18. |
PRODUCT RETURN CONCESSIONS |
For the year ended March 31, 2012, product returns of $474,505 were deducted from sales due to a batch of probiotics products produced in June 2011 that were below the Company’s quality standards due to production problems. For the year ended March 31, 2011, product returns of $2,590,841 were deducted from sales due to the overestimation of market demand by the Company’s distributors for the first calendar quarter of 2011. We agreed to accept the return of probiotics products from certain distributors during May 2011, in part to avoid the Company suffering a negative image in the probiotics market. All such returned goods were held in the Company’s warehouse until they were fully destroyed by September 2011.
As a result of a product returns after certain of our products did not meet our quality standards, and in order to improve the confidence of the Company’s distributors and end-user customers in our probiotics products, we provided special concession credits to our distributors during August 2011 to address the complaints and concerns of customers worried about food and healthcare products in the PRC. Such credits were made available for our distributors to reimburse end-user customers for products which were recalled. We treated these special credits as being comparable to a warranty on our probiotics products, and we incurred a cost of $7,162,229 for these credits for the year ended March 31, 2012 that has been reflected as an additional cost of product returns in the accompanying consolidated financial statements. |