UNITED STATES
 SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
 FORM 10-K
 
 
 |X|             ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 For the fiscal year ended: March 31, 2010 or
 
 |   |             TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 For the transition period from ______________ to _____________
 
 Commission file number: 0-53600
 
 CHINA YCT INTERNATIONAL GROUP, INC.
 (Exact name of registrant as specified in its charter)
 
 Delaware                                                                                                                           65-2954561
 (State or other jurisdiction of incorporation or organization)                                                                            (IRS Employer Identification No.)
 
 
 c/o Shandong Spring Pharmaceutical Co., Ltd Economic Development Zone.

Gucheng Road Sishui County Shandong Province PR China
273200(Adreess of principal executive offices)
(Zip Code)
 
 
 Issuer's telephone number: 406-282-3188
 
  Securities Registered Pursuant to Section 12(b) of the Act: None
 Securities Registered Pursuant to Section 12(g) of the Act:
 
 Common Stock, $.001 par value per share
 
 
 
 Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 406 of the Securities Act.    Yes __ No X
 
 Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes __ No X
 
 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  X   No __
 
 Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.)  Yes ___ No _____
 
 Indicate by check mark disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405) is not contained herein, and will not be contained,  to the best of registrant's  knowledge,  in definitive proxy or information  statements incorporated  by reference  in Part III of this Form 10-K or any amendment to this Form 10-K. [X]
 
 Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One)
 
 Large accelerated filerAccelerated filerNon-accelerated filerSmall reporting company X
 
 Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes __ No X
 
 The number of shares outstanding of the issuer’s common stock, as of February 24, 2011 was 29,380,073.
 
 Documents incorporated by reference: NONE
 
 
 
 PART I
 
 CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
 This Report contains certain forward-looking statements regarding China YCT International Group, Inc. (“China YCT International Group”), its business and its financial prospects.  These statements represent Management’s present intentions and its present belief regarding the Company’s future.  Nevertheless, there are numerous risks and uncertainties that could cause our actual results to differ from the results suggested in this Report.  A number of those risks are set forth in the section of this report titled “Risk Factors”.
 
 Because these and other risks may cause China YCT International Group’s actual results to differ from those anticipated by Management, the reader should not place undue reliance on any forward-looking statements that appear in this Report.  Readers should also take note that China YCT International Group will not necessarily make any public announcement of changes affecting these forward-looking statements, which should be considered accurate on this date only.
 
 ITEM 1.                      BUSINESS
 
 The Structure of our Business
 
 China YCT International Group, through its wholly-owned subsidiary, Landway Nano Bio-Tech Group, Inc., owns 100% of the registered capital of Shandong Spring Pharmaceutical Co., Ltd. (“Shandong Spring Pharmaceutical”), a corporation organized in 2005 under the laws of The People’s Republic of China. Shandong Spring Pharmaceutical is engaged in the business of developing, manufacturing and marketing gingko products in the People’s Republic of China.
 
 From January 2006 until January 2007 management of Shandong Spring Pharmaceutical was engaged in developing the company’s manufacturing facility and distribution network.  In January 2007 Shandong Spring Pharmaceutical commenced revenue-producing activities; specifically distributing products manufactured by Shandong Yong Chun Tang Bioengineering Co., Ltd. (“Shandong Yong Chun Tang”), which is owned by Yan Tinghe, the Chairman of Shandong Spring Pharmaceutical.
 
 Shandong Spring Pharmaceutical was originally organized as a subsidiary of Shandong Yong Chun Tang for the purpose of focusing on advanced technology related to the use of gingko as an aide to health.  Shandong Yong Chun Tang later transferred ownership of Shandong Spring Pharmaceutical to its equity-holders.  Through the end of its 2009 fiscal year on March 31, 2009, Shandong Spring Pharmaceutical served solely as a distributor for Shandong Yong Chun Tang, pursuant to a distribution agreement that fixed the resale profit that would be earned by Shandong Spring Pharmaceutical.
 
 In March 2010, the Company purchased a patent from Shandong YCT for US$6.74 million, which enables the Company to manufacture and distribute the 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 the products  manufactured by Shandong Yong Chun Tang. In the year of 2010, the Company has produced Huoliyuan Capsule for approximately 232 million boxes with 12 capsules per box.
 
 The purchase price for the patent was determined via negotiation between China YCT and Shandong YCT based on a valuation price of US$11.14 million The patent for manufacturing method of Huoliyuan capsule that the Company acquired from Shandong YCT, was assessed by Beijing Fangya Certified Asset Evaluation Company. The Company received an independent assessment, based on  the  current income value method, that the patent had a fair value of US$11.14 million.  Shandong YCT sold the patent to the Company at a discount from the assessed value because Shandong YCT retained a license  to produce products based on the patent technology.
 
 The Huoliyuan capsule is a product based on ginseng, which is manufactured according to the traditional Chinese medicine concepts.  It has a slow release and is good for daily use as a health care product. It promotes the body’s condition by using tradition Chinese medicine materials in proportion. The therapeutic effect of Huoliyuan was tested by independent analysts, who found that Houliyan  was good for the human cardiovascular system and as an aid in treatment of chronic hepatitis, diabetes, insomnia, memory loss, menopause syndrome, and other maladies.   Huoliyuan is sold at 20 Chinese Yuan (approx. $3.00) per box.
 
 
 
 2
 
 
 The profits from our health and beauty aid distribution business are adequate to fund our ongoing operations.  In order to fully implement its business plan, however, Shandong Spring Pharmaceutical will require a large capital infusion to finance the creation of state-of-the-art facilities for the extraction of compounds from gingko and the formulation of products based on those compounds. The patent the Company bought from Shandong YCT in March 2010 represents an exclusive right 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.
 
 The Market for Gingko
 
 Traditional Chinese medicine recommends consumption of gingko tea to improve circulation and pulmonary function.  Although scientific testing of the health benefits traditionally attributed to gingko has been inconclusive to date, there remains a widespread belief in the benefits of a regimen of gingko consumption.  In particular, the potential use of gingko to alleviate symptoms of Alzheimer’s disease has recently attracted considerable attention.  Today, therefore, the flavonoid aglycone, a compound derived from the gingko plant, is used throughout the world in pharmaceutical formulations as well as in food and cosmetic products.
 
 The annual worldwide consumption of various gingko extracts exceeds 460 tons, of which over 80% is produced in China.  A large portion of the Chinese production, however, is extracted from gingko biloba, and lacks aglycone.  Ironically, the primary sources of aglycone-rich extracts are outside of China.  Our business plan is to compete directly with these international competitors.  The advantages that we bring to the competition will be a substantially lower cost of production and advanced extraction technology.
 
 Research and Development:  Our Products
 
 Our goal is to utilize advanced biological technology to isolate and extract the beneficial compounds in plants that have traditionally been known to have medicinal benefits, primarily gingko.  Toward that end, we have a staff of ten currently engaged in research and development of new technologies and resulting products.  In addition we maintain close ties to the research staffs at Tsinghua University, China Agriculture University, Shandong Herbal Medicine University, and the Shandong Herbal Medicine Research Institute.
 
 Through March 31, 2009 we have invested approximately $181,531 in research and development.  The immediate result of our efforts has been three patents awarded by the Chinese government: Our R&D expenses was primarily used for acquiring and testing raw material, and also the ordinary maintenance  expense for our research equipment.
 
 ·
Patent No. ZL00 2 54604.3 for a gingko regimen pillow.·
Patent No. ZL2005 20082190.2 for a health pillow.·
Patent No. ZL02 2 14022.0 for a medicated magnetic health pillow.
 
 
 3
 
 
 In addition, we currently have six pending patent applications:
 
 ·
Application No. 03153489.9.  Technology for flavonoids biotransformation and purification.·
Application No. 200610068680.6.  Technology for purification of grapefruit glycoside.
 
 ·
Application No. 200610068732.X.  Technology to manufacture gingko regimen tea.·
Application No. 200610068731.5.  Application of gingko flavonoids in cosmetics.
 
 ·
Application No. 200610068728.3.  Technology to manufacture gingko flavonoids capsule.·
Application No. 200610068733.4.  Technology to extract and manufacture high purity gingko flavonoids compound.
 
 Based on the results of our research activities, we have developed a line of health care products that isolate the primary beneficial qualities of gingko and other plants to allow our customers to focus their herbal self-treatment regimens.  When we initiate production, our first products will be:
 
 ·
Gingko Nutrient Tea.  This tea combines gingko, fiveleaf gynostemma herb, ganoderma lucidem and green tea.  Each of these ingredients is native to Shandong Province, which enables us to guarantee a tea of the highest quality, with minimal pre-production oxygenation.·
Red Sage Root Gingko Tea.  This combination of gingko, red sage root, red sage root extract and other active ingredients offers the benefits of gingko along with the benefits of red sage, which is believed by practitioners of traditional Chinese medicine to improve cardiac function by relaxing arteries and dissolving obstructions.
 
 ·
Ganoderma Lucidum Nutrient Capsule.  This combination of ganoderma and spore powder is microprocessed to achieve optimal absorption into the circulatory system.  Practitioners of traditional Chinese medicine believe ganoderma accelerates the production of immuno-function in the circulatory system, thus aiding in the prevention of tumors and cancers.·
Low Polyxylose Capsule.  Practitioners of traditional Chinese medicine believe that low level doses of polyxylose aid the intestine in the generation of bifidobacterium, the digestive bacteria that line the human intestine.  The proliferation of bifidobacterium aids in the prevention of intestinal infection and the alleviation of diarrhea.
 
 
 4
 
 
 ·
Tiancibao Soybean Capsule.  Recent scientific research in the U.S., albeit inconclusive, has identified an association between soybean isoflavone and the suppression of development of cancer cells.  Our Tiancibao capsules contain soybean isoflavone and protein polypeptide, which provides nutritional benefits.·
Medlar Essence Capsule. Medlar has long been considered one of the three treasures of traditional Chinese medicine, along with ginseng and fleece-flower root polygonum multiflorum thunb.  Medlar contains a raft of nutrients known to be essential to health, including 14 kinds of aminophenols, carotene, niacin, selenium, lycine and Vitamin C.  Medlar is believed to aid pulmonary function and improve haematogenesis.
 
