UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
Amendment No. 2
x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2011
¨ 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: 0-53600
CHINA YCT INTERNATIONAL GROUP, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 65-2954561 |
| (State or other jurisdiction of incorporation or | (IRS Employer Identification No.) |
| organization) |
| c/o Shandong Spring Pharmaceutical Co., Ltd Economic Development | ||
| Zone. | ||
| Gucheng Road Sishui County Shandong Province PR China | 273200 | |
| (Address of principal executive offices) | (Zip Code) |
Issuer's telephone number: 406-282-3188
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 x
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 x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer £ Accelerated filer £
Non-accelerated filer £ (Do not check if a smaller reporting company) Smaller reporting company x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes x No ¨
The number of shares outstanding of the issuer’s common stock on September 5, 2011 was 73,780,610.
EXPLANATORY NOTE – AMENDMENT
The Form 10Q/A is being amended to restate our previously issued financial statements for the quarter ended June 30, 2011. On February 28, 2011, we acquired a United States patent which was accounted for as an acquisition of an asset. However, we recognized the contingent considerations that would be accounted for under the acquisition of a business. Therefore, we overstated the fair value of the patent. We restated our financial statements to correct this error. The changes in the financial statements at June 30, 2011 include, but are not limited to, a decrease in the amount recorded for net intangible assets by $22,761,681 a decrease in the amount recorded as a contingent liability by $23,391,902, and a reduction of $471,770 in retained earnings. We have also provided additional explanation as to (i) the intended purposes of the patent, (ii) the lack of accounts receivable as of June 30, 2011 and (iii) the lack of effectiveness of our internal controls and procedures at June 30, 2011.
CHINA YCT INTERNATIONAL GROUP, INC.
FORM 10-Q/A
QUARTERLY PERIOD ENDED JUNE 30, 2011
INDEX
TABLE OF CONTENTS
| Page | ||
| PART I - FINANCIAL INFORMATION | ||
| Item 1: | Financial Statements | 3 |
| Item 2: | Management's Discussion and Analysis of Financial Condition and Results of Operations | 17 |
| Item 3: | Quantitative and Qualitative Disclosures About Market Risk | 21 |
| Item 4: | Controls and Procedures | 22 |
| PART II - OTHER INFORMATION | ||
| Item 1: | Legal Proceedings | 23 |
| Item 1A: | Risk Factors | 23 |
| Item 2: | Unregistered Sales of Equity Securities and Use of Proceeds | 23 |
| Item 3: | Defaults Upon Senior Securities | 23 |
| Item 4: | Removed and Reserved | 23 |
| Item 5: | Other Information | 23 |
| Item 6: | Exhibits | 23 |
| 2 |
Item 1. Financial Statement
| CHINA YCT INTERNATIONAL GROUP, INC. |
| CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
| FOR THE THREE MONTHS ENDED JUNE 30, 2011 AND 2010 (UNAUDITED) |
| Table of Contents |
| Page | |
| Consolidated Balance Sheets as of June 30, 2011 (Unaudited) and March 31, 2011 | 4 |
| Consolidated Statements of Income for the three months ended June 30, 2011 and 2010 (Unaudited) | 5 |
| Consolidated Statements of Cash Flows for the three months ended June 30, 2011 and 2010 (Unaudited) | 7 |
| Notes to Consolidated Financial Statement (Unaudited) | 8-16 |
| 3 |
CHINA YCT INTERNATIONAL GROUP, INC.
| CONDENSED CONSOLIDATED BALANCE SHEET |
| UNIT: USD$ | ||||||||
| June 30, 2011 | March 31, 2011 | |||||||
| (Unaudited) | (Audited) | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalent | $ | 16,316,460 | $ | 6,046,804 | ||||
| Prepaid accounts | 5,551,348 | 15,602,258 | ||||||
| Inventory | 1,635,250 | 59,183 | ||||||
| Total current assets | 23,503,059 | 21,708,245 | ||||||
| Plant, property and equipment, net | 9,677,789 | 9,629,558 | ||||||
| Construction in progress | 213,956 | 211,189 | ||||||
| Intangible assets, net | *39,375,323 | *40,560,015 | ||||||
| Total assets | 72,770,128 | 72,109,007 | ||||||
| Liabilities and Stockholders’ Equity (Deficit) | ||||||||
| Liabilities: | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | 209,871 | 0 | ||||||
| Tax payable | *597,391 | *1,683,944 | ||||||
| Other payable | 113,937 | 229,561 | ||||||
| Total current liabilities | 921,199 | 1,913,505 | ||||||
| Contingency | *0 | *0 | ||||||
| Total liabilities | 921,199 | 1,913,505 | ||||||
| Stockholders’ Equity | ||||||||
| Preferred stock, par value $500.00 per share; 45 shares authorized and issued at September 30, 2010 and March 31, 2010 | 22,500 | 22,500 | ||||||
| Common stock, par value $0.001 per share; 100,000,000 shares authorized; 73,780,610 and 73,758,388 shares issued and outstanding at June 30, 2011 and March 31, 2011, respectively | 73,780 | 73,758 | ||||||
| Additional paid-in capital | 36,879,643 | 36,868,554 | ||||||
| Statutory reserve | 956,633 | 956,633 | ||||||
| Retained earnings | *31,457,805 | *30,232,764 | ||||||
| Accumulated other comprehensive income | *2,458,568 | 2,041,293 | ||||||
| Total stockholders’ equity | 71,848,929 | 70,195,502 | ||||||
| Total liabilities and stockholders’ equity | $ | 72,770,128 | $ | 72,109,007 | ||||
Notes to Financial Statements is attached.
