10-Q 1 v321117_10q.htm FORM 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2012

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________ to _____________

Commission file number: 0-53600

CHINA YCT INTERNATIONAL GROUP, INC.

(Exact name of registrant as specified in its charter)

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

c/o Shandong Spring Pharmaceutical Co., Ltd Economic Development Zone.
Gucheng Road Sishui County Shandong Province PR China	273200

(Address of principal executive offices)	(Zip Code)

Issuer's telephone number: 406-282-3188

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨ Accelerated filer ¨

Non-accelerated filer ¨ (Do not check if a smaller reporting company) Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

The number of shares outstanding of the issuer’s common stock on August 9, 2012 was 73,918,110.

CHINA YCT INTERNATIONAL GROUP, INC.

FORM 10-Q/A

QUARTERLY PERIOD ENDED JUNE 30, 2012

INDEX

TABLE OF CONTENTS

		Page

	PART I - FINANCIAL INFORMATION

Item 1:	Financial Statements	3

Item 2:	Management's Discussion and Analysis of Financial Condition and Results of Operations	16

Item 3:	Quantitative and Qualitative Disclosures About Market Risk	20

Item 4:	Controls and Procedures	20

	PART II - OTHER INFORMATION

Item 1:	Legal Proceedings	20

Item 1A:	Risk Factors	20

Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	20

Item 3:	Defaults Upon Senior Securities	20

Item 4:	Removed and Reserved	20

Item 5:	Other Information	20

Item 6:	Exhibits	21

Item 1. Financial Statement

CHINA YCT INTERNATIONAL GROUP, INC.

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JUNE 31, 2012 AND 2011 (UNAUDITED)

Table of Contents

	Page

Consolidated Balance Sheets as of June 30, 2012 (Unaudited) and March 31, 2012	4

Consolidated Statements of Income for the three months ended June 30, 2012 and 2011 (Unaudited)	5

Condensed Consolidated Statements of Stockholders' Equity for the three months Ended June 30, 2012 (Unaudited) and March 31, 2012	6

Consolidated Statements of Cash Flows for the three months Ended June 30, 2012 and 2011 (Unaudited)	7

Notes to Consolidated Financial Statement	8-15

CHINA YCT INTERNATIONAL GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEET

UNIT: USD$

	June 30, 2012		March 31, 2012

Assets
Current assets:
Cash and cash equivalent	$	23,550,337	$	22,146,240
Accounts receivable		-		115,938
Prepaid accounts		20,786		20,887
Inventory		2,760,104		1,978,488
Total current assets		26,331,227		24,261,553
Plant, property and equipment, net		9,524,945		9,663,338
Construction in progress		218,918		219,983
Intangible assets, net		18,454,121		18,863,510
Total assets		54,529,211		53,008,384

Liabilities and Stockholders’ Equity (Deficit)
Liabilities:
Current liabilities:
Tax payable		395,190		1,018,543
Other payable		4,694,300		4,766,952
Total current liabilities		5,089,490		5,785,495
Contingency		-		-
Derivative liabilities		5,531,892		5,531,892
Total liabilities		10,621,382		11,317,387

Stockholders’ Equity
Preferred stock, par value $500.00 per share; 45 shares authorized and issued at March 31, 2012 and March 31, 2011		22,500		22,500
Common stock, par value $0.001 per share; 500,000,000 and 100,000,000 shares authorized, 73,780,610 shares issued and outstanding at March 31, 2012; and 73,731,361 shares issued at March 31, 2011, respectively		73,830		73,780
Additional paid-in capital		36,884,593		36,879,643
Statutory reserve		956,633		956,633
Retained earnings		2,669,995		417,285
Accumulated other comprehensive income		3,300,278		3,341,156
Total stockholders’ equity		43,907,829		41,690,997
Total liabilities and stockholders’ equity	$	54,529,211	$	53,008,384

CHINA YCT INTERNATIONAL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

UNIT: USD$

	FOR THE THREE MONTHS ENDED
	June 30, 2012			June 30, 2011

Sales Revenue	$	8,916,979		$	7,944,264
Cost of Goods Sold		4,368,921			3,582,345
Gross Profit		4,548,058			4,361,919

