0001144204-12-062227.txt : 20121114 0001144204-12-062227.hdr.sgml : 20121114 20121114133606 ACCESSION NUMBER: 0001144204-12-062227 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20120930 FILED AS OF DATE: 20121114 DATE AS OF CHANGE: 20121114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: China YCT International Group, Inc. CENTRAL INDEX KEY: 0000847464 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 652954561 STATE OF INCORPORATION: FL FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-53600 FILM NUMBER: 121202937 BUSINESS ADDRESS: STREET 1: GUCHENG ROAD SICHUI COUNTY STREET 2: SHANDONG PROVINCE CITY: SICHUI STATE: F4 ZIP: 273200 BUSINESS PHONE: 86-537-4268278 MAIL ADDRESS: STREET 1: GUCHENG ROAD SICHUI COUNTY STREET 2: SHANDONG PROVINCE CITY: SICHUI STATE: F4 ZIP: 273200 FORMER COMPANY: FORMER CONFORMED NAME: itLinkz Group, Inc. DATE OF NAME CHANGE: 20070406 FORMER COMPANY: FORMER CONFORMED NAME: MEDICAL TECHNOLOGY & INNOVATIONS INC /FL/ DATE OF NAME CHANGE: 19960118 FORMER COMPANY: FORMER CONFORMED NAME: SOUTHSTAR PRODUCTIONS INC DATE OF NAME CHANGE: 19960118 10-Q 1 v327112_10q.htm FORM 10-Q

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

xQUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2012

 

¨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.   273200
Gucheng Road Sishui County Shandong Province PR China    
(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

 

The number of shares outstanding of the issuer’s common stock on November 12, 2012 was 73,780,610.

 

 
 

 

CHINA YCT INTERNATIONAL GROUP, INC.

FORM 10-Q

 QUARTERLY PERIOD ENDED SEPTEMBER 30, 2012

 

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   16
         
Item 3:   Quantitative and Qualitative Disclosures About Market Risk   22
         
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 BALANCE SHEET

 

       UNIT: USD$ 
   September 30, 2012   March 31, 2012 
   (Unaudited)     
Assets          
Current assets:          
Cash and cash equivalent  $24,569,564   $22,146,240 
Accounts receivable   -    115,938 
Prepaid accounts   20,733    20,887 
Inventory   3,761,605    1,978,488 
Total current assets   28,351,902    24,261,553 
Plant, property and equipment, net   9,411,982    9,663,338 
Construction in progress   218,362    219,983 
Intangible assets, net   18,090,089    18,863,510 
Total assets   56,072,335    53,008,384 
           
Liabilities and Stockholders’ Equity (Deficit)          
Liabilities:          
Current liabilities:          
Tax payable   327,399    1,018,543 
Other payable   4,689,403    4,766,952 
Total current liabilities   5,016,802    5,785,495 
Contingency   -    - 
Derivative liabilities   1,106,378    5,531,892 
Total liabilities   6,123,180    11,317,387 
           
Stockholders’ Equity          
Preferred stock, par value $500.00 per share; 45 shares authorized and issued at September 30, 2012 and March 31, 2012   22,500    22,500 
Common stock, par value $0.001 per share;  100,000,000 and 100,000,000 shares authorized, 73,830,610 shares issued and outstanding at September 30, 2012;  and 73,780,610 shares issued at March 31, 2012, respectively   73,830    73,780 
Additional paid-in capital   36,884,593    36,879,643 
Statutory reserve   956,633    956,633 
Retained earnings   8,840,100    417,285 
Accumulated other comprehensive income   3,171,499    3,341,156 
Total stockholders’ equity   49,949,155    41,690,997 
Total liabilities and stockholders’ equity  $56,072,335   $53,008,384 

 

3
 

 

CHINA YCT INTERNATIONAL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
 

 

UNIT: USD$
   FOR THE THREE MONTHS   FOR THE SIX MONTHS 
   ENDED   ENDED 
   September 30,   September 30,   September 30,   September 30, 
   2012   2011   2012   2011 
                 
Sales Revenue  $7,681,665   $8,421,007   $16,598,644   $16,365,271 
Cost of Goods Sold   3,548,868    3,599,224    7,917,789    7,181,569 
Gross Profit   4,132,797    4,821,783    8,680,855    9,183,702 
Selling Expenses   794,120    612,003    1,664,324    1,791,555 
G&A Expense   710,515    1,049,403    1,202,898    2,458,223 
R&D Expenses   326,135    200,303    548,700    393,821 
Total expense   1,830,769    1,861,709    3,415,922    4,643,599 
Income from operation   2,302,028    2,960,074    5,264,933    4,540,103 
Interest income (Expense)   30,761    75,961    58,792    144,135 
Unrealized gain on derivative   4,425,514    -    4,425,514    - 
Profit before tax   6,758,303    3,036,035    9,749,239    4,684,238 
Income tax   583,197    759,009    1,326,424    1,171,060 
Net income   6,175,105    2,277,026    8,422,815    3,513,178 
Other comprehensive income                    
Foreign currency translation adjustment   (128,779)   443,485    (169,657)   848,649 
Comprehensive income  $6,046,326   $2,720,511   $8,253,158   $4,362,827 
                     
Basic and diluted income per common share                    
Basic and Diluted   0.08    0.03    0.11    0.05 
                     
Weighted average number of common shares outstanding                    
Basic and Diluted   73,830,610    73,780,610    73,830,610    73,780,610 

 

4
 

 

CHINA YCT INTERNATIONAL GROUP, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

 

                           UNIT: USD$ 
   Preferred Stock                         
   Series A   Common shares   Additional   Statutory   Accumulated   Retained     
   Shares   Amount   Shares   Amount   Paid-in capital   Reserve   OCI   Earnings   Total 
                                     
Balance - March 31, 2012   45   $22,500    73,780,610   $73,780   $36,879,643   $956,633    3,341,156   $417,285   $41,690,997 
Issuance of common shares to  independent directors             50,000    50    4,950                   5,000 
Net income for the year                                      2,252,710    2,252,710 
Other Comprehensive income, net of tax                                           - 
Foreign currency translation adjustment                                 -40,878         -40,878 
                                              
Balance - June 30, 2012   45   $22,500    73,830,610   $73,830   $36,884,593   $956,633    3,300,278   $2,669,995   $43,907,829 
Net income for the year                                      6,170,105    6,170,105 
Other Comprehensive income, net of tax                                           - 
Foreign currency translation adjustment                                 -128,779         -128,779 
Balance - September 30, 2012   45   $22,500    73,830,610   $73,830   $36,884,593   $956,633    3,171,499   $8,840,100   $49,949,155 

 

5
 

 

CHINA YCT INTERNATIONAL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW
(Unaudited)

 

       UNIT: USD$ 
   SIX MONTHS ENDED 
   September 30, 2012   September 30, 2011 
Cash Flows From Operating Activities:          
Net income   8,422,815   $3,513,178 
Adjustments to reconcile net income to net cash provided by operating activities:          
Depreciation and amortization   799,809    2,257,176 
Issue of common shares as compensation   5,000    - 
Unrealized gain on derivative   (4,425,514)   - 
Changes in operating assets and liabilities:          
Inventory   (1,783,117)   (1,745,214)
Accounts receivable   115,938    - 
Taxes payable   (691,144)   (699,196)
Accrued expenses and other payables   (77,551)   (113,352)
Net cash provided by (used in) operating activities   2,366,236    3,212,592 
Cash flows from investing activities:          
Addition to plant and equipment   (2,695)   - 
Prepayment/(deposit) to Jining Tianruitong for purchase of patents   -    9,948,966 
Net cash provided by (used in) investing activities   (2,695)   9,948,966 
Effect of exchange rate changes on cash and cash equivalents   59,783    488,642 
Net increase (decrease) in cash and cash equivalents   2,423,324    13,650,200 
Cash and cash equivalents at beginning of period   22,146,240    6,046,804 
Cash and cash equivalents at ending of period   24,569,564   $19,697,004 
         - 
Supplemental disclosures of cash flow information:          
Cash paid during the periods for:          
Interest  $58,792.00   $- 
Income taxes  $2,017,568   $1,355,915 
Non-cash investing activities:          
Non-cash financing activities:          
Stock issued for services   50,000    - 

 

6
 

 

NOTE 1 - ORGANIZATION AND PRINCIPAL ACTIVITIES

 

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 directly owned subsidiaries: Landway Nano Bio-Tech, Inc. (100% owned), incorporated in Delaware, in the USA, 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 selling 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.

 

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 to write down the inventory to market value, if lower than cost.

 

Property and equipment

 

Property and equipment are stated at cost. The cost of an asset is comprised of its purchase price and any direct attributable costs of bring 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:

 

Building 30-35 years
   
Machinery, equipment and automobiles 7-15 years
   
Furniture and fixtures 7-10 years

 

Expenditures for maintenance and repairs are charged to expense as incurred. Additions, renewals and betterments are capitalized.

 

7
 

 

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.

 

In October 2011, two patents were transferred to the Company based on a purchase agreement signed with Jining Tianruitong Technology development Company, Limited on October 26, 2010; which are “Treatment to ischemic encephalopathy and its preparation method” (ZL200510045001.9) and “Chinese herbal medicine compound to treat renal insufficiency and its preparation” (ZL200710013301.8). The patents were recorded at cost when purchased, and are being amortized over the shorter of the remaining legal lives, 13.75 years and 14.95 years, respectively; or their useful lives, on a straight-line basis.

 

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 and evaluates the net carrying value of its long-lived assets at least annually, or upon the occurrence of other events or changes in circumstances that indicate that the related carrying amounts may not be recoverable. Per ASC 360-10-35-21, a long-lived asset (asset group) shall be tested for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. Per ASC 360-10-35-17, an impairment loss shall be recognized only if the carrying amount of the long-lived asset (asset group) is not recoverable and exceeds its fair value. The carrying amount of a long-lived asset (asset group) is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset (asset group).

 

Income taxes

 

The Company accounts for income tax under the asset and liability method as stipulated by ASC 740 formerly Statement of Financial Accounting Standards (”SFAS”) No. 109, “ Accounting for Income Taxes ”, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of the events that have been included in the financial statements or tax returns. Deferred Income taxes are recognized for all significant temporary differences between tax and financial statements bases of assets and liabilities. Valuation allowances are established against net deferred tax assets when it is more likely than not that some portion or all of the deferred tax asset will not be realized. The Company did not recognize any deferred tax amount at September 30, 2012 and March 31, 2012.

 

China YCT International, Inc. is a holding company of Shandong Spring Pharmaceutical Co., Ltd and does not have any operating activities. Although the contract for the acquisition of the US patent acquired in February 2011 from LY Research Corp. was executed by the holding company, in substance, the patent was acquired by the Company’s operating entity in China. Therefore, the patent related income or expense does not incur any US income tax liabilities.

 

8
 

 

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 $127,232 and $225,223 as of September 30, 2012 and March 31, 2012, respectively.

 

Research and development

 

Research and development costs relate 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 are depreciated over their estimated useful lives.

 

The research and development expense for the three months ended September 30, 2012 and 2011 was $326,135 and $200,303, respectively.

 

The research and development expense for the six months ended September 30, 2012 and 2011 was $548,700 and $ 393,821, respectively.

 

Advertising costs

 

Advertising costs for newspaper and television are expensed as incurred.

 

The Company incurred advertising costs of $315,736 and $155,821 for the three months ended September 30, 2012 and 2011, respectively.

 

The Company incurred advertising costs of $601,115 and $232,731 for the six months ended September 30, 2012 and 2011, 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 September 30, 2012 and 2011, the Company incurred $267,985 and $271,144 mailing and handling costs, respectively.

 

For the six months ended September 30, 2012 and 2011, the Company incurred $546,592 and $661,154 mailing and handling costs, respectively.

 

Stock Based Compensation

 

The Company measures compensation expense for its non-employee stock-based compensation under FASB ASC 718.  The fair value of the stock issued is used to measure the transaction, as this is more reliable than the fair value of the services received. Fair value is measured as the value of the Company’s common stock on the date that the commitment for performance by the counterparty has been reached or the counterparty’s performance is complete. The fair value of the equity instrument is charged directly to compensation expense.

 

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.

 

9
 

 

There are 31,610,679 common stock equivalents available for dilution purposes as of September 30, 2012 and 2011, 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. The risks include political, economic and legal, 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.

 

Fair Value of Financial Instruments

 

For certain of the Company’s financial instruments, including cash and cash equivalents, accrued liabilities and short-term debt, the carrying amounts approximate their fair values due to their short maturities.

 

As of September 30, 2012, 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 related to 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 $3,171,499 and $3,341,156 as of September 30, 2012 and March 31, 2012, respectively.