*: amended.
| 4 |
CHINA YCT INTERNATIONAL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
| (Unaudited) |
| UNIT: USD$ | ||||||||
| FOR THE THREE MONTHS ENDED | ||||||||
| June 30, 2011 | June 30, 2010 | |||||||
| Sales Revenue | $ | 7,944,264 | $ | 5,661,519 | ||||
| Cost of Goods Sold | 3,582,345 | 3,061,321 | ||||||
| Gross Profit | 4,361,919 | 2,600,198 | ||||||
| Selling Expenses | 1,179,552 | 502,713 | ||||||
| G&A Expense | *1,408,820 | 294,536 | ||||||
| R&D Expenses | 193,518 | 60,338 | ||||||
| Total expense | 2,781,890 | 857,587 | ||||||
| Income from operation | 1,580,029 | 1,742,611 | ||||||
| Interest income (Expense) | -41 | - | ||||||
| Other income (Expense) | 68,215 | - | ||||||
| Profit before tax | 1,648,203 | 1,742,611 | ||||||
| Income tax | *412,051 | 459,298 | ||||||
| Net income | 1,236,152 | 1,283,313 | ||||||
| Other comprehensive income | ||||||||
| Foreign currency translation adjustment | *417,275 | 144,853 | ||||||
| Comprehensive income | $ | 1,653,427 | $ | 1 ,428,166 | ||||
| Basic and diluted income per common share | ||||||||
| Basic and Diluted | *0.02 | 0.04 | ||||||
| Weighted average number of common shares outstanding | ||||||||
| Basic and Diluted | 73,731,361 | 29,471,503 | ||||||
*: restated.
Notes to Financial Statements is attached.
| 5 |
CHINA YCT INTERNATIONAL GROUP, INC.
| CONSOLIDATED STATEMENT OF STOCKHOLDER EQUITY |
| UNIT: USD$ | ||||||||||||||||||||||||||||||||||||
| CHINA YCT INTERNATIONAL GROUP, INC. | Preferred Stock Series A | Common shares | Additional paid | Statutory | Accumulated | Retained | ||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | in capital | Reserve | OCI | Earnings | Total | ||||||||||||||||||||||||||||
| Balance - March 31, 2011 | 45 | $ | 22,500 | 73,758,388 | $ | 73,758 | $ | 36,868,554 | $ | 956,633 | $ | 2,041,293 | $ | *30,232,764 | $ | 70,195,502 | ||||||||||||||||||||
| Net income for the quarter | *1,236,152 | 1,236,152 | ||||||||||||||||||||||||||||||||||
| Issuance of common shares to independent directors | 22,222 | 22 | 11,089 | (11,111 | ) | 0 | ||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | *417,275 | 417,275 | ||||||||||||||||||||||||||||||||||
| Balance - June 30, 2011 | 45 | $ | 22,500 | 73,780,610 | $ | 73,780 | $ | 36,879,643 | $ | 956,633 | $ | 2,458,568 | $ | 31,457,805 | $ | 71,848,929 | ||||||||||||||||||||
*: restated.
Notes to Financial Statements is attached.
| 6 |
CHINA YCT INTERNATIONAL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW
| (Unaudited) |
| UNIT: USD$ | ||||||||
| THREE MONTHS ENDED | ||||||||
| June 30, 2011 | June 30, 2010 | |||||||
| Cash Flows From Operating Activities: | ||||||||
| Net income | $ | *1,236,152 | $ | 1,283,313 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | *2,050,602 | 147,414 | ||||||
| Issue of common shares as compensation | 19,760 | |||||||
| Changes in operating assets and liabilities: | ||||||||
| Inventory | (1,576,067 | ) | 71,837 | |||||
| Accounts payable | 209,871 | (2,299,928 | ) | |||||
| Taxes payable | *(646,397 | ) | (478,039 | ) | ||||
| Accrued expenses and other payables | (115,624 | ) | 42,292 | |||||
| Net cash provided by (used in) operating activities | 1,158,537 | (1,213,351 | ) | |||||
| Cash flows from investing activities: | ||||||||
| Addition to plant and equipment | (77,596 | ) | (52,618 | ) | ||||
| Prepayment to a third party vendor for acquisition of patent | 10,030,688 | (7,355,192 | ) | |||||
| Net cash provided by (used in) investing activities | 9,953,092 | (7,407,810 | ) | |||||
| Effect of exchange rate changes on cash and cash equivalents | (841,973 | ) | 101,975 | |||||
| Net increase (decrease) in cash and cash equivalents | 10,269,655 | (8,519,186 | ) | |||||
| Cash and cash equivalents at beginning of period | 6,046,804 | 11,911,933 | ||||||
| Cash and cash equivalents at ending of period | $ | 16,316,460 | $ | 3,392,747 | ||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid during the periods for: | ||||||||
| Interest | 81 | 0 | ||||||
| Income taxes | $ | 1,936,972 | $ | 1,231,593 | ||||
| Non-cash financing activities: | ||||||||
| Stock issued for services | 22,222 | 14,970 | ||||||
*: restated.