Selling Expenses		870,204			1,179,552
G&A Expense		487,383			*1,408,820
R&D Expenses		222,566			193,518
Total expense		1,580,153			2,781,890
Income from operation		2,967,905			1,580,029
Interest income (Expense)		28,031			(41	)
Other income (Expense)		-			68,215
Profit before tax		2,995,936			1,648,203
Income tax		743,226			*412,051
Net income		2,252,710			1,236,152
Other comprehensive income
Foreign currency translation adjustment		(40,878	)		*417,275
Comprehensive income	$	2,211,832		$	1,653,427

Basic and diluted income per common share
Basic and Diluted		0.03			*0.02

Weighted average number of common shares outstanding
Basic and Diluted		73,782,832			73,780,610

* Amended

CHINA YCT INTERNATIONAL GROUP, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

UNIT: USD$

	Preferred Stock Series A				Common shares				Additional paid-in		Statutory		Accumulated		Retained
	Shares		Amount		Shares		Amount		capital		Reserve		OCI		Earnings		Total
Balance - March 31, 2012		45	$	22,500		73,780,610	$	73,780	$	36,879,643	$	956,633		3,341,156	$	417,285	$	41,690,997

Issuance of common shares to independent directors						50,000		50		4,950								5,000
Net income for the year																2,252,710		2,252,710
Foreign currency translation adjustment														-40,878				-40,878

Balance - June 30, 2012		45	$	22,500		73,830,610	$	73,830	$	36,884,593	$	956,633		3,300,278	$	2,669,995	$	43,907,829

CHINA YCT INTERNATIONAL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW

UNIT: USD$

	THREE MONTHS ENDED
	June 30, 2012			June 30, 2011
Cash Flows From Operating Activities:
Net income		2,252,710			*1,236,152
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		398,887			*2,050,602
Issue of common shares as compensation		5,000			-
Changes in operating assets and liabilities:
Inventory		(781,616	)		(1,576,067	)
Advance to suppliers		0			-
Accounts receivable		115,938			-
Accounts payable		-			209,871
Taxes payable		(623,353	)		*(646,397	)
Accrued expenses and other payables		(72,654	)		(115,624	)
Net cash provided by (used in) operating activities		1,294,912			1,158,537
Cash flows from investing activities:
Addition to plant and equipment		(1,914	)		(77,596	)
Prepayment/(deposit) to Jining Tianruitong for purchase of patents		-			10,030,688
Net cash provided by (used in) investing activities		(1,914	)		9,953,092
Effect of exchange rate changes on cash and cash equivalents		111,099			(841,973	)
Net increase (decrease) in cash and cash equivalents		1,404,097			10,269,656
Cash and cash equivalents at beginning of period		22,146,240			6,046,804

Cash and cash equivalents at ending of period		23,550,337		$	16,316,460

Supplemental disclosures of cash flow information:
Cash paid during the periods for:
Interest	$	28,031.00		$	81
Income taxes	$	1,366,579		$	1,936,972
Non-cash financing activities:
Stock issued for services	$	5,000		$	11,111

NOTE 1 - ORGANIZATION AND PRINCIPAL ACTIVITIES

China YCT International Group, Inc. (“China YCT”) was incorporated in the State of Florida, in the United States (the “US”) in January 1989, and reincorporated in the State of Delaware on April 4, 2007. China YCT principally operates through the following directly owned subsidiaries: Landway Nano Bio-Tech, Inc. (100% owned), incorporated in Delaware, in the United States, and Shandong Spring Pharmaceutical Co., Ltd. (“Shandong Spring”), (100% owned), incorporated in the People’s Republic of China (“PRC”). China YCT International Group, Inc. and its subsidiaries are collectively referred to as the “Company.”

China YCT, through its wholly owned subsidiary, Shandong Spring, is engaged in the business of developing, manufacturing and marketing its own medicine from gingko extract, and other dietary supplement products in the P.R. China.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

The consolidated financial statements of the Company are prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”).

Principles of consolidation

The consolidated financial statements include the financial statements of China YCT, Landway Nano and its wholly owned subsidiary, Shandong Spring. All inter-company transactions and balances are eliminated in consolidation.

Use of estimates

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant accounting estimates reflected in the Company’s consolidated financial statements include: the valuation of inventory, and estimated useful lives and impairment of property and equipment and intangible assets.

Cash and cash equivalents

For the 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.

Inventory

Inventory is primarily composed of raw materials and packing materials for manufacturing, work in process, and finished goods. Inventories are valued at the lower of cost or market with cost determined on a weighted average basis. Management compares the cost of inventory with the market value and an allowance is made for writing down the inventory to its market value, if lower than cost.