 

The following exchange rates were adopted to translate the amounts from RMB into United States dollars (“USD$”) for the respective periods:

 

   September 30,   March 31,   September 30, 
   2012   2012   2011 
Quarter End RMB Exchange Rate (RMB/USD$)   6.3410    6.2943    6.3549 
Quarterly Average RMB Exchange Rate (RMB/USD$)   6.3344    6.3933    6.4176 

 

Recent accounting pronouncements

 

In July 2012, FASB issued an amendment to the FASB Codification Topic 350 – Testing Indefinite-Lived Intangible Assets for Impairment. The objective of the amendments in this Update is to reduce the cost and complexity of performing an impairment test for indefinite-lived intangible assets by simplifying how an entity tests those assets for impairment and to improve consistency in impairment testing guidance among long-lived asset categories. The amendments permit an entity first to assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test in accordance with Subtopic 350-30, Intangibles – Goodwill and Other – General Intangibles Other than Goodwill. The more likely-than-not threshold is defined as having a likelihood of more than 50 percent. The amendments are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. The Company decided to adopt the amendment for the year starting with April 1, 2013. 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 is a prepayment to Shandong YCT for purchase of its health products. The amount is $20,733 and $20,887 as of September 30, 2012 and March 31, 2012, respectively.

 

10
 

 

NOTE 4 - INVENTORY

 

Inventory consists of finished goods, work-in-process, and raw materials. No allowance for inventory was made for the three months and six months ended September 30, 2012 and 2011. The components of inventories were as follows:

 

   Period Ended 
   September 30,   March 31, 
   2012   2012 
Raw materials  $1,233,664   $272,873 
Work-in-progress   1,201,839    414,390 
Finished goods   1,326,102    1,291,225 
Total Inventories  $3,761,605   $1,978,488 

 

NOTE 5 – PLANT, PROPERTY AND EQUIPMENT, NET

 

The components of property and equipment were as follows:

 

   Period Ended 
   September 30,   March 31, 
   2012   2012 
Machinery & Equipment  $539,100   $538,461 
Furniture & Fixture   163,324    164,536 
Building   10,035,106    10,109,560 
Subtotal   10,737,530    10,812,557 
Less: Accumulated Depreciation   (1,325,548)   (1,149,219)
Total plant, property and equipment, net  $9,411,982   $9,663,338 

 

The depreciation expense for the three months ended September 30, 2012 and 2011 was $176,330 and $27,549, respectively.

 

The depreciation expense for the six months ended September 30, 2012 and 2011 was $264,327 and $155,203, 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 and six months ended September 30, 2012, the Company mainly sells products to individual retail customers through nine major distributors.

 

For the three months ended September 30, 2012, the purchase from three major vendors was $2,898,140, representing 64% of the Company’s total purchases for the quarter.

 

For the six months ended September 30, 2012, the purchase from three major vendors was $7,642,524, representing 79% of the Company’s total purchases for the period.

 

NOTE 8 - INTANGIBLE ASSETS, NET

 

The intangible assets of the Company consist of land use right and purchased patents.

 

11
 

 

Net land use right and purchased patents were as follows:

 

   Amortization   As of 
   Period   September 30, 2012   March 31, 2012 
Land use right   50 years   $1,600,378   $1,612,252 
Less: Accumulated amortization        (192,766)   (178,052)
Land use right, net        1,407,613    1,434,200 
Patent 1   16.5 years    7,254,375    7,308,199 
Patent (non-US No. ZL200510045001.9)   13.75 years    9,777,638    9,850,182 
Patent (non-US No. ZL200710013301.8)   14.95 years    1,577,038    1,588,739 
Less: Accumulated amortization        (1,926,575)   (1,317,810))
Patents, net       $16,682,476   $17,429,310 

 

The amortization expense of land use right for the three months ended September 30, 2012 and 2011 was $14,714 and $10,677, respectively.  The amortization expense of patents for the three months ended September 30, 2012 and 2011 was $608,765 and $720,903, respectively.

 

The amortization expense of land use right for the six months ended September 30, 2012 and 2011 was $21,886 and $20,482, respectively.  The amortization expense of patents for the six months ended September 30, 2012 and 2011 was $912,483 and $1,895,790, respectively.

 

NOTE 9 - TAX PAYABLE

 

Tax payable as of September 30, 2012 and March 31, 2012 were as follows:

 

   As of 
   September 30,   March 31, 
   2012   2012 
         
Corporate Income Tax  $190,156   $774,423 
Value-Added Tax   127,232    225,223 
Other Tax & Fees   10,011    18,897 
           
Total Tax Payable  $327,399   $1,018,543 

 

NOTE 10 - INCOME TAXES

 

Shandong Spring Pharmaceutical Co., Ltd is subject to the Enterprise income tax (“EIT”) at a statutory rate of 25%.

 

The expense associated with the recognition of a contingent obligation under ASC 480-10-25-8, is not tax deductible in China. Per ASC 740-10-25-3A, “An excess of the amount for financial reporting over the tax basis of an investment in a foreign subsidiary or a foreign corporate joint venture that is essentially permanent in duration. ” Therefore, the tax difference in the amount of $1,382,973 ($5,531,892 x 25% tax rate) caused by expense recognized on our book but not in the Chinese tax purpose at March 31, 2012 will be a permanent difference. At September 30, 2012, such tax difference is off-set by $1,106,378 ($4,425,514 x 25%) for the income recognized due to adjustment to the contingent obligation on our book but not for Chinese tax purpose. The net tax difference is amounted to $276,595 ($1,106,378 x 25%) at September 30, 2012.

 

In addition, the loss from impairment of the US patent is not tax deductible in China. Therefore, the tax difference in the amount of $7,920,122 ($31,680,487 x 25%) caused by loss recognized on our book but not for the Chinese tax purpose at March 31, 2012 will be a permanent difference.

 

For the three months ended September 30, 2012 and 2011, Shandong Spring Pharmaceutical Co., Ltd. recorded income tax provisions of $583,197 and $759,009, respectively.

 

For the six months ended September 30, 2012 and 2011, Shandong Spring Pharmaceutical Co., Ltd. recorded income tax provisions of $1,326,424 and $1,171,060, respectively.

 

12
 

 

NOTE 11 – OTHER LIABILITY

 

On February 28, 2011, the Company entered into a purchase agreement with L.Y. Research Corp., a New Jersey corporation (“LY Research”), which purchase agreement was amended and restated on August 15, 2011 and amended on October 21, 2011 (the “Purchase Agreement). Pursuant to the terms of the Purchase Agreement, the Company acquired a patent (the “LY Patent”) from L.Y. (HK) Biotech Limited, a wholly owned company by L.Y. Research Corp., in exchange for 44,254,952 shares of the Company’s common stock at inception date. In addition, there will be two contingent considerations of total 31,610,544 shares to be issued upon the occurrences of some pre-determined events. The first contingent consideration of 11,063,968 shares was to be issued upon the Company’s stock being listed on OTCBB or OTCQB.

 

Because the obligation to issue additional shares to LY Research Cop is contingent upon the occurrence of certain predetermined events, the liability is recognized when the contingencies are resolved. On September 9, 2011, LY Research Corp became entitled to the issuance of 11,063,968 shares of common stock upon the occurrence of the quotation of the Company’s common stock on the OTCQB. Therefore, the liability to issue 11,063,968 shares of common stock was to be recorded for the quarter ended September 30, 2011 and forward.

 

The amount of the liability was calculated by multiplying the 11,063,968 shares of stock by the quoted average stock price on September 9, 2011. The stock price per share on September 9, 2011 was $0.25. The calculation of the liability to issue 11,063,968 shares of the common stocks is as followed:

 

Other Liability $2,765,992 = 11,063,968 shares x $0.25

 

We recognized $2,765,992 as an “Other Liability” and an addition to the US patent, for the quarter ended September 30, 2011 and forward. The Patent was written-off as of March 31, 2012 due to impairment.

 

NOTE 12 – DERIVATIVE LIABILITY

 

On February 28, 2011, the Company entered into a purchase agreement with L.Y. Research; and the Purchase Agreement was amended and restated on August 15, 2011. Pursuant to the terms of the Purchase Agreement, the Company acquired the LY Patent from L.Y. (HK) Biotech Limited, in exchange for 44,254,952 shares of common stock at the acquisition date. In addition, 11,063,968 shares of common stock were to be issued to the seller upon the occurrence of the quotation of the Company’s common stock on the OTCQB or OTCBB; and 20,546,711 shares were to be issued to the seller upon the receipt by the Company of a minimum of $20,000,000 in gross proceeds from a debt or equity financing, or a series of debt and/or equity financings (the “Financing”); or upon the quotation of its common stock on NASDAQ or a major stock exchange located outside of the United States (collectively, “Events”). On September 9, 2011, the Company’s stock became quoted at OTCQB; therefore, 11,063,968 shares of common stock became issuable on September 9, 2011.

 

On October 21, 2011, the Purchase Agreement was further amended to state that if either of the Events should not occur within one year from October 21, 2011; the shares issued pursuant to the Purchase Agreement shall be returned to the Company and the LY Patent shall be returned to LY Research and the Purchase Agreement, as amended, shall be cancelled and of no further force or effect. Because the Company is required to acquire the issued shares by returning the US patent if the predetermined financing event is not met, the term meets the definition under the ASC 480-10-25-8, “Obligations to Repurchase Issuer’s Equity Shares by Transferring Assets”. Per ASC 480-10-25-8, the obligation to repurchase an issuer’s own shares by transferring asset should be recognized as a liability at inception.

 

In addition, because the acquisition is not a certain future event as of October 21, 2011 and September 30, 2012, the Company considers the contingent obligation to repurchase its own shares as a written put option. Per ASC 480-10-30-7, all financial instruments, recognized under the guidance in Section 480-10-25, other than certain physically settled forward purchase contracts, shall be measured initially at fair value.

 

The fair value of the obligation on October 21, 2011 should be the market price of the shares that the company is obligated to repurchase if the financing is failing and weighted by the probability of the Company failing to meet the financing target of $20,000,000 or achieving the listing on NASDAQ or a major foreign stock exchange. On October 21, 2011, the company had issued and was obligated to issue 55,318,920 common shares to Dr. Liu. Therefore, the number of potential shares needed to be repurchased was 55,318,920 on October 21, 2011 and September 30, 2012.

 

13
 

 

Determination of the market price of the shares:

 

Per ASC 820-10-20 “Readily Determinable Fair Value”, “ The fair value of an equity security is readily determinable if sales prices or bid-and-asked quotations are currently available on a securities exchange registered with the U.S. Securities and Exchange Commission (SEC) or in the over-the-counter market, provided that those prices or quotations for the over-the-counter market are publicly reported by the National Association of Securities Dealers Automated Quotations systems or by Pink Sheets LLC. Restricted stock meets that definition if the restriction terminates within one year. ” Because the sales price of the company’s common stock shares was currently available in the over-the-counter market, the fair value of the company’s stock is readily determinable and is the sales price of the stock on October 21, 2011. Because the company’s common stock was not traded on October 21, 2011, the closest quotations were the prices on October 23, 2011, which was $0.40/share; therefore, the fair values per share for were $0.40 for October 21, 2011. As of September 30, 2012, the most recent quoted CYIG stock price was $0.02 (at September 28, 2012).

 

Determination of the probability of the Company failing to meet the predetermined event:

 

The Company determined that on October 21, 2011, the chance that the final contingency would not be met, thereby triggering our obligation to repurchase those shares, was around 15% based on the reasons described in its amended 10Q for the quarter ended December 31, 2011. Therefore, the Company recognized $3,319,135 as a derivative liability as of December 31, 2011. However, during March 2012, the Company was informed by its placement agent that it was highly unlikely that they could achieve the $20 million financing by October 21, 2012. Therefore, the Company reassessed the probability of failing to achieve the financing target by October 21, 2012 to be 100% as of September 30, 2012 and March 31, 2012.

 

The fair value of the derivative obligation was calculated as follows:

 

$1,106,378 = 55,318,920 x $0.02/share x 100% at September 30, 2012, and

$5,531,892 = 55,318,920 x $0.10/share x 100% at March 31, 2012.

 

The fair value of the derivative obligation was decreased by $4,425,514 at September 30, 2012 as a result of the CYIG stock price change.

 

NOTE 13 – UNREALIZED GAIN ON FAIR VALUE OF DERIVATIVE

 

Unrealized gain on derivatives reflects a non-cash adjustment for changes in fair value of the Company’s derivative liability. The Company incurred unrealized gain on derivative liability of $4,425,514 for the three and six months ended September 30, 2012. The unrealized gain on derivative reflected reduced fair value of the derivative liabilities resulting from the decrease in the market value of the CYIG stock. See Note 12 for valuation of the derivative liability.

 

NOTE 14 - STOCKHOLDERS’ EQUITY

 

Stock Issued to Independent Directors

 

The total amount of the compensation in the form of issuing shares of common stock to the independent directors was $50 and $22,222 for the years ended September 30, 2012 and March 31, 2012, respectively.

 

Stock Issued for Acquisition of Patent

 

On February 28, 2011, the Company issued 44,254,952 shares of common stock, as a partial of total considerations to acquire a U.S. patent No. 6,475,531 B1 titled “Safe Botanical Drug for Treatment and Prevention of Influenza and Increasing Immune Function”) from L.Y. Research Corp., a New Jersey Corporation.   The shares of the common stock were valued at the average closing market price on February 28, 2011 in the amount of $32,748,665.