 ·
Protein Essence Capsule.   These capsules contain a combination of aminophenols and microelements that are believed to aid the body’s natural collagen in maintaining skin moisture and texture.·
Cactus Healthy Tablet.  We manufacture this tablet by extracting the active compounds from cactus and combining them with other nutrients.  The tablets contain more magnesium, autunite and iron than one would obtain in an ordinary diet, and provide a supplement for these essential nutrients.
 
 ·
Spirulina Platensis Tablet.  Spirulina, a multicell algae, has been consumed in the Americas since Pre-Columbian times for both nutrition and health.  Spirulina contains aminophenol, amylase, and vitamins and minerals.  It is also high in protein and unsaturated fats, which are useful for reducing cholesterol.
 
 Our new product, Huoliyuan Capsule.
 
 In March 2010, the Company purchased a patent from Shandong YCT for US$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. In the year of 2010, the Company has produced Huoliyuan Capsule for approximately 232 million boxes with 12 capsules per box. Huoliyuan Capsule, as a healthcare product, could effectively improve the situation of human's cardiac and kidney deficiency, and is helpful for forgetfulness, insomnia, and  memory loss.
 
 
 5
 
 
 
 Facilities
 
 Through March 31, 2010, we have $4,627,665 construction in progress, which will be mainly used to facilitate the full production of Huoliyuan Capsule, after the construction is officially complete. The designated annual production capacity of the Huoliyuan Capsule manufacturing factory is $16 million. Our new factory includes a powder injection production line and cleaning and purifying equipment.
 
 The factory that in the construction includes a pin powder workshop, and a  solid manufacturing workshop. Huoliyuan is manufactured in a dedicated workshop, and the fourth  workshop is our researching facility. As of right now, the company has no immediate plan to build more workshops or factories.
 
 After the Houliyan Capsule manufacturing facility is completed, our plan is to develop a state of the art enzyme extraction facility for the utilization of gingko compounds. Achievement of that goal will depend on our ability to obtain substantial additional funds. We estimated it would be around 10 million dollars,  When completed, our manufacturing facility will have the capacity to process 100 tons of gingko extract annually.
 
 
 Shandong Spring Pharmaceutical operates on a property of approximately 1,700 acres that it occupies under a 50 year lease.  Besides housing our executive offices, the property is home to a manufacturing facility measuring 17,200 m2and a research facility measuring 3,000 m2.   The greater portion of the property, 1,647 acres, is dedicated to agricultural use, primarily the production of gingko. For the fiscal year 2009, we produced 2,300 tons of gingko leaves on our farm. In addition we have reached cooperative agreements with gingko growers in Shandong Province who control approximately 33,000 acres.
 
 The manufacturing facility developed by Shandong Spring Pharmaceutical has received GMP (good manufacturing practices) certification by the Chinese government. The company has also achieved ISO9000 certification of its management processes. GMP is the only certified manufacturing standard certificate that authorized by the Chinese government. Nowadays, only companies that pass GMP standard and obtain the certificate that issued by Chinese government are able to manufacture medicine and related products.
 
 The farm operated by Shandong Spring Pharmaceutical is operated in a manner consistent with the requirements for organic certification by the Organic Foods Development Center.  The farm has been certified as “green” by the Chinese Ministry of Agriculture, which reflects the company’s dedication to organic agricultural methods. Currently Shandong Spring Pharmaceutical incurs approximately $150,000 in expenses annually to comply with government environmental regulations.  It expects this expense to increase in the future, as its operations expand and as the government of China adopts more restrictive environmental regulations.
 
 Marketing
 
 Our current operations consist of distributing 34 products manufactured by Shandong Yong Chun Tang, and Huoliyuan Capsule manufactured on our own.  Through March 31, 2010 we conducted the distribution business pursuant to a Purchase and Sale Contract that we signed on December 26, 2006.  The Contract sets forth the wholesale prices at which we purchase products from Shandong Yong Chun Tang.
 
 6
 
 
 
 We market through a network of approximately 2000 dealers.  Our in-house marketing staff supervises independent primary dealers, who sub-distribute through networks of supermarkets, beauty parlors and other retail sites.  This network allows us to accomplish broad geographic distribution with a marketing staff of only eight, thus keeping our overhead to a minimum.
 
 When we commence marketing our proprietary gingko products, we intend to use our distribution network as the backbone for a multi-dimensional marketing program.  The key overlay onto our established marketing network will be an Internet distribution program designed to both promote local sales by our distribution network and enable customers to purchase our products online.  Our goal will be to establish worldwide online distribution of our products.  Towards that end we have established a strategic distribution agreement with China National Post Logistics, a subsidiary of China Post, which has 31 provincial offices located throughout China.
 
 Employees
 
 Shandong Spring Pharmaceutical currently employs 54 individuals, each on a full-time basis.  11 employees are involved in administration; 8 are dedicated to marketing, 8 to research and development.  The remainder of its employees are involved in agriculture.
 
 ITEM 1A                      RISK FACTORS
 
 You should carefully consider the risks described below before buying our common stock.  If any of the risks described below actually occurs, that event could cause the trading price of our common stock to decline, and you could lose all or part of your investment.
 
 Because we have not yet commenced our gingko production operations, unexpected factors may hamper our efforts to implement our business plan.
 
 Our business plan contemplates that we will become a fully-integrated grower, manufacturer and marketer of products derived from gingko.  At the present time, however, our business largely consists of distributing health and beauty aids manufactured by Shandong Yong Chun Tang.  In order to fully implement our business plan, we will have to successfully complete the development of an agricultural facility and an industrial facility.   The complexity of this undertaking means that we are likely to face many challenges, some of which are not yet foreseeable.  Problems may occur with our raw material production and with the roll-out of efficient manufacturing processes.  If we are not able to minimize the costs and delays that result, our business plan may fall short of its goals, and the current profitability or our distribution activities may be offset by losses from the new gingko business.
 
 The capital investments that we plan may result in dilution of the equity of our present shareholders.
 
 Our business plan contemplates that we will invest approximately $40 million in capital improvements during the next five years.  At very least, we estimate that we will be unable to achieve profitable operations as an independent producer of gingko products unless we invest over $10 million in our facility.  We intend to raise the largest portion of the necessary funds by selling equity in our company.  At present we have no commitment from any source for those funds.  We cannot determine, therefore, the terms on which we will be able to raise the necessary funds.  It is possible that we will be required to dilute the value of our current shareholders’ equity in order to obtain the funds.  If, however, we are unable to raise the necessary funds, our growth will be limited, as will our ability to compete effectively.
 
 
 7
 
 
 We are subject to the risk of natural disasters.
 
 We intend to produce the greater portion of our raw materials.  In particular, we intend to produce our own gingko.  Gingko is a very sensitive crop, which can be readily damaged by harsh weather, by disease, and by pests.  If our crops are destroyed by drought, flood, storm, blight, or the other woes of farming, we will not be able to meet the demands of our manufacturing facility, which will then become inefficient and unprofitable.  In addition, if we are unable to produce sufficient products to meet demand, our distribution network is likely to atrophy.  This could have a long-term negative effect on our ability to grow our business, in addition to the near-term loss of income.
 
 If we lost control of our distribution network, our business would fail.
 
 We depend on our distribution network for the success of our business.  Competitors may seek to pull our distribution network away from us.  In addition, if dominant members of our distribution network become dissatisfied with their relationship with Shandong Spring Pharmaceutical, a concerted effort by the distribution network could force us to accept less favorable financial terms from the distribution network.  Either of these possibilities, if realized, would have an adverse effect on our business.
 
 Increased government regulation of our production and/or marketing operations could diminish our profits.
 
 At present, there is no significant government regulation of the health claims that participants in our industry make regarding their products.  In addition, there is only limited government regulation of the conditions under which we will manufacture our products.  Other developed countries, such as the United States and, in particular, members of the European Community, have far more extensive regulation of the operations of nutraceuticals and plant-based cosmetics, including strict limitations on the health-related claims that can be made without scientifically-tested evidence.  It is not unlikely, therefore, that China will increase its regulation of our activities in the future.  To the extent that new regulations required us to conduct a regimen of scientific tests of the efficacy of our products, the expense of such testing would reduce our profitability.  In addition, to the extent that the health benefits of some of our products could not be fully supported by scientific evidence, our sales might be reduced.
 
 Our business and growth will suffer if we are unable to hire and retain key personnel that are in high demand.
 
 Our future success depends on our ability to attract and retain highly skilled agronomists, biologists, chemists, industrial technicians, production supervisors, and marketing personnel.  In general, qualified individuals are in high demand in China, and there are insufficient experienced personnel to fill the demand.  In a specialized scientific field, such as ours, the demand for qualified individuals is even greater.  If we are unable to successfully attract or retain the personnel we need to succeed, we will be unable to implement our business plan.
 
 
 8
 
 
 We may have difficulty establishing adequate management and financial controls in China.
 
 The People’s Republic of China has only recently begun to adopt the management and financial reporting concepts and practices that investors in the United States are familiar with.  We may have difficulty in hiring and retaining employees in China who have the experience necessary to implement the kind of management and financial controls that are expected of a United States public company.  If we cannot establish such controls, we may experience difficulty in collecting financial data and preparing financial statements, books of account and corporate records and instituting business practices that meet U.S. standards.
 
 Government regulation may hinder our ability to function efficiently.
 
 The day-to-day operations of our business will require frequent interaction with representatives of the Chinese government institutions.  The effort to obtain the registrations, licenses and permits necessary to carry out our business activities can be daunting.  Significant delays can result from the need to obtain governmental approval of our activities.  These delays can have an adverse effect on the profitability of our operations.  In addition, compliance with regulatory requirements applicable to agriculture and to nutraceutical manufacturing and marketing may increase the cost of our operations, which would adversely affect our profitability.
 Anti-corruption measures taken by the government to correct corruptive practices in the pharmaceutical industry could adversely affect our sales and reputation.
 
