Yew Bio-Pharm (YEWB) 10-Q 2019 Q1 Quarterly report

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 MARCH 31, 2019

OR

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

FOR THE TRANSITION PERIOD FROM                       TO

COMMISSION FILE NUMBER 000-54701

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 May 22, 2018, 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 MARCH 31, 2019

TABLE OF CONTENTS

		Page Number
PART I. FINANCIAL INFORMATION
ITEM 1.	CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)	1
	CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2019 (UNAUDITED) AND DECEMBER 31, 2018	1
	CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED) FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2019 AND 2018	2
	CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2019 AND 2018	3
	NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS	5
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	24
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	34
ITEM 4.	CONTROLS AND PROCEDURES	34
PART II. OTHER INFORMATION
ITEM 1.	LEGAL PROCEEDINGS	35
ITEM 1A.	RISK FACTORS	35
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	35
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	35
ITEM 4.	MINE SAFETY DISCLOSURES	35
ITEM 5.	OTHER INFORMATION	35
ITEM 6.	EXHIBITS	35

i

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, 2018 filed with the Securities & Exchange Commission (“SEC”) on May 7, 2019.

ii

PART I

FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

YEW BIO-PHARM GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	March 31, 2019			December 31, 2018
	(Unaudited)
ASSETS
CURRENT ASSETS:
Cash	$	221,728		$	521,670
Accounts receivable		-			17,167
Accounts receivable - related parties, net of allowance for doubtful account $1,178,526 and $837,929		8,297,428			4,579,666
Inventories, net		6,270,352			6,204,954
Prepaid expenses - related parties		25,759			32,318
Prepaid expenses and other assets		71,212			47,530
VAT recoverables		1,007,232			985,831
Total Current Assets		15,893,711			12,389,136
LONG-TERM ASSETS:
Long-term inventories, net		1,849,075			1,824,128
Property and equipment, net		515,844			518,650
Intangible assets		45,991			45,359
Land use rights and yew forest assets, net		33,125,420			34,914,793
Advance to suppliers for yew forest assets		159,393			-
Advance to suppliers - related parties for yew forest assets		1,517,903			-
Operating lease right-of-use assets		349,794			-
Total Long-term Assets		37,563,420			37,302,930
Total Assets	$	53,457,131		$	49,692,066
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	118,842		$	268,359
Advance from customers		149			145
Advance from customers - related party		2,371,697			21,295
Accrued expenses and other payables		390,837			244,043
Taxes payable		87,743			189,617
Due to related parties		583,566			580,016
Short-term borrowings		5,520,137			5,758,517
Current maturities of operating lease liabilities		52,681			-
Total Current Liabilities		9,125,652			7,061,992
NONCURRENT LIABILITIES:
Taxes payable		1,202,741			1,202,741
Deferred income		348,676			340,294
Operating lease liabilities		291,097			-
Total Noncurrent Liabilities		1,842,514			1,543,035
Total Liabilities		10,968,166			8,605,027
SHAREHOLDERS’ EQUITY:
Common Stock ($0.001 par value; 140,000,000 shares authorized; 51,700,000 and 52,075,000  shares issued and outstanding at March 31, 2019 and December 31, 2018)		51,700			52,075
Additional paid-in capital		9,953,869			9,953,494
Retained earnings		29,342,259			28,965,217
Statutory reserves		3,762,288			3,762,288
Accumulated other comprehensive income - foreign currency translation adjustment		(621,151	)		(1,646,035	)
Total Shareholders’ Equity		42,488,965			41,087,039
Total Liabilities and Shareholders’ Equity	$	53,457,131		$	49,692,066

See notes to these unaudited consolidated financial statements

1

YEW BIO-PHARM GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(UNAUDITED)

	For the Three Months Ended March 31,
	2019			2018
REVENUES:
Revenues	$	33,481		$	32,258
Revenues - related parties		11,480,523			2,998,880
Total Revenues		11,514,004			3,031,138
COST OF REVENUES:
Cost of revenues		26,668			12,906
Cost of revenues - related parties		10,328,807			2,538,937
Total Cost of Revenues		10,355,475			2,551,843
GROSS PROFIT		1,158,529			479,295
OPERATING EXPENSES:
Selling, General and administrative expense		294,971			257,379
Bad debt expense		318,284			-
Stock based compensation		-			2,493
Total Operating Expenses		613,255			259,872
INCOME FROM OPERATIONS		545,274			219,423
OTHER INCOME (EXPENSES):
Interest expense		(88,709	)		(68,033	)
Other income		43,017			87,303
Exchange loss		(100,934	)		(89,687
Total Other Expenses		(146,626	)		(70,417	)
INCOME BEFORE PROVISION FOR INCOME TAXES		398,648			149,006
PROVISION FOR INCOME TAXES		(21,606	)		-
NET INCOME	$	377,042		$	149,006
COMPREHENSIVE INCOME:
NET INCOME	$	377,042		$	149,006
OTHER COMPREHENSIVE INCOME:
Foreign currency translation adjustment		1,024,884			1,556,804
COMPREHENSIVE INCOME	$	1,401,926		$	1,705,810
NET INCOME PER COMMON SHARE:
Basic	$	0.01		$	0.00
Diluted	$	0.01		$	0.00
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic		52,012,729			51,875,000
Diluted		52,116,189			60,084,530