 

Statutory Reserve

 

Subsidiaries incorporated in China are required to make appropriations to reserve funds, based on after-tax net income determined in accordance with generally accepted accounting principles of the People’s Republic of China (“PRC GAAP”).  Effective January 1, 2006, the Company is only required to contribute to one statutory reserve fund at 10% of net income after tax per annum, and any contributions are not to exceed 50% of the respective companies’ registered capital.

 

As of September 30, 2012, the Company appropriated $956,633 to the statutory reserve.

 

NOTE 15 – SUBSEQUENT EVENT

 

On February 28, 2011, the Company acquired an US patent from L.Y. Hong Kong Biotech Limited (“LYHK”), L.Y. Research Corp’s wholly owned subsidiary incorporated in Hong Kong, China, in exchange for 44,254,952 shares of common stock at the acquisition date. In addition, 11,063,968 shares of common stock became issuable to the seller upon the occurrence of the quotation of the Company’s common stock on the OTCBB on September 9, 2011. The consideration of $32,748,665 at inception was calculated by multiplying 44,254,952 common stock shares by the Company’s quoted stock price of $0.74 per share on February 28, 2011. It is being amortized over the shorter of its remaining legal life, 9.9 years, or its useful life, on a straight-line basis. An additional consideration of $2,765,992 was calculated by multiplying 11,063,968 common stock shares by the Company’s quoted price of $0.25 per share on September 9, 2011 when the Company’s stock was successfully listed on the OTCQB and the L.Y. Research Corp was entitled to the 11,063,968 shares of the common stock. However, at the year ended on March 31, 2012, the Company reassessed the value of this patent for an impairment analysis. Per the impairment analysis, the Company determined that the patent’s value was impaired, therefore, the net carrying value of the patent was written off as of March 31, 2012.

 

14
 

 

In accordance with the agreement between the Company and L.Y. Research Corp, the patent will be returned to L.Y. Research Corp. and the shares issued to LYHK will be returned to the Company effective October 21, 2012 if the $20 million financing target is not achieved.

 

As of October 21, 2012, the targeted financing did not occur; therefore, the patent is to be returned to L.Y. Research Corp. and the shares issued (or issuable) to LYHK are to be returned to the Company. The actual return of the patent and shares will be accounted for when they occur. Such event will have no impact on the Company’s results of current operations.

 

15
 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Result of Operations.

 

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 for the year ended March 31,2012. 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. (“CYIG”) 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” or CYIG. CYIG, 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 – for the Three Months ended September 30, 2012 and 2011:

 

The following table sets forth information from our statements of operations for the three months ended September 30, 2012 and 2011, in dollars:

 

  Three Months Ended          
  September 30   $   %    
  2012   2011   Change   Change   Notes 
Revenues   7,681,665    8,421,007    (739,342)   -8.8%    
                          
Cost of Sales   (3,548,868)   (3,599,224)   50,356    -1.4%    
                          
Gross Profit   4,132,797    4,821,783    (688,986)   -14.3%    
                          
Operating Expenses   (1,830,769)   (1,861,709)   30,940    -1.7%    
                          
Operating Income   2,302,028    2,960,074    (658,046)   -22.2%    
                          
Interest Income, net   30,761    75,961    (45,200)   -59.5%    
                          
Unrealized Gain on Derivative   4,425,514    -    4,425,514    100%    
                          
Income Tax Provision   (583,197)   (759,009)   175,812    -23.2%    
                          
Net Income   6,175,105    2,277,026    3,898,079    171.2%    
                          
Other Comprehensive Income (Loss)   (128,779)   443,485    (572,264)   -129.0%    

 

 

 

16
 

 

Net sales

 

During the three months ended September 30, 2012, we had net sales of $7,681,665, as compared with net sales of $8,421,007 for the same period in 2011, a decrease of $739,342, or 8.8% due to market conditions.

 

We entered into a purchase and sale contract with Shandong Yong Chun Tang (“Shandong YCT”) on December 26, 2006 (the “Purchase and Sale Contract”), which sets forth the wholesale price that we pay to Shandong YCT for distributing their products. On February 9, 2010, we renewed the Purchase and Sale Contract with Shandong YCT for a term of five years ending on February 28, 2015. Pursuant to the renewed contract, we can purchase 10 types of health care supplement products from Shandong YCT on a fixed price, which were selected according to their sales volume and profit margin. For the three months ended September 30, 2012, 33% of our revenue was from the sale of the health care supplement products, compared to 37% in the three months ended September 30, 2011.

 

Since September 2009, we started to engage in the production and distribution of our own non-prescription drug, Huoliyuan Capsule, which is patented in China, and developed distribution channels for the drug. Our sales have increased since September 2009 as a result of the establishment of our manufacturing and distribution channels of Huoliyuan Capsule. Since July 2010, the Company changed from being solely a distributor of Shandong YCT to both a manufacturer and distributor of our own products, the Huoliyuan Capsules. As a result, we obtained new customers and expanded our sales of Huoliyuan Capsules. The Huoliyuan Capsule product accounted for 60% of our revenue for the three months ended September 30, 2012, compared to 57% for the three months ended September 30, 2011.

 

The following table presents the breakdown of revenues by product mix:

 

  3-mon ended   3-mon ended       
  Sep 30, 2012   Sep 30, 2011   Change in $   Variance 
Health care supplements   2,540,831    3,081,125    (540,294)   -17.5%
Drugs   4,587,621    4,794,507    (206,886)   -4.3%
Others   553,213    545,375    7,838    1.4%
Total   7,681,665    8,421,007    (739,342)   -8.8%

 

Cost of Sales

 

Our costs of revenue were comprised primarily of the cost of finished goods we purchased from Shandong YCT, the manufacturing cost of Huoliyuan Capsules, and the raw materials we purchased from third party vendors. During the three months ended September 30, 2012, we had cost of sales of $3,548,868 as compared with cost of sales of $3,599,224 during the same period in 2011, a decrease of approximately $50,356, or 1.4%. The percentage of the costs of sales to total revenues increased to 46% from 43% as compared to the same quarter of the previous year, primarily due to an increase in the market price for raw materials.

 

Gross Profit

 

As a result of the changes in sales and costs, gross profit during the three months ended September 30, 2012 was $4,132,797, a decrease of $688.986 or 14.3% as compared to the same period in the previous year. Our gross margin decreased to 53.8% during the three months ended September 30, 2012 from 57.3% during the three months ended September 30, 2011.  

 

The following table sets forth a breakdown of our gross profits of different products during the three months ended September 30, 2012 and 2011:

 

  3-mon ended   3-mon ended       
  Sep 30, 2012   Sep 30, 2011   Change in $   Variance 
Health care supplements   1,377,268    1,682,294    (305,026)   (18.1)%
Margin (%)   54.2%   54.6%          
Drugs   2,271,064    2,579,445    (308,381)   (12.0)%
Margin (%)   49.5%   53.8%          
Others   484,465    560,044    (75,579)   (13.5)%
Margin (%)   87.6%   102.7%          
Total   4,132,797    4,821,783    (688,986)   (14.3)%

 

17
 

 

Selling Expenses

 

Our selling expenses increased by $182,117 or 29.8% to $794,120 for the three months ended September 30, 2012, from $612,003 for the same period of 2011. As a percentage of sales, selling expenses increased to 10.3% for the three months ended September 30, 2011 from 7.3% for the same period in 2011. The increase of selling expenses was primarily due to increase in advertising and promotion expenses related to marketing and promotional activities in our Huoliyuan Capsule markets.

 

General and Administrative Expenses

 

Our general and administrative expenses were $710,515 during the three months ended September 30, 2012, compared with $1,049,403 during the three months ended September 30, 2011, a decrease of $338,888 or approximately 32.3%. The decrease in general and administrative expenses was principally due to the amortization expense accrued for the acquired US Patent (U.S. No. 6,475,531 B1) in 2011. During the three months ended September 30, 2011, the amortization expense of this patent was $1,415,308. The US patent was written-off as of March 31, 2012 due to impairment. Therefore, no amortization expense occurred for the three months ended September 30, 2012. On the other hand, during the three months ended September 30, 2012, the General and Administration Expenses include an additional salary payment of $220,226 for employees’ holiday bonuses.

 

Research and Development Expenses

 

Research and development expenses were $326,135 during the three months ended September 30, 2012 compared with $200,303 during the three months ended September 30, 2011, an increase of $125,823 or 62.8%, reflecting the increased expenses related to investments in new technologies and products that can be utilized to refine and extract the beneficial compounds from plants, primarily gingko.

 

Interest Income (Expense), Net

 

Interest income was $30,761 for the three months ended September 30, 2012, decreased by $45,200 or 59.5%, compared to the three months ended September 30, 2011. There were favorable interest arrangements offered by our banks for the three months ended September 30, 2011. However, these arrangements were no longer available for the three months ended September 30, 2012. There was no interest expense as we did not have any outstanding loans from banks or other parties.

 

Unrealized Gain on Derivative

 

Unrealized gain on derivative was $4,425,514 for the three months ended September 30, 2012, which was resulted from the fair value adjustment of our derivative liability due to the decrease of CYIG stock price.

 

Income Tax

 

Income tax was $583,197 during the three months ended September 30, 2012, as compared to $759,009 for the same period of 2011, a decrease of $175,812 or approximately 23.2%. The decrease was primarily due to the decreased taxable income (excluding unrealized gain on derivative) during the three months ended September 30, 2012.

 

Net Income

 

As a result of the above factors, we had a net income of $6,175,105 during the three months ended September 30, 2012, compared with a net income of $2,277,026 during the three months ended September 30, 2011.

 

Other Comprehensive Income

 

As a result of the currency translation adjustment, we had other comprehensive loss of $128,779 during the quarter ended September 30, 2012, compared with other comprehensive income of $443,485 during the quarter ended September 30, 2011 due to exchange rate fluctuations from Chinese RMB, the functional currency used in our Chinese subsidiary, to US dollar, our reporting currency.

 

Results of Operations – for the Six Months ended September 30, 2012 and 2011:

 

The following table sets forth information from our statements of operations for the six months ended September 30, 2012 and 2011, in dollars:

 

18
 

 

  Six Months Ended          
  September 30   $   %    
  2012   2011   Change   Change   Notes 
Revenues   16,598,644    16,365,271    233,373    1.4%    
                          
Cost of Sales   (7,917,789)   (7,181,569)   (736,220)   10.3%    
                          
Gross Profit   8,680,855    9,183,702    (502,847)   -5.5%    
                          
Operating Expenses   (3,415,922)   (4,643,599)   1,227,677    -26.4%    
                          
Operating Income   5,264,933    4,540,103    724,830    16.0%    
                          
Interest Income, net   58,792    144,135    (85,343)   -59.2%    
                          
Unrealized Gain on Derivative   4,425,514    -    4,425,514    100.0%    
                          
Income Tax Provision   (1,326,424)   (1,171,060)   (155,364)   13.3%    
                          
Net Income   8,422,815    3,513,178    4,909,637    139.7%    
                          
Other Comprehensive Income (Loss)   (106,657)   848,649    (1,018,306)   -120.0%    

 

 

 

Net sales

 

During the six months ended September 30, 2012, we had net sales of $16,598,644, as compared with net sales of $16,365,271 during the same period in 2011, an increase of $233,373 or 1.4%. 

 

For the six months ended September 30, 2012, 32% of our revenue was from the sale of the 10 products distributed for Shandong YCT, compared to 36% in the six months ended September 30, 2011. The Huoliyuan Capsule products accounted for 62% of our revenue for the six months ended September 30, 2012, compared to 58% for the six months ended September 30, 2011.

 

The following table presents the breakdown of revenues by product mix:

 

  6-mon ended   6-mon ended       
  Sep 30, 2012   Sep 30, 2012   Change in $   Variance 
Health care supplements   5,305,763    5,850,643    (544,880)   -9.3%
Drugs   10,319,594    9,422,258    897,336    9.5%
Others   973,287    1,092,370    (119,083)   -10.9%
Total   16,598,644    16,365,271    233,373    1.4%

 

Cost of Sales and Gross Margin

 

During the six months ended September 30, 2012, we had cost of sales of $7,917,789, as compared with cost of sales of $7,181,569 during the same period in 2011, an increase of approximately $736,220, or 10.3%, reflecting the increase in net sales and raw material price increase.

 

The gross profit reduced to $8,680,855 for the six months ended September 30, 2012, or a 5.5% decrease compared with $9,183,702 during the same period in 2011. Our gross margin decreased to 52.3% during the six months ended September 30, 2012 from 56.1% during the six months ended September 30, 2011.  The percentage of our cost of sales over the sales of distributing Shandong YCT products was increased to 46.2% for the six months ended September 30, 2012 from 45.2% for the same period in previous year. The percentage of our cost of sales over the sales for Huoliyuan Capsules was up to 50.3% for the six months ended September 30, 2012 from 46.1% for the same period in 2011 because of raw material cost increase.  In addition, beginning with the fiscal year of 2011, we obtained new contracts from external customers to process and package their semi-finished products.  The gross margin from sales of these products were rather high, nearly 72% for the six months ended September 30, 2012, compared to 72.5% for the six months ended September 30, 2011.