 The government has recently taken anti-corruption measures to correct corrupt practices. In the pharmaceutical industry, such practices include, among others, acceptance of kickbacks, bribery or other illegal gains or benefits by the hospitals and medical practitioners from pharmaceutical distributors in connection with the prescription of a certain drug. Substantially all of our sales to our ultimate customers are conducted through third-party distributors. We have no control over our third-party distributors, who may engage in corrupt practices to promote our products. While we maintain strict anti-corruption policies applicable to our internal sales force and third-party distributors, these policies may not be effective. If xxx or any of our third-party distributors engage in such practices and the government takes enforcement action, our products may be seized and our own practices, and involvement in the distributors’ practices, investigated. If this occurs, our sales and reputation may be materially and adversely affected.
 
 In addition, government-sponsored anti-corruption campaigns from time to time could have a chilling effect on our efforts to reach new hospital customers. Our sales representatives primarily rely on hospital visits to better educate physicians on our products and promote our brand awareness. Recently, there have been occasions on which our sales representatives were denied access to hospitals in order to avoid the perception of corruption. If this attitude becomes widespread among our potential customers, our ability to promote our products will be adversely affected
 Capital outflow policies in China may hamper our ability to pay dividends to shareholders in the United States.
 
 The People’s Republic of China has adopted currency and capital transfer regulations. These regulations require that we comply with complex regulations for the movement of capital. Although Chinese governmental policies were introduced in 1996 to allow the convertibility of RMB into foreign currency for current account items, conversion of RMB into foreign exchange for capital items, such as foreign direct investment, loans or securities, requires the approval of the State Administration of Foreign Exchange. We may be unable to obtain all of the required conversion approvals for our operations, and Chinese regulatory authorities may impose greater restrictions on the convertibility of the RMB in the future. Because most of our future revenues will be in RMB, any inability to obtain the requisite approvals or any future restrictions on currency exchanges will limit our ability to pay dividends to our shareholders.
 
 Currency fluctuations may adversely affect our operating results.
 
 Shandong Spring Pharmaceutical generates revenues and incurs expenses and liabilities in Renminbi, the currency of the People’s Republic of China.  However, as a subsidiary of China YCT International Group, it reports its financial results in the United States in U.S. Dollars.  As a result, our financial results will be subject to the effects of exchange rate fluctuations between these currencies.  From time to time, the government of China may take action to stimulate the Chinese economy that will have the effect of reducing the value of Renminbi.  In addition, international currency markets may cause significant adjustments to occur in the value of the Renminbi.  Any such events that result in a devaluation of the Renminbi versus the U.S. Dollar will have an adverse effect on our reported results.  We have not entered into agreements or purchased instruments to hedge our exchange rate risks.
 
 
 9
 
 
 We have limited business insurance coverage.
 
 The insurance industry in China is still at an early stage of development. Insurance companies in China offer limited business insurance products, and do not, to our knowledge, offer business liability insurance. As a result, we do not have any business liability insurance coverage for our operations. Moreover, while business disruption insurance is available, we have determined that the risks of disruption and cost of the insurance are such that we do not require it at this time. Any business disruption, litigation or natural disaster might result in substantial costs and diversion of resources.
 
 China YCT International Group is not likely to hold annual shareholder meetings in the next few years.
 
 The current members of the Board of Directors were appointed to that position by the previous directors.  If other directors are added to the Board in the future, it is likely that the current directors will appoint them.  As a result, the shareholders of China YCT International Group will have no effective means of exercising control over the operations of China YCT International Group.
 
 10
 
 ITEM 1B                   UNRESOLVED STAFF COMMENTS
 Not Applicable.
 
 ITEM 2.                      DESCRIPTION OF PROPERTY
 
 Shandong Spring Pharmaceutical operates on a property of approximately 1700 acres that it occupies under a 50 year lease.  Besides housing our executive offices, the property is home to a manufacturing facility measuring 17,200 m2and a research facility measuring 3,000 m2.
 
 ITEM 3.                      LEGAL PROCEEDINGS
 
 None.
 
 ITEM 4.                      SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
 No matter was submitted to a vote of our shareholders during the fourth quarter of fiscal 2010.
 
 PART II
 
 ITEM 5.
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
 
 (a)  Market Information.
 
 Our common stock was  listed for quotation on the OTC Bulletin Board until March 26, 2010..  It is currently listed under the trading symbol “CYIG” on the Pink Sheets.   Set forth below are the high and low bid prices for each of the fiscal quarters since April 1, 2008.  The reported bid quotations reflect inter-dealer prices without retail markup, markdown or commissions, and may not necessarily represent actual transactions.
 
 
 11
 
 
 Period

High


LowApril 1, 2008 to June 30, 2008

$
5.00


$
0.51July 1, 2008 to September 30, 2008

$
3.00


$
0.12October 1, 2008 to December 31, 2008

$
1.61


$
0.35January 1, 2009 to March 31, 2009

$
1.49


$
0.35April 1, 2009 to June 30, 2009

$
1.26


$
0.52July 1, 2009 to September 30, 2009

$
1.16


$
0.10October 1, 2009 to December 31, 2009

$
1.05


$
0.10January 1, 2010 to March 31, 2010

$
1.32


$
0.85
 
 12
  
 (b)  Holders.   Our shareholders list contains the names of 769 registered stockholders of record of the Company’s Common Stock.
 
 (c)  Dividend Policy.  China YCT International Group has  not declared or paid cash  dividends or made distributions  in the  past,  and we do not  anticipate  that we will  pay  cash dividends or make  distributions in the foreseeable  future. We currently intend to retain and reinvest future earnings, if any, to finance our operations.
 
 (d)  Equity Compensation Plan Information
 
 The information set forth in the table below regarding equity compensation plans (which include individual compensation arrangements) was determined as of March 31, 2010.
 
 Number of securities to be issued upon exercise of outstanding options, warrants and rights
Weighted average exercise price of outstanding options, warrants and rights
Number of securities remaining available for future issuance under equity compensation plansEquity compensation plans approved by security holders
0

0Equity compensation plans not approved by security holders
0

0Total
0

0
 
 (e) Recent Sales of Unregistered Securities.
 
 None.
 
 (f) Repurchase of Equity Securities.  The Company did not repurchase any of its equity securities that were registered under Section 12 of the Securities Act during the 4th quarter of fiscal 2010.
 
 ITEM 6.                      SELECTED FINANCIAL DATA
 
 Not applicable.
 
 
 13
 
 
 ITEM 7.                      MANAGEMENT'S DISCUSSION AND ANALYSIS.
 
 Results of Operations
 
 Net Sales
 
 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.
 
 
 14
 
 
 Cost of Good Sold
 
 Our costs of revenue consist of the cost of manufacturing Huoliyuan Capsule and the cost of finished goods purchased from Shandong Yong Chun Tang and our direct labor overhead and other expenses. For the year ended March 31, 2010, our cost of good sold totaled $14,201,533, representing an increase of 2,877,946 or 25% as compared to $11,323,587 for the same period of 2009. However, the percentages of the costs of good sold to total revenues basically remained unchanged from quarter to quarter. Our cost ratio is relatively steady. It is primarily attributable to the steady relationship between us and our major supplier, Shandong Yong Chun Tang. As a result, we are always able to acquire products from a reliable source. The cost of manufacturing Huoliyuan Capsule was approximately 10% of the total cost of good sold.
 
 Gross Profit
 
 Gross profit for the year ended March 31, 2010 was $17,810,871, an increase of 23% or $3,317,011 as compared to the same period for the prior year. Because of the steady cost ratio, the increase in gross profit is primarily due to the increased sales volume for the quarter. Gross profit as a percentage of net revenues was approximately 56% for the year ended March 31, 2010. Our gross margin largely remained the same as compared to the same period of 2009.
 
 Research and Development Expenses.
 
 Our R&D expenses for the year ended March 31, 2010 and 2009 were $322,270 or approximate 1% of total corresponding revenue and $181,531 or approximately 0.7% of total corresponding revenue, respectively. As compared to the same period of 2009, our R&D expenses increased by $140,739. The increase is the result of utilizing additional outside experts during the period.
  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. As of March 31, 2010, we have 19 R&D staff. Our R&D staff is currently engaged in research and development of new technologies and resulting products. In addition, we maintain close ties to the research staffs at Tsinghua University, China Agriculture University, Shandong Herbal Medicine University, and the Shandong Herbal Medicine Research Institute.
 
 Selling, General and Administrative Expenses.
 
 During the year ended March 31, 2010, we efficiently managed our overall SG&A expense. Our SG&A expenses consist primarily of sales commissions, advertising and promotion expenses, freight charges and related compensation. Our overall SG&A expenses for year ended March 31, 2010 were $4,840,145 or 15% of our total revenue for the period, representing an increase of 1% as compared with the SG&A expenses ratio for the same period of the year earlier.
 
 
 15
 
 
 Our G&A expenses for the year ended March 31, 2010 increased by 87% or $591,287 as compared to the prior year. These increases were primarily a result of the overhead incurred in developing and maintaining the facilities for the manufacture of Huoliyuan Capsule, as compared to the fact that the Company did not have such expense previously. Other reasons include:
 
 ·
Increased advertising expenses, which we incurred in order to enhance our promotion force.
 
 ·
Increased salary, which we instituted in order to inspire our marketing staff.·
Increased  travel expenses, again resulting from nationwide cost increases.
 
 Net Income
 
 For the year ended March 31, 2010, we realized $9,453,059 in net income, representing a 26% or $1,971,516 increase as compared to $7,481,543 for the year ended March 31, 2009. The increase was in compliance with the increased sales during the year.
 
 Our business operates entirely in Chinese Renminbi, 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 “other comprehensive income,” 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 year ended March 31, 2010, the effect of converting our financial results to Dollars was to add $22,188 to our other comprehensive income.
 16
 
 
 Liquidity and Capital Resources
 
 As of March 31, 2010, Shandong Spring Pharmaceutical had $8,557,543 in working capital, a decrease of $2,442,837 or 22% as compared to the working capital as of March 31, 2009. The decrease was primarily due to the increase in accounts payable caused by the acquisition of manufacturing equipment for Huoliyuan Capsule operation. The accounts payable increased to $2,299,928 by $1,843,360 or 404% for March 31, 2010, as compared to the previous year. As of March 31, 2010, cash and cash equivalents were $11,911,933, an increase by $1,863,553 or 18% from $10,048,380 as of March 31, 2009.
 
