CHINA YCT INTERNATIONAL GROUP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
|
|
THREE MONTHS ENDED
JUNE 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
17,134,865
|
|
|
$
|
9,712,495
|
|
Cost of Goods Sold (including $4,288,935 and $1,743,479 from a related party for the three months ended June 30, 2017 and 2016, respectively)
|
|
|
10,287,148
|
|
|
|
5,912,261
|
|
Gross profit
|
|
|
6,847,717
|
|
|
|
3,800,234
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
Selling expenses
|
|
|
1,236,292
|
|
|
|
747,880
|
|
General and administrative expenses
|
|
|
908,405
|
|
|
|
850,357
|
|
Research and development expenses
|
|
|
64,378
|
|
|
|
69,160
|
|
Total operating expenses
|
|
|
2,209,075
|
|
|
|
1,667,397
|
|
Income from operations
|
|
|
4,638,642
|
|
|
|
2,132,837
|
|
Gain on disposal of acer truncatum bunge plants
|
|
|
573,092
|
|
|
|
-
|
|
Interest income
|
|
|
25,103
|
|
|
|
15,422
|
|
Income before income tax provision
|
|
|
5,236,837
|
|
|
|
2,148,259
|
|
Income tax provision
|
|
|
1,309,209
|
|
|
|
572,724
|
|
Net income
|
|
|
3,927,628
|
|
|
|
1,575,535
|
|
Less: Net income attributable to noncontrolling interest
|
|
|
117,829
|
|
|
|
-
|
|
Net income attributable to the Company
|
|
|
3,809,799
|
|
|
|
1,575,535
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
1,655,501
|
|
|
|
(2,085,188
|
)
|
Comprehensive income (loss)
|
|
|
5,583,129
|
|
|
|
(509,653
|
)
|
Less: Comprehensive income attributable to noncontrolling interest
|
|
|
166,315
|
|
|
|
-
|
|
Comprehensive income (loss) attributable to the Company
|
|
$
|
5,416,814
|
|
|
$
|
(509,653
|
)
|
|
|
|
|
|
|
|
|
|
Earnings per common share
|
|
|
|
|
|
|
|
|
Basic and Diluted
|
|
$
|
0.13
|
|
|
$
|
0.05
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
|
|
|
|
|
|
|
|
|
Basic and Diluted
|
|
|
29,789,168
|
|
|
|
29,755,568
|
|
The accompanying notes are an integral part of these consolidated financial statements.
CHINA YCT INTERNATIONAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
THREE MONTHS ENDED
JUNE 30,
|
|
|
|
2017
|
|
|
2016
|
|
Cash Flows From Operating Activities:
|
|
|
|
|
|
|
Net income
|
|
$
|
3,927,628
|
|
|
$
|
1,575,535
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization of plant, property and equipment
|
|
|
287,248
|
|
|
|
176,525
|
|
Amortization of intangible assets
|
|
|
309,948
|
|
|
|
282,974
|
|
Amortization of prepaid leases
|
|
|
210,588
|
|
|
|
237,807
|
|
Issuance of common shares for services
|
|
|
-
|
|
|
|
10,609
|
|
Stock-based compensation expenses
|
|
|
-
|
|
|
|
101,026
|
|
Deferred taxes
|
|
|
167,355
|
|
|
|
(18,630
|
)
|
Gain on disposal of acer truncatum bunge plants
|
|
|
(573,092
|
)
|
|
|
-
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Advance payment to vendors
|
|
|
655,130
|
|
|
|
-
|
|
Inventory
|
|
|
2,315,657
|
|
|
|
(12,762
|
)
|
Accounts receivable
|
|
|
1,080,011
|
|
|
|
88,876
|
|
Cancellation of lease
|
|
|
55,932
|
|
|
|
-
|
|
Taxes payable
|
|
|
(908,641
|
)
|
|
|
195,296
|
|
Purchase deposit and accounts payable to related party, net
|
|
|
(2,014,308
|
)
|
|
|
109,922
|
|
Accounts payable and other accrued expenses
|
|
|
40,790
|
|
|
|
(45,457
|
)
|
Net cash provided by operating activities
|
|
|
5,554,246
|
|
|
|
2,701,721
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Investing Activities:
|
|
|
|
|
|
|
|
|
Acquisition of property, plant and equipment
|
|
|
(2,080,416
|
)
|
|
|
(639,877
|
)
|
Proceeds from disposal of acer truncatum bunge plants
|
|
|
2,084,706
|
|
|
|
-
|
|
Development cost of acer truncatum bunge planting
|
|
|
(1,215,128
|
)
|
|
|
(474,608
|
)
|
Net cash used in investing activities
|
|
|
(1,210,838
|
)
|
|
|
(1,114,485
|
)
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
240,841
|
|
|
|
(219,655
|
)
|
Net increase in cash and cash equivalents
|
|
|
4,584,249
