| Note 2 - 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 may differ from those estimates. Significant accounting estimates reflected in the Companys consolidated financial statements include: the valuation of inventory, the estimated useful lives and impairment of property, equipment, and intangible assets. Cash and cash equivalents Cash and cash equivalents including cash on hand and deposits placed with banks or other financial institutions, which are unrestricted as to withdrawal and use and with an original maturity of three months or less. Deposits in banks in the PRC are not insured by any government entity or agency, and are consequently exposed to risk of loss. The Company believes the probability of a bank failure, causing loss to the Company, is remote. Accounts receivable Accounts receivable are recognized and carried at the original invoice amounts less an allowance for any uncollectible amount. We extend credit to our customers based on an evaluation of their financial condition and other factors. We generally do not require collateral or other security to support accounts receivable. We perform ongoing credit evaluations of our customers and maintain an allowance for potential bad debts if required. We determine whether an allowance for doubtful accounts is required by evaluating specific accounts where information indicates the customers may have an inability to meet financial obligations. In these cases, we use assumptions and judgment, based on the best available facts and circumstances, to record a specific allowance for those customers against amounts due to reduce the receivable to the amount expected to be collected. These specific allowances are re-evaluated and adjusted as additional information is received. The amounts calculated are analyzed to determine the total amount of the allowance. We may also record a general allowance as necessary. Direct write-offs are taken in the period when we have exhausted our efforts to collect overdue and unpaid receivables or otherwise evaluate other circumstances that indicate that we should abandon such efforts. The Company has not experienced any significant difficulty in collecting its accounts receivable in the past and is not aware of any financial difficulties being experienced by its major customers. Inventory Inventory is primarily composed of raw materials and packing materials for manufacturing, work in process, and finished goods. Inventories are valued at the lower of cost or market with cost determined on a weighted average basis. Management compares the cost of inventory with the market value and an allowance is made for writing down the inventory to its market value, if lower than cost. Property and equipment Property and equipment are stated at cost. The cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to its present working condition and locations for its intended use. Leasehold improvements are stated at cost and amortized over the shorter of the useful life of the assets or the length of the lease in accordance to ASC 840-10-35-6 Buildings 30-35 years Machinery and equipment 3-20 years Office equipment and automobiles 3-10 years Leasehold improvements 30 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 Companys 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 its remaining legal life, 16.5 years, which is shorter than its remaining 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 its legal lives, 14 years and 15 years, respectively; on a straight-line basis. Both patents legal lives are considered shorter than their remaining useful lives, Development costs of acer truncatum bunge planting The Company has started development of the acer truncatum bunge planting bases and completed planting of 4,200Mu (1Mu is equal to approximately 666.67 square meters) as of the year ended March 31, 2015. The agricultural product (e.g., seeds, oil extract, etc.) derived from the planting is intended to be the supply for an integrated usage including edible oil, protein, medicine and health care, tannin extract, industrial chemicals, nectar source, nervonic acid, and specialty lumber, as well as for landscaping and conservation of soil and water. The Company accounts for the development costs of the planting in accordance to ASC 905. Pursuant to ASC 905-360-25-3, limited-life land development costs and direct and indirect development costs of orchards, groves, vineyards, and intermediate-life plants shall be capitalized during the development period. Pursuant to ASC 905-360-35-7, costs capitalized during the development period under paragraph 905-360-25-3 shall be depreciated over the estimated useful life of the land development or that of the tree, vine, or plant. The planting is currently in the development stage with production expected in the fourth quarter of 2017; therefore, no depreciation expenses were recognized as of March 31, 2015. Revenue recognition The Companys revenue recognition policies are in compliance with Staff Accounting Bulletin (SAB) 104, included in the Codification as ASC 605, Revenue Recognition 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 Income Taxes China YCT International, Inc. is a holding company of Shandong Spring Pharmaceutical Co., Ltd and does not have any operating activities. Therefore, the Company 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 Companys 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. Research and development Research and development costs are related primarily to the Companys development of its intellectual property. Research and development costs are expensed as incurred. The costs of material and equipment that are acquired or constructed for research and development activities and have alternative future uses are classified as plant and equipment and depreciated over their estimated useful lives. The research and development expense for the years ended March 31, 2015 and 2014 was $887,782 and $1,234,393, respectively. Advertising costs Advertising costs are expensed as incurred in accordance to the ASC 720-35 Advertising Costs. Pursuant to ASC 720-35-25-5, costs of communication advertising are not incurred until the item or service has been received and shall not be reported as expenses before the item or service has been received, except as discussed in paragraph 340-20-25-2. The Company incurred advertising costs of $679,026 and $321,669 for the years ended March 31, 2015 and 2014, respectively. Shipping and handling costs The Company accounts for mailing and handling fees in accordance with the FASB Emerging Issues Task Force EITF Issue No 00-10 Accounting for Shipping and Handling Fees and Costs Construction in progress Construction in progress represents direct costs of construction or acquisition and design fees incurred for the Companys 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. Stock Based Compensation The Company measures 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 Companys common stock on the date that the commitment for performance by the counterparty has been reached or the counterpartys performance is complete. The fair value of the equity instrument is charged directly to compensation expense. Earnings per common 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 shares reflect 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 were nil shares common stock equivalents available for dilution purposes as of March 31, 2015 and 2014. Fair Value of Financial Instruments We have adopted the provisions of ASC Topic 820, Fair Value Measurements and Disclosures, which defines fair value as used in numerous accounting pronouncements, establishes a framework for measuring fair value and expands disclosure of fair value measurements. The estimated fair value of certain financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued expenses are carried at historical cost basis, which approximates fair values because of the short-term maturing of these instruments. ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value: Level 1 quoted prices in active markets for identical assets or liabilities. Level 2 quoted prices for similar assets and liabilities in active markets or inputs that are observable Level 3 inputs that are unobservable (for example cash flow modeling inputs based on assumptions) We have no financial assets or liabilities measured at fair value on a recurring basis. Foreign currency translation The accounts of the Companys Chinese subsidiary are maintained in RMB and the accounts of the U.S. parent company are maintained in USD. The accounts of the Chinese subsidiary were translated into USD in accordance with Accounting Standards Codification (ASC) Topic 830 Foreign Currency Matters. 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 foreign currency transactions are reflected in the statements of income. Translation adjustments resulting from this process amounted to $114,919 and $841,999 for the years ended March 31, 2015 and 2014, respectively. The following exchange rates were adopted to translate the amounts from RMB into United States dollars (USD$) for the respective periods: March 31, 2015 March 31, 2014 Year End Exchange Rate (RMB/USD) 6.1422 6.1521 Average Period Exchange Rate (RMB/USD) 6.1476 6.1551 Recent accounting pronouncements The Companys management has evaluated all the recently issued accounting pronouncements through the filing date of these consolidated financial statements and does not believe that they will have a material effect on the Companys consolidated financial position and results of operations. |