Notes to Financial Statements is attached.
| 7 |
NOTE 1 - ORGANIZATION AND PRINCIPAL ACTIVITIES
China YCT International Group, Inc. (“China YCT”) was incorporated in the State of Florida, in the United States (the “US”) in January 1989, and reincorporated in the State of Delaware on April 4, 2007. China YCT principally operates through the following directly owned subsidiaries: Landway Nano Bio-Tech, Inc. (100% owned), incorporated in Delaware, in the United States, and Shandong Spring Pharmaceutical Co., Ltd. (“Shandong Spring”), (100% owned), incorporated in the People’s Republic of China (“PRC”). China YCT International Group, Inc. and its subsidiaries are collectively referred to as the “Company.”
China YCT, through its wholly owned subsidiary, Shandong Spring, is engaged in the business of developing, manufacturing and marketing its own medicine from gingko extract, and other dietary supplement products in the P.R. China.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The consolidated financial statements of the Company are prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”).
Principles of consolidation
The consolidated financial statements include the financial statements of China YCT, Landway Nano and its wholly owned subsidiary, Shandong Spring. All inter-company transactions and balances are eliminated in consolidation.
Use of estimates
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant accounting estimates reflected in the Company’s consolidated financial statements include: the valuation of inventory, and estimated useful lives and impairment of property and equipment and intangible assets.
Cash and cash equivalents
For the purposes of the statement of cash flow, the Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.
| 8 |
Inventory
Inventory is primarily composed of raw materials and packing materials for manufacturing, work in process, and finished goods. Inventories are valued at the lower of cost or market with cost determined on a weighted average basis. Management compares the cost of inventory with the market value and an allowance is made for writing down the inventory to its market value, if lower than cost.
Property and equipment
Property and equipment are stated at cost. The cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to its present working condition and locations for its intended use. Depreciation is calculated using the straight-like method over the following useful lives:
| Buildings | 30-35 years |
| Machinery, equipment and automobiles | 7-15 years |
Expenditures for maintenance and repairs are charged to expense as incurred. Additions, renewals and betterments are capitalized.
Intangible Assets
| (i) | Land Use Rights: |
All land in the PRC is owned by the government and cannot be sold to any individual or company. However, the government may grant a “land use right” for occupying, developing and using land. The Company records land use rights obtained as intangible assets at cost, which is amortized evenly over the grant period of 50 years.
| (ii) | Patents: |
In March 2010, the Company purchased one patent from Shandong YCT Corp. The patent is the Company’s exclusive right to use an aglycone type and purification method of biotransformation in the gingko product manufacturing process for a period of 20 years from the patent application date. The patent was recorded at cost when purchased, and is being amortized over the shorter of its remaining legal life, 16.5 years, or its useful life, on a straight-line basis.
On February 28, 2011, the Company acquired U.S. patent No. 6,475,531 B1 titled “Safe Botanical Drug for Treatment and Prevention of Influenza and Increasing Immune Function”) through a purchase agreement with L.Y. Research Corp., a New Jersey Corporation.
| 9 |
According to the purchase agreement between the Company and L.Y. Hong Kong Biotech Limited (LYHK), CYIG acquires the patent for a consideration of issuing total 44,254,952 shares of CYIG common stock. The total value of the consideration on the acquisition date is $32,748,665 which is calculated by the total issuing shares, multiplying CYIG’s quoted stock price $0.74 per share on February 28, 2011. The patent is amortized straightly over the patent’s remaining legal life of 9.9 years starting from March 1, 2011.
Revenue recognition
The Company’s revenue recognition policies are in compliance with Staff Accounting Bulletin (“SAB”) 104, included in the Codification as ASC 605, Revenue Recognition. Sales revenue is recognized at the date of shipment to customers when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, no other significant obligations of the Company exist and collectability is reasonably assured. Payments received before all of the relevant criteria for revenue recognition are recorded as customer deposits.
Unearned revenue
Revenue from the sale of goods or services is recognized at the time that goods are delivered or services are rendered. Receipts in advance for goods to be delivered or services to be rendered in a subsequent period are carried forward as unearned revenue.
Impairment of long-lived assets
The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may no longer be recoverable. An impairment loss, measured based on the fair value of the asset, is recognized if expected future undiscounted cash flows are less than the carrying amount of the assets.
Value-added tax
Sales revenue represents the invoiced value of goods, net of a Value-Added Tax (“VAT”). All of the Company’s products that are sold in the PRC are subject to a Chinese value-added tax at a rate of 17% of the gross sales price. This VAT may be offset by VAT paid by the Company on raw materials and other materials included in the cost of producing their finished product.
The Company recorded net VAT Payable in amount of $85,160 and $465,811 as of June 30, 2011 and March 30, 2011, respectively.
Research and development
Research and development costs are related primarily to the Company’s developing its intellectual property. Research and development costs are expensed as incurred. The costs of material and equipment that are acquired or constructed for research and development activities and have alternative future uses are classified as plant and equipment and depreciated over their estimated useful lives.
| 10 |
The research and development expense for the three months ended June 30, 2011 and 2010 was $193,518 and $60,338, respectively.
Advertising costs
Advertising costs for newspaper and television are expensed as incurred. The Company incurred advertising costs of $76,910 and nil for the three months ended June, 2011 and 2010, respectively.
