China Yct Intl (PINK:CYIG)

Disclosure: GeoInvesting is providing this information for your edification and in no way has any affiliation with any promoters and/or newsletters disseminating information on CYIG, nor is GeoInvesting being paid to post this information. At times, the GeoTeam may trade P&D's on a long or short basis, depending on how we feel the momentum of the stocks will be affected by the efforts of stock promoters and any ensuing dumps.

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

 

UNIT: USD$ 

		FOR THE THREE MONTHS ENDED								FOR THE NINE MONTHS ENDED
		December 31, 2012				December 31, 2011				December 31, 2012				December 31, 2011
Sales Revenue		$	6,922,363			$	10,112,489			$	23,521,007			$	26,477,760
Cost of Goods Sold			3,450,065				4,712,730				11,367,854				11,894,299
Gross Profit			3,472,298				5,399,759				12,153,153				14,583,461
Selling Expenses			552,318				713,694				2,216,642				2,505,249
G&A Expense			1,184,227				1,570,674				2,387,125				4,028,897
R&D Expenses			723,790				183,693				1,272,490				577,514
Total expense			2,460,335				2,468,061				5,876,257				7,111,660
Income from operation			1,011,963				2,931,698				6,276,896				7,471,801
Interest income (Expense)			23,346				65,818				82,138				209,953
Other income (Expense)			3,872,370				(3,319,135	)			8,297,884				(3,319,135	)
Profit before tax			4,907,679				(321,619	)			14,656,918				4,362,619
Income tax			258,827				1,112,777				1,585,251				2,283,837
Net income			4,648,852				(1,434,396	)			13,071,667				2,078,782
Other comprehensive income
Foreign currency translation adjustment			474,863				(1,724	)			305,206				847,925
Comprehensive income		$	5,123,715			$	(1,436,120	)		$	13,376,873			$	2,926,707
Basic and diluted income per common share
Basic and Diluted			0.11				0.00				0.22				0.03
Weighted average number of common shares outstanding
Basic and Diluted			43,029,245				73,780,610				60,029,581				73,780,610

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

 

UNIT: USD$

 

		FOR THE YEARS ENDED
		March 31, 2012				March 31, 2011
Sales Revenue		$	37,588,937			$	33,465,334
Cost of Goods Sold			17,410,659				16,181,183
Gross Profit			20,178,278				17,284,151
Selling Expenses			3,517,514				2,649,477
G&A Expense			5,753,505				752,026
R&D Expenses			848,753				280,385
Total expense			10,119,772				3,681,888
Income from operation			10,058,506				13,602,263
Interest income (Expense)			304,928				22,769
Other income (Expense)			(37,212,379	)			-
Profit before tax			(26,848,944	)			13,625,032
Income tax			2,955,424				3,410,265
Net income			(29,804,368	)			10,214,768
Other comprehensive income
Foreign currency translation adjustment			1,299,863				1,329,603
Comprehensive income		$	(28,504,505	)		$	11,544,371
Basic and diluted income per common share
Basic and Diluted			(0.40	)			0.32
Weighted average number of common shares outstanding
Basic and Diluted			73,780,610				35,762,801

 

 

The Form 10K-A is being amended to restate our previously issued financial statements for the year ended March 31, 2011. On February 28, 2011, we acquired a United States patent which was accounted for as an acquisition of an asset. However, we recognized the contingent considerations which would be accounted for under the acquisition of a business. Therefore, we overstated the fair value of the patent. We have restated our financial statements to correct this error. The changes in the financial statements at March 31, 2011 include, but are not limted to, a decrease in the amount recorded for net intangible assets by $23,195,331 a decrease in the amount reccoded as a contingent liability by $23,391,902 and an increase of $147,428 in retained earnings. We have also provided additional explanation as to (i) the intended purposes of the patent, (ii) the lack of accounts receivable as of March 31, 2011 and (iii) additional disclosure regarding the tax treatment of the acquisition of the patent.

CHINA YCT INTERNATIONAL GROUP, INC.

