UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549





FORM
10-KSB





(Mark
one)





|X|           ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF
1934





For the fiscal year ended: March 31,
2008





or





|   |           TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF
1934





For the transition period from ______________ to _____________








Commission
file number: 33-27610-A





CHINA YCT INTERNATIONAL
GROUP, INC.


(Exact
name of small business issuer in its charter)










Delaware
            65-2954561(State of other
      juridisdiction of
            (IRS Employer
      Indentification No.)incorporation or
      organization)








c/o
      American Union Securities, Inc. 100 Wall Street, 15th Floor, New York,
      NY
            10005(Address of
      principal executive offices)
            (Zip
  Code)






Issuer's
telephone number: 212-232-012086-451-868-11118







Securities
registered pursuant to Section 12(b) of the Exchange Act: None





Securities
registered pursuant to Section 12(g) of the Exchange Act:





Common
Stock, $.001 par value





Check
whether the issuer is not required to file reports pursuant to Section 13 or
15(d) of the Exchange Act.     Yes | 
 |      No |X|





Check
whether the issuer (1) filed all reports  required to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past 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 [  ]





Check if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will 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-KSB or any  amendment to this Form
10-KSB.     |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
issuer’s revenues for its most recent fiscal year were $16,586,741.





The
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
sold, or the average bid and asked price of such common equity, as of June 25,
2008 was $78,683,980





The
number of shares outstanding of the issuer’s common stock, as of June 25, 2008
was 29,380,073.


DOCUMENTS
INCORPORATED BY REFERENCE:  None




Transitional
Small Business Disclosure Format (check
one):                                                           
Yes |   |     No |X|








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 “Managements Discussion and Analysis – Risk Factors That May
Affect Future Results.”
 
 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.                      DESCRIPTION
OF 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
Peoples 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.  Throughout the
2008 fiscal year, which ended on March 31, 2008, 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.
  On April 4, 2008, however, Shandong
Spring Pharmaceutical entered into an Entrusted Management Agreement with
Shandong Yong Chun Tang, effective as of April 1, 2008.  The agreement
provides that Shandong Spring Pharmaceutical will manage the operations of
Shandong Yong Chun Tang.  Included among its responsibilities will be
the appointment of members of the Board of Directors of Shandong Yong Chun Tang,
hiring of managerial and administrative personnel for Shandong Yong Chun Tang,
control of all of the assets of Shandong Yong Chun Tang, and obtaining loans and
other sources of financing for the operations of Shandong Yong Chun Tang, as
needed.  Shandong Springs Pharmaceutical also agreed to fund any
unpaid debts incurred hereafter by Shandong Yong Chun Tang and to fund any
shortfall between its net assets and its registered capital. In exchange
for the managerial services, Shandong Yong Chun Tang will pay to Shandong
Springs Pharmaceutical a fee equal to all of the net profits earned by Shandong
Yong Chun Tang.
   On the
same date, Shandong Spring Pharmaceutical and Shandong Yong Chun Tang entered
into a Purchase Option and Cooperation Agreement with Yan Tinghe, who is the
Chairman of China YCT International Group and the principal owner of Shandong
Yong Chun Tang.  The Purchase Option gives Shandong Spring
Pharmaceutical the right to purchase Shandong Yong Chun Tang at any time when
the transfer would be permitted by applicable laws.  The purchase
price for Shandong Yong Chun Tang would be the fair value price, which will be
determined by the parties at the time the option is exercised. Mr. Yan also gave
to the agents appointed from time to time by Shandong Spring Pharmaceutical a
proxy to exercise his voting rights as a shareholder of Shandong Yong Chun
Tang.
  The practical effect of the Entrusted
Management Agreement is to make Shandong Spring Pharmaceutical a
fully-integrated business engaged in the manufacture and distribution of health
and beauty aids.  At the same time, we are pursuing our long-term goal
of applying advanced biological engineering technology to the growth and
refining of gingko and the use of its constituent compounds in products that
will provide health benefits and/or cosmetic advantages.  When we have
brought that enterprise to fruition, the marketing networks that we have
established for our health and beauty aids will be available for our gingko
products.
  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 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 eight 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, 2008 we have invested
approximately $610,000 in research and development.  The immediate
result of our efforts has been three patents awarded by the Chinese
government:
  ·
              Patent
      No. ZL00 2 54604.3 for a gingko regimen
pill.
 ·
              Patent
      No. ZL2005 20082190.2 for a health
pill.
 ·
              Patent
      No. ZL02 2 14022.0 for a medicated magnetic health
  pill.
 
 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.
 ·
              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.
 
 Facilities
  Through March 31, 2008 we have invested
$3,151,923 in the development of our manufacturing and R&D facilities. We
have invested an additional $1,454,592 in the acquisition of our campus and
farm.  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.
  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.  When
completed, our manufacturing facility will have the capacity to process 100 tons
of gingko extract annually.
  The
greater portion of the property, 1,647 acres, is dedicated to agricultural use,
primarily the production of gingko.  Currently we produce 2,000 tons
of gingko leaves on our own farm facility, a number which is expected to
increase to 2,400 tons in 2008.  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.
  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 $82,000 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 38 products manufactured by Shandong Yong Chun
Tang.  Through March 31, 2008 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.  As of April 1, 2008,
however, the Entrusted Management Agreement gives Shandong Spring Pharmaceutical
complete management authority over the business of Shandong Yong Chun Tang,
including the authority to determine inter-company prices.
  The products that we are currently
distributing are primarily pills and teas that offer a variety of health
benefits.  The product line also includes moisturizing creams, masques
and cosmetics, as well as various toiletries such as shampoo and
toothpaste.  The largest selling product is a “magnetic
pill.”  No product dominates sales, although the magnetic pill
accounts for 20% of sales.
  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
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.
  China YCT
International Group maintains a mail-drop at the offices of American Union
Securities, Inc. in New York City.  We do not compensate American
Union Securities for this concession.
 
 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 2008.
  -
3 -
  PART
II


ITEM
      5.
              MARKET
      FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER
      PURCHASES OF EQUITY SECURITIES.
 
 (a)  Market
Information.
 
 Our
common stock has been listed for quotation on the OTC Bulletin Board since
February 23, 2007.  It is currently listed under the trading symbol
“CYIG.”Set
forth below are the high and low bid prices for each of the full and partial
fiscal quarters since February 23, 2007. The reported bid
quotations reflect inter-dealer prices without retail markup, markdown or
commissions, and may not necessarily represent actual
transactions.   The prices reflect the effect of a 1-for-28
reverse split of our common stock (which occurred on November 23, 2007) as if it
occurred on February 23, 2007.
  Period:
              
              High
              
              
              LowFeb.
      23, 2007 – Mar. 31, 2006
              
              $
              15.40
              
              
              $
              2.52Apr.
      1, 2007 – June 30, 2007
              
              $
              6.72
              
              
              $
              .84July
      1, 2007 – Sep. 30, 2007
              
              $
              1.68
              
              
              $
              .56Oct.
      1, 2007 – Dec. 31, 2007
              
              $
              5.45
              
              
              $
              .1.12Jan.
      1, 2008 – Mar. 31, 2008
              
              $
              5.50
              
              
              $
              4.45
  (b)  Holders.   Our
shareholders list contains the names of 740 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) Recent Sales of Unregistered
Securities.
 