Mailing and handling costs
The Company accounts for mailing and handling fees in accordance with the FASB ASC 605-45 (Emerging Issues Task Force (EITF) Issue No. 00-10, Accounting for Shipping and Handling Fees and Costs). The Company includes shipping and handling fees billed to customers in net revenues. Amounts incurred by the Company for freight are included in cost of goods sold. For the three months ended June 30, 2011 and 2010, the Company incurred $390,010 and $247,031 mailing and handling costs, respectively.
Net income (loss) per share (“EPS”)
Basic EPS excludes dilution and is computed by dividing net income (loss) attributable to common stockholders by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock (convertible preferred stock, forward contracts, warrants to purchase common stock, contingently issuable shares, common stock options and warrants and their equivalents using the treasury stock method) were exercised or converted into common stock. There are 31,610,679 and nil common stock equivalents available for dilution purposes as of June 30, 2011 and 2010, respectively.
Risks and uncertainties
The Company’s operations are carried out in the PRC. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environments in the PRC, and by the general state of the PRC’s economy. The Company’s operations in the PRC are subject to specific considerations and significant risks not typically associated with companies in the North America and Western Europe. These include risks associated with, among others, the political, economic and legal environments and foreign currency exchange. The Company’s results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.
| 11 |
Fair Value of Financial Instruments
For certain of the Company’s financial instruments, including cash and cash equivalents, restricted cash, accounts receivable, accounts payable, accrued liabilities and short-term debt, the carrying amounts approximate their fair values due to their short maturities.
As of June 30, 2011, the Company did not identify any financial instruments that are required to be presented on the balance sheet at fair value other than those whose carrying amounts approximate fair value due to their short maturities.
Foreign currency translation
The accounts of the Company’s Chinese subsidiary are maintained in the RMB and the accounts of the U.S. parent company are maintained in the USD. The accounts of the Chinese subsidiary were translated into USD in accordance with Accounting Standards Codification (“ASC”) Topic 830 “Foreign Currency Matters,” with the RMB as the functional currency for the Chinese subsidiary. According to Topic 830, all assets and liabilities were translated at the exchange rate on the balance sheet date; stockholders’ equity is translated at historical rates and statement of income items are translated at the weighted average exchange rate for the period. The resulting translation adjustments are reported under other comprehensive income in accordance with ASC Topic 220, “Comprehensive Income.” Gains and losses resulting from the translations of foreign currency transactions and balances are reflected in the statements of income.
Translation adjustments resulting from this process amounted to $417,275 and $144,853 for the three months ended June 30, 2011 and 2010, respectively.
The following exchange rates were adopted to translate the amounts from RMB into United States dollars (“USD$”) for the respective periods:
| June 30, 2011 | March 31, 2011 | June 30, 2010 | ||||||||||
| Three Months End RMB Exchange Rate (RMB/USD$) | 6.4716 | 6.5564 | 6.7909 | |||||||||
| Average Period RMB Exchange Rate (RMB/USD$) | 6.5011 | 6.7111 | 6.8235 | |||||||||
| 12 |
Recent accounting pronouncements
In April 2010, the FASB issued FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments. This FSP amends SFAS No. 107, Disclosures about Fair Value of Financial Instruments, to require an entity to provide disclosures about the fair value of financial instruments in interim financial information. This FSP also amends Accounting Principles Board Opinion No. 28, Interim Financial Reporting, to require those disclosures in summarized financial information at interim reporting periods. FSP FAS 107-1 and APB 28-1 are effective for interim periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. Effective April 1, 2009, the Company adopted this pronouncement. The adoption of this pronouncement did not have any significant impact on the Company’s financial condition or results of operations.
In January 2010, the FASB issued authoritative guidance to improve disclosures about fair value measurements. This guidance amends previous guidance on fair value measurements to add new requirements for disclosures about transfers into and out of Levels 1 and 2 and separate disclosures about purchases, sales, issuances, and settlements relating to Level 3 measurement on a gross basis rather than on a net basis as currently required. This guidance also clarifies existing fair value disclosures about the level of disaggregation and about inputs and valuation techniques used to measure fair value. This guidance is effective for annual and interim periods beginning after December 15, 2009, except for the requirement to provide the Level 3 activities of purchases, sales, issuances, and settlements on a gross basis, which will be effective for annual and interim periods beginning after December 15, 2010. Early application is permitted and, in the period of initial adoption, entities are not required to provide the amended disclosures for any previous periods presented for comparative purposes. The Company does not expect the adoption of this pronouncement to have a significant impact on its financial condition or results of operations.
NOTE 3 – PREPAID ACCOUNTS
The prepaid account in amount of $5,551,348 is a cash payment to a Chinese research company for the acquisition of a patent. During the quarter ended June 30, 2011, $10,050,910 prepayment was refunded by the owner of the patent due to the incompletion of the required transferring paper work. When the Company obtains the title of the patent, the rest of the payment will be made to the owner of the patent and the prepayment will be reclassified to a patent.