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

(Unaudited)

 

														UNIT: USD$
		FOR THE THREE MONTHS								FOR THE NINE MONTHS
		ENDED								ENDED
		December 31,				December 31,				December 31,				December 31,
		2011				2010				2011				2010
Sales Revenue		$	10,112,489			$	9,886,824			$	26,477,760			$	21,301,142
Cost of Goods Sold			4,712,730				4,613,157				11,894,299				10,788,613
Gross Profit			5,399,758				5,273,667				14,583,461				10,512,529
Selling Expenses			713,694				843,458				2,505,249				1,776,853
G&A Expense			2,050,421				352,096				5,651,412				855,011
R&D Expenses			183,693				111,221				577,514				233,210
Total expense			2,947,808				1,306,775				8,734,175				2,865,074
Income from operation			2,451,951				3,966,892				5,849,286				7,647,455
Interest income (Expense)			65,818				18,273				209,953				18,273
Other income (Expense)			-				580,211				-				580,211
Profit before tax			2,517,769				4,565,376				6,059,239				8,245,939
Income tax			992,840				1,141,919				1,878,207				2,085,719
Net income			1,524,929				3,423,457				4,181,032				6,160,220
Other comprehensive income
Foreign currency translation adjustment			216,785				510,647				852,472				2,199,600
Compenhensive income		$	1,741,714			$	3,934,104			$	5,033,504			$	8,359,820
Basic and diluted income per common share
Basic and Diluted			0.02				0.12				0.06				0.21
Weighted average number of common shares outstanding
Basic and Diluted			73,780,610				29,473,902				73,780,610				29,473,902

GeoTeam® Note: 2011 vs. 2010 third quarter adjusted EPS was $0.04 vs. $0.12.

On October 21, 2011, the Company entered into an Amendment Agreement with L.Y. Research to amend the purchase agreement of one of its two subidiaries, dated as of February 28, 2011, and amended and restated as of August 15, 2011 (the “Purchase Agreement”).

The Amendment Agreement added the following terms:

(1)   In the event that the Company cannot, within one year from October 21, 2011, either (i) raise a minimum of $20M in gross proceeds from a debt or equity financing, or a series of debt and/or equity financings, or (ii) list its common stock on NASDAQ or a major foreign stock exchange, then 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; and

(2)   LY Research agrees that it waives its right to (i) vote the shares and (ii) receive any dividends or other distributions from the Company until the earlier of (a) completion of the financing or (b) the listing of the shares of common stock of the Company on NASDAQ or a major foreign stock exchange.

Related Party Relationship:

From January 2006 until January 2007 management of Shandong Spring Pharmaceutical was engaged in developing the company’s manufacturing facility and distribution network. In January 2007 Shandong Spring Pharmaceutical commenced revenue-producing activities; specifically distributing products manufactured by Shandong Yong Chun Tang Bioengineering Co., Ltd. (“Shandong Yong Chun Tang”), which is owned by Yan Tinghe, the Chairman of Shandong Spring Pharmaceutical.

China YCT International Group, Inc.  entered into an agreement as of February 28 2011, with L.Y. Research Corporation (“LY Research”), Pursuant to the Agreement, the Company will acquire 100% of the issued and outstanding stock of L.Y.(HK) Biotech Limited, a corporation organized under the laws of Hong Kong, (“HK Biotech”). The assets of HK Biotech include HK Biotech’s US patent No. 6,475,531 B1, titled “Safe Botanical Drug for Treatment and Prevention of Influenza and Increasing Immune Function”. HK Biotech is a development stage company. The closing of the transactions contemplated by the Agreement are subject to customary closing conditions.

Consideration. In consideration for the purchase of the LYHK Shares, the Buyer shall issue Seller the following:

GeoTeam® Note:

The price tag of this acquisition seems high given that the target is a development stage company. Couple this with the fact that this company needs to raise  money makes dilution a forgone conclusion.