|
|
|
|
1,367,581
|
|
Cash and cash equivalents at beginning of period
|
|
|
10,308,622
|
|
|
|
7,639,084
|
|
Cash and cash equivalents at end of period
|
|
$
|
14,892,871
|
|
|
$
|
9,006,665
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
Cash paid during the periods for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
-
|
|
|
$
|
-
|
|
Income taxes
|
|
$
|
1,389,829
|
|
|
$
|
531,488
|
|
The accompanying notes are an integral part of these consolidated financial statements.
CHINA YCT INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - ORGANIZATION AND PRINCIPAL ACTIVITIES
China YCT International Group, Inc. ("China YCT") was incorporated in the State of Florida, in the United States of America (the "USA") in January 1989, and reincorporated in the State of Delaware on April 4, 2007. China YCT, through its 100% owned subsidiary Landway Nano Bio-Tech, Inc. ("Landway Nano"), incorporated in Delaware, owns 97% of Shandong Spring Pharmaceutical Co., Ltd. ("Shandong Spring"), incorporated in the People's Republic of China ("PRC"). China YCT International Group, Inc. and its subsidiaries are collectively referred to as the "Company". The Company, through its 97% owned subsidiary, Shandong Spring, engages in the business of research, developing, manufacturing, and selling traditional Chinese medicine and other healthcare products in China.
NOTE 2 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and the rules and regulations of the Securities and Exchange Commission. In the opinion of management, the unaudited financial statements have been prepared on the same basis as the annual financial statements and reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the financial position as of June 30, 2017 and the results of operations and cash flows for the periods ended June 30, 2017 and 2016. The financial data and other information disclosed in these notes to the interim financial statements related to these periods are unaudited. The results for the three months ended June 30, 2017 are not necessarily indicative of the results to be expected for any subsequent periods or for the entire year ending March 31, 2018. The balance sheet on March 31, 2017 has been derived from the audited financial statements at that date.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to the Securities and Exchange Commission's rules and regulations. These unaudited financial statements should be read in conjunction with our audited financial statements and notes thereto for the year ended March 31, 2017 as included in our Annual Report on Form 10-K.
Certain amounts have been reclassified to conform to current year presentation.
Principles of consolidation
The consolidated financial statements include the financial statements of China YCT, Landway Nano and its 97% owned subsidiary, Shandong Spring. All inter-company transactions and balances are eliminated in consolidation.
Foreign currency translation
The accounts of the Company's Chinese subsidiary are maintained in RMB and the accounts of the U.S. companies 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 comprehensive 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 comprehensive income.
The following exchange rates were used to translate the amounts from RMB into United States dollars ("USD$") for the respective periods:
|
June 30
|
|
June 30
|
|
|
2017
|
|
2016
|
|
Period End Exchange Rate (RMB/USD)
|
|
|
6.7744
|
|
|
|
6.6312
|
|
Average Period Exchange Rate (RMB/USD)
|
|
|
6.8536
|
|
|
|
6.5317
|
|
Recent accounting pronouncements
The Company's management has evaluated all the recently issued accounting pronouncements during the quarter ended June 30, 2017 and does not believe that they will have a material effect on the Company's consolidated financial position and results of operations.