See notes to these unaudited consolidated financial statements

2

YEW BIO-PHARM GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	For the Three Months Ended March 31,
	2019			2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	377,042		$	149,006
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Bad debt expense		318,284			-
Depreciation		15,216			15,552
Amortization of land use rights and yew forest assets		2,665,955			65,810
Stock-based compensation		-			2,493
Changes in operating assets and liabilities:
Accounts receivable		17,167			4,484,508
Accounts receivable - related parties		(3,904,383	)		6,806,716
Prepaid expenses and other current assets		(22,757	)		(8,169	)
Prepaid expenses - related parties		7,317			6,782
Inventories, net		71,192			(19,387	)
VAT recoverables		2,866			(229,692	)
Accounts payable		(133,408	)		20,529
Accounts payable - related parties		-			(366,137	)
Accrued expenses and other payables		117,745			33,020
Advance from customers-related party		2,337,581			-
Due to related parties		815			(38,950	)
Taxes payable		(101,988	)		(61	)
NET CASH PROVIDED BY OPERATING ACTIVITIES		1,768,644			10,922,020
CASH FLOWS FROM INVESTING ACTIVITIES:
Prepayments made for purchase of yew forest assets		(1,668,518	)		(2,029,387	)
Prepayments made to related parties for purchase of yew forest assets		-			(6,212,755	)
Purchase of land use rights and yew forest assets		(30,465	)		(3,471,401	)
Purchase of intangible assets		(632	)		-
NET CASH USED IN INVESTING ACTIVITIES		(1,699,615	)		(11,713,543	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term borrowings		1,290,000			1,520,000
Repayment of short-term borrowings		(1,600,000	)		(1,320,000	)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES		(310,000	)		200,000
EFFECT OF EXCHANGE RATE ON CASH		(58,971	)		(245,257	)
NET INCREASE (DECREASE) IN CASH		(299,942	)		(836,780	)
CASH - Beginning of period		521,670			859,830
CASH - End of period	$	221,728		$	23,050
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Interest	$	80,688		$	50,809
Income taxes	$	114,547		$	-
NON-CASH INVESTING AND FINANCING ACTIVITIES
Operating expense paid by related party	$	-		$	3,146

See notes to these unaudited consolidated financial statements

3

YEW BIO-PHARM GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

	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, 2017		51,875,000	$	51,875	$	10,363,412	$	30,287,658	$	3,762,288	$	706,628	$	45,171,861
Stock-based compensation						2,493								2,493
Net income								149,006						149,006
Foreign currency translation adjustment												1,556,804		1,556,804
Balance, March 31, 2018		51,875,000		51,875		10,365,905		30,436,664		3,762,288		2,263,432		46,880,164

	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										377,042							377,042
Foreign currency translation adjustment														1,024,884			1,024,884
Balance, March 31, 2019		51,700,000		$	51,700		$	9,953,869	$	29,342,259	$	3,762,288	$	(621,151	)	$	42,488,965

See notes to these unaudited consolidated financial statements

4

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, 2018 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, 2018.

In the opinion of management, all adjustments (which include normal recurring adjustments) necessary to present a fair statement of the financial position as of March 31, 2019, and the results of operations and cash flows for the three-month periods ended March 31, 2019 and 2018, 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.

5

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

(1) Wholly-owned subsidiary of HDS

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

6

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.

7

● 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.

8

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 March 31, 2019 and December 31, 2018, 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:

	March 31, 2019		December 31, 2018
Assets
Cash	$	213,413	$	478,293
Accounts receivable - related parties, net of allowance for doubtful account $1,178,526 and $837,929		8,297,428		4,579,666
Inventories (current and long-term), net		6,687,361		6,567,144
Prepaid expenses and other assets		49,902		34,492
Advance to suppliers		159,393		-
Advance to suppliers - related parties		1,517,903		-
Prepaid expenses - related parties		25,759		32,318
Property and equipment, net		504,848		506,949
Long-term investment in MC		2,898,475		2,449,757
Land use rights and yew forest assets, net		33,125,420		34,914,793
Operating lease right of use		270,848
VAT recoverables		1,007,232		985,831
Total assets of VIE and its subsidiary	$	54,757,982	$	50,549,243
Liabilities
Accrued expenses and other payables	$	366,959	$	237,114
Accounts payable		43,929		10,410
Advance from customer		149		145
Advance from customer-related party		2,371,697		21,295
Taxes payable		21,720		-
Short-term borrowings		5,520,137		5,758,517
Operating lease liability- current		10,483		-
Operating lease liability- noncurrent		254,348		-
Deferred income		348,676		340,294
Due to related parties and VIE holding companies		675,166		658,501
Total liabilities of VIE and its subsidiary	$	9,613,264	$	7,026,276

9

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 months ended March 31, 2019. The Company recognized operating lease liabilities of $373,517 upon adoption, with corresponding ROU assets on its balance sheet.

Recently Issued Accounting Pronouncements Not Yet Adopted 

In June 2016, the FASB issued ASU No. 2016-13, (Topic 326), Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments which amends the current accounting guidance and requires the use of the new forward-looking “expected loss” model, rather than the “incurred loss” model, which requires all expected losses to be determined based on historical experience, current conditions and reasonable and supportable forecasts. This guidance amends the accounting for credit losses for most financial assets and certain other instruments including trade and other receivables, held-to-maturity debt securities, loans and other instruments. ASU 2016-13 is effective for public entities for annual periods beginning after December 15, 2019, and interim periods within those annual periods. Early adoption is permitted for annual periods beginning after December 15, 2018, and interim periods therein. The Company is evaluating the impact of the adoption of ASU 2016-13 on its financial position and results of operations.

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.  