NOTE 4 - INVENTORY
Inventory consists of finished goods, work-in-process, and raw materials. No allowance for inventory was made for the three months ended June 30, 2011 and 2010.
| 13 |
The components of inventories as of June 30, 2011 and March 31, 2011 were as follows:
| Period Ended | ||||||||
| June 30, 2011 | March 31, 2011 | |||||||
| Raw materials | $ | 854,854 | $ | 8,699 | ||||
| Work-in-progress | 212,846 | 27,225 | ||||||
| Finished goods | 567,550 | 23,259 | ||||||
| Total Inventories | $ | 1,635,250 | $ | 59,183 | ||||
NOTE 5 – PLANT, PROPERTY AND EQUIPMENT, NET
The components of property and equipment as of June 30, 2011 and March 31, 2011 were as follows:
| Period Ended | ||||||||
| June 30, 2011 | March 31, 2011 | |||||||
| Machinery & Equipment | $ | 512,191 | $ | 516,935 | ||||
| Furniture & Fixture | 129,405 | 96,156 | ||||||
| Building | 9,632,593 | 9,685,212 | ||||||
| Subtotal | 10,474,188 | 10,298,303 | ||||||
| Less: Accumulated Depreciation | ( 796, 399 ) | (668,745 | ) | |||||
| Total plant, property and equipment, net | $ | 9,677,789 | $ | 9,629,558 | ||||
The depreciation expense for the three months ended June 30, 2011 and 2010 was $127,654 and $54,456, respectively.
NOTE 6 – CONSTRUCTION IN PROGRESS
Construction in progress represents direct costs of construction or acquisition and design fees incurred for the Company’s new plant and equipment. Capitalization of these costs ceases and the construction in progress is transferred to plant and equipment when substantially all the activities necessary to prepare the assets for their intended use are completed. No depreciation is made until construction is completed and put into use.
NOTE 7 - MAJOR CUSTOMER AND VENDOR
In the three months ended June 30, 2011, the Company mainly sells products to individual retail customers through eight major distributors.
| 14 |
For the three months ended June 30, 2011, the purchase from the two major vendors was $4,774,381, representing 83% of the Company’s total purchase for the quarter.
| Shandong Kangyuan | 3,329,167 | |||
| Shandong YCT | 1,445,213 | |||
| Total | $ | 4,774,381 |
NOTE 8 - INTANGIBLE ASSETS, NET
The intangible assets of the Company consist of land use right and purchased patents.
Net land use right and purchased patents were as follows:
| Amortization | As of | |||||||||||
| Period | June 30, 2011 | March 31, 2011 | ||||||||||
| Land use right | 50 years | 1,547,801 | 1,547,801 | |||||||||
| Less: Accumulated amortization | (149,626 | ) | (139,821 | ) | ||||||||
| Land use right, net | 1,398,175 | 1,407,980 | ||||||||||
| Patent 1 | 16.5 years | 7,016,042 | 7,016,045 | |||||||||
| Patent (U.S. No. 6,475,531 B1) | 119 months | 32,748,665 | 32,748,665 | |||||||||
| Less: Accumulated amortization | (1,787,559 | ) | (612,674 | ) | ||||||||
| Patents, net | $ | 37,977,148 | $ | 39,152,036 | ||||||||
The amortization expense of land use right for the three months ended June 30, 2011 and 2010 was $9,805 and $8,141, respectively.
The amortization expense of the patents for the three months ended June 30, 2011 and 2010 was $1,174,887 and $84,819, respectively.
| 15 |
NOTE 9 - TAX PAYABLE
Tax payable at June 30, 2011 and March 31, 2011 were as follows:
| As of | ||||||||
| June 31, 2011 | March 31, 2011 | |||||||
| Corporate Income Tax | $ | 514,240 | $ | 1,190,436 | ||||
| Value-Added Tax | 85,160 | 489,962 | ||||||
| Other Tax & Fees | (2,009 | ) | 3,546 | |||||
| Total Tax Payable | $ | 597,391 | $ | 1,683,944 | ||||
NOTE 10 - INCOME TAXES
Shandong Spring Pharmaceutical Co., Ltd is subject to the Enterprise income tax (“EIT”) at a statutory rate of 25%.
For the quarters ended June 30, 2011 and 2010, Shandong Spring Pharmaceutical Co., Ltd. recorded income tax provisions of $412,051 and $459,533, respectively.
| 16 |
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operation
You should read the following discussion together with our consolidated financial statements and the related notes included elsewhere in this Form 10-Q and our audited financial statements included in our Annual Report on Form 10-K. This discussion contains forward-looking statements. These forward-looking statements are based on information available at the time the statements are made and/or management’s belief as of that time with respect to future events and involve risks and uncertainties that could cause actual results and outcomes to be materially different. Important factors that could cause such differences include but are not limited to: competitive factors, general economic conditions, customer relations, relationships with vendors, the interest rate environment, governmental regulation and supervision, seasonality, distribution networks, product introductions and acceptance, technological change, changes in industry practices, onetime events and other factors described herein and in other filings made by the company with the Securities and Exchange Commission. While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, and therefore, you should not rely on these forward-looking statements as representing our views as of any date subsequent to the date this Form 10-Q is filed with the Securities and Exchange Commission.
Overview
China YCT International Group, Inc. (“China YCT”) was incorporated in the State of Florida in January 1989, and reincorporated in the State of Delaware on April 4, 2007. China YCT principally operates through two of its wholly-owned subsidiaries: Landway Nano Bio-Tech, Inc., incorporated in Delaware, and Shandong Spring Pharmaceutical Co., Ltd. (“Shandong Spring”), incorporated in the People’s Republic of China (the “PRC”). China YCT International Group, Inc. and its subsidiaries are collectively referred to as the “Company”. China YCT, through its wholly-owned subsidiary, Shandong Spring, is engaged in the business of developing, manufacturing and marketing gingko and distributing other dietary supplement products in the PRC.
