwhile, we are also facing challenges in competitive pricing and raw materials for fiscal 2014. During fiscal 2013, the market prices of stevioside series were impacted by strong price competition among Chinese manufacturers. We expect the price pressure to continue in fiscal 2014. We anticipate the price of stevia leaves, the raw material used to produce our stevioside series products to increase in the coming harvest fall season for calendar year 2013.

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RESULTS OF OPERATIONS

The following table summarizes our results from operations for the three month
periods ended January 31, 2014 and 2013:

                                                 January 31, 2014
                                                                           Corporate
                      Chinese Medicine                Stevioside           and other             Consolidated

Total
revenues        $ 713,896          100.0 %   $ 2,514,452         100.0 % $         -        3,228,348         100.0 %
Cost of
revenues          447,367           62.7 %     2,102,627          83.6 %           -        2,549,994          79.0 %
Gross profit      266,529           37.3 %       411,825          28.3 %           -          678,354          21.0 %

Total
operating
expenses          163,125           22.9 %       990,895          39.4 %      26,258        1,180,278          36.6 %
Other income
(expenses)         (4,715 )            - %       340,577          13.5 %           -          335,862          10.4 %

Income (loss)
before income
taxes           $  98,689           13.8 %   $  (238,493 )        -9.5 % $   (26,258 )    $  (166,062 )        -5.1 %



                                                  January 31, 2013
                                                                            Corporate
                      Chinese Medicine                 Stevioside           and other             Consolidated

Total
revenues        $ 1,111,530         100.0 %   $   858,961         100.0 % $         -        1,970,491         100.0 %
Cost of
revenues            957,389          86.1 %       615,372          71.6 %           -        1,572,761          79.8 %
Gross profit        154,141          13.9 %       243,589          28.4 %           -          397,730          20.2 %

Total
operating
expenses             16,631           1.5 %     1,030,099         119.9 %     161,718        1,208,448          61.3 %
Other income
(expenses)              115             - %      (19,682)          -2.3 %           -          (19,567 )        -1.0 %

Income (loss)
before income
taxes           $   137,625          12.4 %   $  (806,192 )       -93.9 % $  (161,718 )    $  (830,285 )       -42.1 %

The following table summarizes our results from operations for the nine month periods ended January 31, 2014 and 2013:

                                                  January 31, 2014
                                                                            Corporate
                    Chinese Medicine                  Stevioside            and other             Consolidated

Total
revenues        $ 1,862,718         100.0 %   $  6,906,493         100.0 % $         -     $  8,769,211         100.0 %
Cost of
revenues          1,200,626          64.5 %      6,143,597          89.0 %           -        7,344,224          83.8 %
Gross profit        662,091          35.5 %        762,896          11.1 %           -        1,424,987          16.3 %

Total
operating
expenses            616,286          33.1 %      2,768,430         440.1 %     167,676        3,552,386          40.5 %
Other income          1,883             - %        299,766           4.3 %     116,478          418,127           4.8 %

Loss before
income taxes    $   (47,689 )        -2.6 %   $ (1,705,768 )       -24.7 % $   (51,198 )   $ (1,709,272 )       -19.5 %

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