10

NOTE 4 -INVENTORIES 

Inventories consisted of raw materials, work-in-progress, 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 March 31, 2019 and December 31, 2018, inventories consisted of the following: 

	March 31, 2019									December 31, 2018
	Current portion			Long-term portion			Total			Current portion			Long-term portion			Total
Raw materials	$	17,476		$	95,087		$	112,563		$	40,240		$	92,801		$	133,041
Finished goods		6,271,920			2,820,150			9,092,070			6,194,707			2,794,335			8,989,042
Yew seedlings		6,626			16,418			23,044			-			16,023			16,023
Total		6,296,022			2,931,655			9,227,677			6,234,947			2,903,159			9,138,106
Inventory write-down		(25,670	)		(1,082,580	)		(1,108,250	)		(29,993	)		(1,079,031	)		(1,109,024	)
Inventories, net	$	6,270,352		$	1,849,075		$	8,119,427		$	6,204,954		$	1,824,128		$	8,029,082

Inventories as of March 31, 2019 and December 31, 2018 consisted of the inventory purchased from related parties are as follows:

	March 31,		December 31,
	2019		2018
Inventories, net	$	129,725	$	182,905
Inventories - related parties, net		6,140,627		6,022,049
Total	$	6,270,352	$	6,204,954

	March 31,		December 31,
	2019		2018
Long-term inventories, net	$	919,304	$	894,357
Long-term inventories - related parties, net		929,771		929,771
Total	$	1,849,075	$	1,824,128

11

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 three months ended March 31, 2019 and 2018:

	Three Months Ended March 31,
	2019			2018
U.S. federal income tax rate		21.00	%		21.00	%
Tax rate difference		5.62	%		2.10	%
Loss not subject income tax		8.71	%		-
Foreign income not recognized in the U.S.		-			(21.00	)%
PRC EIT rate		-			25.00	%
PRC tax exemption and reduction		(40.75	)%		(28.00	)%
Valuation allowance		-			0.90	%
Effective tax rate		(5.42	)%		-

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%, eliminating certain deductions, imposing a mandatory one-time tax on accumulated earnings of foreign subsidiaries, introducing new tax regimes, and changing how foreign earnings are subject to U.S. tax. The Company has determined the implication of the tax rate reduction does not have any impact on the consolidated financial statements. One-time transition tax is based on the Company’s total post-1986 earnings and profits (“E&P”) that it previously deferred from U.S. income taxes. The Company completed its calculation and recorded $1,431,835 of the transition tax on undistributed earnings of non-U.S. subsidiaries during the year ended December 31, 2018. As of March 31, 2019 and December 31, 2018, the Company had current income tax payable of $Nil and $114,547 and noncurrent income tax payable of $1,202,741 and $1,202,741.

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 three months ended March 31, 2019 and 2018, the GILTI tax expense was nil. As of March 31, 2019 and December 31, 2018, the Company had GILTI tax payable of $60,996.

NOTE 6 -SHORT-TERM BORROWINGS

In May 2016, HDS entered into a line of credit agreement with Harbin Rongtong Branch of Bank of Communications (“BOCOM”) for the period from May 3, 2016 through May 3, 2018, pursuant to which the Company obtained a bank loan in the amount of RMB10,000,000 (approximately $1,471,000) on June 13, 2017, payable on June 12, 2018. Under this credit agreement. The loan carries an interest rate of 5.873% per annum and is payable quarterly. 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 BOCOM to secure the loans under this credit agreement. In addition, ZTC, Heilongjiang Yew Pharmaceutical Co., Ltd. (“Yew Pharmaceutical”), a related party of the Company, Zhiguo Wang, Madame Qi, Yicheng Wang, the son of Zhiguo Wang and Yuqi Mao, the spouse of Yicheng Wang, provided guarantees to the loan. HDS paid off the loan in full on June 11, 2018.

On November 10, 2016, HDS entered into a loan agreement with Shanghai Pudong Development Bank (“SPD Bank”) Harbin Branch, pursuant to which the Company obtained a bank loan in the amount of RMB1,970,000 (approximately $290,000), payable on November 9, 2017. HDS paid off the loan in full on November 9, 2017. On November 15, 2017, HDS obtained another loan in the amount of RMB10,000,000 (approximately $1,509,000), payable on October 20, 2018. The loan carries an interest rate of 4.100% per annum and is payable at maturity. The proceeds of the loan were used by the Company to purchase raw materials. Madam Qi has secured the loan with her personal assets. In addition, Yew Pharmaceutical, Zhiguo Wang, Yicheng Wang, and Yuqi Mao, the spouse of Yicheng Wang provided guarantees to the loan. HDS paid off the loan in full as the loan expired. 

12

On December 22, 2016, HDS entered into a credit agreement with China Everbright Bank (“CEB”) which agreed to provide credit line of RMB20,000,000 (approximately $2,880,000) to the Company for the period of three years. These loans carry interest rates ranging from 4.30% to 4.80% 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 guarantees to the loan. During the three months ended March 31, 2019 and 2018, the Company obtained short-term loans from CEB in the total amount of $1,290,000 and $1,520,000, respectively, under this credit agreement and paid off in the total amount of $1,600,000 and $1,320,000, respectively. As of March 31, 2019 and December 31, 2018, the balance of loans borrowed from CEB was $2,540,000 and $2,851,000, 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 $2,235,000 at March 31, 2019), 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. 

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 $745,000 at March 31, 2019), payable to 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. 

During the three months ended March 31, 2019 and 2018, interest expense was $88,709 and $68,033, respectively.