 None.
  (e) 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 2008.
   ITEM
6.                      MANAGEMENT'S
DISCUSSION AND ANALYSIS.
 
 Results of Operations
  Fiscal year 2008 witnessed the
emergence of Shandong Spring Pharmaceutical as a marketing
force.  During the nine months ended December 31, 2006, it had not
operations, and commenced revenue-producing operations only in January
2007.  It realized $981,849 in revenue for the year ended March 31,
2007.  However, during fiscal year 2008, which ended on March 31,
2008, Shandong Spring Pharmaceutical realized $16,586,741 in revenue, including
$5,958,113 in the quarter ended March 31, 2008 and $5,381,028 in the quarter
ended December 31, 2007.  During those periods, no single product
accounted for more than 20% of our revenue, and a total of 38 products each
contributed to revenue, including both health care supplements, cosmetics and
toiletries.
  All of
the business reflected in the financial statements filed with this Report
consisted of 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
38 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 quarter to
quarter.
  Effective
April 1, 2008 the relationship between Shandong Spring Pharmaceutical and
Shandong Yong Chun Tang became governed by an Entrusted Management
Agreement.  Because Shandong Spring Pharmaceutical is entitled to the
net profits realized by Shandong Yong Chun Tang during the term of the
Agreement, our future filings will consolidate the results of the two
companies.  One effect will be to reduce our gross margin ratio from
that of a distribution company to that of a manufacturing company.  At
the same time, however, the ratio of our selling, general and administrative
expenses to our revenues should be reduced, which will aid
profitability.
  Our
selling, general and administrative expenses in the year ended March 31, 2008
were equal to 21.6% of our revenue.  Notwithstanding the efficiencies
that we expect to realize from the consolidation of our operations with those of
Shandong Yong Chun Tang, we expect that several factors will cause our selling,
general and administrative expenses to increase in the coming
months:
  ·
              If
      we are successful in obtaining the funds to complete our manufacturing
      facility, we will initiate manufacturing activities.  This will
      cause us to incur facility costs and the expense of administrative
      personnel.
  ·
              Although
      we have $3.1 million in property, plant and equipment on our balance
      sheet, we are not recording any significant amount of depreciation, since
      we have not put our facility into service yet.  When we commence
      manufacturing, we will begin to depreciate our property, plant and
      equipment – which will have a substantially larger book value at that time
      – and incur the expense as a general expense to the extent it is not
      allocable to cost of goods sold.
  ·
              The
      recent merger of Shandong Spring Pharmaceutical into a subsidiary of China
      YCT International Group has transferred to Shandong Spring Pharmaceutical
      the burden of paying the expenses associated with being a public company
      in the United States, including accounting and legal fees, and the expense
      of maintaining appropriate investor
  relationships.
  Our
operations produced net pre-tax income of $5,420,962 in fiscal year 2008,
compared to only $238,362 in fiscal year 2007.  In each period we
incurred income tax at the rate of 33%, although commencing in January 2008 the
rate was reduced to 25%.  The tax provisions left us with $3,886,342
net income for fiscal year 2008 ($.13 per share), compared to $147,587 in fiscal
year 2007.  In future periods we expect to become eligible for the tax
abatement that China affords newly-profitable companies – two years tax-free and
two years at 50% tax rate.  We cannot predict when we will obtain the
abatement, however, since it occurs only after a lengthy application
process.
  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 “accumulated 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.  In year ended March 31, 2008, the effect of converting our
financial results to Dollars was to add $696,468 to our accumulated other
comprehensive income.
   
   Liquidity and Capital
Resources
  At March
31, 2008 Shandong Spring Pharmaceutical had $4,518,956 in working capital, an
increase of $3,537,017 since the beginning of the fiscal year on April 1,
2007.  In addition to $1,614,336 in cash, the greater portion of our
current working capital consists of a debt of $1,095,760 due to us from Shandong
Yong Chun Tang, our supplier.  We expect that debt to be liquidated in
the future by delivery to us of products for resale, which will correspondingly
increase the cash flow from our operations.
  Our
current level of working capital is sufficient to fund our current
operations.  Ever since we commenced marketing activity in January,
2007, our operations produced positive cash flow, including $1,356,006 in fiscal
year 2008 and $178,811 in fiscal year 2007.  Because we carry
relatively little inventory and no accounts receivable, we expect our marketing
activities to continue to operate cash-positive.  In future periods,
however, when we consolidate the financial results of Shandong Yong Chun Tang
with our own, the cash requirements of that manufacturing business may put
pressure on our own cash flow.
  To this
point the development of Shandong Spring Pharmaceutical and its initial
operations have been funded by capital contributions from its shareholders and
by occasional loans from management and their associates, all of which have been
repaid.  As a result, at March 31, 2008 Shandong Spring Pharmaceutical
had over $4.4 million in fixed assets and no debt.  This situation
provides an opportunity to fund future development and an expansion of
operations through bank debt by pledging the company’s fixed assets as
collateral.  We expect that financing of this variety will be readily
available to us, when our manufacturing facility approaches
completion.
  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 expect to 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.
 
 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.
 
 Critical
Accounting Policies and Estimates
 
 In preparing our financial statements
we are required to formulate working policies regarding valuation of our assets
and liabilities and to develop estimates of those values.  In our
preparation of the financial statements for fiscal year 2008, there were two
estimates made which were (a) subject to a high degree of uncertainty and (b)
material to our results.  These estimates were:
 
 ·
              Our
      decision, described in Note 5 to the Consolidated Financial Statements, to
      record a no provision for uncollectible accounts, against total related
      party receivables of $2,022,742.  This decision was based on our
      relationship with the debtors and our knowledge of their capacity to repay
      the debts.
 ·
              Our
      decision, described in Note 3, to the Consolidated Financial Statements,
      to record no provision for obsolete inventories.  This decision
      was based on fact that our inventory at March 31, 2008 amounted to less
      than one month’s sales and was all marketable finished
    goods.
 
 We have made no material changes to our
critical accounting policies in connection with the preparation of financial
statements for fiscal year 2008.
 
