China Yct Intl (PINK:CYIG)

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.

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. 

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)