NOTE 7 -STOCKHOLDERS’ EQUITY

On February 28, 2019, the Company entered into an agreement with Chineseinvestor.com, pursuant to which both parties reached an agreement to cancel to issue the common shares of 375,000 to Chineseinvestor.

13

Stock option activities for the three months ended March 31, 2019 and 2018 were summarized in the following table.

	Three Months Ended March 31, 2019				Three Months Ended March 31, 2018
	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		24,872,212		0.22
Issued		-		-		-		-
Exercised		-		-		-		-
Forfeited		-		-		-		-
Balance at end of period		7,738,737		0.22		24,872,212		0.22
Option exercisable at end of period		7,738,737		0.22		24,772,212		0.22

The following table summarizes the shares of the Company’s common stock issuable upon exercise of options outstanding at March 31, 2019:

Stock Options Outstanding								Stock Options Exercisable
Range of Exercise Price		Number Outstanding at March 31, 2019		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price		Number Exercisable at March 31, 2018		Weighted Average Exercise Price
$	0.22-0.25		7,738,737		0.75	$	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 $0.156 as of March 31, 2019. Stock option expense recognized during the three months ended March 31, 2019 and 2018 amounted to $Nil and $2,493, respectively.

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.

14

The following table presents a reconciliation of basic and diluted net income per share for the three months ended March 31, 2019 and 2018:

	For the Three Months Ended March 31,
	2019		2018
Net income available to common stockholders for basic and diluted net income per share of common stock	$	377,042	$	149,006
Weighted average common stock outstanding - basic		52,012,729		51,875,000
Effect of dilutive securities:
Stock options issued to directors/officers/employees		103,460		8,209,530
Weighted average common stock outstanding - diluted		52,116,189		60,084,530
Net income per common share - basic	$	0.01	$	0.00
Net income per common share - diluted	$	0.01	$	0.00

Diluted net income per share is computed using the weighted average number of common shares and dilutive potential common shares outstanding during the respective periods.

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	Three Months Ended March  31,  2019
Operating lease cost	Selling, general and administrative expense	$	29,514
Net lease cost		$	29,514

15

Balance sheet information related to leases consists of the following:

	Classification	March 31, 2019
Assets
Operating lease ROU assets	Right-of-use assets	$	349,794
Total leased assets		$	349,794
Liabilities
Current
Operating	Current maturities of operating lease liabilities	$	52,681
Non-current
Operating	Operating lease liabilities		291,097
Total lease liabilities		$	343,778
Weighted average remaining lease term
Operating leases			8.7 years
Weighted average discount rate
Operating leases			6.44	%

16

Cash flow information related to leases consists of the following:

	Three Months Ended March 31,  2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	35,530

The minimum future lease payments as of March 31, 2019 are as follows:

Years Ending December 31,	Operating Leases
2019	$	38,058
2020		73,589
2021		31,602
2022		26,303
2023		26,303
After 2024		317,117
Total lease payments		512,972
Less: Interest		(169,194	)
Present value of lease liabilities	$	343,778

17

NOTE 10 -CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS

Customers

For the three months ended March 31, 2019 and 2018, customers accounting for 10% or more of the Company’s revenue were as follows:

	For the Three Months Ended   March 31,
Customer	2019			2018
A (Yew Pharmaceutical, a related party)		36	%		56	%
C (Wonder Genesis Global Ltd., a related party)		-	%		43	%
D (HongKong YIDA Commerce Co., Limited, a related party)		64	%		*	%

* Less than 10%

	Accounts receivable as of
Customer	March 31, 2019			December 31, 2018
A (Yew Pharmaceutical, a related party)		-	%		31	%
C (Wonder Genesis Global Ltd., a related party)		-	%		-	%
D (HongKong YIDA Commerce Co., Limited, a related party)		81	%		24	%

* Less than 10%

Suppliers

For the three months ended March 31, 2019 and 2018, suppliers accounting for 10% or more of the Company’s purchase were as follows:

	For the Three Months Ended March 31,
Supplier	2019			2018
A (Yew Pharmaceutical, a related party)		100	%		43	%
L		*	%		11	%
M (Jinguo Wang, a related party)		*	%		15	%

No significant accounts payable as of March 31, 2019 and December 31, 2018.

At March 31, 2019 and December 31, 2018, the Company’s cash balances by geographic area were as follows:

	March 31, 2019		December 31, 2018
Country
United States	$	5,269	$	40,405
China		216,459		481,265
Total Cash	$	221,728	$	521,670

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 March 31, 2019 and December 31, 2018, approximately $100,000 and $200,000 of the Company’s cash held by financial institutions, was insured, and the remaining balance of approximately $122,000 and $330,000 was not insured, respectively. 

18

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	Nature of Relationship
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 effective March 21, 2016
HongKong YIDA Commerce Co., Limited(“YIDA”)	Significantly influenced by the Company
LIFEFORFUN LIMITED	Significantly influenced by the Company
Changzhi Du	Legal person of Xinlin before March 1, 2017
Jinguo Wang	Management of HDS, legal person of Xinlin before February 9, 2018, and director of ZTC effective February 1, 2018.
Chunping Wang	Employee of the Company
Wonder Genesis Global Ltd.	Jinguo Wang is the Company’s director.
Ai Zhong Jing Mao Ltd.	Significantly influenced by 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 $158,000) 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 three months ended March 31, 2019 and 2018, total revenues from Yew Pharmaceutical under the above agreement amounted to $4,163,435 and $1,695,398, respectively. At March 31, 2019 and December 31, 2018, the Company had $Nil and $1,408,321 accounts receivable from Yew Pharmaceutical, respectively. At March 31, 2019 and December 31, 2018, the Company had $2,352,380 and $Nil advance from Yew Pharmaceutical, respectively.