 

19
 

 

Selling Expenses

 

Our selling expenses decreased by $127,231, or 7.1%, to $1,664,324 for the six months ended September 30, 2012, from $1,791,555 for the same period of 2011. As a percentage of sales, selling expenses decreased slightly from 10.9% for the six months ended September 30, 2011 to 10.0% for the same period of 2012.

 

General and Administrative Expenses

 

Our general and administrative expenses were $1,202,898 during the six months ended September 30, 2012, compared with $2,458,223 during the six months ended September 30, 2011, a decrease of $1,255,325 or approximately 89.1%. The decrease in general and administrative expenses was principally due to the amortization expense recorded for the acquired US Patent (U.S. No. 6,475,531 B1) in 2011. During the six months ended September 30, 2011, the amortization expense of this patent was $2,830,616. The US Patent was written-off as of March 31, 2012 due to impairment. Therefore, there was no amortization for the six months ended September 30, 2012.

 

Research and Development Expenses

 

Research and development expenses were $548,700 during the six months ended September 30, 2012 compared with $393,821 during the six months ended September 30, 2011, an increase of $154,879, or 39.3%, reflecting the increased expenses related to investments in future new technologies and products that can be utilized to refine and extract the beneficial components from plants, primarily gingko.

 

Interest Income

 

Interest income was $58,792 for the six months ended September 30, 2012, decreased by $85,343 or 59.2%, compared to $144,135 for the six months ended September 30, 2011. There were favorable interest arrangements offered by our banks for the six months ended September 30, 2011. However, these arrangements were no longer available for the current year.

 

Unrealized Gain on Derivative

 

Unrealized gain on derivative was $4,425,514 for the six months ended September 30, 2012, which was resulted from the fair value adjustment of our derivative liability due to the decrease of CYIG stock price.

 

Income Tax

 

Income tax was $1,326,424 during the six months ended September 30, 2012, as compared to $1,171,060 for the same period of 2011, an increase of $155,364, or approximately 13.3%. The increase was primarily due to the increased taxable income (excluding unrealized gain on derivative) during the six months ended September 30, 2012.

 

Net Income

 

As a result of the factors described above, we generated net income of $8,422,815 during the six months ended September 30, 2012, as compared with net income of $3,513,178 during the six months ended September 30, 2011.

 

Other Comprehensive Income

 

As a result of a currency translation adjustment, other comprehensive loss was $169,657 during the six months ended September 30, 2012, compared with other comprehensive income of $848,649 during the six months ended September 30, 2011; which is mainly attributable to the exchange rate fluctuations from Chinese RMB, the functional currency used in our Chinese subsidiary, to US dollar, our reporting currency.

 

Liquidity and Capital Resources

 

Our principal sources of liquidity were primarily generated from our operations. As of September 30, 2012, we had $23,335,100 in working capital, an increase of $4,859,042 or 26% as compared to $18,476,058 in working capital at March 31, 2011. We purchased additional raw materials during the six months ended September 30, 2012 to maintain the inventory level. The decrease in tax payable also contributed to the increase in working capital.

 

20
 

 

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 $2,366,236 during the six months ended September 30, 2012. We did not have accounts receivable outstanding as of September 30, 2012. We expect our marketing activities to continue to help generate positive cash flow.  The operations of our own manufacturing since fiscal year 2010 have put some pressure on our cash flow. We may be required to seek additional capital and reduce certain spending as needed on an on-going basis. There can be no assurance that any additional financing will be available on acceptable terms.

 

The following table sets forth a summary of our cash flows for the period as indicated:

 

  Six months ended       
  Sep 30, 2012   Sep 30, 2011   Change in $   % 
Net cash provided by operating activities  $2,366,236   $3,212,592    (846,356)   -26.3%
Net cash provided by(used in) investing activities  $(2,695)  $9,948,966    (9,951,661)   -100.0%
Net cash provided by financing activities  $-   $-    -    - 
Effect of exchange rate change on cash and cash equivalents  $59,783   $488,642    (428,859)   -87.8%
Net increase in cash and cash equivalents  $2,423,324   $13,650,200    (11,226,876)   -82.2%
Cash and cash equivalents, beginning balance  $22,146,240   $6,046,804    16,099,436    266.2%
Cash and cash equivalents, ending balance  $24,569,564   $19,697,004    4,872,560    24.7%

  

 

 

Operating Activities

 

For the six months ended September 30, 2012, net cash provided by operating activities was $2,366,236, compared to $3,212,592 for the same period in 2011. The primary reason for the change was mainly the result of the increased net income, off-set by the non-cash items. The depreciation and amortization expenses were decreased from $2,257,176 for the six months ended September 30, 2011 to $799,809 for the six months ended September 31, 2012.  The decrease in depreciation and amortization expenses was due to the recognized amortization expense of $2,830,617 associated with the US patent in 2011. The patent was written-off as of March 31, 2012 due to impairment. In addition, the unrealized gain on derivative was increased by $4,425,514 during the six months ended September 30, 2012.

 

Investing Activities

 

Net cash used in investing activities was $2,695 for the six months ended September 30, 2012 as compared to cash provided by investing activities of $9,948,966 for the six months ended September 30, 2011 as we received a refund of $10.1M from Jining Tianruitong Technology Development Limited Company, the owner of the patents, during the six months ended September 30, 2011.

 

Financing Activities

 

There were no financing activities for the six months ended September 30, 2012 and 2011.

 

Off-Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on their financial condition or results of operations.

 

Critical Accounting Policies

 

This section should be read together with the Summary of Significant Accounting Policies included as Note 2 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended March 31, 2012 and 10-Q for the period ended September 30, 2012 filed with the SEC.

 

We prepare our financial statements in conformity with U.S. GAAP, which requires us to make estimates and assumptions that affect our reporting of, among other things, assets and liabilities, contingent liabilities and revenues and expenses. We continually evaluate these estimates and assumptions based on the most recently available information, our own historical experiences and other factors that we believe to be relevant under the circumstances. Since our financial reporting process inherently relies on the use of estimates and assumptions, our actual results could differ from our expectations. This is especially true with some accounting policies that require higher degrees of judgment than others in their application. We consider the policies discussed below to be critical to an understanding of our audited and unaudited consolidated financial statements because they involve the greatest reliance on our management’s judgment.

 

21
 

 

Principles of consolidation

 

The consolidated financial statements for the six months ended September 30, 2012 and 2011 include the accounts of China YCT International Group, Inc and Shandong Spring Pharmaceutical Company. Our consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”).  All significant inter-company balances and transactions are eliminated in consolidation.

 

Revenue recognition

 

Our 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.

 

Inventories

 

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 to write down the inventory to market value, if lower than cost.

 

Stock Based Compensation

 

The Company measures compensation expense for its non-employee stock-based compensation under FASB ASC 718.  The fair value of the stock issued is used to measure the transaction, as this is more reliable than the fair value of the services received. Fair value is measured as the value of the Company’s common stock on the date that the commitment for performance by the counterparty has been reached or the counterparty’s performance is complete. The fair value of the equity instrument is charged directly to compensation expense.

 

Recent Accounting Pronouncements

 

In July 2012, FASB issued an amendment to the FASB Codification Topic 350 – Testing Indefinite-Lived Intangible Assets for Impairment. The objective of the amendments in this Update is to reduce the cost and complexity of performing an impairment test for indefinite-lived intangible assets by simplifying how an entity tests those assets for impairment and to improve consistency in impairment testing guidance among long-lived asset categories. The amendments permit an entity first to assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test in accordance with Subtopic 350-30, Intangibles – Goodwill and Other – General Intangibles Other than Goodwill. The more likely-than-not threshold is defined as having a likelihood of more than 50 percent. The amendments are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. The Company decided to adopt the amendment for the year starting with April 1, 2013. The Company does not expect the adoption of this pronouncement to have a significant impact on its financial condition or results of operations.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

A smaller reporting company is not required to provide the information required by this Item.

 

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 evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this quarterly report on Form 10-Q (the “Evaluation Date”). Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the Evaluation Date, such controls and procedures were effective.

 

22
 

 

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 ended September 30, 2012, 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.

 

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

 

None

 

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.

 

23
 

 

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.

 

Date: November 13, 2012

 

/s/ Yan Tinghe

Yan Tinghe Chief Executive Officer

(Principal Executive Officer)

 

/s/ Li Chuanmin

Li Chuanmin Chief Financial Officer

(Principal Financial Officer)

 

24

 

EX-31.1 2 v327112_ex31-1.htm EXHIBIT 31.1

EXHIBIT 31.1: Rule 13a-14(a) Certification

 

I, Yan Tinghe, certify that:

 

1.  I have reviewed this 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: November 13, 2012      
       
  By:  /s/ Yan Tinghe  
    Yan Tinghe, Chief Executive Officer  

 

 

 

EX-31.2 3 v327112_ex31-2.htm EXHIBIT 31.2

EXHIBIT 31.2: Rule 13a-14(a) Certification

 

I, Li Chuanmin, certify that:

 

1. I have reviewed this 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: November 13, 2012 By: /s/ Li Chuanmin  
    Li Chuanmin, Chief Financial Officer  

 

 

EX-32 4 v327112_ex32.htm EXHIBIT 32

 

EXHIBIT 32: Rule 13a-14(b) Certification

 

In connection with the Quarterly Report of China YCT International Group, Inc. (the “Company”) on Form 10-Q for the period ending September 30, 2012 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.

 

November 13, 2012  By: /s/ Yan Tinghe  
  Yan Tinghe, Chief Executive Officer  
     
November 13, 2012  By: /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

 

 

 

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Components of Inventories (Detail) (USD $)
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Work-in-progress 1,201,839 414,390
Finished goods 1,326,102 1,291,225
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PLANT, PROPERTY AND EQUIPMENT, NET (Tables)
6 Months Ended
Sep. 30, 2012
Property, Plant and Equipment [Abstract]  
Components of Property and Equipment

The components of property and equipment were as follows:

 

    Period Ended  
    September 30,     March 31,  
    2012     2012  
Machinery & Equipment   $ 539,100     $ 538,461  
Furniture & Fixture     163,324       164,536  
Building     10,035,106       10,109,560  
Subtotal     10,737,530       10,812,557  
Less: Accumulated Depreciation     (1,325,548 )     (1,149,219 )
Total plant, property and equipment, net   $ 9,411,982     $ 9,663,338

 

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DERIVATIVE LIABILITY - Additional Information (Detail) (USD $)
1 Months Ended 3 Months Ended 6 Months Ended 12 Months Ended 1 Months Ended
Oct. 21, 2011
Sep. 30, 2012
Sep. 30, 2012
Mar. 31, 2012
Dec. 31, 2011
Sep. 09, 2011
Patent (U.S. No. 6,475,531 B1)
Feb. 28, 2011
Patent (U.S. No. 6,475,531 B1)
L.Y. Hong Kong Biotech Limited
Feb. 28, 2011
Patent (U.S. No. 6,475,531 B1)
L.Y. Hong Kong Biotech Limited
Minimum
Feb. 28, 2011
Patent (U.S. No. 6,475,531 B1)
L.Y. Hong Kong Biotech Limited
Scenario 1
Feb. 28, 2011
Patent (U.S. No. 6,475,531 B1)
L.Y. Hong Kong Biotech Limited
Scenario 2
Fair Value of Financial Instruments [Line Items]                    
Common stock shares issued to acquire patent             44,254,952      
Common stock, shares issuable             31,610,544   11,063,968 20,546,711
Minimum Proceeds from issuance of debt and/or equity in order to issue shares to sellers of patent           $ 20,000,000   $ 20,000,000    
Agreement cancellation period 1 year                  
Number of shares issued 55,318,920                  
Number of shares to be repurchased 55,318,920   55,318,920              
Fair value of price per share $ 0.40   $ 0.02              
Stock restriction period 1 year                  
Percentage of shares to be repurchased   100.00% 100.00% 100.00% 15.00%          
Derivative liability   $ 1,106,378 $ 1,106,378 $ 5,531,892 $ 3,319,135          
Agreement expiration date   Oct. 21, 2012   Oct. 21, 2012            
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Net Land Use Right and Purchased Patent (Detail) (USD $)
1 Months Ended 3 Months Ended
Oct. 31, 2011
Sep. 30, 2012
Mar. 31, 2012
Finite-Lived Intangible Assets [Line Items]      
Intangible assets, net   $ 18,090,089 $ 18,863,510
Land use rights
     
Finite-Lived Intangible Assets [Line Items]      
Amortization Period   50 years  
Intangible assets, gross   1,600,378 1,612,252
Accumulated amortization   (192,766) (178,052)
Intangible assets, net   1,407,613 1,434,200
Patent 1
     
Finite-Lived Intangible Assets [Line Items]      
Amortization Period   16 years 6 months  
Intangible assets, gross   7,254,375 7,308,199
Patents (non-US No. ZL200510045001.9)
     
Finite-Lived Intangible Assets [Line Items]      
Amortization Period 13 years 9 months 13 years 9 months  
Intangible assets, gross   9,777,638 9,850,182
Patents (non-US No. ZL200710013301.8)
     
Finite-Lived Intangible Assets [Line Items]      
Amortization Period 14 years 11 months 12 days 14 years 11 months 12 days  
Intangible assets, gross   1,577,038 1,588,739
Patents
     
Finite-Lived Intangible Assets [Line Items]      
Accumulated amortization   (1,926,575) (1,317,810)
Intangible assets, net   $ 16,682,476 $ 17,429,310
XML 17 R9.htm IDEA: XBRL DOCUMENT v2.4.0.6
PREPAID ACCOUNTS
6 Months Ended
Sep. 30, 2012
Prepaid Expenses and Other Current Assets Disclosure [Abstract]  
PREPAID ACCOUNTS

NOTE 3 – PREPAID ACCOUNTS

 

The prepaid account is a prepayment to Shandong YCT for purchase of its health products. The amount is $20,733 and $20,887 as of September 30, 2012 and March 31, 2012, respectively.