Results of Operations – Three Months ended June 30, 2011 compared to the Three Months Ended June 30, 2010
Net Sales
During the three months ended June 30, 2011, we realized $7,944,264 of sales revenue, an increase of 40% or $2,282,745 as compared to $5,661,519 for the same period of 2010. Starting from April 2010, we restructured our product distribution line due to profitability considerations. We discontinued the distribution of 24 cosmetic and daily necessities products due to increases of advertisement, transportation costs that resulted from new government regulations issued by SFDA of China. Meanwhile, we continued the distribution of our 10 types of health care supplement products, which are not affected by the government regulations. Since September 2009, we started to engage in the production and distribution of our own patented drug,, Huoliyuan Capsule,, and develop distribution channels for the drug. Our sales have increased since September 2009 as a result of the establishment of our manufacturing and distribution of Huoliyuan Capsule.
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During the three months ended June 30, 2011, 58% of our revenues were from the sale of the 10 types of health care supplement products and 42% of our revenues were from sales of Huoliyuan Capsule. The following table sets forth a sales breakdown comparison by product for the periods under review:
| Sales from: | June 30, 2011 | June 30, 2010 | Change in $ | Variance | ||||||||||||
| Health care supplements | 2,769,518 | 3,632,333 | (862,815 | ) | -24 | % | ||||||||||
| Drugs | 4,627,751 | 2,029,186 | 2,598,565 | 128 | % | |||||||||||
| Others | 546,995 | 0 | 546,995 | |||||||||||||
| Total | 7,944,264 | 5,661,519 | 2,282,745 | 40 | % | |||||||||||
Cost of Goods Sold
Our costs of revenue were comprised primarily of the cost of finished goods we purchased from Shandong YCT, the raw materials we purchased from third party vendors and the manufacturing cost of Huoliyuan Capsule. During the three months ended June 30, 2011, our cost of goods sold totaled $3,582,345, representing an increase of $521,024 or 17% as compared to $3,061,321 during the same period of 2010. The percentages of the costs of goods sold to total revenues decreased to 45% from 54%, as compared to the same quarter of the previous year. The decrease of the ratio of cost of goods sold to total revenue is mainly due to the increased production and sales of Huoliyuan Capsule, which costs less than other products.
Gross Profit
Gross profit during the three months ended June 30, 2011 was $4,361,919, an increase of 68% or $1,761,721 as compared to the same period in the previous year. The increase in gross profit is a result of increased sales revenue and decreased cost of goods sold. Gross profit as a percentage of net revenues was 55% during the three months ended June 30, 2011, an increase of 9% as compared to the same period of the prior year. The increase in gross profit and gross profit percentage are primarily due to the increased sales revenue and the decreased cost of goods sold during the quarter ended June 30, 2011.
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The following table sets forth a breakdown of our gross profits and gross margin of different products during the quarters ended June 30, 2011 and 2010:
| Gross Profit | Gross Profit | |||||||||||||||
| For the quarter ended June 30, 2011, | For the quarter ended June 30, 2010 | |||||||||||||||
| Products | ||||||||||||||||
| Health care supplements | 3,316,513 | 55 | % | 1,591,014 | 45 | % | ||||||||||
| Drugs | 4,627,751 | 54 | % | 1,047,648 | 47 | % | ||||||||||
| Overall | 7,944,264 | 55 | % | 2,638,662 | 46 | % | ||||||||||
Research and Development Expenses.
Our R&D expenses during the three months ended June 30, 2011 and 2010 were $193,518 or approximate 2% of total corresponding revenue and $60,338 or approximate 1% of total corresponding revenue, respectively. We have not incurred any significant R&D expenses since June 30, 2011. However, our long term goal is to utilize advanced biological technology to refine and extract the beneficial compounds in plants that have traditionally been known to have medicinal benefits, primarily gingko. Toward that end, we have a staff of eight employees engaged in research and development of new technologies and products. In addition we maintain close ties to the research staffs at Tsinghua University, China Agriculture University, Shandong Herbal Medicine University, and the Shandong Herbal Medicine Research Institute.
The influenza patent acquired in February 2011 is for an herbal medication called Pure Ban Lan Gen (“PBLG”). No expenses were incurred for research and development during the period ended June 30, 2011. The influenza patent has not been used for the production of health care products and is not related to our current line of health care products (mainly the gingko products). We acquired this patent in order to achieve the following two purposes:
| (1) | Drug - This patent will be used for research and development activities for a drug with a clinical study. The clinical study will be conducted in China. We will use the Influenza patent to apply for the IND (Investigational New Drug) of PBLG. After the clinical research and trials (Step 1, 2, 3) and qualified by the Chinese FDA, we intend to make application of new medicine to the Chinese FDA. We intend to start the research and development activities of the drug after we obtain additional financing. Assuming successful completion of the clinical study, we will then use the patent to get approval for production of the herbal drug from China’s SFDA. Once we get approval from China’s SFDA, we will use the patent to obtain the approval for production of the herbal drug from the United States’ FDA as well. We estimate that the commercialization of the patent to offer drugs that require FDA approval will not occur for three to four years and will require additional capital. |
| (2) | Health Product - We also plan to sell the PBLG as a health product directly in China and the United States market. As a health product, sales of PBLG do not need any additional research and development or approval from China’s FDA and the United States’ FDA. The commercialization of the patent to offer health care products that do not require FDA approval will take one to two years. In each case, we anticipate that we will need to construct manufacturing facilities |
Selling, General and Administrative Expenses (SG&A Expenses).