CHINA YCT INTERNATIONAL GROUP, INC. CONSOLIDATED STATEMENT OF OPERATIONS
		FOR THE YEARS ENDED MARCH 31,
		2010				2009
Sales Revenue		$	32,012,404			$	25,817,447
Cost of Goods Sold			14,201,533				11,323,587
Gross Profit			17,810,871				14,493,860
			-
Selling Expenses			3,570,477				3,488,941
G&A Expense			1,269,668				678,381
R&D Expenses			322,270				181,531
Total expense			5,162,415				4,348,853
Income from operation			12,648,456				10,145,007
Interest expense			-
Other income (Expense)			21,345				(83,798	)
Profit before tax			12,669,801				10,061,209
Income tax			3,216,742				2,579,666
Net income			9,453,059				7,481,543
Other comprehensive income
Foreign currency translation adjustment			22,188				272,813
Compenhensive income		$	9,475,247			$	7,754,356
Basic and diluted income per common share
Basic and Diluted			0.32				0.26
Weighted average number of common shares outstanding
Basic and Diluted			29,425,695				29,380,073

GeoTeam® Note: Fourth quarter 2010 vs. 2009: $0.10 vs $0.04

During the year ended March 31, 2010, we realized $32,012,404 in revenue, representing an increase of 24% or $6,194,957 as compared to $25,817,447 for the same period of 2009. During the past year of operations, a total of 35 products each contributed to revenue, including health care supplements, cosmetics and toiletries and daily necessities, and no single product has accounted for more than 20% of our revenue, reflecting that the company was and is not heavily reliant on the sales of any single production line.
 
In March 2010, the Company purchased a patent from Shandong YCT for $6.74 million, which enables the Company to manufacture and distribute Huoliyuan Capsule that was newly introduced by the Company. Huoliyuan Capsule is a self-manufactured product by the Company which bears a higher gross profit margin as compared to products manufactured by Shandong Yong Chun Tang. We expect that  in 2011, the revenue generated from Huoliyuan, which is in house produced, willaccount for 40% of our total annual sales.
 
The patent the Company bought from Shandong YCT in March 2010 represents an exclusive right (subject to rights retained by Shandong YCT) in China to use an aglycone type and purification method of biotransformation in gingko product manufacturing process, with a remaining legal life of 16.5 years.  The Company is amortizing the cost on a straight line basis over 16.5 years. During fiscal year 2009, which ended on March 31, 2009, Shandong Spring Pharmaceutical realized $25,817,447 in revenue.  For the year of 2010, which ended on March 31, 2010, the Company realized $32,012,404 in revenue, including 12% of the total revenue generated by the distribution of our new product Huoliyuan Capsule. The overall increase in revenue year over year was approximately 24%.
 
 88% of our total revenue was contributed by the resale of products purchased by Shandong Spring Pharmaceutical from Shandong Yong Chun Tang. The purchases were made pursuant to a Purchase & Sale Contract dated December 26, 2006, which sets forth the wholesale price that Shandong Spring Pharmaceutical pays to Shandong Yong Chun Tang for each of the 34 products governed by the Contract. 

Since Shandong Spring Pharmaceutical was not an exclusive distributor for Shandong Yong Chun Tang during this period, its resale prices are determined in large part by competition.  For that reason, the gross margin realized by Shandong Spring Pharmaceutical was nearly identical in each quarter of this fiscal year, averaging 56%, despite the significant growth in sales from year to year.

The profits from our health and beauty aid distribution business are adequate to fund our ongoing operations. In order to fully implement its business plan, however, Shandong Spring Pharmaceutical will require a large capital infusion to finance the creation of state-of-the-art facilities for the extraction of compounds from gingko and the formulation of products based on those compounds. The patent the Company bought from Shandong YCT in March 2010 represents an exclusive right in China to use an aglycone type and purification method of biotransformation in gingko product manufacturing process, with a remaining legal life of 16.5 years. The Company is amortizing the cost on a straight line basis over 16.5 years.

Based on our current operating plan, we believe that existing cash and cash equivalents balances, as well as cash forecast by management to be generated by operations will be sufficient to meet our working capital and capital requirements for our current operations. Our operations have produced positive cash flow, with $14,097,423 provided by operating activities for the year ended March 31, 2010. We did not have accounts receivable outstanding as of March 31, 2010. We expect our marketing activities to continue to operate cash-positively. We commenced our own manufacturing operations during this year, which has put some pressure on our cash flow. In the ongoing basis, we may be required to seek additional capital and reduce certain spending as needed. 