Property and equipment

Property and equipment are stated at cost. The cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to its present working condition and locations for its intended use. Depreciation is calculated using the straight-like method over the following useful lives:

Buildings	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.

Intangible Assets

(i)

Land Use Rights:

All land in the PRC is owned by the government and cannot be sold to any individual or company. However, the government may grant a “land use right” for occupying, developing and using land. The Company records land use rights obtained as intangible assets at cost, which is amortized evenly over the grant period of 50 years.

(ii)

Patents:

In March 2010, the Company purchased one patent from Shandong YCT Corp. The patent is the Company’s exclusive right to use an aglycone type and purification method of biotransformation in the gingko product manufacturing process for a period of 20 years from the patent application date. The patent was recorded at cost when purchased, and is being amortized over the shorter of its remaining legal life, 16.5 years, or its useful life, on a straight-line basis.

In October 2011, two patents were transferred to the Company based on a purchase agreement signed with Jining Tianruitong Technology development Company, Limited on October 26, 2010; which are “Treatment to ischemic encephalopathy and its preparation method” (ZL200510045001.9) and “Chinese herbal medicine compound to treat renal insufficiency and its preparation” (ZL200710013301.8). The patents were recorded at cost when purchased, and are being amortized over the shorter of the remaining legal lives, 13.75 years and 14.95 years, respectively; or their useful lives, on a straight-line basis.

On February 28, 2011, the Company acquired an US patent from L.Y. Hong Kong Biotech Limited (LYHK), L.Y. Research Corp’s wholly owned subsidiary incorporated in Hong Kong, China, in exchange for 44,254,952 shares of common stock at the acquisition date. In addition, 11,063,968 shares of common stock became issuable to the seller upon the occurrence of the quotation of the Company’s common stock on the OTCBB on September 9, 2011. The consideration of $32,748,665 at inception was calculated by multiplying 44,254,952 common stock shares by the Company’s quoted stock price of $0.74 per share on February 28, 2011. It is being amortized over the shorter of its remaining legal life, 9.9 years, or its useful life, on a straight-line basis. An additional consideration of $2,765,992 was calculated by multiplying 11,063,968 common stock shares by the Company’s quoted price of $0.25 per share on September 9, 2011 when the Company’s stock was successfully listed on the OTCQB and the L.Y. Research Corp was entitled to the 11,063,968 shares of the common stock. However, at the year ended on March 31, 2012, the Company reassessed the value of this patent for an impairment analysis. Per the impairment analysis, the Company determined that the patent’s value was impaired, therefore, wrote off the net carrying value of the patent as of March 31, 2012.

In accordance with the agreement between the Company and L.Y. Research Corp, the patent will be returned to L.Y. Research Corp. and the shares issued to Dr. Liu Yaguang will be returned to the Company by October, 2012 if the $20 million refinancing target is not achieved.

Revenue recognition

The Company’s revenue recognition policies are in compliance with Staff Accounting Bulletin (“SAB”) 104, included in the Codification as ASC 605, Revenue Recognition. Sales revenue is recognized at the date of shipment to customers when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, no other significant obligations of the Company exist and collectability is reasonably assured. Payments received before all of the relevant criteria for revenue recognition are recorded as customer deposits.

Unearned revenue

Revenue from the sale of goods or services is recognized at the time that goods are delivered or services are rendered. Receipts in advance for goods to be delivered or services to be rendered in a subsequent period are carried forward as unearned revenue.

Impairment of long-lived assets

The Company reviews and evaluates the net carrying value of its long-lived assets at least annually, or upon the occurrence of other events or changes in circumstances that indicate that the related carrying amounts may not be recoverable. Per ASC 360-10-35-21, a long-lived asset (asset group) shall be tested for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. Per ASC 360-10-35-17, an impairment loss shall be recognized only if the carrying amount of the long-lived asset (asset group) is not recoverable and exceeds its fair value. The carrying amount of a long-lived asset (asset group) is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset (asset group).

Income taxes

The Company accounts for income tax under the asset and liability method as stipulated by ASC 740 formerly Statement of Financial Accounting Standards (”SFAS”) No. 109, “ Accounting for Income Taxes ”, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of the events that have been included in the financial statements or tax returns. Deferred Income taxes are recognized for all significant temporary differences between tax and financial statements bases of assets and liabilities. Valuation allowances are established against net deferred tax assets when it is more likely than not that some portion or all of the deferred tax asset will not be realized. The Company did not recognize any deferred tax amount at June 30, 2012 and March 31, 2012.

