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 September 30, 2011 in conjunction 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 net intangible asset by $19,154,089 at December 31, 2011; we made an adjustment to reduce the contingent liability associated with the unissued shares by $23,391,902 at December 31, 2011; we adjusted our amortization expense for the US patent based on its restated value by a decreased amount of $1,622,515 for the nine month period ended December 31, 2011; we also made an adjustment to recognize $3,319,135 of derivative liability with an offsetting entry of other expense caused by an amended contract term of the US patent.

We also increased by $405,630 the income tax based on the restated net income for the nine month period ended December 31, 2011.

The effect of the adjustments on the consolidated statement of operations for the nine month period ended December 31, 2011 is to decrease net income attributable to common shares by $2,102,250. The effect of the adjustments on net income per common share from operations for the nine month period ended December 31, 2011 is a $0.03 decrease in net income per common share.

China YCT International Group, Inc.

Consolidated Balance Sheet

	December 31, 2011
	As Previously Reported		Adjustments			As Restated
Assets
Current assets:
Cash and cash equivalent	$	18,443,850	$	-		$	18,443,850
Prepaid accounts		67,627		-			67,627
Inventory		2,483,981		-			2,483,981
Total current assets		20,995,458		-			20,995,458
Plant, property and equipment, net		9,784,841		-			9,784,841
Construction in progress		219,752		-			219,752
Intangible assets, net		70,561,663		(19,154,089	)		51,407,574
Total assets		101,561,714		(19,154,089	)		82,407,625

Liabilities and Stockholders’ Equity (Deficit)
Liabilities:
Current liabilities:
Accounts payable		-		-			-
Tax payable		1,334,321		100,945			1,435,266
Other payable		1,753,911		2,765,992			4,519,903
Total current liabilities		3,088,232		2,866,937			5,955,169
Contingency		23,391,902		(20,072,766	)		3,319,136
Total liabilities		26,480,134		(17,205,829	)		9,274,305

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		34,255,258		(1,954,822	)		32,300,436
Accumulated other comprehensive income		2,893,766		6,562			2,900,328
Total stockholders’ equity		75,081,580		(1,948,260	)		73,133,320
Total liabilities and stockholders’ equity	$	101,561,714	$	(19,154,089	)	$	82,407,625

China YCT International Group, Inc.

Consolidated Income Statement

	Nine Months Ended December 31, 2011
	As Previously Reported		Adjustments			As Restated
Sales Revenue	$	26,477,760	$	-		$	26,477,760
Cost of Goods Sold		11,894,299		-			11,894,299
Gross Profit		14,583,461		-			14,583,461

Selling Expenses		2,505,249		-			2,505,249
G&A Expense		5,651,412		(1,622,515	)		4,028,897
R&D Expenses		577,514		-			577,514
Total expense		8,734,175		(1,622,515	)		7,111,660
Income from operation		5,849,286		1,622,515			7,471,801
Interest Income (Expense)		209,953		-			209,953
Other income (Expense)		-		(3,319,135	)		(3,319,135	)
Profit before tax		6,059,239		(1,696,620	)		4,362,619
Income tax		1,878,207		405,630			2,283,837

Net income		4,181,032		(2,102,250	)		2,078,782
Other comprehensive income
Foreign currency translation adjustment		852,472		(4,547	)		847,925
Comprehensive income		5,033,504		(2,106,797	)		2,926,707

Basic and diluted income per common share
Basic and Diluted	$	0.06	$	(0.03	)	$	0.03

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

	Nine Months Ended September 30, 2011
	As Previously Reported			Adjustments			As Restated
Cash Flows From Operating Activities:
Net income	$	4,181,032		$	(2,102,250	)	$	2,078,782
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		5,315,531			(1,622,513	)		3,693,018
Issue of common shares as compensation		-			-			-
Changes in operating assets and liabilities:
Inventory		(2,424,798	)		-			(2,424,798	)
Advance to suppliers
Other receivable from related parties		-			-			-
Accounts payable					-			-
Taxes payable		(300,480	)		51,802			(248,678	)
Accrued expenses and other payables		1,524,351			6,096,237			7,620,588

Net cash provided by (used in) operating activities		8,295,636			2,423,276			10,718,912

Cash flows from investing activities:
Addition to plant and equipment		(511,491	)		511,491			-
Reduction of construction in progress		-			-			-
Investment in Intagible Assets		-			(14,704,424	)		(14,704,424	)
Prepayment for acquisition of patent		4,107,691			11,426,940			15,534,631

Net cash provided by (used in) investing activities		3,596,200			(2,765,993	)		830,207

Effect of exchange rate changes on cash and cash equivalents		505,210			342,716			847,926

Net increase (decrease) in cash and cash equivalents		12,397,046			-			12,397,046

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

Cash and cash equivalents at ending of period	$	18,443,850		$	-		$	18,443,850