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UNREALIZED GAIN ON FAIR VALUE OF DERIVATIVE - Additional Information (Detail) (USD $)
3 Months Ended 6 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Sep. 30, 2012
Sep. 30, 2011
Unrealized Gain On Fair Value Of Derivative [Line Items]        
Unrealized gain on derivative $ 4,425,514 $ 0 $ (4,425,514) $ 0
XML 20 R29.htm IDEA: XBRL DOCUMENT v2.4.0.6
Useful Lives of Property and Equipment (Detail)
6 Months Ended
Sep. 30, 2012
Buildings | Minimum
 
Property, Plant and Equipment [Line Items]  
Useful lives of property and equipment 30 years
Buildings | Maximum
 
Property, Plant and Equipment [Line Items]  
Useful lives of property and equipment 35 years
Machinery, equipment and automobiles | Minimum
 
Property, Plant and Equipment [Line Items]  
Useful lives of property and equipment 7 years
Machinery, equipment and automobiles | Maximum
 
Property, Plant and Equipment [Line Items]  
Useful lives of property and equipment 15 years
Furniture and Fixtures [Member] | Minimum
 
Property, Plant and Equipment [Line Items]  
Useful lives of property and equipment 7 years
Furniture and Fixtures [Member] | Maximum
 
Property, Plant and Equipment [Line Items]  
Useful lives of property and equipment 10 years
XML 21 R28.htm IDEA: XBRL DOCUMENT v2.4.0.6
ORGANIZATION AND PRINCIPAL ACTIVITIES - Additional Information (Detail)
7 Months Ended
Sep. 30, 2012
Landway Nano Bio-Tech, Inc.
 
Organization and Principal Activities [Line Items]  
Percentage of ownership in subsidiaries 100.00%
Shandong Spring Pharmaceutical Co., Ltd.
 
Organization and Principal Activities [Line Items]  
Percentage of ownership in subsidiaries 100.00%
XML 22 R44.htm IDEA: XBRL DOCUMENT v2.4.0.6
STOCKHOLDERS' EQUITY - Additional Information (Detail) (USD $)
1 Months Ended 1 Months Ended 12 Months Ended
Jan. 01, 2006
Sep. 30, 2012
Mar. 31, 2012
Sep. 09, 2011
Patent (U.S. No. 6,475,531 B1)
L.Y. Hong Kong Biotech Limited
Feb. 28, 2011
Patent (U.S. No. 6,475,531 B1)
L.Y. Hong Kong Biotech Limited
Sep. 30, 2012
Independent Directors
Mar. 31, 2012
Independent Directors
Class of Stock [Line Items]              
Issuance of common shares to independent directors, value           $ 50 $ 22,222
Common stock shares issued to acquire patent         44,254,952    
Consideration for patents acquired       2,765,992 32,748,665    
Statutory reserve fund 10.00%            
Maximum Statutory reserve fund to registered capital 50.00%            
Statutory reserve   $ 956,633 $ 956,633        
XML 23 R30.htm IDEA: XBRL DOCUMENT v2.4.0.6
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Additional Information (Detail) (USD $)
3 Months Ended 6 Months Ended 3 Months Ended 1 Months Ended 3 Months Ended 1 Months Ended 3 Months Ended 1 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Sep. 30, 2012
Sep. 30, 2011
Mar. 31, 2012
Sep. 30, 2012
Patent 1
Mar. 31, 2010
Patent 1
Shandong YCT
Oct. 31, 2011
Patents (non-US No. ZL200510045001.9)
Sep. 30, 2012
Patents (non-US No. ZL200510045001.9)
Oct. 31, 2011
Patents (non-US No. ZL200710013301.8)
Sep. 30, 2012
Patents (non-US No. ZL200710013301.8)
Sep. 30, 2012
Land use rights
Feb. 28, 2011
Patent (U.S. No. 6,475,531 B1)
Feb. 28, 2011
Patent (U.S. No. 6,475,531 B1)
L.Y. Hong Kong Biotech Limited
Accounting Policies [Line Items]                            
Useful life of intangible assets           16 years 6 months 16 years 6 months 13 years 9 months 13 years 9 months 14 years 11 months 12 days 14 years 11 months 12 days 50 years 9 years 10 months 24 days 9 years 10 months 24 days
Value-added tax rate 17.00%                          
Net VAT payable $ 127,232   $ 127,232   $ 225,223                  
Research and development expense 326,135 200,303 548,700 393,821                    
Advertising costs 315,736 155,821 601,115 232,731                    
Mailing and handling costs 267,985 271,144 546,592 661,154                    
Shares used in computation of diluted earnings per share 31,610,679 31,610,679                        
Foreign currency transaction and translation adjustment $ 3,171,499   $ 3,171,499   $ 3,341,156                  
XML 24 R31.htm IDEA: XBRL DOCUMENT v2.4.0.6
Exchange Rates Adopted to Translate Amounts from RMB into United States Dollars (Detail)
3 Months Ended 12 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Mar. 31, 2012
Foreign Currency Exchange Rate [Line Items]      
Quarter End RMB Exchange Rate (RMB/USD$) 6.3410 6.3549 6.2943
Quarterly Average RMB Exchange Rate (RMB/USD$) 6.3344 6.4176 6.3933
XML 25 R8.htm IDEA: XBRL DOCUMENT v2.4.0.6
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
6 Months Ended
Sep. 30, 2012
Accounting Policies [Abstract]  
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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.

 

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 to write down the inventory to market value, if lower than cost.

 

Property and equipment

 

Property and equipment are stated at cost. The cost of an asset is comprised of its purchase price and any direct attributable costs of bring 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:

 

Building 30-35 years
   
Machinery, equipment and automobiles 7-15 years
   
Furniture and fixtures 7-10 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.

 

In October 2011, two patents were transferred to the Company based on a purchase agreement signed with Jining Tianruitong Technology development Company, Limited on October 26, 2010; which are “Treatment to ischemic encephalopathy and its preparation method” (ZL200510045001.9) and “Chinese herbal medicine compound to treat renal insufficiency and its preparation” (ZL200710013301.8). The patents were recorded at cost when purchased, and are being amortized over the shorter of the remaining legal lives, 13.75 years and 14.95 years, respectively; or their useful lives, on a straight-line basis.

 

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 and evaluates the net carrying value of its long-lived assets at least annually, or upon the occurrence of other events or changes in circumstances that indicate that the related carrying amounts may not be recoverable. Per ASC 360-10-35-21, a long-lived asset (asset group) shall be tested for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. Per ASC 360-10-35-17, an impairment loss shall be recognized only if the carrying amount of the long-lived asset (asset group) is not recoverable and exceeds its fair value. The carrying amount of a long-lived asset (asset group) is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset (asset group).

 

Income taxes

 

The Company accounts for income tax under the asset and liability method as stipulated by ASC 740 formerly Statement of Financial Accounting Standards (”SFAS”) No. 109, “ Accounting for Income Taxes ”, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of the events that have been included in the financial statements or tax returns. Deferred Income taxes are recognized for all significant temporary differences between tax and financial statements bases of assets and liabilities. Valuation allowances are established against net deferred tax assets when it is more likely than not that some portion or all of the deferred tax asset will not be realized. The Company did not recognize any deferred tax amount at September 30, 2012 and March 31, 2012.

 

China YCT International, Inc. is a holding company of Shandong Spring Pharmaceutical Co., Ltd and does not have any operating activities. Although the contract for the acquisition of the US patent acquired in February 2011 from LY Research Corp. was executed by the holding company, in substance, the patent was acquired by the Company’s operating entity in China. Therefore, the patent related income or expense does not incur any US income tax liabilities.

 

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 $127,232 and $225,223 as of September 30, 2012 and March 31, 2012, respectively.

 

Research and development

 

Research and development costs relate 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 are depreciated over their estimated useful lives.

 

The research and development expense for the three months ended September 30, 2012 and 2011 was $326,135 and $200,303, respectively.

 

The research and development expense for the six months ended September 30, 2012 and 2011 was $548,700 and $ 393,821, respectively.

 

Advertising costs

 

Advertising costs for newspaper and television are expensed as incurred.

 

The Company incurred advertising costs of $315,736 and $155,821 for the three months ended September 30, 2012 and 2011, respectively.

 

The Company incurred advertising costs of $601,115 and $232,731 for the six months ended September 30, 2012 and 2011, 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 September 30, 2012 and 2011, the Company incurred $267,985 and $271,144 mailing and handling costs, respectively.

 

For the six months ended September 30, 2012 and 2011, the Company incurred $546,592 and $661,154 mailing and handling costs, respectively.

 

Stock Based Compensation

 

The Company measures compensation expense for its non-employee stock-based compensation under FASB ASC 718.  The fair value of the stock issued is used to measure the transaction, as this is more reliable than the fair value of the services received. Fair value is measured as the value of the Company’s common stock on the date that the commitment for performance by the counterparty has been reached or the counterparty’s performance is complete. The fair value of the equity instrument is charged directly to compensation expense.

 

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 common stock equivalents available for dilution purposes as of September 30, 2012 and 2011, 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. The risks include political, economic and legal, 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.

 

Fair Value of Financial Instruments

 

For certain of the Company’s financial instruments, including cash and cash equivalents, accrued liabilities and short-term debt, the carrying amounts approximate their fair values due to their short maturities.

 

As of September 30, 2012, 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 related to 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 $3,171,499 and $3,341,156 as of September 30, 2012 and March 31, 2012, respectively.

 

The following exchange rates were adopted to translate the amounts from RMB into United States dollars (“USD$”) for the respective periods:

 

    September 30,     March 31,     September 30,  
    2012     2012     2011  
Quarter End RMB Exchange Rate (RMB/USD$)     6.3410       6.2943       6.3549  
Quarterly Average RMB Exchange Rate (RMB/USD$)     6.3344       6.3933       6.4176  

 

Recent accounting pronouncements

 

In July 2012, FASB issued an amendment to the FASB Codification Topic 350 – Testing Indefinite-Lived Intangible Assets for Impairment. The objective of the amendments in this Update is to reduce the cost and complexity of performing an impairment test for indefinite-lived intangible assets by simplifying how an entity tests those assets for impairment and to improve consistency in impairment testing guidance among long-lived asset categories. The amendments permit an entity first to assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test in accordance with Subtopic 350-30, Intangibles – Goodwill and Other – General Intangibles Other than Goodwill. The more likely-than-not threshold is defined as having a likelihood of more than 50 percent. The amendments are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. The Company decided to adopt the amendment for the year starting with April 1, 2013. The Company does not expect the adoption of this pronouncement to have a significant impact on its financial condition or results of operations.