For the three months ended March 31, 2019 and 2018, the total purchase of yew candles and mixed essential oil from Yew Pharmaceutical amounted to approximately $8,460,000 and $2,589,000, respectively. 

19

Transactions with HBP

For the three months ended March 31, 2019 and 2018, HBP paid off operation expense on behalf of HYF in the amount of $Nil and $3,146, respectively. As of March 31, 2019 and December 31, 2018, HYF had due to HBP in the amount of $105,748 and $102,770, respectively, which was included in due to related parties in the accompanying consolidated balance sheets.

Transactions with HDS Development

As of March 31, 2019 and December 31, 2018, the Company had $782,286 and $981,618 accounts receivable, which were net of allowance for doubtful account $782,286 and $763,481 from HDS Development, respectively.

Transactions with ZTC

At March 31, 2019 and December 31, 2018, prepayments to ZTC for purchase of yew forest assets amounted to $1,162,254 and $Nil, respectively, which was included in advance to suppliers-related parties in the accompanying consolidated balance sheets.

Transactions with YIDA

For the three months ended March 31, 2019 and 2018, total revenues from YIDA amounted to $7,314,941 and $Nil. At March 31, 2019 and December 31, 2018, the Company had $6,756,022 and $1,108,808 accounts receivable from YIDA, respectively.

Transactions with Ai Zhong Jing Mao

For the three months ended March 31, 2019 and 2018, total revenues from Ai Zhong Jing Mao amounted to $2,147 and $Nil, respectively. At March 31, 2019 and December 31, 2018, the Company had $19,317 and $21,295 advance from Ai Zhong Jing Mao, respectively.

Transactions with Wonder Genesis Global Ltd.

For the three months ended March 31, 2019 and 2018, total revenues from Wonder Genesis Global Ltd. amounted to $Nil and $1,303,482, and the corresponding cost of revenues amounted to $Nil and $1,294,760, respectively.

Transactions with Lifeforfun Limited

At March 31, 2019 and December 31, 2018, the Company had $759,120 and $1,080,919 accounts receivable, which were net of allowance for doubtful account $396,240 and $74,448 from Lifeforfun Limited, respectively. For the three months ended March 31, 2019 and 2018, the Company recorded bad debt expense for Lifeforfun Limited in the amount of $318,284 and $Nil, respectively.

Transactions with Changzhi Du

During the three months ended March 31, 2018, HDS prepaid $636,922 to Changzhi Du for purchase of yew forest assets, which was included in long-term prepaid expenses-related parties in the accompanying consolidated balance sheets.

Transactions with Jinguo Wang

During the three months ended March 31, 2019 and 2018, HDS purchased yew forest assets from Jinguo Wang in the amount of $Nil and $946,339, respectively. At March 31, 2019 and December 31, 2018, prepayments to Jinguo Wang for purchase of yew forest assets amounted to $185,782 and $0, respectively, which was included in advance to suppliers-related parties in the accompanying consolidated balance sheets.

Transactions with Chunping Wang

At March 31, 2019, HDS prepaid $169,867 to Chunping Wang for purchase of yew forest assets, which was included in advance to suppliers-related parties in the accompanying consolidated balance sheets.

20

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 three months ended March 31, 2019 and 2018, rent expense related to the ZTC Lease amounted to $6,020 and $6,389, respectively. At March 31, 2019 and December 31, 2018, prepaid rent to ZTC amounted to approximately $25,000 and $30,000, respectively, which was included in prepaid expenses-related parties in the accompanying consolidated balance sheets.

On January 1, 2010, the Company entered into a lease for office space with Mr. Wang (the “Office Lease”). Pursuant to the Office Lease, annual payments of RMB15,000 (approximately $2,000) are due for each of the term. The term of the Office Lease is 15 years and expires on December 31, 2025. For the three months ended March 31, 2019 and 2018, rent expense related to the Office Lease amounted to $556 and $590, respectively. As of March 31, 2019 and December 31, 2018, the unpaid rent was $3,000 and $Nil, respectively, which was included in due to related parties in the accompanying consolidated balance sheets.

On July 1, 2012, the Company entered into a lease for office space with Zhiguo Wang (the “JSJ Lease”). Pursuant to the JSJ Lease, JSJ leases approximately 30 square meter of office space from Zhiguo Wang in Harbin. Rent under the JSJ Lease is RMB10,000 (approximately $1,500) annually. The term of the JSJ Lease is three years and expires on June 30, 2015. On July 1, 2015, the Company and Mr. Wang renewed the JSJ Lease. The renewed lease expires on June 30, 2018. On July 1, 2018, the Company renewed JSJ Lease for three years, which will now expire on June 30, 2021. Pursuant to the renewed lease agreement, the annual payment will be RMB 10,000 (approximately $1,500). For the three months ended March 31, 2019 and 2018, rent expense related to the JSJ Lease amounted to $371 and $393, respectively. As of March 31, 2019 and December 31, 2018, the unpaid rent was $6,000 and $6,500, respectively, which was included in due to related parties in the accompanying consolidated balance sheets.

On January 1, 2015, HYF entered into an lease agreement with HBP, pursuant to which HBP leases 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, to HYF in exchange for no consideration for the period from January 1, 2015 to December 31, 2020.

