Natural Sweetener (Stevioside)
For the nine months ended January 31, 2008, revenues from our stevioside segment increased $3,080,152 or approximately 49% over the same period of the preceding year. During this period, revenues from this segment represented approximately 56% of our total net revenues as compared to approximately 54% for the nine months ended January 31, 2007. We attribute the increase in the net revenues from this segment from the comparable period in fiscal 2007 to increased sales efforts in the PRC and, in part, to our Sunwin Stevia International subsidiary, which represented $440,604 of net revenues from the sale of our OnlySweet(TM) products launched in North America during the current fiscal year. We believe the market for stevioside remains strong as we continue to witness growing demand from consumers globally.
For the nine months ended January 31, 2008, cost of revenues related to our stevioside segment were approximately 78%, remaining relatively constant from the same period of the preceding fiscal year. Local farmers have increased production of stevia leaves in response to growing demand. As a result the supply of stevia leaves has increased and the price of the leaves has stabilized. Furthermore, due to the increased supply, we ceased our policy of contracting local farmers to grow stevia leaves for our designated production. As a result of increased revenues in this segment, our gross profit in this segment increased $741,393, or approximately 57% from the comparable period in fiscal 2007.
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For the nine months ended January 31, 2008, operating expenses for our stevioside segment increased $536,748, or approximately 50%. This increase is primarily attributable to the 49% overall increase in sales in this segment as well as additional expenses incurred as we promote our proprietary line of stevioside marketed under the name OnlySweet(TM).
We continue to place emphasis on the expansion of sales of stevioside, in China and other parts of Asia as well as in North America. We also anticipate that revenues from OnlySweet(TM) will increase in fiscal 2008 as we continue to expand the distribution of that product. As a result of the completion of additional manufacturing facilities, which fully commenced operations in July 2007, we now have an aggregate production capacity of 600 tons per annum which we anticipate will be sufficient to meet demand for the balance of fiscal 2008. We anticipate our additional production capacity will be marketed to consumers in China, Japan, South Korea, and other Far East countries such as Singapore, Malaysia, Thailand, and India. During the nine months ended January 31, 2008, we manufactured approximately 295 tons of stevioside, and resold an additional 29 tons of stevioside which we purchased from other manufacturers in an effort to meet customer demand as our newly completed facility continues to expand its capacity. Comparatively during the nine months ended January 31, 2007 we manufactured 145 tons and resold an additional 248 tons which we purchased from other manufacturers. As a result of our additional capacity we anticipate we will continue to increase our production of stevioside during the balance of fiscal 2008.
As we continue to focus on this segment of our business we are dedicated to maximizing our revenues in our stevioside segment. We anticipate operating expenses will continue to increase in future periods as we expand our stevioside operations including increases in marketing expenses. In August 2007, we launched a promotional campaign to help introduce customers to OnlySweet(TM) through in-store floor advertising positioned in the sweetener aisle at approximately 2,000 retail locations. This initiative, recorded as a selling expense, began on August 13, 2007 and continued through October 13, 2007 at a cost of approximately $330,000, which we funded from working capital.
Chinese and Animal Medicines
For the nine months ended January 31, 2008, revenues from our Chinese and animal medicine segment increased $1,883,169, or approximately 35%, from the comparable period in fiscal 2007. During this period, revenues from this segment represented approximately 44% of our total net revenues as compared to approximately 46% for the nine months ended January 31, 2007. While the overall revenues for this segment increased in the fiscal 2008 period from the fiscal 2007 period, as a result of the significant increases in revenues from the natural sweetener (stevioside) segment discussed earlier, the overall impact on our net revenues of revenues from our Chinese and animal segment was diminished. Within our Chinese and animal medicines segment, net revenues related to our traditional Chinese medicine products were $3,977,935 for the nine months ended January 31, 2008 as compared to $2,837,229 for the nine months ended January 31, 2007, an increase of $1,140,706 or approximately 40%. Revenues related to our animal medicine products were $3,212,629 for the nine months ended January 31, 2008 as compared to $2,470,168 for the nine months ended January 31, 2007, an increase of $742,461 or approximately 30%. While we expect revenues from the segment to increase, we expect the percentage of our revenues from this segment as a portion of our overall revenues will continue to decrease as we continue to emphasize our stevioside segment.
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For the nine months ended January 31, 2008 cost of revenues in our Chinese and animal medicine segment was $4,645,247, or approximately 65% of net revenues for this segment, as compared to $3,566,111, or approximately 67% of net revenues, for the nine months ended January 31, 2007. As a percentage, cost of revenues decreased primarily due to two factors; the substitution of certain ingredients with less expensive alternatives and efficiencies associated with increased production levels in response to increased sales. Our gross profit in this segment was $2,545,318, an increase of $804,033, or approximately 46%, from our gross profit of $1,741,285 for this segment in the nine months ended January 31, 2007.
For the nine months ended January 31, 2008 operating expenses associated with our Chinese and animal medicine segment were $1,312,320 as compared to $693,259 for the nine months ended January 31, 2007, an increase of $619,061, or approximately 89%. This increase was primarily attributable to the 35% increase in revenues between the periods. We expect operating expenses related to this segment to remain consistent with historical levels.
Corporate and Other
We incur various operating expenses at the corporate level related to legal, auditing, and other professional business consultants. For the nine months ended January 31, 2008 these expenses decreased $212,464, or approximately 26% from the comparable period in fiscal 2007.
TOTAL OTHER INCOME
For the nine months ended January 31, 2008, we reported total other income of $45,894 as compared to $66,256 for the nine months ended January 31, 2007, a decrease of $20,362. Other income for the nine months ended January 31, 2008 reflects income recognized in our Chinese and animal medicines segment and is attributable to the excess accrual of value added taxes on certain of our animal medicine products which may or may not be subject to value added taxes. Prior to receipt of an official notice from the tax authority, we accrued value added taxes for this segment. Upon notification, the excess accruals, if any, are recorded as other income. For the nine months ended January 31, 2008, we have not recorded an accrual for value added taxes, since we received the notification from the tax authority.
For the nine months ended January 31, 2008, interest income totaled $44,768 as compared to of $57,886 for the nine months ended January 31, 2007, a decrease of $13,118. This reduction reflected interest on our decreased cash position held in bank deposits between the periods.
NET INCOME (LOSS), OTHER COMPREHENSIVE INCOME AND COMPREHENSIVE INCOME
We reported net income of $1,120,457 for the nine months ended January 31, 2008 as compared to net income of $551,094 for the nine months ended January 31, 2007. The change reflects our increased revenues and increased gross profit margins as compared to the nine months ended January 31, 2007, offset by an increase in general administration expenses at the corporate level and increased selling expenses, primarily due to the overall increase in operational activities in our stevioside segment.
For the nine months ended January 31, 2008 we reported other comprehensive income of $1,677,527, an increase of $1,007,903, or approximately 151%, as compared to the nine months ended January 31, 2007. Other comprehensive income represents an unrealized gain on foreign currency translation and is a non-cash item. As described elsewhere in this report, the functional currency of our Chinese subsidiaries is the RMB. The financial statements of our subsidiaries are translated into U.S. dollars using year-end rates of exchange for assets and liabilities, and average rates of exchange for the period for revenues, costs, and expenses. Net gains and losses resulting from foreign exchange transactions are included in the consolidated statements of operations.
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