XML 26 R32.htm IDEA: XBRL DOCUMENT v2.4.0.6
PREPAID ACCOUNTS - Additional Information (Detail) (USD $)
Sep. 30, 2012
Mar. 31, 2012
Prepaid Expenses [Line Items]    
Prepaid accounts $ 20,733 $ 20,887
Shandong YCT
   
Prepaid Expenses [Line Items]    
Prepaid accounts $ 20,733 $ 20,887
XML 27 R40.htm IDEA: XBRL DOCUMENT v2.4.0.6
INCOME TAXES - Additional Information (Detail) (USD $)
3 Months Ended 6 Months Ended 12 Months Ended 7 Months Ended 12 Months Ended 3 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Sep. 30, 2012
Sep. 30, 2011
Mar. 31, 2012
Sep. 30, 2012
CHINA
Mar. 31, 2012
CHINA
Sep. 30, 2012
Shandong Spring Pharmaceutical
Income Taxes [Line Items]                
Income tax at statutory rate     25.00%   25.00% 25.00% 25.00% 25.00%
Tax difference amount caused by expenses     $ 276,595     $ 1,106,378 $ 1,382,973  
Expense associated with the recognition of a contingent obligation     1,106,378     4,425,514 5,531,892  
Tax difference amount caused impairment loss             7,920,122  
Impairment loss         31,680,487      
Income tax provisions $ 583,197 $ 759,009 $ 1,326,424 $ 1,171,060        
XML 28 R2.htm IDEA: XBRL DOCUMENT v2.4.0.6
CONDENSED CONSOLIDATED BALANCE SHEET (USD $)
Sep. 30, 2012
Mar. 31, 2012
Current assets:    
Cash and cash equivalent $ 24,569,564 $ 22,146,240
Accounts receivable 0 115,938
Prepaid accounts 20,733 20,887
Inventory 3,761,605 1,978,488
Total current assets 28,351,902 24,261,553
Plant, property and equipment, net 9,411,982 9,663,338
Construction in progress 218,362 219,983
Intangible assets, net 18,090,089 18,863,510
Total assets 56,072,335 53,008,384
Current liabilities:    
Tax payable 327,399 1,018,543
Other payable 4,689,403 4,766,952
Total current liabilities 5,016,802 5,785,495
Contingency 0 0
Derivative liabilities 1,106,378 5,531,892
Total liabilities 6,123,180 11,317,387
Stockholders' Equity    
Preferred stock, par value $500.00 per share; 45 shares authorized and issued at September 30, 2012 and March 31, 2012 22,500 22,500
Common stock, par value $0.001 per share; 100,000,000 and 100,000,000 shares authorized, 73,830,610 shares issued and outstanding at September 30, 2012; and 73,780,610 shares issued at March 31, 2012, respectively 73,830 73,780
Additional paid-in capital 36,884,593 36,879,643
Statutory reserve 956,633 956,633
Retained earnings 8,840,100 417,285
Accumulated other comprehensive income 3,171,499 3,341,156
Total stockholders' equity 49,949,155 41,690,997
Total liabilities and stockholders' equity $ 56,072,335 $ 53,008,384
XML 29 R45.htm IDEA: XBRL DOCUMENT v2.4.0.6
SUBSEQUENT EVENT - Additional Information (Detail) (USD $)
1 Months Ended
Sep. 09, 2011
Feb. 28, 2011
Subsequent Event [Line Items]    
Quoted stock price $ 0.25  
Patent (U.S. No. 6,475,531 B1)
   
Subsequent Event [Line Items]    
Useful life of intangible assets   9 years 10 months 24 days
Number of shares of common stock issued and issuable 44,254,952  
Minimum Proceeds from issuance of debt and/or equity in order to issue shares to sellers of patent $ 20,000,000  
Patent (U.S. No. 6,475,531 B1) | L.Y. Hong Kong Biotech Limited
   
Subsequent Event [Line Items]    
Useful life of intangible assets   9 years 10 months 24 days
Common stock shares issued to acquire patent   44,254,952
Common stock, shares issuable   31,610,544
Consideration for patents acquired 2,765,992 32,748,665
Number of shares of common stock issued and issuable 11,063,968 44,254,952
Quoted stock price $ 0.25 0.74
Patent (U.S. No. 6,475,531 B1) | Minimum
   
Subsequent Event [Line Items]    
Number of shares of common stock issued and issuable 11,063,968  
Patent (U.S. No. 6,475,531 B1) | Minimum | L.Y. Hong Kong Biotech Limited
   
Subsequent Event [Line Items]    
Minimum Proceeds from issuance of debt and/or equity in order to issue shares to sellers of patent   20,000,000
XML 30 R6.htm IDEA: XBRL DOCUMENT v2.4.0.6
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW (USD $)
6 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Cash Flows From Operating Activities:    
Net income $ 8,422,815 $ 3,513,178
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation and amortization 799,809 2,257,176
Issue of common shares as compensation 5,000 0
Unrealized gain on derivative (4,425,514) 0
Changes in operating assets and liabilities:    
Inventory (1,783,117) (1,745,214)
Accounts receivable 115,938 0
Taxes payable (691,144) (699,196)
Accrued expenses and other payables (77,551) (113,352)
Net cash provided by (used in) operating activities 2,366,236 3,212,592
Cash flows from investing activities:    
Addition to plant and equipment (2,695) 0
Prepayment/(deposit) to Jining Tianruitong for purchase of patents 0 9,948,966
Net cash provided by (used in) investing activities (2,695) 9,948,966
Effect of exchange rate changes on cash and cash equivalents 59,783 488,642
Net increase (decrease) in cash and cash equivalents 2,423,324 13,650,200
Cash and cash equivalents at beginning of period 22,146,240 6,046,804
Cash and cash equivalents at ending of period 24,569,564 19,697,004
Cash paid during the periods for:    
Interest 58,792.00 0
Income taxes 2,017,568 1,355,915
Non-cash financing activities:    
Stock issued for services $ 50,000 $ 0
XML 31 R35.htm IDEA: XBRL DOCUMENT v2.4.0.6
PLANT, PROPERTY AND EQUIPMENT, NET - Additional Information (Detail) (USD $)
3 Months Ended 6 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Sep. 30, 2012
Sep. 30, 2011
Property, Plant and Equipment [Line Items]        
Depreciation expense $ 176,330 $ 27,549 $ 264,327 $ 155,203
XML 32 R22.htm IDEA: XBRL DOCUMENT v2.4.0.6
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)
6 Months Ended
Sep. 30, 2012
Accounting Policies [Abstract]  
Basis of presentation

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

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

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

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.

Inventory

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 to write down the inventory to market value, if lower than cost.

Property and equipment

Property and equipment

 

Property and equipment are stated at cost. The cost of an asset is comprised of its purchase price and any direct attributable costs of bring 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:

 

 Building 30-35 years
   
 Machinery, equipment and automobiles  7-15 years
   
Furniture and fixtures  7-10 years

                              

 Expenditures for maintenance and repairs are charged to expense as incurred. Additions, renewals and betterments are capitalized.

Intangible Assets

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.

 

In October 2011, two patents were transferred to the Company based on a purchase agreement signed with Jining Tianruitong Technology development Company, Limited on October 26, 2010; which are “Treatment to ischemic encephalopathy and its preparation method” (ZL200510045001.9) and “Chinese herbal medicine compound to treat renal insufficiency and its preparation” (ZL200710013301.8). The patents were recorded at cost when purchased, and are being amortized over the shorter of the remaining legal lives, 13.75 years and 14.95 years, respectively; or their useful lives, on a straight-line basis.

Revenue recognition

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

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

Impairment of long-lived assets

 

The Company reviews and evaluates the net carrying value of its long-lived assets at least annually, or upon the occurrence of other events or changes in circumstances that indicate that the related carrying amounts may not be recoverable. Per ASC 360-10-35-21, a long-lived asset (asset group) shall be tested for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. Per ASC 360-10-35-17, an impairment loss shall be recognized only if the carrying amount of the long-lived asset (asset group) is not recoverable and exceeds its fair value. The carrying amount of a long-lived asset (asset group) is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset (asset group).

Income taxes

Income taxes

 

The Company accounts for income tax under the asset and liability method as stipulated by ASC 740 formerly Statement of Financial Accounting Standards (”SFAS”) No. 109, “ Accounting for Income Taxes ”, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of the events that have been included in the financial statements or tax returns. Deferred Income taxes are recognized for all significant temporary differences between tax and financial statements bases of assets and liabilities. Valuation allowances are established against net deferred tax assets when it is more likely than not that some portion or all of the deferred tax asset will not be realized. The Company did not recognize any deferred tax amount at September 30, 2012 and March 31, 2012.

 

China YCT International, Inc. is a holding company of Shandong Spring Pharmaceutical Co., Ltd and does not have any operating activities. Although the contract for the acquisition of the US patent acquired in February 2011 from LY Research Corp. was executed by the holding company, in substance, the patent was acquired by the Company’s operating entity in China. Therefore, the patent related income or expense does not incur any US income tax liabilities.

Value-added tax

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 $127,232 and $225,223 as of September 30, 2012 and March 31, 2012, respectively.

Research and development

Research and development

 

Research and development costs relate 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 are depreciated over their estimated useful lives.

 

The research and development expense for the three months ended September 30, 2012 and 2011 was $326,135 and $200,303, respectively.

 

The research and development expense for the six months ended September 30, 2012 and 2011 was $548,700 and $ 393,821, respectively.

Advertising costs

 Advertising costs

 

Advertising costs for newspaper and television are expensed as incurred.  

 

The Company incurred advertising costs of $315,736 and $155,821 for the three months ended September 30, 2012 and 2011, respectively.

 

The Company incurred advertising costs of $601,115 and $232,731 for the six months ended September 30, 2012 and 2011, respectively.

Mailing and handling costs

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 September 30, 2012 and 2011, the Company incurred $267,985 and $271,144 mailing and handling costs, respectively.

 

For the six months ended September 30, 2012 and 2011, the Company incurred $546,592 and $661,154 mailing and handling costs, respectively.

Stock Based Compensation

Stock Based Compensation

 

The Company measures compensation expense for its non-employee stock-based compensation under FASB ASC 718.  The fair value of the stock issued is used to measure the transaction, as this is more reliable than the fair value of the services received. Fair value is measured as the value of the Company’s common stock on the date that the commitment for performance by the counterparty has been reached or the counterparty’s performance is complete. The fair value of the equity instrument is charged directly to compensation expense.

Net income (loss) per share ("EPS")

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 common stock equivalents available for dilution purposes as of September 30, 2012 and 2011, respectively.

Risks and uncertainties

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. The risks include political, economic and legal, 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.

Fair Value of Financial Instruments

Fair Value of Financial Instruments

 

For certain of the Company’s financial instruments, including cash and cash equivalents, accrued liabilities and short-term debt, the carrying amounts approximate their fair values due to their short maturities.

 

As of September 30, 2012, 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

Foreign currency translation

 

The accounts of the Company’s Chinese subsidiary are maintained in the RMB and the accounts related to 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 $3,171,499 and $3,341,156 as of September 30, 2012 and March 31, 2012, respectively.

 

The following exchange rates were adopted to translate the amounts from RMB into United States dollars (“USD$”) for the respective periods:

 

 September 30,  2012  March 31,  2012  September 30,  2011 
Quarter End RMB Exchange Rate (RMB/USD$) 6.3410   6.2943   6.3549 
Quarterly Average RMB Exchange Rate (RMB/USD$) 6.3344   6.3933   6.4176 
Recent accounting pronouncements

Recent accounting pronouncements

In July 2012, FASB issued an amendment to the FASB Codification Topic 350 – Testing Indefinite-Lived Intangible Assets for Impairment. The objective of the amendments in this Update is to reduce the cost and complexity of performing an impairment test for indefinite-lived intangible assets by simplifying how an entity tests those assets for impairment and to improve consistency in impairment testing guidance among long-lived asset categories. The amendments permit an entity first to assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test in accordance with Subtopic 350-30, Intangibles – Goodwill and Other – General Intangibles Other than Goodwill. The more likely-than-not threshold is defined as having a likelihood of more than 50 percent. The amendments are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. The Company decided to adopt the amendment for the year starting with April 1, 2013. The Company does not expect the adoption of this pronouncement to have a significant impact on its financial condition or results of operations.

XML 33 R36.htm IDEA: XBRL DOCUMENT v2.4.0.6
MAJOR CUSTOMER AND VENDOR - Additional Information (Detail) (USD $)
3 Months Ended 7 Months Ended
Sep. 30, 2012
Sep. 30, 2012
Concentration Risk [Line Items]    
Number of major distributors 9  
Supplier Concentration Risk
   
Concentration Risk [Line Items]    
Number of major vendors 3 3
Purchases from major suppliers $ 2,898,140 $ 7,642,524
Percentage of purchases from major suppliers 64.00% 79.00%
XML 34 R24.htm IDEA: XBRL DOCUMENT v2.4.0.6
INVENTORY (Tables)
6 Months Ended
Sep. 30, 2012
Inventory Disclosure [Abstract]  
Components of Inventories

Inventory consists of finished goods, work-in-process, and raw materials. No allowance for inventory was made for the three months and six months ended September 30, 2012 and 2011. The components of inventories were as follows:

 

    Period Ended  
    September 30,     March 31,  
    2012     2012  
Raw materials   $ 1,233,664     $ 272,873  
Work-in-progress     1,201,839       414,390  
Finished goods     1,326,102       1,291,225  
Total Inventories   $ 3,761,605     $ 1,978,488
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ORGANIZATION AND PRINCIPAL ACTIVITIES
6 Months Ended
Sep. 30, 2012
Organization, Consolidation and Presentation Of Financial Statements [Abstract]  
ORGANIZATION AND PRINCIPAL ACTIVITIES

NOTE 1 - ORGANIZATION AND PRINCIPAL ACTIVITIES

 

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 directly owned subsidiaries: Landway Nano Bio-Tech, Inc. (100% owned), incorporated in Delaware, in the USA, 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 selling its own medicine from gingko extract, and other dietary supplement products in the P.R. China.

