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10-Q - FORM 10-Q - Cadista Holdings Inc.v234369_10q.htm
v2.3.0.11
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
3 Months Ended
Jun. 30, 2011
Accounting Policies [Abstract]  
Significant Accounting Policies [Text Block]
1       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a)
Basis of Preparation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, these financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America ("GAAP") for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring items) considered necessary for a fair presentation have been included. Interim results are not necessarily indicative of results for the full fiscal year.

These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes thereto for the year ended March 31, 2011 included in the Company's Registration Statement on Form 10, as amended, filed with the Securities and Exchange Commission on August 8, 2011.  The balance sheet as at March 31, 2011 presented in this report has have been derived from audited financial statements at that date, but does not include all of the information and disclosures required by GAAP for complete financial statements.  Amounts presented in the financial statements and footnotes are rounded to the nearest thousands, except per share data and par values.  Unless the context requires otherwise, references in these Notes to the “Company,” “we,” “us” or “our” refers to Cadista Holdings Inc. and its subsidiaries, including Jubilant Cadista Pharmaceuticals Inc.

b)
Recent Accounting Pronouncements

In June 2011, the FASB issued ASU 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income .  This amendment of the Codification allows an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income.  This ASU eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity.  The amendments to the Codification in this ASU do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income.  This ASU must be applied retrospectively.  The amendments to the Codification in this ASU are effective for the Company for fiscal years and interim periods within those years, beginning after December 15, 2011.

In December 2010, the FASB issued Accounting Standard Update (“ASU”) No. 2010-27, Other Expenses (Topic 720): Fees Paid to the Federal Government by Pharmaceutical Manufacturers .  This ASU provides guidance on how pharmaceutical manufacturers should recognize and classify in their income statements fees mandated by the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act, both enacted in March 2010, referred to as the “Acts.”  The Acts imposed an annual fee on the pharmaceutical manufacturing industry for each calendar year beginning on or after January 1, 2011.  The liability for the fees will be based upon the gross receipts from the sale of branded prescription drugs to any specified government program or in accordance with coverage under any government program should be estimated and recorded in full upon the first qualifying sale with a corresponding deferred cost that is amortized to expense using a straight-line method of allocation unless another method better allocates the fee over the calendar year that it is payable. The annual fee is classified as an operating expense in the income statement. The amendments in this ASU were effective for calendar years beginning after December 31, 2010, when the fee initially became effective.       

In April 2010, the FASB issued an amendment to the accounting and disclosure for revenue recognition—milestone method. This amendment, effective for fiscal years beginning on or after June 15, 2010 (early adoption is permitted), provides guidance on defining a milestone and determining when it may be appropriate to apply the milestone method of revenue recognition for research and development transactions. The Company believes that the adoption of the amendment will not have a material impact on its consolidated financial statements.

In October 2009, the FASB issued amendments to the accounting and disclosure for revenue recognition. These amendments, effective for fiscal years beginning on or after June 15, 2010 (early adoption is permitted),modify the criteria for recognizing revenue in multiple element arrangements and require companies to develop a best estimate of the selling price to separate deliverables and allocate arrangement consideration using the relative selling price method. Additionally, the amendments eliminate the residual method for allocating arrangement considerations. The Company believes that the adoption will not have a material impact on its consolidated financial statements.

In June 2009, the FASB issued, ―The FASB Accounting Standards Codification TM and the Hierarchy of Generally Accepted Accounting Principles. This establishes the Codification as the source of authoritative GAAP recognized by the FASB to be applied by nongo vernmental entities. Rules and interpretive releases of the SEC under federal securities laws are also sources of authoritative GAAP for SEC registrants. All guidance contained in the Codification carries an equal level of authority. This is effective for financial statements issued for interim and annual periods ending after September 15, 2009.

c)
Revenue Recognition

Revenue from sale of goods is recognized when significant risks and rewards in respect of ownership of the products are transferred to the customer and when the following criteria are met:

 
§
Persuasive evidence of an arrangement exists;
 
§
The price to the buyer is fixed and determinable; and
 
§
Collectability of the sales price is reasonably assured.