 Based on our current operating plan, we believe that existing cash and cash equivalents balances, as well as cash forecast by management to be generated by operations will be sufficient to meet our working capital and capital requirements for our current operations. Our operations have produced positive cash flow, with $14,097,423 provided by operating activities for the year ended March 31, 2010. We did not have accounts receivable outstanding as of March 31, 2010. We expect our marketing activities to continue to operate cash-positively. We commenced our own manufacturing operations during this year, which has put some pressure on our cash flow. In the ongoing basis, we may be required to seek additional capital and reduce certain spending as needed. 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 $10 million. To fully implement our business plan - including development of a facility to utilize our proprietary method of extracting flavones from ginkgo by using enzyme technology - we will need $40 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 require. At the present time, however, we do not have commitments of funds from any source.
 
 The following table sets forth a summary of our cash flows for the periods indicated:
 
 Years ended March 31,2010


2009Net cash provided by operating activities

$
14,097,423


$
9,614,495Net cash provided by(used in)  investing activities

$
(12,262,021)


$
(1,330,350
)Net cash provided by financing activities

$
0


$
0Effect of exchange rate change on cash and cash equivalents

$
28,151


$
149,899Net increase in cash and cash equivalents

$
1,863,553


$
8,434,044Cash and cash equivalents, beginning balance

$
10,048,380


$
1,614,336Cash and cash equivalents, ending balance

$
11,911,933


$
10,048,380
 
 Operating Activities
 
 Net cash provided by operating activities was $14,097,423 for the year ended March 31, 2010, which was an increase of 46% or $4,482,928 from the $9,614,495 net cash provided by operating activities for the same period a year earlier. The increase was mainly attributable to the increase of annual net income. The collection of accounts receivable of $2,075,549 from related parties, and the increase of $1,843,360 in accounts payable also preserved cash for the Company's business operation.
  17
 
 Investing Activities
 
 During the year ended March 31, 2010, our net cash used in investing activities was $12,262,021, as compared to $1,330,350 of net cash used in investing activities for the year ended March 31, 2009. This change was primarily due to the fact that in March 2010, the Company purchased a patent from Shandong YCT for $6,738,643.  In addition, the Company used $5,523,378 in cash for the purchase of plant and operating equipment.
 
 The Company's property and equipment assets increased by 21% or $895,481 from $4,138,115 to $5,033,596 year over year as of March 31, 2010. During 2010, the construction in progress and the Company's intangible assets increased to $4,627,665 and $8,093,111 from $211,378 and $1,411,273 respectively. The revenue generated from the resale of Shandong YCT's  products still comprised the overwhelming proportion of our total annual revenue in the year of 2010.
 
 As of March 31, 2010, the Company has collected all accounts receivable in the amount of $2,075,549 from Shandong YCT and Changqing Paper Co., Ltd. Shandong YCT and Changqing Paper Co., Ltd are two affiliated companies owned by our chairman and controlling shareholder, Mr. Yan Tinghe.  Prior to the completion of the Company’s own plant, Shandong YCT will keep providing products to the Company for resale and makes settlement upon our sales of goods.
 
 Financing Activities
 
 No net cash was generated or used by financing activities over the year ended March 31, 2010.
 
 Stockholder’s Equity
 
 On May 11, 2009, June 29, 2009, and December 30, 2009, the Company issued 20,000, 25,000, and 36,231 shares of common stock in the form of restricted shares to the 3 independent directors as compensation for their services. The shares were valued at the average closing market price of the common stock for the five trading days preceding and including the date stock was issued.
 
 The total amount of the compensation in the form of issuing shares of common stock to the independent directors was $75,522 for the year ended March 31, 2010.  There was no common stock compensation to the independent directors for the year ended March 31, 2009.
 
 Off-Balance Sheet Arrangements
 
 We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition or results of operations.
 
 
 18
 
 
 Critical Accounting Policies and Estimates
 
 We have made no material changes to our critical accounting policies in connection with the preparation of financial statements for fiscal year 2010.
 
 New Accounting Pronouncements
 
 In May 2009, the Financial Accounting Standards Board (FASB) issued guidance related to subsequent events under ASC 855-10, Subsequent Events. This guidance sets forth the period after the balance sheet date during which management or a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date, and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. It requires disclosure of the date through which an entity has evaluated subsequent events and the basis for that date, whether that date represents the date the financial statements were issued or were available to be issued. This guidance is effective for interim and annual periods ending after June 15, 2009. We have included the required disclosures in our consolidated condensed financial statements.
 
 In June 2009, the FASB issued an amendment to ASC 810-10, Consolidation. This guidance amends ASC 810-10-15 to replace the quantitative-based risks and rewards calculation for determining which enterprise has a controlling financial interest in a VIE with a primarily qualitative approach focused on identifying which enterprise has the power to direct the activities of a VIE that most significantly impact the entity’s economic performance. It also requires ongoing assessments of whether an enterprise is the primary beneficiary of a VIE and requires additional disclosures about an enterprise’s involvement in VIEs. This guidance is effective as of the beginning of the reporting entity’s first annual reporting period that begins after November 15, 2009 and earlier adoption is not permitted. We are currently evaluating the potential impact, if any, of the adoption of this guidance will have on our consolidated condensed financial statements.
 
 In June 2009, the FASB issued Accounting Standards Update No. 2009-01 which amends ASC 105, Generally Accepted Accounting Principles. This guidance states that the ASC will become the source of authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities. Once effective, the Codification’s content will carry the same level of authority. Thus, the U.S. GAAP hierarchy will be modified to include only two levels of U.S. GAAP: authoritative and non-authoritative. This is effective for financial statements issued for interim and annual periods ending after September 15, 2009. We adopted  ASC 105 as of September 30, 2009 and thus have incorporated the new Codification citations in place of the corresponding references to legacy accounting pronouncements.
 
 In August 2009, the FASB issued Accounting Standards Update No. 2009-05, Measuring Liabilities at Fair Value, which amends ASC 820, Fair Value Measurements and Disclosures. This Update provides clarification that in circumstances in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure the fair value using one or more of the following techniques: a valuation technique that uses the quoted price of the identical liability or similar liabilities when traded as an asset, which would be considered a Level 1 input, or another valuation technique that is consistent with ASC 820. This Update is effective for the first reporting period (including interim periods) beginning after issuance. Thus, we adopted this guidance as of September 30, 2009, which did not have a material impact on our consolidated condensed financial statements.
 
 In September 2009, the FASB amended existing authoritative guidance to improve financial reporting by enterprises involved with variable interest entities and to provide more relevant and reliable information to users of financial statements. The amended guidance is effective for fiscal annual reporting periods beginning after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter. The Company is currently assessing the impact, if any, adoption may have on its financial statements or disclosures.
 
 ITEM 7A             QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
 Not applicable.
 
 
 19
 
 
 
 ITEM 7.                           FINANCIAL STATEMENTS
 China YCT International Group, Inc.
 
 Consolidated Financial Statements
 
 March 31, 2010 and 2009
 
 
 
 
 
 PageReport of Independent Registered Public Accounting Firm - GZTY CPA Group, LLC
F-1Report of Independent Registered Public Accounting Firm - Bagell, Joseph, Levine & Co, LLP
F-2Consolidated Balance Sheets as of March 31, 2010 and 2009
F-2Consolidated Statements of Income for the Years Ended March 31, 2010 and 2009
F-3Consolidated Statements of Stockholders' Equity for the Years Ended March 31, 2010 and 2009
F-4Consolidated Statements of Cash Flows for the Years Ended March, 2010 and 2009
F-5Notes to Consolidated Financial Statement
F-6-F-16
 
 20
 
 
 
  
 
 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 To the Board of Directors
 China YCT International Group, Inc.
 
 We have audited the accompanying balance sheets of China YCT International Group, Inc. as of March 31, 2010, and the related statements of income, stockholders' equity and comprehensive income, and cash flows for the year ended March 31, 2010. The management of China YCT International Group, Inc. is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.
 
 We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
 In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of China YCT International Group, Inc. as of March 31, 2010, and the results of its operations and its cash flows for period ended March 31, 2010 in conformity with accounting principles generally accepted in the United States of America.
 
 /s/ GZTY CPA GROUP, LLC
 GZTY CPA GROUP, LLC
 Metuchen, New Jersey
 October 12, 2010
 
 F-1
 
 
 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 To the Board of Directors and Stockholders of
 China YCT International Group, Inc.
 
 We have audited the accompanying balance sheets of China YCT International Group, Inc. as of March 31, 2009 and the related statements of income, stockholders’ equity and comprehensive income, and cash flows for the year ended March 31, 2009. China YCT International Group, Inc.’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.
 
 We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
 In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of China YCT International Group, Inc. as of March 31, 2009 and 2008, and the results of its operations and its cash flows for each of the years in the two-year period ended March 31, 2009 in conformity with accounting principles generally accepted in the United States of America.
 
 
 /s/Bagell Josephs, Levine & Company, LLC
 Bagell Josephs, Levine & Company, LLC
 
 Marlton, New Jersey
 
 June 15, 2009
 
 
 F-2
 
 
 CHINA YCT INTERNATIONAL GROUP, INC.