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CONDENSED CONSOLIDATED BALANCE SHEET (Parenthetical) (USD $)
Sep. 30, 2012
Mar. 31, 2012
Preferred stock, par value $ 500.00 $ 500.00
Preferred stock, shares authorized 45 45
Preferred stock, shares issued 45 45
Common stock, par value $ 0.001 $ 0.001
Common stock, shares authorized 100,000,000 100,000,000
Common stock, shares issued 73,780,610 73,780,610
Common stock, shares outstanding 73,780,610  
XML 38 R17.htm IDEA: XBRL DOCUMENT v2.4.0.6
OTHER LIABILITY
6 Months Ended
Sep. 30, 2012
Other Liabilities Disclosure [Abstract]  
OTHER LIABILITY

NOTE 11 – OTHER LIABILITY

 

On February 28, 2011, the Company entered into a purchase agreement with L.Y. Research Corp., a New Jersey corporation (“LY Research”), which purchase agreement was amended and restated on August 15, 2011 and amended on October 21, 2011 (the “Purchase Agreement). Pursuant to the terms of the Purchase Agreement, the Company acquired a patent (the “LY Patent”) from L.Y. (HK) Biotech Limited, a wholly owned company by L.Y. Research Corp., in exchange for 44,254,952 shares of the Company’s common stock at inception date. In addition, there will be two contingent considerations of total 31,610,544 shares to be issued upon the occurrences of some pre-determined events. The first contingent consideration of 11,063,968 shares was to be issued upon the Company’s stock being listed on OTCBB or OTCQB.

 

Because the obligation to issue additional shares to LY Research Cop is contingent upon the occurrence of certain predetermined events, the liability is recognized when the contingencies are resolved. On September 9, 2011, LY Research Corp became entitled to the issuance of 11,063,968 shares of common stock upon the occurrence of the quotation of the Company’s common stock on the OTCQB. Therefore, the liability to issue 11,063,968 shares of common stock was to be recorded for the quarter ended September 30, 2011 and forward.

 

The amount of the liability was calculated by multiplying the 11,063,968 shares of stock by the quoted average stock price on September 9, 2011. The stock price per share on September 9, 2011 was $0.25. The calculation of the liability to issue 11,063,968 shares of the common stocks is as followed:

 

Other Liability $2,765,992 = 11,063,968 shares x $0.25

 

We recognized $2,765,992 as an “Other Liability” and an addition to the US patent, for the quarter ended September 30, 2011 and forward. The Patent was written-off as of March 31, 2012 due to impairment.

XML 39 R1.htm IDEA: XBRL DOCUMENT v2.4.0.6
Document and Entity Information
6 Months Ended
Sep. 30, 2012
Nov. 12, 2012
Document Information [Line Items]    
Document Type 10-Q  
Amendment Flag false  
Document Period End Date Sep. 30, 2012  
Document Fiscal Year Focus 2012  
Document Fiscal Period Focus Q2  
Trading Symbol CYIG  
Entity Registrant Name CHINA YCT INTERNATIONAL GROUP, INC.  
Entity Central Index Key 0000847464  
Current Fiscal Year End Date --03-31  
Entity Filer Category Smaller Reporting Company  
Entity Common Stock Shares Outstanding   73,780,610
XML 40 R18.htm IDEA: XBRL DOCUMENT v2.4.0.6
DERIVATIVE LIABILITY
6 Months Ended
Sep. 30, 2012
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
DERIVATIVE LIABILITY

NOTE 12 – DERIVATIVE LIABILITY

 

On February 28, 2011, the Company entered into a purchase agreement with L.Y. Research; and the Purchase Agreement was amended and restated on August 15, 2011. Pursuant to the terms of the Purchase Agreement, the Company acquired the LY Patent from L.Y. (HK) Biotech Limited, in exchange for 44,254,952 shares of common stock at the acquisition date. In addition, 11,063,968 shares of common stock were to be issued to the seller upon the occurrence of the quotation of the Company’s common stock on the OTCQB or OTCBB; and 20,546,711 shares were to be issued to the seller upon the receipt by the Company of a minimum of $20,000,000 in gross proceeds from a debt or equity financing, or a series of debt and/or equity financings (the “Financing”); or upon the quotation of its common stock on NASDAQ or a major stock exchange located outside of the United States (collectively, “Events”). On September 9, 2011, the Company’s stock became quoted at OTCQB; therefore, 11,063,968 shares of common stock became issuable on September 9, 2011.

 

On October 21, 2011, the Purchase Agreement was further amended to state that if either of the Events should not occur within one year from October 21, 2011; the shares issued pursuant to the Purchase Agreement shall be returned to the Company and the LY Patent shall be returned to LY Research and the Purchase Agreement, as amended, shall be cancelled and of no further force or effect. Because the Company is required to acquire the issued shares by returning the US patent if the predetermined financing event is not met, the term meets the definition under the ASC 480-10-25-8, “Obligations to Repurchase Issuer’s Equity Shares by Transferring Assets”. Per ASC 480-10-25-8, the obligation to repurchase an issuer’s own shares by transferring asset should be recognized as a liability at inception.

 

In addition, because the acquisition is not a certain future event as of October 21, 2011 and September 30, 2012, the Company considers the contingent obligation to repurchase its own shares as a written put option. Per ASC 480-10-30-7, all financial instruments, recognized under the guidance in Section 480-10-25, other than certain physically settled forward purchase contracts, shall be measured initially at fair value.

 

The fair value of the obligation on October 21, 2011 should be the market price of the shares that the company is obligated to repurchase if the financing is failing and weighted by the probability of the Company failing to meet the financing target of $20,000,000 or achieving the listing on NASDAQ or a major foreign stock exchange. On October 21, 2011, the company had issued and was obligated to issue 55,318,920 common shares to Dr. Liu. Therefore, the number of potential shares needed to be repurchased was 55,318,920 on October 21, 2011 and September 30, 2012.

 

Determination of the market price of the shares:

 

Per ASC 820-10-20 “Readily Determinable Fair Value”, “ The fair value of an equity security is readily determinable if sales prices or bid-and-asked quotations are currently available on a securities exchange registered with the U.S. Securities and Exchange Commission (SEC) or in the over-the-counter market, provided that those prices or quotations for the over-the-counter market are publicly reported by the National Association of Securities Dealers Automated Quotations systems or by Pink Sheets LLC. Restricted stock meets that definition if the restriction terminates within one year. ” Because the sales price of the company’s common stock shares was currently available in the over-the-counter market, the fair value of the company’s stock is readily determinable and is the sales price of the stock on October 21, 2011. Because the company’s common stock was not traded on October 21, 2011, the closest quotations were the prices on October 23, 2011, which was $0.40/share; therefore, the fair values per share for were $0.40 for October 21, 2011. As of September 30, 2012, the most recent quoted CYIG stock price was $0.02 (at September 28, 2012).

 

Determination of the probability of the Company failing to meet the predetermined event:

 

The Company determined that on October 21, 2011, the chance that the final contingency would not be met, thereby triggering our obligation to repurchase those shares, was around 15% based on the reasons described in its amended 10Q for the quarter ended December 31, 2011. Therefore, the Company recognized $3,319,135 as a derivative liability as of December 31, 2011. However, during March 2012, the Company was informed by its placement agent that it was highly unlikely that they could achieve the $20 million financing by October 21, 2012. Therefore, the Company reassessed the probability of failing to achieve the financing target by October 21, 2012 to be 100% as of September 30, 2012 and March 31, 2012.

 

The fair value of the derivative obligation was calculated as follows:

 

$1,106,378 = 55,318,920 x $0.02/share x 100% at September 30, 2012, and

$5,531,892 = 55,318,920 x $0.10/share x 100% at March 31, 2012.

 

The fair value of the derivative obligation was decreased by $4,425,514 at September 30, 2012 as a result of the CYIG stock price change.

XML 41 R4.htm IDEA: XBRL DOCUMENT v2.4.0.6
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (USD $)
3 Months Ended 6 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Sep. 30, 2012
Sep. 30, 2011
Sales Revenue $ 7,681,665 $ 8,421,007 $ 16,598,644 $ 16,365,271
Cost of Goods Sold 3,548,868 3,599,224 7,917,789 7,181,569
Gross Profit 4,132,797 4,821,783 8,680,855 9,183,702
Selling Expenses 794,120 612,003 1,664,324 1,791,555
G&A Expense 710,515 1,049,403 1,202,898 2,458,223
R&D Expenses 326,135 200,303 548,700 393,821
Total expense 1,830,769 1,861,709 3,415,922 4,643,599
Income from operation 2,302,028 2,960,074 5,264,933 4,540,103
Interest income (Expense) 30,761 75,961 58,792 144,135
Unrealized gain on derivative 4,425,514 0 (4,425,514) 0
Profit before tax 6,758,303 3,036,035 9,749,239 4,684,238
Income tax 583,197 759,009 1,326,424 1,171,060
Net income 6,170,105 2,277,026 8,422,815 3,513,178
Other comprehensive income        
Foreign currency translation adjustment (128,779) 443,485 (169,657) 848,649
Comprehensive income $ 6,046,326 $ 2,720,511 $ 8,253,158 $ 4,362,827
Basic and diluted income per common share        
Basic and Diluted $ 0.08 $ 0.03 $ 0.11 $ 0.05
Weighted average number of common shares outstanding        
Basic and Diluted 73,830,610 73,780,610 73,830,610 73,780,610
XML 42 R12.htm IDEA: XBRL DOCUMENT v2.4.0.6
CONSTRUCTION IN PROGRESS
6 Months Ended
Sep. 30, 2012
Construction In Progress Disclosure [Abstract]  
CONSTRUCTION IN PROGRESS

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.

XML 43 R11.htm IDEA: XBRL DOCUMENT v2.4.0.6
PLANT, PROPERTY AND EQUIPMENT, NET
6 Months Ended
Sep. 30, 2012
Property, Plant and Equipment [Abstract]  
PLANT, PROPERTY AND EQUIPMENT, NET

NOTE 5 – PLANT, PROPERTY AND EQUIPMENT, NET

 

The components of property and equipment were as follows:

 

    Period Ended  
    September 30,     March 31,  
    2012     2012  
Machinery & Equipment   $ 539,100     $ 538,461  
Furniture & Fixture     163,324       164,536  
Building     10,035,106       10,109,560  
Subtotal     10,737,530       10,812,557  
Less: Accumulated Depreciation     (1,325,548 )     (1,149,219 )
Total plant, property and equipment, net   $ 9,411,982     $ 9,663,338  

 

The depreciation expense for the three months ended September 30, 2012 and 2011 was $176,330 and $27,549, respectively.

 

The depreciation expense for the six months ended September 30, 2012 and 2011 was $264,327 and $155,203, respectively.

XML 44 R23.htm IDEA: XBRL DOCUMENT v2.4.0.6
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)
6 Months Ended
Sep. 30, 2012
Accounting Policies [Abstract]  
Useful Lives of Property and Equipment

Property and equipment are stated at cost. The cost of an asset is comprised of its purchase price and any direct attributable costs of bring 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:

 

 Building 30-35 years
   
 Machinery, equipment and automobiles  7-15 years
   
Furniture and fixtures  7-10 years

                              

 

Exchange Rates Adopted to Translate Amounts from RMB into United States Dollars

The following exchange rates were adopted to translate the amounts from RMB into United States dollars (“USD$”) for the respective periods:

 

September 30, March 31, September 30,
2012 2012 2011
Quarter End RMB Exchange Rate (RMB/USD$) 6.3410 6.2943 6.3549
Quarterly Average RMB Exchange Rate (RMB/USD$) 6.3344 6.3933 6.4176
XML 45 R19.htm IDEA: XBRL DOCUMENT v2.4.0.6
UNREALIZED GAIN ON FAIR VALUE OF DERIVATIVE
6 Months Ended
Sep. 30, 2012
Unrealized Gain On Fair Value Of Derivative [Abstract]  
Unrealized Gain On Fair Value Of Derivative [Text Block]

NOTE 13 – UNREALIZED GAIN ON FAIR VALUE OF DERIVATIVE

 

Unrealized gain on derivatives reflects a non-cash adjustment for changes in fair value of the Company’s derivative liability. The Company incurred unrealized gain on derivative liability of $4,425,514 for the three and six months ended September 30, 2012. The unrealized gain on derivative reflected reduced fair value of the derivative liabilities resulting from the decrease in the market value of the CYIG stock. See Note 12 for valuation of the derivative liability.

XML 46 R15.htm IDEA: XBRL DOCUMENT v2.4.0.6
TAX PAYABLE
6 Months Ended
Sep. 30, 2012
Tax Disclosure [Abstract]  
TAX PAYABLE

 

NOTE 9 - TAX PAYABLE

 

Tax payable as of September 30, 2012 and March 31, 2012 were as follows:

 

    As of  
    September 30,     March 31,  
    2012     2012  
             
Corporate Income Tax   $ 190,156     $ 774,423  
Value-Added Tax     127,232       225,223  
Other Tax & Fees     10,011       18,897  
                 
Total Tax Payable   $ 327,399     $ 1,018,543
XML 47 R13.htm IDEA: XBRL DOCUMENT v2.4.0.6
MAJOR CUSTOMER AND VENDOR
6 Months Ended
Sep. 30, 2012
Risks and Uncertainties [Abstract]  
MAJOR CUSTOMER AND VENDOR

NOTE 7 - MAJOR CUSTOMER AND VENDOR

 

In the three and six months ended September 30, 2012, the Company mainly sells products to individual retail customers through nine major distributors.