 Impact of Accounting
Pronouncements
 
 There were no recent accounting
pronouncements that have had a material effect on the Company’s financial
position or results of operations.  There was one recent accounting
pronouncement that may have a material effect on the Company’s financial
position or results of operations.
 
 In
December 2004, the FASB issued SFAS No. 123R “Share-Based Payment.” This
Standard addresses the accounting for transactions in which a company receives
employee services in exchange for (a) equity instruments of the company or (b)
liabilities that are based on the fair value of the company’s equity instruments
or that may be settled by the issuance of such equity instruments. This Standard
eliminates the ability to account for share-based compensation transactions
using Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued
to Employees,” and requires that such transactions be accounted for using a
fair-value-based method. The Standard is effective for periods beginning after
June 15, 2005. The Standard may adversely affect the Company’s results of
operations if the Company issues a material amount of capital stock for
services, as it did during the past three years.
   
   Risk
Factors That May Affect Future Results
 
 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 entire
business 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.
 
 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.
 
 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 national, provincial and local
governments in the People’s Republic of China are highly
bureaucratized.  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.
  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.
 
 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.
  Management does not expect to hold
annual meetings of shareholders in the next few years, due to the expense
involved.  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.
  -
6 -
   ITEM
7.                      FINANCIAL
STATEMENTS
 
 The Company’s financial statements,
together with notes and the Independent Auditors’ Report, are set forth
immediately following Item 14 of this Form 10-KSB.
 
 ITEM
8.                      CHANGES
IN AND DISAGREEMENTS WITH   ACCOUNTANTS ONACCOUNTING AND
FINANCIAL DISCLOSURE.
 
 Not applicable.
 
 ITEM
8A.                                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 December 31, 2007, 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.
  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 two material weaknesses in our internal
control over financial reporting.  These material weaknesses consisted
of:
  a.  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.
  b.  Lack of independent control over
related party transactions.  Yan Tinghe is the sole director
and Chief Executive Officer of China YCT International Group and of its
subsidiary, Shandong Spring Pharmaceutical.  From time to time Mr. Yan
has made loans and capital contributions to finance the operations of Shandong
Spring Pharmaceutical.  In the past year, Shandong Spring
Pharmaceutical has made loans to finance the operations of two other companies
controlled by Yan Tinghe.  The absence of other directors to review
these transactions is a weakness because it could lead to improper
classification of such related party transactions.
  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, 2008.
  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
8B.                                OTHER
INFORMATION.
 
 None.
  -
7 -
  PART
III
 
 ITEM
9.                      DIRECTORS
AND EXECUTIVE OFFICERS OF THE REGISTRANT
 
 The
following individuals are the members of China YCT International Group’s Board
of Directors and its executive officers.
  Director
 Name
              Age
              Position
      with the Company
              Since
  Yan
Tinghe                                           55           Chairman,
Chief Executive Officer         
     2007
  Zhang
Jirui                                           51           President,
Chief Financial
Officer               
2007
  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.
  Zhang Jirui brings over twenty
years of technical training to Shandong Spring Pharmaceutical, where he has been
employed as Director since January 2006.  During 2005 Mr. Zhang was
the Manager of the International Market Department for 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 22 years prior to joining Shandong Yong
Chun Tang Bioengineering Co., Ltd., Mr. Zhang was employed as an Instructor in
the Shandong Chemical Engineering Vocational School.
 
 Nominating, Compensation and Audit
Committees
  The Board of Directors does not have an
audit committee, a compensation committee or a nominating committee, due to the
small size of the Board.  The Board will also not have an “audit
committee financial expert” within the definition given by the Regulations of
the Securities and Exchange Commission.  The members of the Board
expect to recruit an audit committee financial expert to join the Board during
fiscal year 2009.
 
 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, 2008, except that Yan
Tinghe and Zhang Jirui each failed to file a Form 3 when due.
    
 
 ITEM
10.                                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 two years since Shandong Spring
Pharmaceutical commenced operations.  There were no executive officers
whose total salary and bonus for the fiscal year ended March 31, 2008 exceeded
$100,000.
  
 Fiscal
                Year
              Salary
              Bonus
              Stock
                Awards
              Option
                Awards
              Other
                CompensationYan
      Tinghe
              2008
              $30,770
              0
              0
              0
              02007
              $12,820
              0
              0
              0
              02006
              --
              - -
              - -
              - -
              - -


Equity
Awards
 
 The
following tables set forth certain information regarding the stock options
acquired by the executive officer named in the table above during the year ended
March 31, 2008 and those options held by him on March 31, 2008.
  Option Grants in the Last
Fiscal Year
 Potential
      realizable
                    value
      at assumed
                    annual
      rates of
                    appreciation
                    for
      option termNumber
      of
                    securities
                    underlying
                    option
                    granted
                  Percent
                    of
      total
                    options
                    granted
      to
                    employees
                    in
      fiscal
                    year
                  Exercise
                    Price
                    ($/share)
                  Expiration
                    Date5%
                  10%Yan
      Tinghe
                  --
                  --
                  --
                  --
                  --
                  --
  The
following tables set forth certain information regarding the stock grants
received by the executive officer named in the table above during the year ended
March 31, 2008 and held by him unvested at March 31, 2008.
   Unvested Stock Awards in the
Last Fiscal Year
 Number
      of
                    Shares
      That
                    Have
      Not
                    Vested
                  Market
      Value
                    of
      Shares That
                    Have
      Not
                    VestedYan
      Tinghe
                  0
                  --
   Remuneration
of Directors
  None of the members of the Board of
Directors receives remuneration for service on the Board.
   
  ITEM
11.                                SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS ANDMANAGEMENT
 
 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 of
                    Beneficial Owner(1)
                  Amount
      and Nature
                    of
      Beneficial
                    Ownership(2)
                  Percentage
                    of ClassYan
      Tinghe
                  9,653,690
                  32.9%Zhang
      Jirui
                  1,427,783
                  4.9%All
      officers and directors
                    as
      a group (2 persons)
                  11,081,473
                  37.7%Warner
      Technology & Investment Corp.
                    18
      Kimberly Court
                    East
      Hanover, NJ 07936
                  1,762,695
                  6.0%
   (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.
 
 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, 2008.
   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
 
 
   ITEM
      12.
                  CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
      INDEPENDENCE
 
 Certain Relationships
 
 Our Chairman, Yan Tinghe, owns the
registered capital of Shandong Yong Chun Tang.  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.  Currently Shandong Spring
Pharmaceutical advances funds to Shandong Yong Chun Tang ($1,095,760 at March
31, 2008) in anticipation of future deliveries of products.   In
addition, during the year ended March 31, 2008, Shandong Spring Pharmaceutical
loaned $926,982 to Changqing Paper Co., Ltd., a company owned by 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
 
 None of the members of the Board of
Directors is independent, as “independent” is defined in the rules of the NASDAQ
Stock Market.
 