NOTE 3 - INVENTORIES
The components of inventories were as follows:
|
|
June 30,
|
|
|
March 31,
|
|
|
|
2017
|
|
|
2017
|
|
Raw materials
|
|
$
|
1,196,558
|
|
|
$
|
1,276,254
|
|
Packaging materials
|
|
|
418,148
|
|
|
|
476,803
|
|
Work-in-process
|
|
|
683,124
|
|
|
|
1,373,919
|
|
Finished goods
|
|
|
943,572
|
|
|
|
2,356,064
|
|
Total inventories
|
|
$
|
3,241,402
|
|
|
$
|
5,483,040
|
|
NOTE 4 – PLANT, PROPERTY, AND EQUIPMENT, NET
The components of property and equipment were as follows:
|
|
June 30,
|
|
|
March 31,
|
|
|
|
2017
|
|
|
2017
|
|
Machinery and equipment
|
|
$
|
3,336,425
|
|
|
$
|
2,254,813
|
|
Office equipment
|
|
|
713,754
|
|
|
|
717,259
|
|
Building
|
|
|
12,629,964
|
|
|
|
12,401,320
|
|
Leasehold improvements
|
|
|
3,936,159
|
|
|
|
2,803,052
|
|
Subtotal
|
|
|
20,616,302
|
|
|
|
18,176,444
|
|
Less: Accumulated Depreciation & Amortization
|
|
|
(4,047,935
|
)
|
|
|
(3,689,309
|
)
|
Total plant, property and equipment, net
|
|
$
|
16,568,367
|
|
|
$
|
14,487,135
|
|
Should the Company's PRC subsidiaries distribute all their profits generated after December 31, 2007, the aggregate withholding tax amount will be $8,687,140 and $8,306,160 as of June 30, 2017 and March 31, 2017, respectively.
NOTE 10 – SUBSEQUENT EVENTS
The Company has evaluated subsequent events that have occurred after the date of the balance sheet through the date of issuance of these consolidated financial statements and determined that no subsequent event requires recognition or disclosure to the consolidated financial statements.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operation
You should read the following discussion together with our consolidated financial statements and the related notes included elsewhere in this Form 10-Q and our audited financial statements included in our Annual Report on Form 10-K. This discussion contains forward-looking statements. These forward-looking statements are based on information available at the time the statements are made and/or management's belief as of that time with respect to future events and involve risks and uncertainties that could cause actual results and outcomes to be materially different. Important factors that could cause such differences include but are not limited to: competitive factors, general economic conditions, customer relations, relationships with vendors, the interest rate environment, governmental regulation and supervision, seasonality, distribution networks, product introductions and acceptance, technological change, changes in industry practices, onetime events and other factors described herein and in other filings made by the company with the Securities and Exchange Commission. While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, and therefore, you should not rely on these forward-looking statements as representing our views as of any date subsequent to the date this Form 10-Q is filed with the Securities and Exchange Commission.
Overview
China YCT International Group, Inc. ("China YCT") was incorporated in the State of Florida in January 1989, and reincorporated in the State of Delaware on April 4, 2007. China YCT principally operates through its wholly-owned subsidiary, Landway Nano Bio-Tech, Inc. ("Landway Nano"), incorporated in Delaware, which, in turn, owns 97% of Shandong Spring Pharmaceutical Co., Ltd. ("Shandong Spring"), incorporated in the People's Republic of China (the "PRC"). China YCT International Group, Inc. and its subsidiaries are collectively referred to as the "Company". China YCT, through Shandong Spring, is engaged in the business of developing, manufacturing, and selling medicine, developing the acer truncatum bunge planting bases, selling acer truncatum seed oil, and distributing health care supplement products manufactured by Shandong Yongchuntang in the PRC.
Since July 2015, the Company has produced acer truncatum bunge seed oil and sold the product to customers through its internet direct sales system. The acer truncatum bunge seed oil was extracted from the acer truncatum pods that were purchased from third party vendors. The Company's self-grown acer truncatum pods will not be ready to be used for production until approximately the fall of 2018.