Revenue from sale of goods is shown net of applicable discounts, prime vendor chargeback, and sales return.

We participate in prime vendor programs with a government entity whereby pricing on products is extended below the wholesale list price.  This government entity purchases products through wholesalers at the lower prime vendor price, and the wholesaler charges the difference between their acquisition cost and the lower prime vendor price back to us. We determine our estimates of the prime vendor chargeback primarily based on historical experience regarding prime vendor chargebacks and current contract prices under the prime vendor programs. Accruals for chargebacks are reflected as a direct reduction to revenues and accounts receivable.

Revenue arrangements with multiple deliverables, if any, are evaluated to determine if the deliverables (items) can be divided into more than one unit of accounting. An item can generally be considered a separate unit of accounting if all of the following criteria are met:

 
§
The delivered item(s) has value to the customer on a standalone basis;
 
§
There is objective and reliable evidence of the fair value of the undelivered item(s); and
 
§
If the arrangement includes a general right of return relative to the delivered item(s), delivery or performance of the undelivered item(s) is considered probable and substantially in our control.

If an arrangement contains more than one element, the arrangement consideration is allocated among separately identified elements based on relative fair values of each element.

Revenues related to contract manufacturing arrangement are recognized when performance obligations are substantially fulfilled. Revenues related to development contracts are recognized on proportionate performance basis. Customarily for contract manufacturing and development services, we receive upfront non-refundable payments which are recorded as deferred revenue. These amounts are recognized as revenues as obligations are fulfilled under contract manufacturing arrangement and as milestones are achieved for development arrangements.

When we receive advance payments from customers for sale of products, such payments are reported as advances from customers until all conditions for revenue recognition are met.

Allowances for sales returns are estimated and provided for in the year of sales.  Such allowances are made based on the historical trends.  We have the ability to make a reasonable estimate of the amount of future returns due to the volumes of homogeneous transactions and historical experience with similar types of sales of products. In respect of new products launched or expected to be launched, the sales returns are not expected to be different from the existing products as such products relate to categories where established products exist and are sold in the market.  Further, we evaluate the sales returns of all the products at the end of each reporting period and necessary adjustments, if any, are made.

d)
Income taxes

Income taxes are accounted for using the asset and liability method.  The current charge for income taxes is calculated in accordance with the relevant tax regulations applicable to the Company.  Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss carry forwards.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.  The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date.  The measurement of deferred tax assets is reduced, if necessary, by a valuation allowance of any tax benefits of which future realization is uncertain.

The Company applies a two-step approach for recognizing and measuring uncertain tax positions.  The first step is to evaluate the tax position for recognition by determining, based on the technical merits, that the position will be more likely than not sustained upon examination. The second step is to measure the tax benefit as the largest amount of the tax benefit that is greater than 50% likely of being realized upon settlement.  The Company includes interest and penalties related to unrecognized tax benefits within its provision for income tax expense.

e)
Net income (loss) per share

 
Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of shares outstanding during each period. Diluted net income (loss) per share is computed by dividing net income (loss) by the weighted average shares outstanding, as adjusted for the dilutive effect of common stock equivalents, which consist of stock options.

The table below reflects basic and diluted net income (loss) per share for the three month periods ended June 30:

   
June
 2011
(000’s)
   
June 
2010
(000’s)
 
Net income (loss) available for common shareholders (basic and dilutive)
  $ 2,331     $ 1,188  
                 
Weighted average shares outstanding:
               
Basic
    117,797       117,797  
Effect of dilutive stock
    750       750  
Diluted
    118,547       118,547  
                 
Earnings per share (in US dollars)
               
Basic
  $ 0.02     $ 0.01  
Diluted
  $ 0.02     $ 0.01