 ITEM
13.                                EXHIBITS
    3-a
                  Certificate
      of Incorporation - . -filed as an Appendix to the Definitive Information Statement on
      Form 14 (c) filed on March 13, 2007 and incorporated herein by
      reference.3-a(1)
                  Certificate of
      Amendment to Certificate of Incorporation filed on November 15, 2007,
      effective November 23, 2007 at 6:00 p.m. Eastern Standard Time– filed as an
      exhibit to the Current Report on Form 8-K filed on November 27, 2007 and
      incorporated herein by reference.3-b
                  By-laws–
      filed as an exhibit to the Current Report on Form 8-K filed on April 9,
      2007 and incorporated herein by reference.10-a
                  Entrusted Management
      Agreement dated April 4, 2008 among Yan Tinghe, Shandong Yong Chun Tang
      Bioengineering Co., Ltd. and Shandong Spring Pharmaceutical Co.,
      Ltd.– filed as an
      exhibit to the Current Report on Form 8-K filed on April 7, 2008 and
      incorporated herein by reference.10-b
                  Purchase Option and
      Cooperation Agreement dated April 4, 2008 among Yan Tinghe, Shandong Yong
      Chun Tang Bioengineering Co., Ltd. and Shandong Spring Pharmaceutical Co.,
      Ltd.– filed as an
      exhibit to the Current Report on Form 8-K filed on April 7, 2008 and
      incorporated herein by reference.21
                  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 – CFO
  32                   
Rule 13a-14(b) Certification
 
  ITEM
14                      PRINCIPAL
ACCOUNTANT FEES AND SERVICES
 
 China YCT International Group (the
“Company”) engaged Bagell, Josephs, Levine & Company, LLC to serve as its
independent registered public accountant in September 2007.  Prior to
that engagement, Bagell, Josephs, Levine & Company, LLC had served as the
auditor for Shandong Spring Pharmaceutical Co., Ltd
 
 Audit
Fees
 
 Bagell, Josephs, Levine & Company,
LLC billed $55,000 to the Company for professional services rendered for the
audit of fiscal 2008 financial statements and review of the financial statements
included in the 10-QSB filings for the second and third quarters of fiscal
2008.
 
 Audit-Related Fees
 
 Bagell, Josephs, Levine & Company,
LLC billed $0 to the Company during fiscal 2008 for assurance and related
services that are reasonably related to the performance of the fiscal 2008 audit
or review of the quarterly financial statements.
 
 Tax Fees
 
 Bagell, Josephs, Levine & Company,
LLC billed $0 to the Company during fiscal 2008 for professional services
rendered for tax compliance, tax advice and tax planning.
 
 All Other Fees
 
 Bagell, Josephs, Levine & Company,
LLC billed $0 to the Company in fiscal 2008  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 Bagell, Josephs, Levine & Company,
LLC.
  
 -
11 -
   CHINA
YCT INTERNATIONAL GROUP, INC.
 
 
 FINANCIAL
STATEMENTS
 
 MARCH
31, 2008 & 2007
 CHINA
YCT INTERNATIONAL GROUP, INC.
 
 
 INDEX
TO FINANCIAL STATEMENTS
 
 
 Report of
Independent Registered Public Accounting
Firm ..............................................................................................................................................................................................................................................................................................................F-1
 
 Consolidated
Balance Sheets at March 31, 2008 and
2007 .................................................................................................................................................................................................................................................................................................................F-2
 
 Consolidated
Statements of Income for the Years Ended March 31, 2008 and
2007 ......................................................................................................................................................................................................................................................................F-3
  
 Consolidated
Statements of Changes in Stockholders’ Equity for the Years Ended March 31, 2008
and
2007 ........................................................................................................................................................................................................................F-5
  Notes to
Consolidated Financial
Statements ..........................................................................................................................................................................................................................................................................................................................F-6
to F-11
 
 
 
  
 REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 
 The Board
of Directors and Stockholders
 China YCT
International Group, Inc.
 
 
 We have
audited the accompanying consolidated balance sheets of China YCT International
Group, Inc. as of March 31, 2008 and 2007 and the related consolidated
statements of income, changes in stockholders’ equity, and cash flows for each
of the two years ended March 31, 2008 and 2007.  These financial
statements are the responsibility of the Company’s management.  Our
responsibility is to express an opinion on these financial statements based on
our audits.
 
 We
conducted our audits in accordance with standards established by the Public
Company Accounting Oversight Board (United States).  Those standards
require that we plan and perform the audits 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 audits 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 includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements.  An audit also includes 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, 2008 and 2007 and the results of its operations, changes in
stockholders’ equity, and cash flows for each of the two years ended March 31,
2008 and 2007 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 12,
2008
  F-1
 CHINA
      YCT INTERNATIONAL GROUP, INC.CONSOLIDATED
      BALANCE SHEETSASSETSMarch
      31,2008
                    
                    
                    2007Current
      assets:Cash and cash equivalents
                    
                    $
                    1,614,336
                    
                    
                    $
                    679,770Inventory
                    
                    
                    737,153
                    
                    
                    
                    -Advance to suppliers
                    
                    
                    834,284
                    
                    
                    
                    -Other receivable - related party
                    
                    
                    2,022,742
                    
                    
                    
                    518,626Total
      Current Assets
                    
                    
                    5,208,515
                    
                    
                    
                    1,198,396Property
      and equipment, net of accumulated depreciation of$68,282
      and $17,092, respectively
                    
                    
                    3,083,031
                    
                    
                    
                    2,439,608Land
      use right, net of accumulated amortization
                    
                    
                    1,404,803
                    
                    
                    
                    1,002,434Total
      Assets
                    
                    $
                    9,696,349
                    
                    
                    $
                    4,640,438LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      liabilities:Accounts
      payable
                    
                    $
                    59,688
                    
                    
                    $
                    79,428Unearned
      revenue
                    
                    
                    33,742
                    
                    
                    
                    -Tax
      payable
                    
                    
                    563,135
                    
                    
                    
                    -Accrued
      expenses and other payables
                    
                    
                    32,994
                    
                    
                    
                    137,029Total
      Current Liabilities
                    
                    
                    689,559
                    
                    
                    
                    216,457-
                    
                    
                    
                    -Stockholders'
      EquityPreferred
      stock series A, $500 par value, 45 shares authorized and
      outstanding
                    
                    
                    22,500
                    
                    
                    
                    22,500Preferred
      stock series B convertible, $0.001 par value, 5,000,000 shares
      authorized,-0-
      shares issued and outstanding
                    
                    
                    -
                    
                    
                    
                    -Common
      stock, $0.001 par value, 100,000,000 shares authorized; 29,380,073
      and454,444
      shares issued and outstanding as of March 31, 2008 and 2007,
      respectively
                    