The Company leased office space from HDS Development in the A’cheng district in Harbin (the “A’cheng Lease”) on March 20, 2002. The A’cheng Lease is for a term of 23 years and expires on March 19, 2025. Pursuant to the A’cheng Lease, lease payment shall be made as follows:

Period	Annual lease amount		Payment due date
March 2002 to February 2012		RMB25,000	Before December 2012
March 2012 to February 2017		RMB25,000	Before December 2017
March 2017 to March 2025		RMB25,000	Before December 2025

For the three months ended March 31, 2019 and 2018, rent expense related to the A’cheng Lease amounted $886 and $983, respectively. At March 31, 2019 and December 31, 2018, the (unpaid) prepaid rent was ($1,000) and $2,000, respectively, which was included in (due to related parties) prepaid expenses-related parties in the accompanying consolidated balance sheets.

The Company leased an apartment in the Nangang district (the “Jixing Lease”) in Harbin from Ms. Qi on October 1, 2016. The term of Jixing Lease is one year. On October 1, 2017, the Company and Ms. Qi renewed the Jixing Lease. The renewed lease expires on September 30, 2018. On October 1, 2018, the Company and Ms. Qi renewed the Lease. The renewed lease expires on September 30, 2019. For the three months ended March 31, 2019 and 2018, rent expense related to the Jixing Lease amounted $371 and $393, respectively. As of March 31, 2019 and December 31, 2018, the prepaid rent to Ms. Qi amounted to $1,500 and $1,000, respectively, which was included in prepaid expenses-related parties in the accompanying consolidated balance sheets. 

��

Due to Related Parties

The following summarized the Company’s due to related parties as of March 31, 2019 and December 31, 2018:

	March 31, 2019			December 31, 2018
Guifang Qi	$	428,095		$	428,095
Zhiguo Wang		49,723			49,151
HBP		105,748			102,770
Total	$	583,566	*	$	580,016	*

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

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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 three months ended March 31, 2019 and 2018 were as follows:

	For the Three Months Ended   March 31,
Geographic Areas	2019			2018
Revenue
PRC		11,480,671			3,000,397
USA		33,333			30,741
Total Revenue	$	11,514,004		$	3,031,138
Income (Loss) from operations
PRC	$	749,260		$	363,629
USA		(203,986	)		(144,206	)
Total Income (Loss) from operations	$	545,274		$	219,423
Net income (loss)
PRC	$	538,945		$	293,496
USA		(161,903	)		(144,490	)
Total net income (loss)	$	377,042		$	149,006

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The geographical distribution of the Company’s financial information as of March 31, 2019 and December 31, 2018 were as follows:

	As of March 31,			As of December 31,
Geographic Areas	2019			2018
Long-term assets
PRC	$	36,111,360		$	35,866,829
USA		1,452,060			1,436,101
Total long-term assets	$	37,563,420		$	37,302,930
Reportable assets
PRC	$	54,472,843		$	50,107,147
USA		2,293,990			2,289,019
Elimination adjustment		(3,309,702	)		(2,704,100	)
Total reportable assets	$	53,457,131		$	49,692,066

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 that require recognition or disclosures in the consolidated financial statements.

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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 three months ended March 31, 2019 and 2018, and consolidated financial conditions as of March 31, 2019 and December 31, 2018 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.

For the three months ended March 31, 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.

For the three months ended March 31, 2019, revenues from the PRC segment accounted for approximately 99.71% of consolidated revenue; revenues from USA segment accounted for approximately 0.29% of consolidated revenue. For the three months ended March 31, 2018, we operated in four reportable business segments: (1) the TCM raw materials segment, consisting of the production and sale of yew raw materials or yew tree extracts used in the manufacture of TCM; (2) the yew tree segment, consisting of the growth and sale of yew tree seedlings and mature trees; (3) the handicrafts segment, consisting of the manufacture and sale of handicrafts and furniture made of yew timber; and (4) the “Others” segment, consisting of the sales of yew candles, yew essence oil soaps, pine needle extracts, complex taxus cuspidate extract, and composite northeast yew extract. Our reportable segments are strategic business units that offer different products. The four business segments are managed separately based on the fundamental differences in their operations. All of the Company’s operations including the sales of yew candles, pine needle extract, yew essential oil soap, complex taxus cuspidate extract, and composite northeast yew extract are conducted in the PRC.

For the three months ended March 31, 2018, revenues from the sales of TCM raw materials represented approximately 56% of consolidated revenue (including 56% of consolidated revenues from a related party); sales of yew trees represented approximately 0.00% of consolidated revenue; the sales of handicrafts represented approximately 0.04% of consolidated revenue, and the sales of others, which include yew candles, represented approximately 44% of consolidated revenue (including 43% of consolidated revenues from a related party).

YBP’s revenues were mostly generated by HDS and in the PRC. The expenses (approximately $211,000 and $163,273 for the three months ended March 31, 2019 and 2018, respectively) 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 March 31, 2019, YBP had $5,269 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 $3,000, including approximately $3,000 in cash at March 31, 2019. JSJ also holds the VIE interests in HDS through the contractual arrangements (the “Contractual Arrangements”) described in Notes to Unaudited 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 March 31, 2019, 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 three months ended March 31, 2019.

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.

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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 a majority of the risk of loss for the VIE or is entitled to receive a majority of 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.

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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 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.

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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 718and 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

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 months ended March 31, 2019. The Company recognized operating lease liabilities of $373,517 upon adoption, with corresponding ROU assets on its balance sheet.

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.