Results of Operations
The following table sets forth information from our statements of comprehensive income (loss) for the three months ended June 30, 2017 and 2016, in dollars:
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
$
|
|
|
%
|
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
|
Change
|
|
Sales
|
|
|
17,134,865
|
|
|
|
9,712,495
|
|
|
|
7,422,370
|
|
|
|
76.4
|
%
|
Cost of Goods sold
|
|
|
(10,287,148
|
)
|
|
|
(5,912,261
|
)
|
|
|
(4,374,887
|
)
|
|
|
74.0
|
%
|
Gross Profit
|
|
|
6,847,717
|
|
|
|
3,800,234
|
|
|
|
3,047,483
|
|
|
|
80.2
|
%
|
Operating Expenses
|
|
|
(2,209,075
|
)
|
|
|
(1,667,397
|
)
|
|
|
(541,678
|
)
|
|
|
32.5
|
%
|
Operating Income
|
|
|
4,638,642
|
|
|
|
2,132,837
|
|
|
|
2,505,805
|
|
|
|
117.5
|
%
|
Interest Income
|
|
|
25,103
|
|
|
|
15,422
|
|
|
|
9,681
|
|
|
|
62.8
|
%
|
Gain on Disposal of Acer Truncatum Bunge Plants
|
|
|
573,092
|
|
|
|
-
|
|
|
|
573,092
|
|
|
|
100.0
|
%
|
Income Tax Provision
|
|
|
(1,309,209
|
)
|
|
|
(572,724
|
)
|
|
|
(736,485
|
)
|
|
|
128.6
|
%
|
Net Income
|
|
|
3,927,628
|
|
|
|
1,575,535
|
|
|
|
2,352,093
|
|
|
|
149.3
|
%
|
Comprehensive Income (Loss)
|
|
|
5,583,129
|
|
|
|
(509,653
|
)
|
|
|
6,092,782
|
|
|
|
(1,195.5
|
)%
|
Revenue
During the three months ended June 30, 2017, we realized $17,134,865 in revenue, representing an increase of 76.4% or $7,422,370 as compared to $9,712,495 for the same period in 2016. The increase in revenue in RMB was 85.1% as compared to the three months ended June 30, 2016, but 8.7% of the increase was offset by fewer USD converted from RMB due to a significant RMB depreciation occurred in the three months ended June 30, 2017, compared with the same period in 2016. The total 85.1% revenue increase in RMB was due to the increased sales of health care products, acer truncatum bunge seed oil, and Huoliyuan Capsule.
Part of our revenues was generated by us as the distributor for the health care products manufactured by Shandong Yongchuntang. We purchase products from Shandong Yongchuntang according to the purchase contract signed between the Company and Shandong Yongchuntang. On February 20, 2017, the Company renewed the purchase contract with Shandong Yongchuntang for a term of one year ending on February 25, 2018. Pursuant to the renewed one year contract, the Company agreed to purchase 9 new products from Shandong Yongchuntang at fixed prices. During the three months ended June 30, 2017, 45.8% of our total revenue was generated as the distributor of Shandong Yongchuntang, compared to 32.8% during the three months ended June 30, 2016. For the three months ended June 30, 2017, our revenue from sales of the health care products was $7,845,001, representing an increase of 146.4% or $4,660,662 as compared to $3,184,339 for the same period in 2016. The revenue from sales of health care products measured in RMB was increased by 158.5% but was offset by 12.1% decrease due to fewer USD converted from RMB because a significant RMB depreciation occurred during the three months ended June 30, 2017 compared with the same period in 2016. The significant increase in sales of the health care products in RMB was primarily due to the growth of our customer basis and the internet direct-sales.
The sales of Huoliyuan Capsule accounted for 37.3% of our revenue during the three months ended June 30, 2017, compared to 52.7% during the three months ended June 30, 2016. The decrease in the sales of Huoliyuan Capsule over our total revenue is primarily due to the sales growth of Huoliyuan Capsule being slower than the sales growth of health care products and acer truncatum bunge seed oil. The sales of the Huoliyuan Capsule during the three months ended June 30, 2017 were $6,395,042, an increase of 24.9% or $1,276,023 as compared to the three months ended June 30, 2016. The revenue from sales of Huoliyuan Capsule denominated in RMB was increased by 31.1%, but was offset by 6.2% decrease due to fewer USD converted from RMB because a significant RMB depreciation occurred during the three months ended June 30, 2017 compared with the same period in 2016. The increase in sales of Huoliyuan Capsule in RMB was primarily due to the stabilization of the market competition.