                    
                    29,380
                    
                    
                    
                    454Additional
      paid-in capital
                    
                    
                    4,063,039
                    
                    
                    
                    4,091,966Accumulated
      other comprehensive income
                    
                    
                    857,763
                    
                    
                    
                    161,295Retained
      earnings
                    
                    
                    4,034,108
                    
                    
                    
                    147,766Total
      Stockholders' Equity
                    
                    
                    9,006,790
                    
                    
                    
                    4,423,981Total
      Liabilities and Stockholders' Equity
                    
                    $
                    9,696,349
                    
                    
                    $
                    4,640,438
  F-2
   CHINA
      YCT INTERNATIONAL GROUP, INC.CONSOLIDATED
      STATEMENTS OF INCOMEFOR
      THE YEARS ENDED MARCH 31,2008
                    
                    
                    2007Revenues
                    
                    $
                    16,586,741
                    
                    
                    $
                    981,849Cost
      of Goods Sold
                    
                    
                    7,322,143
                    
                    
                    
                    436,512Gross
      Profit
                    
                    
                    9,264,598
                    
                    
                    
                    545,337Operating
      ExpensesResearch
      and development expenses
                    
                    
                    141,241
                    
                    
                    
                    -Selling,
      general and administrative
                    
                    
                    3,586,140
                    
                    
                    
                    306,975Income
      before other Income and (Expenses)
                    
                    
                    5,537,217
                    
                    
                    
                    238,362Other
      Income and (Expenses)
                    
                    
                    (116,255
                    )
                    
                    
                    -Income
      Before Income Taxes
                    
                    
                    5,420,962
                    
                    
                    
                    238,362Provision
      for Income Taxes
                    
                    
                    1,534,620
                    
                    
                    
                    90,775Net
      Income
                    
                    $
                    3,886,342
                    
                    
                    $
                    147,587Other
      Comprehensive Income:Foreign
      Currency Translation Adjustment
                    
                    
                    696,468
                    
                    
                    
                    147,611Comprehensive
      Income
                    
                    $
                    4,582,810
                    
                    
                    $
                    295,198Basic
      and diluted income per common shareBasic
                    
                    $
                    0.13
                    
                    
                    $
                    0.32Diluted
                    
                    $
                    0.13
                    
                    
                    $
                    0.32Weighted
      average number of common shares outstandingBasic
                    
                    
                    29,300,825
                    
                    
                    
                    454,444Diluted
                    
                    
                    29,300,825
                    
                    
                    
                    454,444
  F-3
   CHINA
      YCT INTERNATIONAL GROUP, INC.CONSOLIDATED
      STATEMENTS OF CASH FLOWSFOR
      THE YEARS ENDED MARCH 31,2008
                    
                    
                    
                    2007Cash
      Flows From Operating Activities:Net
      income
                    
                    $
                    3,886,342
                    
                    
                    
                    $
                    147,587Adjustments
      to reconcile net income to net cashprovided
      by operating activities:Depreciation
      and amortization
                    
                    
                    72,115
                    
                    
                    
                    
                    36,713Changes
      in operating assets and liabilities:Inventory
                    
                    
                    (737,153
                    )
                    
                    
                    
                    -Advance to suppliers
                    
                    
                    (834,284
                    )
                    
                    
                    
                    -Other receivable -related party
                    
                    
                    (1,504,116
                    )
                    
                    
                    
                    (221,946
                    )Accounts payable
                    
                    
                    (19,740
                    )
                    
                    
                    
                    79,428Unearned revenue
                    
                    
                    33,742
                    
                    
                    
                    
                    -Taxes payable
                    
                    
                    563,135
                    
                    
                    
                    
                    -Accrued
      expenses and other payables
                    
                    
                    (104,035
                    )
                    
                    
                    
                    137,029Cash
      provided by operating activities
                    
                    
                    1,356,006
                    
                    
                    
                    
                    178,811Cash
      Flows From Investing Activities:Addition
      to plant and equipment
                    
                    
                    (418,745
                    )
                    
                    
                    
                    (1,504,512
                    )Purchase
      of land use right
                    
                    
                    (308,298
                    )
                    
                    
                    
                    -Cash
      used in investing activities
                    
                    
                    (727,043
                    )
                    
                    
                    
                    (1,504,512
                    )Cash
      Flows From Financing ActivitiesProceeds
      from capital contribution
                    
                    
                    -
                    
                    
                    
                    
                    1,893,668Cash
      provided by financing activities
                    
                    
                    -
                    
                    
                    
                    
                    1,893,668Effect
      of exchange rate changes on cash and cash equivalents
                    
                    
                    305,602
                    
                    
                    
                    
                    108,872Increase
      in cash and cash equivalents
                    
                    
                    934,566
                    
                    
                    
                    
                    676,839Cash
      and Cash Equivalents - Beginning of year
                    
                    
                    679,770
                    
                    
                    
                    
                    2,931Cash
      and Cash Equivalents - Ending of year
                    
                    $
                    1,614,336
                    
                    
                    
                    $
                    679,770Supplemental
      disclosures of cash flow information:Interest
      paid
                    
                    $
                    -
                    
                    
                    
                    $
                    -Income
      taxes paid
                    
                    $
                    1,196,189
                    
                    
                    
                    $
                    -Non-cash
      investing and financing activitiesLand
      use right received as capital contribution
                    
                    $
                    -
                    
                    
                    
                    $
                    987,537
  F-4
   CHINA
      YCT INTERNATIONAL GROUP, INC.CONSOLIDATED
      STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITYFOR
      THE YEARS ENDED MARCH 31, 2008 AND 2007Preferred
      Stock Series A
                    Preferred
      Stock Series B
                    Common
      Stock
                    
                    
                    
                    Accumulated
      Other$500
      Par Value
                    
                    $0.001
      Par Value
                    
                    $0.001
      Par Value
                    
                    Additional
      Paid-in
                    Comprehensive
                    RetainedShares
                    
                    Amount
                    
                    Shares
                    
                    Amount
                    
                    Shares
                    
                    Amount
                    
                    Capital
                    
                    Income
                    
                    Earnings
                    
                    TotalBalance
      - March 31, 2006
                    
                    45
                    
                    $      22,500
                    
                    -
                    
                    $              -
                    
                    454,444
                    
                    $           454
                    
                    $        1,210,761
                    
                    $                13,684
                    
                    $                179
                    
                    $      1,247,578Additional
      capital contributed
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    2,881,205
                    
                    
                    
                    
                    
                    2,881,205Comprehensive
      incomeNet
      income for the year
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    147,587
                    
                    147,587Other
      Comprehensive income, net of taxForeign
      currency translation adjustment
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    147,611
                    
                    
                    