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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 March 31,
	2019			2018
Revenues - third parties	$	33,481		$	32,258
Revenues - related parties		11,480,523			2,998,880
Total revenues		11,514,004			3,031,138
Cost of revenues - third parties		26,668			12,906
Cost of revenues - related parties		10,328,807			2,538,937
Total cost of revenues		10,355,475			2,551,843
Gross profit		1,158,529			479,295
Operating expenses		613,255			259,872
Income from operations		545,274			219,423
Other expenses		(146,626	)		(70,417	)
Income Tax		(21,606	)		-
Net income		377,042			149,006
Other comprehensive income:
Foreign currency translation adjustment		1,024,884			1,556,804
Comprehensive income	$	1,401,926		$	1,705,810

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Three Months Ended March 31, 2018 Compared to Three Months Ended March 31, 2017

Revenues

For the three months ended March 31, 2019, we had total revenues of $11,514,004, as compared to $3,031,138 for the three months ended March 31, 2018, an increase of $8,482,866 or 279.86%. The increase in total revenue was attributable to the increase in revenues in the TCM raw materials, handicrafts, and “Others” segments.

	Three Months Ended March 31,						Percentage
Total revenue is summarized as follows:	2019		2018		Increase		Change
TCM raw materials	$	4,163,435	$	1,695,397	$	2,468,038		145.57	%
Handicrafts		2,295		1,102		1,193		108.25	%
Others		7,348,274		1,334,639		6,013,635		450.58	%
Total	$	11,514,004	$	3,031,138	$	8,482,866		279.86	%

For the three months ended March 31, 2019 compared to March 31, 2018, the increase in revenue of TCM raw material was mainly attributable to the increase in demand from our related party, Yew Pharmaceutical. The increase in revenue of handicrafts was mainly attributable to the increase in market demand. The increase in revenue of others was mainly attributable to the increase in demand of pine needle extract, handmade essential oil soaps, complex taxus cuspidate extract, and composite northeast yew extract.

Cost of Revenues

For the three months ended March 31, 2019, cost of revenues amounted to $10,355,475 as compared to $2,551,843 for the three months ended March 31, 2018, an increase of $7,803,632 or 305.80%. For the three months ended March 31, 2019, cost of revenues accounted for 89.94% of total revenues compared to 84.19% of total revenues for the three months ended March 31, 2018. 

Cost of revenues by product categories is as follows:

	Three Months Ended March 31,								Percentage
	2019			2018		Increase			Change
TCM raw materials	$	3,017,435		$	1,244,177	$	1,773,258			142.52	%
Handicrafts		(2,803	)		738		(3,541	)		(479.85	)%
Others		7,340,844			1,306,928		6,033,916			461.69	%
Total	$	10,355,475		$	2,551,843	$	7,803,632			305.80	%

The increase in our cost of revenues for the three months ended March 31, 2019 as compared to the three months ended March 31, 2018 was in line with the increase in revenue.

Gross Profit

For the three months ended March 31, 2019, gross profit was $1,158,529 as compared to $479,295 for the three months ended March 31, 2018, representing gross profit margins of 10.06% and 15.81%, respectively. Gross profit margins by categories are as follows:

	Three Months Ended March 31,
	2019			2018			Increase
TCM raw materials		27.53	%		26.61	%		(16.33	)%
Handicrafts		222.15	%		33.03	%		189.12	%
Others		0.10	%		2.08	%		7.79	%
Total		10.06	%		15.81	%		(5.75	)%

The increase in our overall gross profit margin for the three months ended March 31, 2019 as compared to the three months ended March 31, 2018 were primarily attributable to higher gross margin yields of TCM raw materials.

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Operating Expenses

For the three months ended March 31, 2019, operating expenses amounted to $613,255, as compared to $259,872 for the three months ended March 31, 2018, an increase of $353,383 or 135.98%. The increase was mainly due to the increase of bad debt expense.

Income from Operations

For the three months ended March 31, 2019, income from operations was $545,274, as compared to income from operations of $219,423 for the three months ended March 31, 2018, an increase of $325,851, or 148.50%. The increase was primarily attributable to the increase in revenues.

Other Expenses

For the three months ended March 31, 2019, total other expenses was $146,626 as compared to total other expenses of $70,417 for the three months ended March 31, 2018. The increase was primarily attributable to the increase in interest expense and currency exchange loss.

Net Income

As a result of the factors described above, our net income was $377,042 or $0.01 per share (basic and diluted), for the three months ended March 31, 2019, as compared to net income of $149,006 or $0.00 per share (basic and diluted), for the three months ended March 31, 2018.

Foreign Currency Translation Adjustment

For the three months ended March 31, 2019, we reported an unrealized gain on foreign currency translation of $1,024,884, as compared to a gain of $$1,556,804 for the three months ended March 31, 2018. The change reflects the effect of the value of the U.S. dollar in relation to the RMB. These gains are non-cash items. As described elsewhere herein, the functional currency of our subsidiary, JSJ, and our VIE, HDS, is the RMB. The accompanying unaudited 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 March 31, 2019, comprehensive income of $1,401,926 was derived from the sum of our net income of $377,042 with foreign currency translation gain of $1,024,884. For the three months ended March 31, 2018, comprehensive income of $1,705,810 was derived from the sum of our net income of $149,006 with foreign currency translation gain of $1,556,804.

Segment Information

For the three months ended March 31, 2019 as compared to the three months ended March 31, 2018, 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.