Since July 2015, the Company has produced Acer truncatum Bunge Seed Oil and sold the product to customers through its distributors. The Acer truncatum Bunge Seed Oil was extracted from the acer truncatum pods that were purchased from third party vendors. Our self-grown acer truncatum pods will not be ready to be used for production until approximately the fall of 2018. During the three months ended June 30, 2017, 16.9% of our total revenue was generated from the sales of acer truncatum oil products, compared to 14.5% during the same period in 2016. During the three months ended June 30, 2017, the sales of acer truncatum bunge seed oil was $2,894,822, representing an increase of 105.4% or $1,485,685 compared to $1,409,137 for the same period in 2016. The significant increase in sales of acer truncatum oil products in RMB was primarily due to the increased promotion of our acer truncatum bunge seed oil by organizing conferences to introduce the features and benefits of the product to our distributors and customers.
The following is the sales breakdown by products during the three months ended June 30, 2017 and 2016:
|
|
For the Three Months Ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
Health care supplements
|
|
|
7,845,001
|
|
|
|
45.8
|
%
|
|
|
3,184,339
|
|
|
|
32.8
|
%
|
Drugs (Huoliyuan Capsule)
|
|
|
6,395,042
|
|
|
|
37.3
|
%
|
|
|
5,119,019
|
|
|
|
52.7
|
%
|
Acer truncatum oil
|
|
|
2,894,822
|
|
|
|
16.9
|
%
|
|
|
1,409,137
|
|
|
|
14.5
|
%
|
Total
|
|
|
17,134,865
|
|
|
|
100
|
%
|
|
|
9,712,495
|
|
|
|
100
|
%
|
Cost of Goods Sold
Our costs of revenue were comprised primarily of the cost of finished goods we purchased from Shandong Yongchuntang, the raw materials we purchased from third party vendors, and the manufacturing costs of acer truncatum bunge seed oil, and Huoliyuan Capsule. The cost of manufacturing Huoliyuan Capsule was approximately 42.2% and 57.5% of the total cost of goods sold during the three months ended June 30, 2017 and 2016, respectively. The cost of manufacturing acer truncatum bunge seed oil was approximately 15.6% and 12.6% of the total cost of goods sold during the three months ended June 30, 2017 and 2016, respectively.
During the three months ended June 30, 2017, our cost of goods sold totaled $10,287,148, representing an increase of $4,374,887 or 74.0% as compared to $5,912,261 during the three months ended June 30, 2016. The cost of goods sold, in RMB, increased by 82.6%, in which 8.6% was offset by fewer USD converted from RMB due to a significant RMB depreciation during the three months ended June 30, 2017 compared with the same period in 2016. The percentages of the costs of goods sold to total revenues decreased slightly from 60.9% for the three months ended June 30, 2016 to 60.0% for the three months ended June 30, 2017.
Gross Profit
Gross profit for the three months ended June 30, 2017 was $6,847,717, an increase of 80.2% or $3,047,483 as compared to the same period for the prior year. The overall gross profit as a percentage of net revenues was approximately 40.0% for the three months ended June 30, 2017, a slight increase from 39.1% for the same period of 2016. The gross profit as percentage of net revenues for the health care products was approximately 44.7% for the three months ended June 30, 2017, a slight increase from 44.4% for the same period of 2016. The gross profit as percentage of net revenues for Huoliyuan was approximately 32.1% for the
three months ended June 30, 2017, decreased from 33.6% for the same period of 2016. The gross profit as percentage of net revenues for acer truncatum bunge seed oil was approximately 44.5% for the three months ended June 30, 2017, decreased from 47.2% for the same period of 2016. The lower gross profit as percentage of net revenue for Huoliyuan during the three months ended June 30, 2017 was due to the increased raw material and manufacturing costs. The lower gross profit as percentage of net revenue for the acer truncatum bunge seed oil during the three months ended June 30, 2017 was primarily due to the increased raw material cost.