                    147,611Comprehensive
      incomeBalance
      - March 31, 2007
                    
                    45
                    
                    22,500
                    
                    -
                    
                    -
                    
                    454,444
                    
                    454
                    #
                    4,091,966
                    
                    161,295
                    
                    147,766
                    
                    4,423,981Issuance
      of Series B Convertible Preferred Stock
                    
                    1,000
                    
                    1
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    1Conversion
      of Series B Preferred Stock
                    
                    
                    (1,000)
                    
                    (1)
                    
                    28,925,629
                    
                    28,926
                    
                    (28,927)
                    
                    
                    
                    
                    
                    (2)Comprehensive
      incomeNet
      income for the year
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    3,886,342
                    
                    3,886,342Other
      Comprehensive income, net of taxForeign
      currency translation adjustment
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    696,468
                    
                    
                    
                    696,468Comprehensive
      incomeBalance
      - March 31, 2008
                    
                    45
                    
                    $      22,500
                    
                    -
                    
                    $                -
                    
                    29,380,073
                    
                    $      29,380
                    
                    $        4,063,039
                    
                    $              857,763
                    
                    $      4,034,108
                    
                    $      9,006,790
  F-5
 1.  BASIS
OF PRESENTATION AND ORGANIZATION
  China YCT
International Group, Inc., formerly known as ItLinkz Group, Inc., Medical
Technology & Innovations, Inc. and Southstar Productions, Inc. (the
“Company” or “China YCT”), was incorporated in the State of Florida in January
1989.
 
 On June
4, 2007 the Company entered into a Share Purchase and Merger Agreement dated
June 1, 2007 with Landway Nano Bio-Tech, Inc., a Delaware corporation (“Landway
Nano”), and with Huaqin Zhou and Xiaojin Wang, two investors associated with
Landway Nano.  Landway Nano is a holding company that owns 100% of the
registered capital of Shandong Spring Pharmaceutical Co., Ltd. (“Shandong
Spring”), a corporation organized under the laws of The People’s Republic of
China (“PRC”). On July 31, 2007, pursuant to the Share Purchase and Merger
Agreement, Huaqin Zhou and Xiaojin Wang purchased 500 shares of the Company’s
Series B Preferred Stock for $530,000.  On September 28, 2007, the
Company acquired all of the outstanding capital stock of Landway Nano by issuing
to the shareholders of Landway Nano an additional 500 shares of Series B
Preferred Stock. The 1,000 shares of Series B Preferred Stock were subsequently
converted into 28,925,629 shares of common stock, representing 98.4% of the
outstanding common shares.  The Board of Directors of the Company also
elected Mr.Yan Tinghe and Mr. Zhang Jirui, the executive officers of Shandong
Spring Pharmaceutical, to serve as members of the Board, and they together
elected Yan Tinghe to serve as the Chief Executive Officer and Zhang Jirui to
serve as Chief Financial Officer of the Company.
  As a
result of these transactions, there was a change in control of the Company as
the shareholders of Landway Nano became the majority shareholders of the
Company.
  For
accounting purposes, the transaction has been accounted for as a reverse
acquisition under the purchase method of accounting. Accordingly, Landway Nano
was treated as the continuing entity for accounting purposes.
   On
November 23, 2007, the Company changed the name of the corporation from “Itlinkz
Group, Inc.” to “China YCT International Group, Inc.”
   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.
  
 The
Company’s consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America
(“US GAAP”). In the opinion of management, the accompanying condensed
consolidated financial statements reflect all adjustments, necessary for their
fair presentation in conformity with accounting principles generally accepted in
the United States of America.
  
 CHINA
YCT INTERNATIONAL GROUP, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 MARCH
31, 2008 AND 2007
 
 
  2.   SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
  Use
of estimates
  In
preparing the financial statements in conformity with accounting principles
generally accepted in the United States of America, management makes estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the dates of the financial
statements, as well as the reported amounts of revenues and expenses during the
reporting year. Significant estimates, required by management, include the
recoverability of long-lived assets and the valuation of
inventories.  Actual results could differ from those
estimates.
  Principles
of consolidation
  The accompanying consolidated financial
statements include the accounts of the Company, Landway Nano and its wholly
owned subsidiary Shandong Spring. All significant inter-company balances and
transactions are eliminated in consolidation.
  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.
  Accounts
receivables
  Accounts
receivables are stated at net realizable value. Any 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 has no outstanding balance of account receivables for the
years ended March 31, 2008 and 2007 due to cash sales.
  Inventories
 
 Inventories
are 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
years
 Machinery, equipment and
automobiles                                                                    7-15
years
 
 Expenditures
for maintenance and repairs are charged to expense as incurred. Additions,
renewals and betterments are capitalized.
 
 Advance
to suppliers
 
 Advance
to suppliers represent the payments made and recorded in advance for goods and
services received. The Company makes advances to certain vendors’ inventory
purchases, construction projects and equipment purchases. The advance to
suppliers totaled $834,284 as of March 31, 2008.
  Revenue
recognition
  The
Company’s revenue recognition policies are in compliance with Staff Accounting
Bulletin (“SAB”) 104. 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.
  
 
 CHINA
YCT INTERNATIONAL GROUP, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 MARCH
31, 2008 AND 2007
 
  2.  SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
  Impairment
of long-lived assets
  Long-lived
assets, which include property, plant and equipment and intangible assets, are
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable.
 