CONSOLIDATED BALANCE SHEETSYEAR ENDED MARCH 31,2010


2009AssetsCurrent assets:Cash and cash equivalent

$
11,911,933


$
10,048,380Prepaid accounts


91,962Inventory


324,855



8,347Other receivable from related parties


-



2,075,549Total current assets


12,328,750



12,132,276Plant, property and equipment, net


5,033,596



4,138,115Construction in progress


4,627,665



211,378Intangible assets, net


8,093,111



1,411,273Total assets


30,083,122



17,893,042Liabilities and Stockholders Equity (Deficit)Liabilities:Current liabilities:Accounts payable


2,299,928



456,568Tax payable


1,204,097



485,438Other payable


267,182



189,890Total current liabilities


3,771,207



1,131,896Stockholders’ EquityPreferred stock, par value $500.00 per share; 45 shares authorized and issued at March 31, 2010 and 2009


22,500



22,500Common stock, par value $0.001 per share; 29,461,304 shares authorized and issued at March 31, 2010;  29,380,073 shares issued at March 31, 2009.


29,461



29,380Additional paid-in capital


4,138,480



4,063,039Statutory reserve


956,633Retained earnings


20,012,077



11,515,651Accumulated other comprehensive income


1,152,764



1,130,576Total stockholders’ equity


26,311,915



16,761,146Total liabilities and stockholders’ equity

$
30,083,122


$
17,893,042
 The accompanying notes are an integral part of these consolidated financial statements
  
 F-3
 
 
 
 CHINA YCT INTERNATIONAL GROUP, INC.

CONSOLIDATED STATEMENT OF OPERATIONSFOR THE YEARS ENDED MARCH 31,2010


2009Sales Revenue

$
32,012,404


$
25,817,447Cost of Goods Sold


14,201,533



11,323,587Gross Profit


17,810,871



14,493,860-Selling Expenses


3,570,477



3,488,941G&A Expense


1,269,668



678,381R&D Expenses


322,270



181,531Total expense


5,162,415



4,348,853Income from operation


12,648,456



10,145,007Interest expense


-Other income (Expense)


21,345



(83,798
)Profit before tax


12,669,801



10,061,209Income tax


3,216,742



2,579,666Net income


9,453,059



7,481,543Other comprehensive incomeForeign currency translation adjustment


22,188



272,813Compenhensive income

$
9,475,247


$
7,754,356Basic and diluted income per common shareBasic and Diluted


0.32



0.26Weighted average number of common shares outstandingBasic and Diluted


29,425,695



29,380,073
 The accompanying notes are an integral part of these consolidated financial statements
  
 F-4
 
 
 CHINA YCT INTERNATIONAL GROUP, INC.CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITYPreferred Stock Series A


Common shares


Additional paid in


Statutory


Accumulated


Retained


TotalShares


Amount


Shares


Amount


capital


Reserve


OCI


EarningsBalance - March 31, 2008


45


$
22,500



81,231


$
29,380


$
4,063,039





$
857,763


$
4,034,108


$
9,006,790Comprehensive incomeNet income for the year





























7,481,543



7,481,543Foreign currency translation adjustment

























272,813







272,813Balance - March 31, 2009


45



22,500



29,380,073



29,380



4,063,039






1,130,576



11,515,651



16,761,146Issuance of common shares to independent directors



81,231



81



75,441














75,522Net income for the year





























9,453,059



9,453,059Statutory reserve






















956,633







(956,633
)


-Foreign currency translation adjustment


























22,188







22,188Balance - March 31, 2010


45


$
22,500



29,461,304


$
29,461


$
4,138,480


$
956,633


$
1,152,764


$
20,012,077


$
26,311,915
 The accompanying notes are an integral part of these consolidated financial statements
  
 F-5
 
 
 
 CHINA YCT INTERNATIONAL GROUP, INC.

CONSOLIDATED STATEMENT OF CASH FLOWYEAR ENDED MARCH 31,2010


2009Cash Flows From Operating Activities:Net income

$
9,453,059


$
7,481,543Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization


262,452



180,332Issue of common shares as compensation


75,522Changes in operating assets and liabilities:Inventory


(316,508
)


728,807Advance to suppliers


(91,962
)


834,284Other receivable from related parties


2,075,549



(52,806
)Accounts payable


1,843,360



396,880Customer deposit






(33,742
)Taxes payable


718,659



(77,697
)Accrued expenses and other payables


77,292



156,894Net cash provided by (used in) operating activities


14,097,423



9,614,495Cash flows from investing activities:Addition to plant and equipment


(5,523,378
)


(1,330,350
)Purchase of patent from related party


(6,738,643
)


-Net cash provided by (used in) investing activities


(12,262,021
)


(1,330,350
)Effect of exchange rate changes on cash and cash equivalents


28,151



149,899Net increase (decrease) in cash and cash equivalents


1,863,553



8,434,044Cash and cash equivalents at beginning of period


10,048,380



1,614,336Cash and cash equivalents at ending of period

$
11,911,933


$
10,048,380Supplemental disclosures of cash flow information:Cash paid during the periods for:Interest


0



0Income taxes

$
2,668,826


$
2,608,665
 The accompanying notes are an integral part of these consolidated financial statements
 
 F-6
 
 
 CHINA YCT INTERNATIONAL GROUP, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED MARCH 31, 2010 AND 2009
 
 NOTE 1 - ORGANIZATION AND PRINCIPAL ACTIVITIES
 
 China YCT International Group, Inc. (“China YCT”) was incorporated in the State of Florida, in the United States (the “US”) in January 1989.   China YCT principally operates through the following directly owned subsidiaries: Landway Nano Bio-Tech, Inc. (100% owned), incorporated in Delaware, in United States, and Shandong Spring Pharmaceutical Co., Ltd. (“Shandong Spring”), (100% owned), incorporated in the People’s Republic of China (“PRC”). China YCT International Group, Inc. and its subsidiaries are collectively referred to as the “Company.”
 
 China YCT, through its wholly owned subsidiary, Shandong Spring, is engaged in the business of developing, manufacturing and marketing gingko and other dietary supplement products in the PRC.
 
 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 could differ from those estimates. Significant accounting estimates reflected in the Company’s consolidated financial statements include: the valuation of inventory, and estimated useful lives and impairment of property and equipment and intangible assets.
 
 Cash and cash equivalents
 
 For purposes of the statement of cash flow, the Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.
 
 
 F-7
 
 
 Accounts receivable
 
 Accounts receivable are stated at net realizable value. An allowance for doubtful accounts is established based on the management’s assessment of the recoverability of accounts and other receivables. A considerable amount of judgment is required in assessing the realization of these receivables, including the current credit worthiness of each customer and the related aging analysis. The Company had no accounts receivable as of March 31, 2010 and 2009.
 
 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. Depreciation is calculated using the straight-like method over the following useful lives:
 
 Buildings and improvements
30-35 yearsMachinery, equipment and automobiles
7-15 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” to occupy, develop and use 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)Patent:
 
 The patent is the Company’s 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, and was purchased from Shandong YCT in March 2010.  The patent was recorded at cost when purchased, and is being amortized over the shorter of its remaining legal life, 16.5 years, or its useful life, on a straight-line basis.
 
 
 F-7
 
 
 Revenue recognition
 
 The Company’s revenue recognition policies are in compliance with Staff Accounting Bulletin (“SAB”) 104, included in the Codification as ASC 605, Revenue Recognition. Sales revenue is recognized at the date of shipment to customers when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, no other significant obligations of the Company exist and collectability is reasonably assured. Payments received before all of the relevant criteria for revenue recognition are recorded as customer deposits.
 
 Unearned revenue
 
 Revenue from the sale of goods or services is recognized at the time that goods are delivered or services are rendered. Receipts in advance for goods to be delivered or services to be rendered in a subsequent period are carried forward as unearned revenue.
 
 Impairment of long-lived assets
 
 The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may no longer be recoverable. An impairment loss, measured based on the fair value of the asset, is recognized if expected future undiscounted cash flows are less than the carrying amount of the assets.
 
 Income taxes
 
 The Company accounts for income tax under the asset and liability method as stipulated by Accounting Standards Codification (“ASC”) 740 formerly Statement of Financial Accounting Standards (”SFAS”) No. 109, “Accounting for Income Taxes”, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of the events that have been included in the financial statements or tax returns.  Deferred income taxes are recognized for all significant temporary differences between tax and financial statements bases of assets and liabilities.  Valuation allowances are established against net deferred tax assets when it is more likely than not that some portion or all of the deferred tax asset will not be realized. There were no deferred tax amounts at March 31, 2010 and 2009, respectively.
 
 Value-added tax
 
 Sales revenue represents the invoiced value of goods, net of a Value-Added Tax (“VAT”). All of the Company’s products that are sold in the PRC are subject to a Chinese value-added tax at a rate of 4% 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.
 
 
 F-8
 
 
 The Company did not have any recorded VAT Payable or VAT receivable net of payments in the financial statements. The VAT tax return is usually filed offsetting the payables against the receivables.
 
 Research and development
 
 Research and development costs are related primarily to the Company’s developing 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, 2010 and 2009 was $322,270 and $181,531, respectively.
 
 Advertising costs
 
 Advertising costs for newspaper and television are expensed as incurred.  The Company incurred advertising costs of $973,580 and $1,372,580 for the years ended March 31, 2010 and 2009, respectively.
 
 Mailing and handling costs
 
 The Company accounts for mailing and handling fees in accordance with the FASB ASC 605-45 (Emerging Issues Task Force (EITF) Issue No. 00-10, Accounting for Shipping and Handling Fees and Costs). The Company includes shipping and handling fees billed to customers in net revenues. Amounts incurred by the Company for freight are included in cost of goods sold.For the years ended March 31, 2010 and 2009, the Company incurred $1,425,597 and $1,123,018 mailing and handling costs, respectively.
 
 Net income (loss) per 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 EPS reflects 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 are no common stock equivalents available for dilution purposes as of March 31, 2010 and 2009.
 
 Risks and uncertainties
 
 The Company’s operations are carried out in the PRC. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environments in the PRC, and by the general state of the PRC’s economy. The Company’s operations in the PRC are subject to specific considerations and significant risks not typically associated with companies in the North America and Western Europe. These include risks associated with, among others, the political, economic and legal environments and foreign currency exchange. The Company’s results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.
 
 
 F-9
 
 
 Fair Value of Financial Instruments
 
 For certain of the Company’s financial instruments, including cash and cash equivalents, restricted cash, accounts receivable, accounts payable, accrued liabilities and short-term debt, the carrying amounts approximate their fair values due to their short maturities.
 