 

For the three months ended September 30, 2012, the purchase from three major vendors was $2,898,140 representing 64% of the Company’s total purchase for the quarter.

 

For the six months ended September 30, 2012, the purchase from three major vendors was $7,642,524, representing 79% of the Company’s total purchase for the period.

XML 48 R14.htm IDEA: XBRL DOCUMENT v2.4.0.6
INTANGIBLE ASSETS, NET
6 Months Ended
Sep. 30, 2012
Goodwill and Intangible Assets Disclosure [Abstract]  
INTANGIBLE ASSETS, NET

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  September 30, 2012  March 31, 2012 
Land use right 50 years  $1,600,378  $1,612,252 
Less: Accumulated amortization     (192,766)  (178,052)
Land use right, net     1,407,613   1,434,200 
Patent 1 16.5 years   7,254,375   7,308,199 
Patent (non-US No. ZL200510045001.9) 13.75 years   9,777,638   9,850,182 
Patent (non-US No. ZL200710013301.8) 14.95 years   1,577,038   1,588,739 
Less: Accumulated amortization     (1,926,575)  (1,317,810))
Patents, net    $16,682,476  $17,429,310 

 

 The amortization expense of land use right for the three months ended September 30, 2012 and 2011 was $14,714 and $10,677, respectively.  The amortization expense of patents for the three months ended September 30, 2012 and 2011 was $608,765 and $720,903, respectively.

 

The amortization expense of land use right for the six months ended September 30, 2012 and 2011 was $21,886 and $20,482, respectively.  The amortization expense of patents for the six months ended September 30, 2012 and 2011 was $912,483 and $1,895,790, respectively.

XML 49 R16.htm IDEA: XBRL DOCUMENT v2.4.0.6
INCOME TAXES
6 Months Ended
Sep. 30, 2012
Income Tax Disclosure [Abstract]  
INCOME TAXES

NOTE 10 - INCOME TAXES

 

Shandong Spring Pharmaceutical Co., Ltd is subject to the Enterprise income tax (“EIT”) at a statutory rate of 25%.

 

The expense associated with the recognition of a contingent obligation under ASC 480-10-25-8, is not tax deductible in China. Per ASC 740-10-25-3A, “An excess of the amount for financial reporting over the tax basis of an investment in a foreign subsidiary or a foreign corporate joint venture that is essentially permanent in duration. ” Therefore, the tax difference in the amount of $1,382,973 ($5,531,892 x 25% tax rate) caused by expense recognized on our book but not in the Chinese tax purpose at March 31, 2012 will be a permanent difference. At September 30, 2012, such tax difference is off-set by $1,106,378 ($4,425,514 x 25%) for the income recognized due to adjustment to the contingent obligation on our book but not for Chinese tax purpose. The net tax difference is amounted to $276,595 ($1,106,378 x 25%) at September 30, 2012.

 

In addition, the loss from impairment of the US patent is not tax deductible in China. Therefore, the tax difference in the amount of $7,920,122 ($31,680,487 x 25%) caused by loss recognized on our book but not for the Chinese tax purpose at March 31, 2012 will be a permanent difference.

 

For the three months ended September 30, 2012 and 2011, Shandong Spring Pharmaceutical Co., Ltd. recorded income tax provisions of $583,197 and $759,009, respectively.

 

For the six months ended September 30, 2012 and 2011, Shandong Spring Pharmaceutical Co., Ltd. recorded income tax provisions of $1,326,424 and $1,171,060, respectively.

XML 50 R34.htm IDEA: XBRL DOCUMENT v2.4.0.6
Components of Property and Equipment (Detail) (USD $)
Sep. 30, 2012
Mar. 31, 2012
Property, Plant and Equipment [Line Items]    
Machinery & Equipment $ 539,100 $ 538,461
Furniture & Fixture 163,324 164,536
Building 10,035,106 10,109,560
Subtotal 10,737,530 10,812,557
Less: Accumulated Depreciation (1,325,548) (1,149,219)
Total plant, property and equipment, net $ 9,411,982 $ 9,663,338
XML 51 R21.htm IDEA: XBRL DOCUMENT v2.4.0.6
SUBSEQUENT EVENT
6 Months Ended
Sep. 30, 2012
Subsequent Events [Abstract]  
Subsequent Events [Text Block]

NOTE 15 – SUBSEQUENT EVENT

 

On February 28, 2011, the Company acquired an US patent from L.Y. Hong Kong Biotech Limited (“LYHK”), L.Y. Research Corp’s wholly owned subsidiary incorporated in Hong Kong, China, in exchange for 44,254,952 shares of common stock at the acquisition date. In addition, 11,063,968 shares of common stock became issuable to the seller upon the occurrence of the quotation of the Company’s common stock on the OTCBB on September 9, 2011. The consideration of $32,748,665 at inception was calculated by multiplying 44,254,952 common stock shares by the Company’s quoted stock price of $0.74 per share on February 28, 2011. It is being amortized over the shorter of its remaining legal life, 9.9 years, or its useful life, on a straight-line basis. An additional consideration of $2,765,992 was calculated by multiplying 11,063,968 common stock shares by the Company’s quoted price of $0.25 per share on September 9, 2011 when the Company’s stock was successfully listed on the OTCQB and the L.Y. Research Corp was entitled to the 11,063,968 shares of the common stock. However, at the year ended on March 31, 2012, the Company reassessed the value of this patent for an impairment analysis. Per the impairment analysis, the Company determined that the patent’s value was impaired, therefore, the net carrying value of the patent was written off as of March 31, 2012.

 

In accordance with the agreement between the Company and L.Y. Research Corp, the patent will be returned to L.Y. Research Corp. and the shares issued to LYHK will be returned to the Company effective October 21, 2012 if the $20 million financing target is not achieved.

 

On October 21, 2012, the targeted financing did not occur; therefore, the patent is to be returned to L.Y. Research Corp. and the shares issued (or issuable) to LYHK are to be returned to the Company. The actual return of the patent and shares will be accounted for when they occur. Such event will have no impact on the Company’s results of current operations.

XML 52 R26.htm IDEA: XBRL DOCUMENT v2.4.0.6
INTANGIBLE ASSETS, NET (Tables)
6 Months Ended
Sep. 30, 2012
Goodwill and Intangible Assets Disclosure [Abstract]  
Net Land Use Right and Purchased Patent

 

Net land use right and purchased patents were as follows:

 

 Amortization  As of 
 Period  September 30, 2012  March 31, 2012 
Land use right 50 years  $1,600,378  $1,612,252 
Less: Accumulated amortization     (192,766)  (178,052)
Land use right, net     1,407,613   1,434,200 
Patent 1 16.5 years   7,254,375   7,308,199 
Patent (non-US No. ZL200510045001.9) 13.75 years   9,777,638   9,850,182 
Patent (non-US No. ZL200710013301.8) 14.95 years   1,577,038   1,588,739 
Less: Accumulated amortization     (1,926,575)  (1,317,810))
Patents, net    $16,682,476  $17,429,310 

 

XML 53 R41.htm IDEA: XBRL DOCUMENT v2.4.0.6
OTHER LIABILITY - Additional Information (Detail) (USD $)
1 Months Ended 1 Months Ended
Sep. 09, 2011
Sep. 30, 2011
Patent (U.S. No. 6,475,531 B1)
Sep. 09, 2011
Patent (U.S. No. 6,475,531 B1)
L.Y. Hong Kong Biotech Limited
Feb. 28, 2011
Patent (U.S. No. 6,475,531 B1)
L.Y. Hong Kong Biotech Limited
Feb. 28, 2011
Patent (U.S. No. 6,475,531 B1)
L.Y. Hong Kong Biotech Limited
Scenario 1
Other Liabilities [Line Items]          
Common stock shares issued to acquire patent       44,254,952  
Number of contingent consideration       2  
Common stock, shares issuable       31,610,544 11,063,968
Common stock price, per share $ 0.25   $ 0.25 $ 0.74  
Other Liability   $ 2,765,992      
XML 54 R5.htm IDEA: XBRL DOCUMENT v2.4.0.6
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (USD $)
Total
Preferred Stock Series A
Common shares
Additional paid-in capital
Statutory Reserve
Accumulated OCI
Retained Earnings
Beginning Balance at Mar. 31, 2012 $ 41,690,997 $ 22,500 $ 73,780 $ 36,879,643 $ 956,633 $ 3,341,156 $ 417,285
Beginning Balance (in shares) at Mar. 31, 2012   45 73,780,610        
Issuance of common shares to independent directors (in shares)     50,000        
Issuance of common shares to independent directors 5,000   50 4,950      
Net income for the year 2,252,710           2,252,710
Other Comprehensive income, net of tax 0            
Foreign currency translation adjustment (40,878)         (40,878)  
Ending Balance at Jun. 30, 2012 43,907,829 22,500 73,830 36,884,593 956,633 3,300,278 2,669,995
Ending Balance (in shares) at Jun. 30, 2012   45 73,830,610        
Net income for the year 6,170,105           6,170,105
Other Comprehensive income, net of tax 0            
Foreign currency translation adjustment (128,779)         (128,779)  
Ending Balance at Sep. 30, 2012 $ 49,949,155 $ 22,500 $ 73,830 $ 36,884,593 $ 956,633 $ 3,171,499 $ 8,840,100
Ending Balance (in shares) at Sep. 30, 2012   45 73,830,610        
XML 55 R10.htm IDEA: XBRL DOCUMENT v2.4.0.6
INVENTORY
6 Months Ended
Sep. 30, 2012
Inventory Disclosure [Abstract]  
INVENTORY

 

NOTE 4 - INVENTORY

 

Inventory consists of finished goods, work-in-process, and raw materials. No allowance for inventory was made for the three months and six months ended September 30, 2012 and 2011. The components of inventories were as follows:

 

    Period Ended  
    September 30,     March 31,  
    2012     2012  
Raw materials   $ 1,233,664     $ 272,873  
Work-in-progress     1,201,839       414,390  
Finished goods     1,326,102       1,291,225  
Total Inventories   $ 3,761,605     $ 1,978,488

 

XML 56 R27.htm IDEA: XBRL DOCUMENT v2.4.0.6
TAX PAYABLE (Tables)
6 Months Ended
Sep. 30, 2012
Tax Disclosure [Abstract]  
Tax Payable

Tax payable as of September 30, 2012 and March 31, 2012 were as follows:

 

    As of  
    September 30,     March 31,  
    2012     2012  
             
Corporate Income Tax   $ 190,156     $ 774,423  
Value-Added Tax     127,232       225,223  
Other Tax & Fees     10,011       18,897  
                 
Total Tax Payable   $ 327,399     $ 1,018,543
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    INTANGIBLE ASSETS, NET - Additional Information (Detail) (USD $)
    3 Months Ended 6 Months Ended 7 Months Ended 3 Months Ended 6 Months Ended
    Sep. 30, 2012
    Land use rights
    Sep. 30, 2011
    Land use rights
    Sep. 30, 2011
    Land use rights
    Sep. 30, 2012
    Land use rights
    Sep. 30, 2012
    Patents
    Sep. 30, 2011
    Patents
    Sep. 30, 2012
    Patents
    Sep. 30, 2011
    Patents
    Finite-Lived Intangible Assets [Line Items]                
    Amortization expense $ 14,714 $ 10,677 $ 20,482 $ 21,886 $ 608,765 $ 720,903 $ 912,483 $ 1,895,790

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    STOCKHOLDERS' EQUITY
    6 Months Ended
    Sep. 30, 2012
    Stockholders' Equity Note [Abstract]  
    STOCKHOLDERS' EQUITY

    NOTE 14 - STOCKHOLDERS’ EQUITY

     

    Stock Issued to Independent Directors

      

    The total amount of the compensation in the form of issuing shares of common stocks to the independent directors was $50 and $22,222 for the years ended September 30, 2012 and March 31, 2012, respectively.

     

    Stock Issued for Acquisition of Patent

     

    On February 28, 2011, the Company issued 44,254,952 shares of common stocks, as a partial of total considerations to acquire a U.S. patent No. 6,475,531 B1 titled “Safe Botanical Drug for Treatment and Prevention of Influenza and Increasing Immune Function”) from L.Y. Research Corp., a New Jersey Corporation.   The shares of the common stocks were valued at the average closing market price on February 28, 2011 in the amount of $32,748,665.

     

    Statutory Reserve

     

    Subsidiaries incorporated in China are required to make appropriations to reserve funds, based on after-tax net income determined in accordance with generally accepted accounting principles of the People’s Republic of China (“PRC GAAP”).  Effective January 1, 2006, the Company is only required to contribute to one statutory reserve fund at 10% of net income after tax per annum, and any contributions are not to exceed 50% of the respective companies’ registered capital.

     

    As of September 30, 2012, the Company appropriated $956,633 to the statutory reserve.