 Recoverability
of long-lived assets to be held and used is measured by a comparison of the
carrying amount of an asset to the estimated undiscounted future cash flows
expected to be generated by the asset.   If the carrying amount
of an asset exceeds its estimated undiscounted future cash flows, an impairment
charge is recognized by the amount by which the carrying amount of the asset
exceeds the fair value of the assets.  Fair value is generally
determined using the asset’s expected future discounted cash flows or market
value, if readily determinable.
  Income
taxes
  The
Company accounts for income tax under the provisions of 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, 2008 and 2007, respectively.
  The
Company is governed by the Income Tax Law of the People’s Republic of China
concerning the private-run enterprises, which are subject to tax at a statutory
rate of 25% and were, until January 2008, subject to tax at a statutory rate of
33% (30% state income tax plus 3% local income tax) on its taxable income. The
company recorded income tax provisions of $1,534,620 and $90,775 for the years
ended March 31, 2008 and 2007, 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. 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 developing its
intellectual property. Research and development costs are expenses 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, 2008 and 2007 was
$141,241 and $-0-, respectively.
  Advertising
costs
  Advertising
costs in newspaper and televisions are expensed as incurred.  The
Company incurred advertising costs of $501,729 and $3,848 of for the years ended
March 31, 2008 and 2007, respectively.
  Mailing
and handling costs
  The
Company accounts for mailing and handling fees in accordance with the
Financial       Accounting Standards Board
Emerging Issues Task Force Issue No. 00-10 “Accounting for
 Shipping
and Handling Fees and Costs” (EITF Issue No. 00-10).  For the year
ended March 31, 2008 and 2007, respectively, the Company incurred $716,646 and
$58,096 mailing and handling costs.
  Earnings
(loss) per share
  Basic
earnings (loss) per share are computed by dividing income available to common
stockholders by the weighted-average number of common shares outstanding during
the period. Diluted earnings per share is computed similar to basic earnings per
share except that the denominator is increased to include the number of
additional common shares that would have been outstanding if the potential
common shares had been issued and if the additional common shares were dilutive.
There are no common stock equivalents available for dilution purposes as of
March 31, 2008 and 2007.
  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.
  Fair
value of financial instruments
  The
carrying amounts of certain financial instruments, including cash and cash
equivalents, accounts receivable, other receivables, accounts payable, accrued
expenses, tax payable, and other payable approximate fair value due to the
short-term nature of these items.
  Foreign
currency translation
  The
Company’s functional currency is the Renminbi (“RMB”). For financial reporting
purposes, RMB has been translated into United States dollars ("USD") as the
currency.       Assets and liabilities are
translated at the exchange rate in effect at the balance sheet date. Revenues
and expenses are translated at the average rate of exchange prevailing during
the reporting period. Translation adjustments arising from the use of different
exchange rates from period to period are included as a component of
stockholders' equity as "Accumulated other comprehensive income". Gains and
losses resulting from foreign currency translations are included in accumulated
other comprehensive income.  There is no significant fluctuation in
exchange rate for the conversion of RMB to USD after the balance sheet
date.
 
  Translation
adjustments resulting from this process amounted to $857,763 and $161,295 as of
March 31, 2008 and 2007, respectively. The balance sheet amounts, with the
exception of equity at March 31, 2008, were translated at 7.012 RMB to 1.00 US$
as compared to 7.7232 RMB to 1.00 US$ at March 31, 2007. The equity accounts
were stated at their historical rate. The average translation rates applied to
income statement accounts for the years ended March 31, 2008 and 2007 were
7.4590 RMB and 7.8992 RMB, respectively.
  
 CHINA
YCT INTERNATIONAL GROUP, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 MARCH
31, 2008 AND 2007
 
 
 2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
  New
accounting pronouncements
  In
February 2007, the FASB issued FASB Statement No. 159, The Fair Value
Option for Financial Assets and Financial Liabilities — including an amendment
of FASB Statement No. 115 (FAS 159). FAS 159 will become effective for the
company on January 1, 2008. This standard permits companies to choose to
measure many financial instruments and certain other items at fair value and
report unrealized gains and losses in earnings. Such accounting is optional and
is generally to be applied instrument by instrument. The Company does not
anticipate that the election, if any, of this fair-value option will have a
material effect on results or operations or consolidated financial
position.
  In June
2007, the FASB issued FASB Staff Position No. EITF 07-3, “Accounting for
Nonrefundable Advance Payments for Goods or Services Received for use in Future
Research and Development Activities” (“FSP EITF 07-3”), which addresses whether
nonrefundable advance payments for goods or services that used or rendered for
research and development activities should be expensed when the advance payment
is made or when the research and development activity has been performed. The
Company has adopted FSP EITF 07-3 and expensed the research and development as
it incurred.
 
 In
December 2007, the FASB issued SFAS No. 160,“Noncontrolling Interests in
Consolidated Financial Statements - an amendment of Accounting Research Bulletin
No. 51” (“SFAS 160”), which establishes accounting and reporting standards for
ownership interests in subsidiaries held by parties other than the parent, the
amount of consolidated net income attributable to the parent and to the
noncontrolling interest, changes in a parent’s ownership interest and the
valuation of retained non-controlling equity investments when a subsidiary is
deconsolidated. The Statement also establishes reporting requirements that
provide sufficient disclosures that clearly identify and distinguish between the
interests of the parent and the interests of the non-controlling owners. SFAS
160 is effective for fiscal years beginning after December 15, 2008. The Company
has not determined the effect that the application of SFAS 160 will have on its
consolidated financial statements.
 
 In
December 2007, Statement of Financial Accounting Standards No. 141(R), Business Combinations, was
issued. SFAS No. 141R replaces SFAS No. 141, Business Combinations.SFAS
141R retains the fundamental requirements in SFAS 141 that the acquisition
method of accounting (which SFAS 141 called the purchase method) be used for
all business combinations and for an acquirer to be identified for each business
combination. SFAS 141R requires an acquirer to recognize the assets acquired,
the liabilities assumed, and any noncontrolling interest in the acquiree at the
acquisition date, measured at their fair values as of that date, with limited
exceptions. This replaces SFAS 141’s cost-allocation process, which required the
cost of an acquisition to be allocated to the individual assets acquired
and
  New
accounting pronouncements (continued)
  liabilities
assumed based on their estimated fair values. SFAS 141R also requires the
acquirer in a business combination achieved in stages (sometimes referred to as
a step acquisition) to recognize the identifiable assets and liabilities, as
well as the noncontrolling interest in the acquiree, at the full amounts of
their fair values (or other amounts determined in accordance with SFAS 141R).
SFAS 141R applies prospectively to business combinations for which the
acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008. An entity may not apply it
before that date. The Company is currently evaluating the impact that adopting
SFAS No. 141R will have on its financial statements.
 
 In March
2008, the Financial Accounting Standards Board (“FASB”) issued Statement of
Financial Accounting Standards (“SFAS”) No. 161, “Disclosures about
Derivative Instruments and Hedging Activities - An Amendment of SFAS
No. 133” (“SFAS 161”). SFAS 161 seeks to improve financial reporting for
derivative instruments and hedging activities by requiring enhanced disclosures
regarding the impact on financial position, financial performance, and cash
flows. To achieve this increased transparency, SFAS 161 requires (1) the
disclosure of the fair value of derivative instruments and gains and losses in a
tabular format; (2) the disclosure of derivative features that are credit
risk-related; and (3) cross-referencing within the footnotes. SFAS 161 is
effective on January 1, 2009. The Company is in the process of evaluating
the new disclosure requirements under SFAS 161.
 
 Reclassifications
 
 Certain
prior period amounts have been reclassified to conform to the current period
presentation. These reclassifications have no effect on net income or cash
flows.
   