The comparison of the gross profits for the three months ended June 30, 2017 and 2016 as follows:
|
|
June 30,
2017
|
|
|
Gross
Profit
Margin
|
|
|
June 30,
2016
|
|
|
Gross
Profit
Margin
|
|
|
Change
in $
|
|
|
Variance
|
|
Health care supplements
|
|
|
3,508,114
|
|
|
|
44.7
|
%
|
|
|
1,414,571
|
|
|
|
44.4
|
%
|
|
|
2,093,543
|
|
|
|
148.0
|
%
|
Drugs (Huoliyuan Capsule)
|
|
|
2,051,767
|
|
|
|
32.1
|
%
|
|
|
1,720,074
|
|
|
|
33.6
|
%
|
|
|
331,693
|
|
|
|
19.3
|
%
|
Acer truncatum oil
|
|
|
1,287,836
|
|
|
|
44.5
|
%
|
|
|
665,589
|
|
|
|
47.2
|
%
|
|
|
622,247
|
|
|
|
93.5
|
%
|
Total
|
|
|
6,847,717
|
|
|
|
40.0
|
%
|
|
|
3,800,234
|
|
|
|
39.1
|
%
|
|
|
3,047,483
|
|
|
|
80.2
|
%
|
Research and Development Expenses
Our R&D expenses for the three months ended June 30, 2017 were $64,378 or approximate 0.4% of total corresponding revenue, a decrease of $4,782 or 6.9%, as compared to $69,160 or approximately 0.7% of total corresponding revenue for the three months ended June 30, 2016.
Our long-term goal is to utilize advanced biological technology to refine and extract the beneficial compounds in plants that have traditionally been known to have medicinal benefits, primarily gingko and acer trunkatum bunge plants. As of June 30, 2017, we had 27 staff in R&D department.
Operating expenses
Our selling expenses consist primarily of sales commissions, advertising and promotion expenses, freight charges and related compensation. Our selling expenses for the three months ended June 30, 2017 were $1,236,292 or 7.2% of our total revenue for the period, representing slight decrease on the percentage of total revenue from 7.7% for the prior year's quarter ended June 30, 2016. Our selling expenses for the three months ended June 30, 2017 increased by 65.3% or $488,412 as compared to the same period in the prior year. There was 73.5% increase in selling expenses in RMB but was offset by 8.2% due to depreciation in RMB occurred during the three months ended June 30, 2017, compared with the prior year's quarter ended June 30, 2016. The increase in selling expenses was primarily due to the increase in shipping cost and sales commission as a result of increased sales.
Our G&A expenses for the three months ended June 30, 2017 were $908,405 or 5.3% of our total revenue for the period, representing a decrease on the percentage of total revenue from 8.8% for the prior year's quarter ended June 30, 2016. Our G&A expenses for the three months ended June 30, 2017 increased by 6.8% or $58,048 as compared to the same period in the prior year. There was 12.1% increase in G&A expenses in RMB but was offset by 5.3% due to depreciation in RMB occurred during the three months ended June 30, 2017, compared with the prior year's quarter ended June 30, 2016. The increase in G&A expenses was primarily due to the increase in depreciation and amortization expenses.
Net Income
As a result of above, during the three months ended June 30, 2017, we realized net income of $3,927,628, representing a 149.3% or $2,352,093 increase, compared to $1,575,535 during the three months ended June 30, 2016. The increase was mainly due to the higher revenue from sales of all of our products and the gain from disposal of acer truncatum bunge plants.
Income Taxes
Income tax expense increased by $736,485 during the three months ended June 30, 2017, as compared to the prior quarter ended June 30, 2016, as a result of the increase in income from operation and the gain from disposal of acer truncatum bunge plants.