During the quarter ended June 30, 2011, our SG&A expenses consisted primarily of sales commissions, amortization expense, promotion expenses, freight charges and related compensation. Our overall SG&A expenses for three months ended June 30, 2011 were $2,588,372 or 33% of our net sales for the period, representing an increase of 225% or $1,791,123 as compared with the SG&A expenses for the same period of the previous year. The increase in our overall SG&A expenses was primarily due to the increase of selling expenses and amortization expense of an acquired patent.
Net Income
During the quarter ended June 30, 2011, we realized $1,236,152 in net income, representing a 4% or $47,161 decrease as compared to $1,283,313 during the quarter ended June 30, 2010. The decrease of our net income was a result of the increase in the selling expense and the amortization expense for the US patent.
Liquidity and Capital Resources
Our principal sources of liquidity were primarily generated from our operations. As of June 30, 2011, Shandong Spring Pharmaceutical had $22,581,860 in working capital, an increase of $2,580,721 or 13% as compared to $19,794,740 in working capital at March 31, 2011. The increase in the working capital at June 30, 2011 was primarily due to the increase in inventory to $1,635,250 from $59,183.
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On October 26, 2010,, Shandong Spring Pharmaceutical signed an agreement to purchase three patents relating to Chinese herbal formulas from Jining Tianruitong Technology Development Limited Company for $15,557,318, which agreement was subsequently amended and restated on March 14, 2011. As of June 30, 2011, cash and cash equivalents were $16,316,460, an increase by $10,269,656 or 170% from $6,046,804 as of March 31, 2011. The increase in the amount of cash was caused by a return of $10,050,910 from the owner of three patents because certain governmental approvals for the transfer of one patent was not completed and the patents are being purchased as a group.. We are obtaining the governmental approval for the transfer and expect to complete the transfer in the fourth quarter of the fiscal year ending March 31, 2012. Approval from the State Intellectual Property Office of the PRC. is required to transfer the remaining patent. ..The total purchase price for the patents is $15,557,318 (based on the exchange rate on March 31, 2011) and , as of June 30, 2011, $5,414,557 had been paid. After the Company obtains title to the patents, the balance of the payment will be made in three equal annual installments of RMB 25,500,000 and the prepayment will be reclassified to the patents.
We did not have accounts receivable outstanding as of June 30, 2011. The Company currently sells two types of products: non-medical and medical products. Neither product’s sales are associated with any accounts receivable balance. Under the current sales model, the Company markets and sells non-medical products through distribution agents. All customers are recruited by the Company's distribution agents. When a customer places an order, the order is entered into the Company's ordering system and confirmed by designated distributors. The distributor collects payment from the customer before the order is confirmed. The confirmed order is reviewed by the Company’s sales department and the products are shipped directly to the customer from the Company. According to the sales agreements between the Company and its distributors, the Company is guaranteed to receive the full payment from distributors for all the products shipped to customers within one month from delivery. The Company reconciles its sales to the distributors' records and recognizes revenue once, at the end of each month. In the meantime, the same amount of cash associated with the Company’s sales of non-medical products is transferred to the Company's bank account from the distributors. Therefore, there is no accounts receivable balance associated with the Company’s non-medical product sales at the end of each quarter.
For the sales of medical products, the Company makes sales through a certified medicine sales agent. According to the contract with the agent, the Company collects cash before shipping the medical products to the agent. Since there is no credit sales, there is no accounts receivable balance associated with the Company’s medical product sales at quarter end.
Based on our current operating plan, we believe that existing cash and cash equivalents balances, and the funds to be generated by operations will be sufficient to meet our working capital and capital requirements for our current operations for at least the next 12 months. Our operations produced positive cash flow of $11,189,224 during the three months ended June 30, 2011 We expect our marketing activities to continue to help generate positive cash flow. The following table sets forth a summary of our cash flows for the periods as indicated:
| Three months ended | ||||||||
| June 30, 2011 | June 30, 2010 | |||||||
| Net cash provided by operating activities | $ | 1,158,537 | $ | (1,213,351 | ) | |||
| Net cash provided by(used in) investing activities | $ | 9,953,092 | $ | (7,407,810 | ) | |||
| Net cash provided by financing activities | $ | 0 | $ | 0 | ||||
| Effect of exchange rate change on cash and cash equivalents | $ | (841,973 | ) | $ | 101,975 | |||
| Net increase in cash and cash equivalents | $ | 10,269,655 | $ | (8,519,186 | ) | |||
| Cash and cash equivalents, beginning balance | $ | 6,046,804 | $ | 11,911,933 | ||||
| Cash and cash equivalents, ending balance | $ | 16,316,460 | $ | 3,392,747 | ||||
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Operating Activities
Net cash provided by operating activities was $1,158,537 for the three month period ended June 30, 2011, an increase of 195% or $2,371,887 from the $(1,213,351) net cash provided by operating activities during the three month ended June 30, 2010. The increase was mainly attributable to the increase in the amortization expense.
Investing Activities
During the quarter ended June 30, 2011, our net cash provided by investing activities was $9,953,092, as compared to $(7,407,810) during the quarter ended June 30, 2010. This positive cash flow from the investing activities during the quarter ended June 30, 2011 was primarily caused by a refund of prepayment of $10,050,910 from the owner of a patent due to the patent not being transferred.