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Information with respect to these reportable business segments for the three months ended March 31, 2019 and 2018 was as follows:

	For the three months March 31, 2019						For the three months March 31, 2018
	Revenues- third parties		Revenues - related party		Total		Revenues- third parties		Revenues - related party		Total
Revenues:
PRC	$	148	$	11,480,523	$	11,480,671	$	1,517	$	2,998,880	$	3,000,397
USA		33,333		-		33,333		30,741		-		30,741
Total revenues	$	33,481	$	11,480,523	$	11,514,004	$	32,258	$	2,998,880	$	3,031,138

During the three months ended March 31, 2019 and 2018, the revenue from PRC segment was $11,480,671 and $3,000,397, respectively, increase of $8,480,274 or 282.64% due to the increase demand on Asia market. The increase in PRC segment was mainly due to the increase in revenue from related parties in the amount of $8,481,643, offset by the decrease in revenue from third parties in the amount of 1,369.

During the three months ended March 31, 2019 and 2018, the revenue from USA segment was $33,333 and $30,741, respectively, increase of $2,592 or 8.43%. The increase in USA segment was due to the increase in revenue from third parties in the amount of $2,592 attributable to our China customers’ increased 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 March 31, 2019 and December 31, 2018, we had cash balances of $221,728 and $521,670, 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.

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The following table sets forth information as to the principal changes in the components of our working capital from December 31, 2018 to March 31, 2019:

Category	March 31, 2019		December 31, 2018		Change			Percentage change
Current assets:
Cash	$	221,728	$	521,670	$	(299,942	)		(57.50	)%
Accounts receivable		-		17,167		(17,167	)		(100	)%
Accounts receivable - related parties		8,297,428		4,579,666		3,717,762			81.18	%
Inventories		6,270,352		6,204,954		65,398			1.05	%
Prepaid expenses and other assets		71,212		47,530		23,682			49.83	%
Prepaid expenses - related parties		25,759		32,318		(6,559	)		(20.30	)%
VAT recoverables		1,007,232		985,831		21,401			2.17	%
Current liabilities:
Accounts payable		118,842		268,359		(149,517	)		(55.72	)%
Advance from customers		149		145		4			2.76	%
Advance from customers - related party		2,371,697		21,295		2,350,402			11,037.34	%
Accrued expenses and other payables		390,837		244,043		146,794			60.15	%
Taxes payable		87,743		189,617		(101,874	)		(53.73	)%
Due to related parties		583,566		580,016		3,550			0.61	%
Short-term borrowings		5,520,137		5,758,517		(238,380	)		(4.14	)%
Current maturities of operating lease liabilities		52,681		-		52,681			-
Working capital:
Total current assets	$	15,893,711	$	12,389,136	$	3,504,575			28.29	%
Total current liabilities		9,125,652		7,061,992		2,063,660			29.22	%
Working capital	$	6,768,059	$	5,327,144	$	1,440,915			27.05	%

Our working capital increased by $1,440,915 to $6,768,059 at March 31, 2019, from working capital of $5,327,144 at December 31, 2018. This increase in working capital is primarily attributable to:

● an increase in accounts receivable - related parties of approximately $3,717,762

partially offset by:

● an increase in advance from customers - related party of approximately $2,350,402

For the three months ended March 31, 2019, net cash flow provided by operating activities was $1,738,179, as compared to net cash flow provided by operating activities of $10,922,020 for the three months ended March 31, 2018, an decrease of $9,183,841 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 three months ended March 31, 2019, net cash flow provided by operating activities of $1,738,179 was primarily attributable to:

● net income of approximately $377,000 adjusted for the add-back of non-cash items, such as depreciation of approximately $15,000 bad debt expense of $318,000 and amortization of land use rights and yew forest assets of $2,660,000; and

● changes in operating assets and liabilities, such as an increase in accounts receivable-related parties of approximately $3,904,000, an increase in accrued expenses and other payables of approximately $117,000, and an increase in advance from customers-related party of approximately $2,338,000.

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For the three months ended March 31, 2018, net cash flow provided by operating activities of $10,922,020 was primarily attributable to:

● net income of approximately $149,000 adjusted for the add-back of non-cash items, such as depreciation of approximately $16,000 and amortization of land use rights and yew forest assets of approximately $66,000, stock-based compensation of approximately $2,000; and

● changes in operating assets and liabilities, such as a decrease in accounts receivable-related parties of approximately $6,806,000, a decrease in accounts receivable of approximately $4,485,000, and an increase in accrued expenses and other payables of approximately $33,000, a decrease in accounts payable-related parties of approximately $366,000 and a decrease in VAT recoverables of approximately $230,000.

Net cash flow used in investing activities was $1,699,615 for the three months ended March 31, 2019. During the three months ended March 31, 2019, we have made prepayment in purchase of yew forest assets of approximately $1,670,000. Net cash flow used in investing activities was approximately $11,714,000 for the three months ended March 31, 2018. During the three months ended March 31, 2018, we have made payment in purchase of yew forest assets of approximately $3,471,000 and made prepayments for purchase of yew forest assets of approximately $8,242,000.

Net cash flow used in financing activities was approximately $310,000 for the three months ended March 31, 2019 due to repayment of short-term borrowings of approximately $1,600,000, and partially offset by proceeds of approximately $1,290,000 from short-term borrowings. Net cash flow provided by financing activities was approximately $200,000 for the three months ended March 31, 2018 and consisted of proceeds of approximately $1,520,000 from short-term borrowings, and partially offset by repayment of short-term borrowings in the amount of approximately $1,320,000.

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 March 31, 2019 and December 31, 2018, approximately $45.0 million and $43.5 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.

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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 gains of $ 1,024,884 and of $1,556,804 for the three months ended March 31, 2019 and March 31, 2018, 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 March 31, 2019 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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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*	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.

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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/ YUXI XING
	Yuxi Xing
	Chief Financial Officer

Date: May 22, 2019

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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*	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.

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