Comprehensive Income (Loss)
Our business operates entirely in Chinese RMB, but we report our results in our SEC filings in U.S. Dollars. The conversion of our accounts from RMB to Dollars results in translation adjustments, which are reported as a middle step between net income and comprehensive income. The net income is added to the retained earnings on our balance sheet while the translation adjustment is added to a line item on our balance sheet labeled "Accumulated other comprehensive income (loss)," since it is more reflective of changes in the relative values of U.S. and Chinese currencies than of the success of our business. During the three months ended June 30, 2017, the effect of converting our financial results to Dollars was income of $1,655,501 to our other comprehensive income, as compared to a loss of $2,085,188 during the three months ended June 30, 2016 as a result of the currency exchange rate fluctuation.
Noncontrolling interest
Since March 18, 2017, Shandong Yongchuntang has become a 3% shareholder of Shandong Spring. During the three months ended June 30, 2017, $166,315 of comprehensive income was attributable to Shandong Yongchuntang.
Liquidity and Capital Resources
Our principal sources of liquidity were generated from our operations. As of June 30, 2017, we had $18,942,706 in working capital, an increase of $3,450,285 or 22.3% as compared to $15,492,421 in working capital as of March 31, 2017. 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 $5,554,246 during the three months ended June 30, 2017. We had accounts receivable of $63,254 outstanding as of June 30, 2017. We expect our marketing activities to continue to help generate positive cash flow. The operations of our own manufacturing since fiscal year 2010 and the development of our own acer truncatum bunge planting bases 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.
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 $5 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 need. At present, we have no commitment from any source for additional funds and there can be no assurance that the funds will be available on terms acceptable to us.
The following table sets forth a summary of our cash flows for the periods indicated:
|
|
For the Three Months
Ended June 30,
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Change in $
|
|
|
Change in %
|
|
Net cash provided by operating activities
|
|
$
|
5,554,246
|
|
|
$
|
2,701,721
|
|
|
|
2,852,525
|
|
|
|
105.6
|
%
|
Net cash used in investing activities
|
|
$
|
(1,210,838
|
)
|
|
$
|
(1,114,485
|
)
|
|
|
(96,353
|
)
|
|
|
8.6
|
%
|
Effect of exchange rate change on cash and cash equivalents
|
|
$
|
240,841
|
|
|
$
|
(219,655
|
)
|
|
|
460,496
|
|
|
|
(209.6
|
)%
|
Net increase (decrease) in cash and cash equivalents
|
|
$
|
4,584,249
|
|
|
$
|
1,367,581
|
|
|
|
3,216,668
|
|
|
|
235.2
|
%
|
Cash and cash equivalents, beginning balance
|
|
$
|
10,308,622
|
|
|
$
|
7,639,084
|
|
|
|
2,669,538
|
|
|
|
34.9
|
%
|
Cash and cash equivalents, ending balance
|
|
$
|
14,892,871
|
|
|
$
|
9,006,665
|
|
|
|
5,886,206
|
|
|
|
65.4
|
%
|
Operating Activities
Net cash provided by operating activities was $5,554,246 for the three months ended June 30, 2017, which was an increase of 105.6% or $2,852,525 from the $2,701,721 net cash provided by operating activities for the same period of the prior year. The increase was primarily due to the increase from cash inflow from sales revenue and accounts receivable, and the decrease from cash out flow from inventory.
Investing Activities
During the three months ended June 30, 2017, our net cash used in investing activities was $1,210,838, as compared to $1,114,485 of net cash used for the three months ended June 30, 2016. The cash used in investing activities for the three months ended June 30, 2017 of $1,210,838 was primarily attributable to the acquisition of property, plant and equipment of $2,080,416, and capital expenditures of $1,215,128 in acer truncatum bunge planting, and offsetting by cash receipt of $2,084,706
from disposal of acer truncatum bunge plants.
Financing Activities
No net cash was generated or used by financing activities over the three months ended June 30, 2017 and 2016.
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 not effective.
Changes in Internal Controls
The term "internal control over financial reporting" (defined in SEC Rule 13a-15(f)) refers to the process of a company that is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company's management, with the participation of the Chief Executive Officer and Chief Financial Officer, has evaluated any changes in the Company's internal control over financial reporting that occurred during the quarter ended June 30, 2017, 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.