 In order to fully implement our business plan, however, we will require capital contributions far in excess of our current asset value. Our budget for bringing our manufacturing facility to an operating level that assures profitability is $10 million. To fully implement our business plan - including development of a facility to utilize our proprietary method of extracting flavones from ginkgo by using enzyme technology - we will need $40 million. Our expectation, therefore, is that we will seek to access the capital markets in both the U.S. and China to obtain the funds we require.

On June 28, 2010 Zhang Jirui resigned from his position as President and Chief Financial Officer for China YCT International Group, Inc. Mr. Zhang will remain a member of the Board of Directors. On the same date the Board of Directors appointed Li Chuanmin to serve as Chief Financial Officer. Information regarding Mr. Li follows.

Notwithstanding the efficiencies that we expect to realize from continued growth, we expect that several factors will cause our selling, general and administrative expenses to increase in the coming months:

• If we are successful in obtaining the funds to complete our manufacturing facility, we will initiate manufacturing activities. This will cause us to incur facility costs and the expense of administrative personnel.
• Although we have $4.32 million in property, plant and equipment on our balance sheet, we are not recording any significant amount of depreciation, since we have not put our facility into service yet. When we commence manufacturing, we will begin to depreciate our property – which will have a substantially larger book value at that time – and incur the expense as a general expense to the extent it is not allocable to cost of goods sold.

Source: SEC Form 10Q ( For the quarterly period ended June 30, 2009, page21)

Net income for the fourth quarter was $1.02 million, or diluted income per share of $0.03, compared to net income of $1.6 million, or diluted income per share of $0.05 in the fourth quarter of fiscal year 2008.

 "During the fourth quarter of fiscal year 2009, we felt the effects of the global economic slowdown," stated Mr. Yan Tinghe, the Company's Chairman. "In addition, with an earlier than normal start to the Chinese New Year this year, there was an extended period of minimized business activity for our dealers."

Source: Marketwire (June 30, 2009)

'We believe that the mid- to long-term market opportunity for our products is growing at noticeable speed. Moreover, we have strengthened our balance sheet by reducing other receivable and current liabilities,' Mr. Yan continued. 'While the impact of the global economic slowdown will persist for the foreseeable future, we are seeing stronger operating results quarter-to- quarter, and we believe that, on a year-to-year basis, we will continue our strong growth into fiscal year 2010.'

Source: PR Newswire (February 18, 2009)

GeoTeam Comment:

The outlook appears positive, but the inference to mid- to long-term opportunity and referring to year over year growth could raise some questions regarding short-term growth. 

CYIG reported preliminary results for its fiscal 2009 third quarter ended December:

• Sales Increased 60.4% Compared to FYQ3 2008 to $8.63 million.
• Net earnings increased 125% to approximately $2.19 million compared to FYQ3 2008 net   income of $0.97 million.

GeoTeam® Comment:  The company did not provide an EPS figure for the third quarter. Extrapolating EPS from the outstanding shares of 29.3 million yields about $.07 .  However, using 29.3 million shares may be a little presumptuous, on a going forward basis, as a result of some commentary from the second quarter SEC filling:

"In order to fully implement our business plan, however, we will require capital contributions far in excess of our current asset value. Our budget for bringing our manufacturing facility to an operating level that assures profitability is $10 million. To fully implement our business plan - including development of a facility to utilize our proprietary method of extracting flavones from ginkgo by using enzyme technology - we will need $40 million. Our expectation, therefore, is that we will seek to access the capital markets in both the U.S. and China to obtain the funds we require. At the present time, however, we do not have commitments of funds from any source."

This may cause some investors to approach CYIG with caution until more details on this matter become available. 

 Source: Marketwire (January 26, 2009)

Guidance Report:

"The Company expects the positive trend in its financial performance to continue into the last quarter of fiscal year 2009 and through fiscal year 2010. In addition, the Company expects to improve its revenue in 2010 by contributing more in advertising via nationwide multi-media outlets."

Source: Marketwire (January 26, 2009)