 ASC Topic 820, “Fair Value Measurements and Disclosures,” requires disclosure of the fair value of financial instruments held by the Company. ASC Topic 825, “Financial Instruments,” defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures.  The carrying amounts reported in the consolidated balance sheets for receivables and current liabilities each qualify as financial instruments and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest. The three levels of valuation hierarchy are defined as follows:
 
 Level 1 inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets.
 
 Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
 
 Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement.
 
 As of March 31, 2010, the Company did not identify any financial instruments that are required to be presented on the balance sheet at fair value other than those whose carrying amounts approximate fair value due to their short maturities.
 
 Foreign currency translation
 
 The accounts of the Company’s Chinese subsidiary are maintained in the RMB and the accounts of the U.S. parent company are maintained in the USD. The accounts of the Chinese subsidiary were translated into USD in accordance with Accounting Standards Codification (“ASC”) Topic 830 “Foreign Currency Matters,” with the RMB as the functional currency for the Chinese subsidiary. 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 translations of foreign currency transactions and balances are reflected in the statements of income.
 
 F-10
 
 
 
 Translation adjustments resulting from this process amounted to $1,152,764 and $1,130,576 as of March 31, 2010 and 2009, respectively.
 
 The following exchange rates were adopted to translate the amounts from RMB into United States dollars (“USD$”) for the respective years:
 
 March 31, 2010


March 31, 2009Year End RMB Exchange Rate (RMB/USD$)


6.8263



6.8336Average Yearly RMB Exchange Rate (RMB/USD$)


6.8290



6.8678
 
 New accounting pronouncements
 
 In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments. This FSP amends SFAS No. 107, Disclosures about Fair Value of Financial Instruments, to require an entity to provide disclosures about the fair value of financial instruments in interim financial information. This FSP also amends Accounting Principles Board Opinion No. 28, Interim Financial Reporting, to require those disclosures in summarized financial information at interim reporting periods. FSP FAS 107-1 and APB 28-1 are effective for interim periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009.  Effective April 1, 2009, the Company adopted this pronouncement.  The adoption of this pronouncement did not have any significant impact on the Company’s financial condition or results of operations.
 
 Effective April 1, 2009, the Company adopted an authoritative pronouncement issued by the FASB regarding recognition and presentation of other-than-temporary impairments. The pronouncement amends the other-than-temporary impairment pronouncement in US GAAP for debt securities to make the pronouncement more operational, and improves the presentation and disclosure of other-than-temporary impairments on debt and equity securities in financial statements. The adoption of this pronouncement did not have any significant impact on the Company’s financial condition or results of operations.
 
 Effective April 1, 2009, the Company adopted an authoritative pronouncement issued by the FASB regarding determining fair value when the volume and level of activity for the asset or liability have significantly decreased and identifying transactions that are not orderly. The pronouncement provides clarification on estimating fair value when the volume and level of activity for the asset or liability have significantly decreased and on identifying circumstances that indicate a transaction that is not orderly. The pronouncement emphasizes that even if there has been a significant decrease in the volume and level of activity for the asset or liability and regardless of the valuation technique(s) used, the objective of a fair value measurement remains the same. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under the then current market conditions. The adoption of this pronouncement did not have any significant impact on the Company’s financial condition or results of operations.
 
 Effective April 1, 2009, the Company adopted an authoritative pronouncement issued by the FASB regarding subsequent events. The objective of the pronouncement is to establish general standards for the accounting and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. In particular, the pronouncement sets forth the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. The adoption of this pronouncement did not have any significant impact on the Company’s financial condition or results of operations.
 
 F-11
 
 
 
 Effective July 1, 2009, the Company adopted the new Accounting Standards Codification (the “ASC”) as issued by the FASB. The ASC has become the source of authoritative US GAAP recognized by the FASB to be applied by nongovernmental entities and provides that all such pronouncements carry an equal level of authority. The ASC is not intended to change or alter existing GAAP. The ASC is effective for interim and annual periods ending after September 15, 2009. Adoption of ASU No. 2009-01 only changed the referencing convention of GAAP in Notes to the Consolidated Financial Statements, and did not have any significant impact on the Company’s financial condition or results of operations.
 
 In June 2009, the FASB issued an authoritative pronouncement that changes how a company determines whether an entity should be consolidated when such entity is insufficiently capitalized or is not controlled by the company through voting (or similar rights). The determination of whether a company is required to consolidate an entity is based on, among other things, the entity’s purpose and design and the company’s ability to direct the activities of the entity that most significantly impact the entity’s economic performance. The pronouncement retains the scope of previously issued pronouncements but added entities previously considered qualifying special purpose entities, since the concept of these entities was eliminated by FASB. The pronouncement is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2009. The Company does not expect the adoption of this pronouncement to have a significant impact on its financial condition or results of operations.
 
 In January 2010, the FASB issued authoritative guidance to improve disclosures about fair value measurements. This guidance amends previous guidance on fair value measurements to add new requirements for disclosures about transfers into and out of Levels 1 and 2 and separate disclosures about purchases, sales, issuances, and settlements relating to Level 3 measurement on a gross basis rather than on a net basis as currently required. This guidance also clarifies existing fair value disclosures about the level of disaggregation and about inputs and valuation techniques used
 
 to measure fair value. This guidance is effective for annual and interim periods beginning after December 15, 2009, except for the requirement to provide the Level 3 activities of purchases, sales, issuances, and settlements on a gross basis, which will be effective for annual and interim periods beginning after December 15, 2010. Early application is permitted and, in the period of initial adoption, entities are not required to provide the amended disclosures for any previous periods presented for comparative purposes. The Company does not expect the adoption of this pronouncement to have a significant impact on its financial condition or results of operations.
 
 
 F-12
 
 
 
 NOTE 3 - INVENTORY
 
 Inventory consists of finished goods, work-in-process, and raw materials. No allowance for inventory was made for the year ended March 31, 2010 and 2009.
 
 The components of inventories as of March 31, 2010 and 2009 were as follows:
 
 Years Ended March 31,2010


2009Raw materials

$
8,355


$
8,347Work-in-progress


77,333Finished goods


239,166Total Inventories

$
324,855


$
8,347
 
 NOTE 4 - PLANT, PROPERTY AND EQUIPMENT, NET
 
 The components of property and equipment as of March 31, 2010 and 2009 were as follows:
 
 Year Ended March 31,2010


2009Machinery & Equipment

$
477,089


$
459,628Furniture & Fixture


92,355



95,475Building


4,896,857



3,804,107Subtotal


5,466,301



4,359,210Less: Accumulated Depreciation


(432,705
)


(221,095
)Total plant, property and equipment, net

$
5,033,596


$
4,138,115
 
 The depreciation expense for the year ended March 31, 2010 and 2009 was $211,290 and $150,279, respectively.
 
 F-13
 
 
 
 NOTE 5 – CONSTRUCTION IN PROGRESS
 
 Construction in progress represents direct costs of construction or acquisition and design fees incurred for the Company’s 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.
 
 NOTE 6 - RELATED PARTY TRANSACTIONS
 
 As of March 31, 2009, the Company had loans to related parties, in the amount of $2,075,549, representing loans receivable from two affiliates as stated below:
 
 As of March, 312010


2009a) Loan receivable from Shandong YCT

$
-


$
1,124,367b) Loan receivable from Changqing Paper Co.,Ltd.

$
-


$
951,182Total Due to related parties

$
-


$
2,075,549
 
 Shandong YCT is an affiliated company owned by the chairman and controlling shareholder, Mr. Yan Tinghe.  Prior to the completion of the Company’s own plant, Shandong YCT provides products to the Company for resale and makes settlement upon sales of goods. The purpose of the loan was to finance Shandong YCT’s production. The loan bore no interest and was unsecured and due upon demand. The loan was fully repaid by Shandong YCT prior to March 31, 2010 ($951,182 was repaid on April 30, 2009, and $1,224,367 was repaid on May 31, 2009).
 
 In March 2010, the Company purchased a patent from Shandong YCT for US$6.74 million (equivalent to RMB 46 million). The purchase price was determined via a negotiation between China YCT and Shandong YCT based on a valuation price of US$11.14 million (equivalent to RMB 76 million).  The valuation of the patent was conducted by Beijing Northern Yashi Assets Appraisal Firm, an assets appraiser located in Beijing, with security business take-up license approved by China Finance Ministry and SEC. Based on evaluation result RMB 76 million, the Company purchased at RMB 46 million, with a discount offered by Shandong YCT.
 
 The patent represents an exclusive right 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.
 
 F-14
 
 
 
 NOTE 7 - MAJOR CUSTOMER AND VENDOR
 
 In 2010, the Company mainly sells products to individual retail customers through eight major distributors.
 
 The Company purchases the majority of its products from its affiliate company, Shandong YCT, according to the contract signed on December 26, 2006 between the Company and Shandong YCT. For the year ended March 31, 2009, Shandong YCT was the sole vendor to the Company. For the year ended March 31, 2010, the purchase amount from Shandong YCT amounted to US$ 12,530,495, representing 88% of the Company’s annual total purchase.
 
 NOTE 8 - INTANGIBLE ASSETS, NET
 
 The intangible assets of the Company consist of land use right and purchased patent.
 
 Net land use right and purchased patent were as follows:
 
 As of March 31,Amortization Period

2010


2009Land use right
50 years

$
1,486,603


$
1,492,566Less: Accumulated amortization



(104,057
)


(81,293
)Land use right, net



1,382,546



1,411,273Purchased patent (at cost)
16.5 years


6,738,643Less: Accumulated amortization



(28,078
)Patent, net



6,710,565Intangible assets, net


$
8,093,111


$
1,411,273
 
 All land in the People’s Republic of China is government owned and cannot be sold to any individual or company. However, the government grants the user a “land use right” (the “Right”) to use the land. The Company has total land use right of RMB 10,148,000 (equivalent to $1,486,603) to use for 50 years and amortizes the Right on a straight line basis over 50 years.
 