   3.
INVENTORY
 
 Inventory
consists of finished goods only. The Company purchased all of its goods from
Shandong Yong Chun Tang Bioengineering Co., Ltd. (“Shandong YCT”), an affiliated
company owned by the Chairman of the Company (See Note 5). No allowance for
inventory was made for the years ended March 31, 2008 and 2007.
  4.   PROPERTY
AND EQUIPMENT, NET
 
 Property
and equipment at March 31, 2008 and 2007 consist of the following:
  As
      of March 31,2008
                    
                    
                    2007Machinery
      & Equipment
                    
                    $
                    260,025
                    
                    
                    $
                    102,264Furniture
      & Fixture
                    
                    
                    -
                    
                    
                    
                    79,428Building
                    
                    
                    
                    1,794,406
                    
                    
                    
                    -Subtotal
                    
                    
                    2,054,431
                    
                    
                    
                    181,692Less:
      Accumulated Depreciation
                    
                    
                    (68,282
                    )
                    
                    
                    (17,092
                    )Construction
      in progress
                    
                    
                    1,096,882
                    
                    
                    
                    2,275,008Total
      Property and equipment, net
                    
                    $
                    3,083,031
                    
                    
                    $
                    2,439,608
  The
depreciation expense for the years ended March 31, 2008 and 2007 was $46,493 and
$17,092, respectively.
 
 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 provided until it is
completed and ready for its intended use.
  The costs
involved with construction in progress amounted to the total of $1,096,882 and
$2,275,008 for the years ended March 31, 2008 and 2007,
respectively.
   5.  RELATED
PARTY TRANSACTIONS
   As of
March 31, 2008 and 2007, the Company has other receivables in the amount of
$2,022,742 and $518,626, respectively, representing loans receivables from two
affiliates as stated below. The entire balance of the receivables is expected to
be repaid soon and no allowance is deemed necessary.
 
 As
      of March 31,2008
                      
                      
                      2007a)
      Loan receivable from Shandong YCT
                      
                      $
                      1,095,760
                      
                      
                      $
                      518,626b)
      Loan receivable from Changqing Paper Co.,Ltd.
                      
                      
                      926,982
                      
                      
                      
                      -Total
                      
                      $
                      2,022,742
                      
                      
                      $
                      518,626
  Shangdong
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 (see Note 10).  The purpose of the loan is to
finance Shangdong YCT’s production. The loan bears no interest and is unsecured
and due upon demand.
  Changqing
Paper Co., Ltd is an affiliated company also owned by the chairman and
controlling shareholder Mr. Yan Tinghe.  This loan is unsecured and
matures on August 20, 2008, and demands 1% interest on any unpaid due
amount.
   
   6.
MAJOR CUSTOMER AND VENDOR
 
 The
Company sells products to individual retail customers and does not have major
customers due to the high level of competition within the industry.
  According
to the contract signed on December 26, 2006 between the Company and its
affiliate company, Shandong YCT, the Company currently purchases all of its
products from Shandong YCT on the consignment sales basis. For the years ended
March 31, 2008 and 2007, Shandong YCT was the sole vendor to the
Company.
  7.
LAND USE RIGHT
  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 rights
valued at RMB10,199,600 (equivalent to $1,454,592) to use for 50 years and
amortizes the Right on a straight line basis over 50 years.
  Net
intangible assets at March 31, 2008 and 2007 were as follows:
  As
      of March 31,2008
                        
                        
                        2007Land
      use right
                        
                        $
                        1,454,592
                        
                        
                        $
                        1,022,892Less:
      Accumulated amortization
                        
                        
                        (49,789
                        )
                        
                        
                        (20,458
                        )Total
                        
                        $
                        1,404,803
                        
                        
                        $
                        1,002,434
  The
amortization expense for the years ended March 31, 2008 and 2007 was $25,623 and
$20,002, respectively.
  8.
TAX PAYABLE
  As of
March 31, 2008 and 2007, the Company has tax payable as below:
  As
      of March 31,2008
                          
                          
                          2007Corporate
      Income Tax
                          
                          $
                          462,272
                          
                          
                          $
                          -Value-Added
      Tax
                          
                          
                          93,392
                          
                          
                          
                          -Other
      Tax & Fees
                          
                          
                          7,471
                          
                          
                          
                          -Total
      Tax Payable
                          
                          
                          563,135
                          
                          
                          
                          -
  9.
STOCKHOLDERS’ EQUITY
  On July
30, 2007, in accordance with the Share Exchange Agreement with Landway Nano, the
Company sold 500 shares of its newly-designated Series B Convertible Preferred
Stock to two individual investors for $530,000.
 
 On
September 28, 2007, the Company issued an additional 500 shares of Series B
Convertible Preferred Stock to the shareholders of Landway Nano.
 
 On
November 23, 2007, the Company effected a reverse stock split of the
corporation’s common stock in the ratio of 1:28. At the same time, the 1,000
shares of the Company’s Series B Preferred Stock was converted into 28,925,629
shares of common stock. All stock amounts have been retroactively restated for
the effect of the reverse stock split.
 
 As of
March 31, 2008, there were 45 shares of Series A Preferred Stock and 29,380,073
shares of Common Stock issued and outstanding. There was no Series B Preferred
Stock issued and outstanding.
  10.
SUBSEQUENT EVENTS
  On April
4, 2008, Shandong Spring, a wholly-owned subsidiary of the Company, entered into
an Entrusted Management Agreement (the “Agreement”) with Shandong YCT, effective
as of April 1, 2008. The Agreement provides that Shandong Spring will manage the
operations of Shandong YCT.  Included among its responsibilities will
be the appointment of members of the Board of Directors of Shandong YCT, hiring
of managerial and administrative personnel for Shandong YCT, control of all of
the assets of Shandong YCT, and obtaining loans and other sources of financing
for the operations of Shandong YCT, as needed.  Shandong Spring also
agreed to fund any unpaid debts incurred hereafter by Shandong YCT and to fund
any shortfall between its net assets and its registered capital.
  In
exchange for the managerial services, Shandong YCT will pay to Shandong Spring a
fee equal to all of the net profits earned by Shandong YCT.
  On the
same date, the parties entered into a Purchase Option and Cooperation Agreement
with Mr. Yan Tinghe, who is the Chairman of the Company and the principal owner
of Shandong YCT.  The Purchase Option gives Shandong Spring the right
to purchase Shandong YCT at any time when the transfer would be permitted
by applicable laws.  The purchase price for Shandong YCT would be the
fair value price, which will be determined by the parties at the time the option
is exercised. Mr. Yan also gave to the agents appointed from time to time by
Shandong Spring a proxy to exercise his voting rights as a shareholder of
Shandong YCT.
 
  
  
   
  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
 
 In
accordance with the Exchange Act, this Report has been signed below on June 27,
2008 by the following persons, on behalf of the Registrant and in the capacities
and on the dates indicated.
 
 
 /s/ Yan
Tinge
 Yan
Tinghe, Director
 Chief
Executive Officer
 
 
 /s/ Zhang
Jirui
 Zhang
Jirui,
 Chief
Financial Officer
  - 12
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