NOTE 3 - RESTATEMENT OF FINANCIAL STATEMENTS

On April 4, 2012, the Audit Committee of the Board of Directors, based on discussions with management, concluded that the Company would restate its consolidated financial statements for the quarter ended June 30, 2011 in conjuction with the restatement of the financial statements for the year ended March 31, 2011 to correct the following errors:

On February 28, 2011, we acquired a US patent which was accounted for as an acquisition of an asset. However, we recognized as part of the patent’s value the contingent consideration in the form of additional common stock that could be issued to the seller of the patent. Therefore, we overstated the fair value of the patent as recorded as the value for our intangible assets on the balance sheets since the year ended March 31, 2011. As a result, we adjusted the value of the intangible assets to reduce the value of the intangible asset by $22,761,679 at June 30, 2011; we made adjustment to reduce the contingent liability associated with the unissued shares by $23,391,902 at June 30, 2011;

We did not accrue the amortization expense for the acquired US patent for the three month ended June 30, 2011 due to the uncertainty about continuing the contract. Therefore, we made an adjustment to increase by $825,597 the amortization expense and accumulated amortization for the US patent based on its restated value. We also made an adjustment to decrease by $157,256 the income tax based on the restated net income.

The effect of the adjustments on the consolidated statement of operations for the three months ended June 30, 2011 is to decrease net income attributable to common shares by $619,198. The effect of the adjustments on net income per common share from operations for the three months ended June 30, 2011 is a $0.01 decrease in net income per common share.

China YCT International Group, Inc.

Consolidated Balance Sheet

	June 30, 2011
	As Previously Reported		Adjustments			As Restated
Assets
Current assets:
Cash and cash equivalent	$	16,316,460	$	-		$	16,316,460
Prepaid accounts		5,551,348		-			5,551,348
Inventory		1,635,250		-			1,635,250
Total current assets		23,503,058		-			23,503,058
Plant, property and equipment, net		9,677,789		-			9,677,789
Construction in progress		213,956		-			213,956
Intangible assets, net		62,137,004		(22,761,679	)		39,375,325
Total assets		95,531,808		(22,761,679	)		72,770,128

Liabilities and Stockholders’ Equity (Deficit)
Liabilities:
Current liabilities:
Accounts payable		209,871		-			209,871
Tax payable		754,647		(157,256	)		597,391
Other payable		113,937		-			113,937
Total current liabilities		1,078,454		(157,255	)		921,199
Contingency		23,391,902		(23,391,902	)		-
Total liabilities		24,470,356		(23,549,157	)		921,199

Stockholders’ equity
Preferred stock, par value $500.00 per share; 45 shares authorized and issued at September 30, 2010 and March 31, 2010		22,500		-			22,500
Common stock, par value $0.001 per share; 100,000,000 shares authorized, 29,461,304 shares issued and outstanding at March 31, 2010; and 73,731,361 shares issued and outstanding at March 31, 2011.		73,780		-			73,780
Additional paid-in capital		36,879,643		-			36,879,643
Statutory reserve		956,633		-			956,633
Retained earnings		31,929,575		(471,770	)		31,457,805
Accumulated other comprehensive income		1,199,321		1,259,247			2,458,568
Total stockholders’ equity		71,061,452		787,477			71,848,929
Total liabilities and stockholders’ equity	$	95,531,808	$	(22,761,680	)	$	72,770,128

China YCT International Group, Inc.

Consolidated Income Statement

	Three Months Ended June 30, 2011
	As Previously Reported			Adjustments			As Restated
Sales Revenue	$	7,944,264		$	-		$	7,944,264
Cost of Goods Sold		3,582,345			-			3,582,345
Gross Profit		4,361,919			-			4,361,919

Selling Expenses		1,179,552			-			1,179,552
G&A Expense		583,223			825,597			1,408,820
R&D Expenses		193,518			-			193,518
Total expense		1,956,293			825,597			2,781,890
Income from operation		2,405,626			(825,597	)		1,580,029
Interest Income (Expense)		(41	)		-			(41	)
Other income (Expense)		68,215			-			68,215
Profit before tax		2,473,800			(825,597	)		1,648,203
Income tax		618,450			(206,399	)		412,051

Net income		1,855,350			(619,198	)		1,236,152
Other comprehensive income
Foreign currency translation adjustment		(841,973	)		1,259,248			417,275
Comprehensive income		1 ,013,377			640,050			1,653,427

Basic and diluted income per common share
Basic and Diluted	$	0.03		$	(0.01	)	$	0.02

Weighted average number of common shares outstanding
Basic and Diluted		73,780,610			73,780,610			73,780,610

China YCT International Group, Inc.

Consolidated Statement of Cash Flows

	Three Months Ended June 30, 2011
	As Previously Reported			Adjustments			As Restated
Cash Flows From Operating Activities:
Net income	$	1,855,350		$	(619,198	)	$	1,236,152
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		1,225,006			825,596			2,050,602
Issue of common shares as compensation		-			-			-
Changes in operating assets and liabilities:
Inventory		(1,576,067	)		-			(1,576,067	)
Advance to suppliers
Other receivable from related parties		-			-			-
Accounts payable		209,871			-			209,871
Taxes payable		(439,998	)		(206,399	)		(646,397	)
Accrued expenses and other payables		(115,624	)		-			(115,624	)

Net cash provided by (used in) operating activities		1,158,538			(1	)		1,158,537

Cash flows from investing activities:
Addition to plant and equipment		(77,596	)		-			(77,596	)
Reduction of construction in progress		-			-			-
Investment in Intagible Assets		-			-			-
Prepayment for acquisition of patent		10,030,688			-			10,030,688

Net cash provided by (used in) investing activities		9,953,092			-			9,953,092

Effect of exchange rate changes on cash and cash equivalents		(841,973	)		-			(841,973	)

Net increase (decrease) in cash and cash equivalents		10,269,657			(1	)		10,269,656

Cash and cash equivalents at beginning of period		6,046,804			-			6,046,804

Cash and cash equivalents at ending of period	$	16,316,460		$	-		$	16,316,460