 The amortization expense of land use right for the years ended March 31, 2010 and 2009 was $22,673 and $30,053, respectively.
 
 In March 2010, the Company purchased the patent from Shandong YCT for US$6.74 million (equivalent to RMB 46 million). The patent represents an exclusive right 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.
 
 F-15
 
 
 
 NOTE 9 - TAX PAYABLE
 
 Tax payable at March 31, 2010 and 2009 are as follows:
 
 As of March 31,2010


2009Corporate Income Tax

$
993,804


$
445,195Value-Added Tax


194,715



37,262Other Tax & Fees


15,577



2,981Total Tax Payable

$
1,204,097


$
485,438
 
 NOTE 10 - INCOME TAXES
 
 (i)United States
 
 China YCT International Group, Inc. is subject to the United States of America Tax law at tax rate of 34%. No provision for the US federal income taxes has been made as the Company had no US taxable income for the years ended March 31, 2010, and 2007, and management believes that its earnings from the operating company in PRC are permanently invested in the PRC.
 
 (ii)PRC
 
 Shandong Spring Pharmaceutical Co., Ltd is subject to the Enterprise income tax (“EIT”) at a statutory rate of 25%.
 
 For the years ended March 31, 2010 and 2009, Shandong Spring Pharmaceutical Co., Ltd. recorded income tax provisions of $3,216,742 and $2,579,666, respectively.
 
 
 F-16
 
 
 
 NOTE 11 - STOCKHOLDERS’ EQUITY
 
 Stock Issued to Independent Directors
 
 On May 11, 2009, June 29, 2009, and December 30, 2009, the Company issued 20,000, 25,000, and 36,231 shares of common stock in the form of restricted shares to the 3 independent directors as compensation for their services. The shares were valued at the average closing market price of the common stock for the five trading days preceding and including the date stock was issued.
 
 The total amount of the compensation in the form of issuing shares of common stock to the independent directors was USD$75,522 for the year ended March 31, 2010.  There was no common stock compensation to the independent directors for the year ended March 31, 2009.
 
 Statutory Reserve
 
 Subsidiaries incorporated in China are required to make appropriations to reserve funds, based on after-tax net income determined in accordance with generally accepted accounting principles of the People’s Republic of China (“PRC GAAP”).  Effective January 1, 2006, the Company is only required to contribute to one statutory reserve fund at 10% of net income after tax per annum, and any contributions are not to exceed 50% of the respective companies’ registered capital.
 
 As of March 31, 2010, the Company appropriated USD$956,633 to the statutory reserve.
 
 
 F-17
 
 
 ITEM 9.               CHANGES IN AND DISAGREEMENTS WITH   ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
 
 Not applicable.
 
 ITEM 9A.                   CONTROLS AND PROCEDURES.
 
 (a)           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 annual report (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 effective.
 
 (b)           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 fourth quarter of the year covered by this annual report, 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.
 
 (c)
Management’s Report on Internal Control over Financial Reporting.
 
 Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934.  We have assessed the effectiveness of those internal controls as of March 31, 2010, using the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) Internal Control – Integrated Framework as a basis for our assessment.
 
 Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.  All internal control systems, no matter how well designed, have inherent limitations.  Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
 
 32
 
 A material weakness in internal controls is a deficiency in internal control, or combination of control deficiencies, that adversely affects the Company’s ability to initiate, authorize, record, process, or report external financial data reliably in accordance with accounting principles generally accepted in the United States of America such that there is more than a remote likelihood that a material misstatement of the Company’s annual or interim financial statements that is more than inconsequential will not be prevented or detected. In the course of making our assessment of the effectiveness of internal controls over financial reporting, we identified one material weaknesses in our internal control over financial reporting.  This material weakness consisted of:
 
 Lack of expertise in U.S accounting principles among the personnel in our Chinese headquarters.  Our books are maintained and our financial statements are prepared by the personnel employed at our executive offices in Shandong Province in the People’s Republic of China.  Few of our employees have experience or familiarity with U.S accounting principles.  The lack of personnel in our Shandong office who are trained in U.S. accounting principles is a weakness because it could lead to improper classification of items and other failures to make the entries and adjustments necessary to comply with U.S. GAAP.
 
 Management is currently reviewing its staffing and their training in order to remedy the weaknesses identified in this assessment.  To date, we are not aware of significant accounting problems resulting from these weaknesses; so we have to weigh the cost of improvement against the benefit of strengthened controls.  However, because of the above conditions, management’s assessment is that the Company’s internal controls over financial reporting were not effective as of March 31, 2010.
 
 This annual report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting.  Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.
 
 ITEM 9B.                   OTHER INFORMATION.
 
 None.
 33
 
 PART III
 
 ITEM 10.                    DIRECTORS AND EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
 
 The following individuals are the members of China YCT International Group’s Board of Directors and its executive officers.
 
 Name

Age

Position with the Company
Director SinceYan Tinghe

57

Chairman, Chief Executive Officer
2007Li Chuanmin

46

President, Chief Financial Officer
2010Robert J. Fanella

59

Independent Director
2009Dr. Bai Junying

51

Independent Director
2009Zhang Wengao

67

Independent Director
2009
 
 All directors hold office until the next annual meeting of our shareholders and until their successors have been elected and qualify.  Officers serve at the pleasure of the Board of Directors.
 
 Yan Tinghe has over twenty years of experience in corporate management within the food and food supplements industries.  Having founded Shandong Spring Pharmaceuticals, he has served as its Chairman since January 2006.  During the eight years prior to founding Shandong Spring Pharmaceutical, Mr. Yan was employed as Chairman and General Manager of Shandong Yong Chun Tang Bioengineering Co., Ltd., which manufactures a wide variety of food supplements and is currently the exclusive supplier for Shandong Spring Pharmaceutical.  During the period from 1988 to 1997 Mr. Yan served as Executive Vice President of Shishui Sanyin Company, and from 1985 to 1987 as Factory Director of Beijing Shishui Lianhe Preserved Fruits, both of which were multi-facility enterprises in the food industry.
 
 34
 
 
 
 Li Chuanmin.  Mr. Li has been involved with corporate financial management and accounting for over 27 years.  Since 2005 he has been employed as Chief Financial Officer of the Registrant’s subsidiary, Shandong Spring Pharmaceutical Co., Ltd.  From 2000 to 2005 Mr. Li was employed as Chief Financial Officer of the Registrant’s affiliate, Shandong Yongchuntang Biotechnology Co., Ltd.  From 1998 to 2000 Mr. Li was a teacher at the Shandong Finance Institute.  From 1990 to 1998, he was employed by an accounting firm in Jining City.  Previously Mr. Li was employed in the accounting department of Shandong Sishui Materials Corporation.  In 1986 Mr. Li received a diploma from the Shandong Finance Institute.
 
 Robert J. Fanella, CPA was appointed to the post of the company’s independent directors effective from April 6, 2009. DuringMr. Fanella’s more than 35 year career specializing in corporate finance and accounting, he was responsible for audit and financial service oversight for both private and public traded companies world-wide, national and regional accounting and financial analysis and service. From 2008 to the present, Mr. Fanella has served as a senior consultant to an Illinois based LED Lighting Manufacturer, providing advice regarding  capital raising affairs, capitalization  at both the subsidiary and corporate level, and day-to-day financial operations. From 2006 to 2007, Mr. Fanella served  as a senior consultant at Chicago Industrial Plating Manufacturer, a more than 100 year old family owned company. In that position, Mr. Fanella was responsible for the resolving company’s short-term gap financing issues and working with external auditors to finalize the annual financial report. Prior to that, from 2001 to 2006, Mr. Fanella was co-owner and CFO of Tru-Way, Inc. During his tenure, Mr. Fanella  successfully conducted some acquisition deals and helped the company achieve annual revenue growth. From 1983 to 2001, Mr. Fanella was a co-founder and  CFO of Microenergy, Inc. At Microenergy, Inc., Mr. Fanella shared with the President total responsibility for all operations of the organization. As the CFO, Mr. Fanella was also  responsible for all accounting and SEC filings. Mr. Fanella earned his Bachelor Degree in Finance from North Illinois University in 1972, and he became a Certified Public Accountant in 1975. In 1979, Mr. Fanella received his MBA from the University of Chicago, specializing in Finance & Marketing.
 
 Bai Junying, Ph.D. in Pharmacy was appointed as an independent director of China YCT International Group on April 6, 2009. Over the last twenty years, Dr. Bai has held senior management roles in several companies, including as CEO of Shandong Dong-e E-jiao Group, CEO of Shandong Xinhua Pharmaceutical Co., Ltd., and head of the research and development department and subsequently vice executive manager of Lukang Pharmaceutical Group Co., Ltd.  Dr. Bai is currently the CEO of Shandong Dong E-jiao Group, a national well-know pharmaceutical and health care group. From 2000 to 2005, while Dr. Bai served at Shandong Xinhua Pharmaceutical Group Co., Ltd, where he was responsible for the daily operation of the company.  Dr. Bai successfully brought the company public and helped develop  the company into one of the leading pharmaceutical companies in China. As  Head of the R&D Department at Lukang Pharmaceutical Group from 1987 to 2000, Dr. Bai played a central role in the integration and development of an antibiotic injection agent, which made Lukang Pharmaceutical Group a national research center for antibiotics. In 1990, Dr. Bai obtained his Ph.D.  in Pharmacy from Beijing University Health Science Center.
 
 Zhang Wengao was appointed as an independent director of China YCT International Group on April 6, 2009. Mr. Zhang has over 30 years of experience in pharmaceutical, Chinese traditional medicine and diagnostic industries. Mr. Zhang is currently a full time professor of Shandong University of Traditional Chinese Medicine, specializing in clinical treatment via both Chinese and western methods. From 1985 to 1998 Professor Zhang was a dean of the research and development department of Shandong University of Traditional Chinese Medicine. Professor Zhang has received various awards within the clinical medicine field, including awards for  combining western clinical treatment with traditional Chinese medicine methods, and the 20th Geneva Invention Silver Award.  Professor Zhang has published more than 200 papers concerning  the advantages of Chinese traditional medicine in clinical treatment. Among his other engagements, Mr. Zhang is an associate commissioner of the International Chinese Medicine Association and director of the International Chinese Medicine Association Cardiovascular Committee. In 1968, Mr. Zhang received his bachelor degree majoring in Pharmacy from Shandong University of Traditional Chinese Medicine.
 