Financing Activities
Net cash generated or used by financing activities during the three month period ended June 30, 2011 and 2010 were both 0. None of our officers or shareholders has made commitments to the Company for financing in the form of advances, loans or credit lines.
In order to fully implement our business plan, however, we will require capital contributions in excess of our current level of working capital and the surplus capital which we believe will be generated from operations. Bringing our manufacturing facility to an operating level that should make the manufacturing operation profitable to produce our current products is estimated to require an additional $10 million. In order to develop the Influenza patent and offer a drug that would require Chinese FDA approval and a health care product that would not require such approval, we estimate that we will require an additional $20 million. Therefore to fully implement our business plan, including development of a facility to utilize our proprietary method of extracting flavones from ginkgo by using enzyme technology, we estimate that we will need a total of $40 million. We expect to seek equity and debt financing to obtain the funds we expect to require. At present, we have no commitment or understanding from any source for additional debt or equity capital and there can be no assurance that the funds will be available on acceptable terms.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
A smaller reporting company is not required to provide the information required by this Item.
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Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures .
The term “disclosure controls and procedures” (defined in SEC Rule 13a-15(e)) refers to the controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within required time periods. The Company’s management, with the participation of the Chief Executive Officer and Chief Financial Officer, has reassessed their previous conclusions that their disclosure controls and procedures were effective at June 30, 2011. Management considered the restatements of financial statements are indicative of a material weakness in internal control over financial reporting, therefore, concluded that, as of June 30, 2011, such controls and procedures were not effective.
Changes in internal controls.
The term “internal control over financial reporting” (defined in SEC Rule 13a-15(f)) refers to the process of a company that is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company’s management, with the participation of the Chief Executive Officer and Chief Financial Officer, has evaluated any changes in the Company’s internal control over financial reporting that occurred during the quarter of June 30, 2011, and they have concluded that there was no change to the Company’s internal control over financial reporting that has materially affected, or is 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
There are no material pending legal proceedings to which the Company is a party.
Item 1A. Risk Factors
A smaller reporting company is not required to provide the information required by this Item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On June 8, 2011, the Company issued 22,222 shares of our common stock to Robert J. Fanella, our independent director, as part of his compensation to serve as the independent director during the year of 2011. The offer and sale of the common stock therein were exempt from the registration requirements of the Securities Act of 1933 by virtue of Section 4(2) thereof and Regulation D promulgated thereunder, as transactions by an issuer not involving a public offering.
Item 3. Defaults Upon Senior Securities.
None
Item 4. Removed and Reserved
Item 5. Other Information
None
Item 6. Exhibits
| 31.1 | Rule 13a-14(a)/ 15d-14(a) Certification of Chief Executive Officer |
| 31.2 | Rule 13a-14(a)/ 15d-14(a) Certification of Chief Financial Officer |
| 32.1 | Section 1350 Certification of Chief Executive Officer |
| 32.2 | Section 1350 Certification of Chief Financial Officer |
XBRL Exhibit
101.INS XBRL Instance Document.
101.SCH XBRL Taxonomy Extension Schema Document.
101.CALXBRL 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.
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SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
CHINA YCT INTERNATIONAL GROUP, LTD.
By:
| Date: June 11, 2012 | |
| /s/ Yan Tinghe | |
| Yan Tinghe Chief Executive Officer | |
| (Principal Executive Officer) |
| /s/ Li Chuanmin | |
| Li Chuanmin Chief Financial Officer | |
| (Principal Financial Officer) |
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EXHIBIT 31.1: Rule 13a-14(a) Certification
I, Yan Tinghe, certify that:
1. I have reviewed this Amendment No. 2 to the quarterly report on Form 10-Q of China YCT International Group, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: June 11, 2012 | |||
| By: | /s/ Yan Tinghe | ||
| Yan Tinghe, Chief Executive Officer |
EXHIBIT 31.2: Rule 13a-14(a) Certification
I, Li Chuanmin, certify that:
1. I have reviewed this Amendment No. 2 to the quarterly report on Form 10-Q of China YCT International Group, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: June 11, 2012 | By: | /s/ Li Chuanmin | |
| Li Chuanmin, Chief Financial Officer |
EXHIBIT 32: Rule 13a-14(b) Certification
In connection with the Amendment No. 2 to the Quarterly Report of China YCT International Group, Inc. (the “Company”) on Form 10-Q for the period ending June 30, 2011 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned, in the capacities and on the dates indicated below, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| June 11, 2012 | /s/ Yan Tinghe | |
| Yan Tinghe, Chief Executive Officer | ||
| June 11, 2012 | /s/ Li Chuanmin | |
| Li Chuanmin, Chief Financial Officer |
A signed original of this written statement required by Section 906 has been provided to China YCT International Group, Inc. and will be retained by China YCT International Group, Inc. and furnished to the Securities and Exchange Commission or its staff upon request
|
PREPAID ACCOUNTS
|
3 Months Ended |
|---|---|
|
Jun. 30, 2011
|
|
| PREPAID ACCOUNTS | NOTE 3 – PREPAID ACCOUNTS
The prepaid account in amount of $5,551,348 is a cash payment to a Chinese research company for the acquisition of a patent. During the quarter ended June 30, 2011, $10,050,910 prepayment was refunded by the owner of the patent due to the incompletion of the required transferring paper work. When the Company obtains the title of the patent, the rest of the payment will be made to the owner of the patent and the prepayment will be reclassified to a patent. |