 35
 
 
 Nominating, Compensation and Audit Committees
 
 We have certain standing committees of the Board, each of which is described below.
 
 The Audit Committee consists of Robert J. Fanella, Zhang Wengao and Bai Junying.  Mr. Fanella serves as the chairman of the Audit Committee.  The Board has determined that each of the members of the Audit Committee satisfies the independence requirements of the NASDAQ Stock Market.  The Audit Committee oversees our accounting and financial reporting processes and procedures, reviews the scope and procedures of the internal audit function, appoints our independent registered public accounting firm and is responsible for the oversight of its work and the review of the results of its independent audits.  The Audit Committee was only recently constituted and did not meet during fiscal 2010.
 
 The Board of Directors has determined that Robert J. Fanella, who serves as Chairman of the Audit Committee, is an audit committee financial expert by reason of his experience in corporate finance.  Mr. Fanella is an independent director, within the definition of that term applicable to issuers listed on the NASDAQ Stock Market.
 
 The Compensation Committee consists of Robert J. Fanella, Zhang Wengao and Bai Junying.  Mr. Zhang serves as chairman of the Compensation Committee.  The Board has determined that each of the members of the Compensation Committee satisfies the independence requirements of the NASDAQ Stock Market.  The Compensation Committee oversees the Company’s policies regarding compensation and benefits, evaluates the performance of the Company’s executive officers, reviews and approves the compensation of the Company’s executive officers, and sets the compensation for members of the Board of Directors.  The Compensation Committee was only recently constituted and did not meet during fiscal 2010.
 
 The Nominating and Corporate Governance Committee consists of Robert J. Fanella, Zhang Wengao and Bai Junying.  Mr. Bai serves as chairman of the Nominating and Corporate Governance Committee.  The Board has determined that each of the members of the Nominating and Corporate Governance Committee satisfies the independence requirements of the NASDAQ Stock Market.  The Nominating and Corporate Governance Committee makes recommendations to the Board regarding nominees to be submitted to our shareholders for election at each annual meeting of shareholders, selects candidates for consideration by the full Board to fill any vacancies on the Board, and oversees all of our corporate governance matters.  The Nominating and Corporate Governance Committee was only recently constituted and did not meet during fiscal 2010.
 
 Code of Ethics
 
 The Board of Directors has not adopted a code of ethics applicable to the Company’s executive officers.  The Board believes that the small number of individuals involved in the Company’s management makes such a code unnecessary.
   
 
 Section 16(a) Beneficial Ownership Reporting Compliance
 
 None of the officers, directors or beneficial owners of more than 10% of the Company’s common stock failed to file on a timely basis the reports required by Section 16(a) of the Exchange Act during the year ended March 31, 2010, except that each member of the Board of Directors  failed to file a Form 3 when due.
 
 ITEM 11.                                EXECUTIVE COMPENSATION
 
 The following table sets forth all compensation awarded to, earned by, or paid by China YCT International Group, Ltd. and its subsidiaries to Yan Tinghe, its Chief Executive Officer, during the past three fiscal years. There were no executive officers whose total salary and bonus for the fiscal year ended March 31, 2010 exceeded $100,000.
 
 
 Fiscal

Year
Salary
Bonus
Stock

Awards
Option

Awards
Other

CompensationYan Tinghe
2009
$21,820
0
0
0
02008
$30,770
0
0
0
02007
$12,820
- -
- -
- -
- -
 
 Equity Awards
 
 There were no stock options acquired by the executive officers during the year ended March 31, 2010.
 
 37
 
 
 Remuneration of Directors
 
 The Board of Directors has agreed that it will issue to Dr. Bai Junying and Zhang Wengao, upon commencement of his service and on each anniversary of his commencement date, common shares with a market value equal to $10,000 cash plus $25,000 in the form of restricted shares of common stock.
 
 The Board of Directors has agreed that it will issue to Mr. Robert J. Fanella, upon commencement of his service and on each anniversary of his commencement date, common shares with a market value equal to $15,000 cash plus $40,000 in the form of restricted shares of common stock.
 
 
 ITEM 12.                                SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
 
 The following table sets forth information known to us with respect to the beneficial ownership of our common stock as of the date of this prospectus by the following:
 
 ·
each shareholder known by us to own beneficially more than 5% of our common stock;
 
 ·
Yan Tinghe, our Chief Executive Officer
 
 ·
each of our directors; and
 
 ·
all directors and executive officers as a group.
 
 Except as otherwise indicated, we believe that the beneficial owners of the common stock listed below have sole voting power and investment power with respect to their shares,  subject to community property laws where applicable.  Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission.
 
 Name and Address

Amount and Nature


Percentageof Beneficial Owner (1)

of Beneficial Ownership (2)


of ClassYan Tinghe


9,653,690



32.90
%Zhang Jirui


1,427,783



4.90
%Robert J. Fanella


20,000



0.07
%Dr. Bai Junying


12,500



0
%Zhang Wengao


12,500



0
%All officers and directorsas a group (5 persons)


11,126,473



37.87
%Warner Technology &


1,762,695



6.00
%Investment Corp.18 Quail RunWarren, NJ 07059
 
 (1)
Except as otherwise noted, each shareholder’s address is c/o Shandong Spring Pharmaceutical Co., Ltd., Economic Development Zone, Gucheng Road, Sishui County, Shandong Province, P.R. China.
 (2)           Except as otherwise noted, all shares are owned of record and beneficially.
 38
 
 
 ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
 
 Certain Relationships
 
 Our Chairman, Yan Tinghe, owns the registered capital of Shandong Yong Chun Tang and Changqing Paper Co., Ltd.  Since January 2007 the exclusive business activity of Shandong Spring Pharmaceutical has been the distribution of products manufactured by Shandong Yong Chun Tang.  In addition, Shandong Yong Chun Tang contributed the initial funds for the development of our manufacturing facility.  During the year ended March 31, 2010, Shandong Spring Pharmaceutical collected loans receivable of $2,075,549 from Shandong YCT and Changqing Paper Co., Ltd., a company owned by Mr. Yan Tinghe.
 
 Other than the aforesaid relationship, neither Yan Tinghe nor Zhang Jirui has engaged in any transaction with China YCT International Group or Shandong Spring Pharmaceutical during the past two fiscal years that had a transaction value in excess of $60,000.
 
 Director Independence
 
 The following members of our Board of Directors are independent, as “independent” is defined in the rules of the NASDAQ Stock Market:  Robert J. Fanella, Dr. Bai Junying, and Zhang Wengao.
 
 ITEM 14                      PRINCIPAL ACCOUNTANT FEES AND SERVICES
 
 Audit Fees
 
 GZTY CPA GROUP, LLC billed $59,000 to the Company for professional services rendered for the audit of fiscal 2010 financial statements. Friedman LLP billed $65,000  to the Company for professional services rendered for the audit of fiscal 2009 financial statements and review of the financial statements.
 
 Audit-Related Fees
 
 GZTY CPA GROUP, LLC billed $0 to the Company during fiscal 2010 for assurance and related services that are reasonably related to the performance of the fiscal 2010 audit. Friedman LLP  billed $0 to the Company during fiscal 2009 for assurance and related services that are reasonably related to the performance of the fiscal 2009 audit.
 
 Tax Fees
 
 GZTY CPA GROUP, LLC billed $0 to the Company during fiscal 2010 for professional services rendered for tax compliance, tax advice and tax planning.
 
 Friedman LLP billed $0 to the Company during fiscal 2009 for professional services rendered for tax compliance, tax advice and tax planning.
 
 All Other Fees
 
 GZTY CPA GROUP, LLC billed $0 to the Company in fiscal 2010 for services not described above.
 
 Friedman LLP billed $0 to the Company during fiscal 2009  for services not described above.
 
 It is the policy of the Company that all services other than audit, review or attest services must be pre-approved by the Board of Directors.  No such services have been performed by GZTY CPA GROUP, LLC or Friedman LLP during the years of 2010 and 2009.
 
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 ITEM 15.                                EXHIBITS
 
 3-a
Certificate of Incorporation - filed as an exhibit to the Company's Registration Statement on Form 8-A (SEC File No. 000-53600) and incorporated herein by reference.3-a(1)
Certificate of Amendment to Certificate of Incorporation - filed as an exhibit to the Company's Registration Statement on Form 8-A (SEC File No. 000-53600) and incorporated herein by reference.3-b
By-laws– filed as an exhibit to the Company's Registration Statement on Form 8-A (SEC File No. 000-53600) and incorporated herein by reference.14
China YCT International Group Code of Ethics21
Subsidiaries: Landway Nano Bio-Tech Group, Inc., a Delaware corporation;Shandong Spring Pharmaceutical Co., Ltd, a People's Republic of China corporation31.1
Rule 13a-14(a) Certification – CEO31.2
Rule 13a-14(a) Certification – CFO32
Rule 13a-14(a) Certification
 
 
 40
 
 
 SIGNATURES
 
 In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 CHINA YCT INTERNATIONAL GROUP, LTD.
 
 By:
 
 /s/ Yan Tinghe
 Yan Tinghe Chief Executive Officer
 
 /s/ Li Chuanmin,
 Li Chuanmin Chief Financial Officer
 
 In accordance with the Exchange Act, this Report has been signed below on March 1, 2011 by the following persons, on behalf of the Registrant and in the capacities and on the dates indicated.
 
 /s/ Yan Tinghe
 Yan Tinghe, Director
 Chief Executive Officer
 
 /s/ Li Chuanmin
 Li Chuanmin,
 Chief Financial Officer
 
 Robert J. Fanella
 /s/ Robert J. Fanella
 Director
 
 Dr. Bai Junying
 /s/ Bai Junying
 Director
 
 Zhang Wengao
 /s/ Zhang Wengao
 Director
 
 
 41