China YCT International, Inc. is a holding company of Shandong Spring Pharmaceutical Co., Ltd and does not have any operating activities. Although the contract for the acquisition of the US patent acquired in February 2011 from LY Research Corp. was executed by the holding company, in substance, the patent was acquired by the Company’s operating entity in China. For the same reason, the amortization of the patent was a deduction to the Chinese operating entity’s tax liability. Therefore, the Company does not incur any US income tax liabilities.

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 17% 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 recorded net VAT Payable in amounts of $43,542 and $225,223 as of June 30, 2012 and March 31, 2012, respectively.

Research and development

Research and development costs are related primarily to the Company’s developing its intellectual property. Research and development costs are expensed as incurred. The costs of material and equipment that are acquired or constructed for research and development activities and have alternative future uses are classified as plant and equipment and depreciated over their estimated useful lives.

The research and development expense for the three months ended June 30, 2012 and 2011 was $222,566 and $193,518, respectively.

Advertising costs

Advertising costs for newspaper and television are expensed as incurred. The Company incurred advertising costs of $285,379 and $76,910 for the three months ended June 30, 2012 and 2011, respectively.

Mailing and handling costs

The Company accounts for mailing and handling fees in accordance with the FASB ASC 605-45 (Emerging Issues Task Force (EITF) Issue No. 00-10, Accounting for Shipping and Handling Fees and Costs). The Company includes shipping and handling fees billed to customers in net revenues. Amounts incurred by the Company for freight are included in selling expenses. For the three months ended June 30, 2012 and 2011, the Company incurred $278,608 and $390,010 mailing and handling costs, respectively.

Stock Based Compensation

The Company measures compensation expense for its non-employee stock-based compensation under FASB ASC 718. The fair value of the stock issued is used to measure the transaction, as this is more reliable than the fair value of the services received. Fair value is measured as the value of the Company’s common stock on the date that the commitment for performance by the counterparty has been reached or the counterparty’s performance is complete. The fair value of the equity instrument is charged directly to compensation expense.

Net income (loss) per share (“EPS”)

Basic EPS excludes dilution and is computed by dividing net income (loss) attributable to common stockholders by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock (convertible preferred stock, forward contracts, warrants to purchase common stock, contingently issuable shares, common stock options and warrants and their equivalents using the treasury stock method) were exercised or converted into common stock. There are 31,610,679 common stock equivalents available for dilution purposes as of June 30, 2012 and 2011.

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

For certain of the Company’s financial instruments, including cash and cash equivalents, restricted cash, accounts receivable, accounts payable, accrued liabilities and short-term debt, the carrying amounts approximate their fair values due to their short maturities.

As of June 30, 2012, the Company did not identify any financial instruments that are required to be presented on the balance sheet at fair value other than those whose carrying amounts approximate fair value due to their short maturities.

Foreign currency translation

The accounts of the Company’s Chinese subsidiary are maintained in the RMB and the accounts of the U.S. parent company are maintained in the USD. The accounts of the Chinese subsidiary were translated into USD in accordance with Accounting Standards Codification (“ASC”) Topic 830 “Foreign Currency Matters,” with the RMB as the functional currency for the Chinese subsidiary. According to Topic 830, all assets and liabilities were translated at the exchange rate on the balance sheet date; stockholders’ equity is translated at historical rates and statement of income items are translated at the weighted average exchange rate for the period. The resulting translation adjustments are reported under other comprehensive income in accordance with ASC Topic 220, “Comprehensive Income.” Gains and losses resulting from the translations of foreign currency transactions and balances are reflected in the statements of income.

Translation adjustments resulting from this process amounted to $40,878 and $417,275 for the three months ended June 30, 2012 and 2011, respectively.

The following exchange rates were adopted to translate the amounts from RMB into United States dollars (“USD$”) for the respective periods:

	June 30, 2012		March 31, 2012		June 30, 2011
Three Months End RMB Exchange Rate (RMB/USD$)		6.3249		6.2943		6.4716
Average Period RMB Exchange Rate (RMB/USD$)		6.3074		6.3933		6.5011

Recent accounting pronouncements

In July 2012, FASB issued an amendment to the FASB Codification Topic 350 – Testing Indefinite-Lived Intangible Assets for Impairment. The objective of the amendments in this Update is to reduce the cost and complexity of performing an impairment test for indefinite-lived intangible assets by simplifying how an entity tests those assets for impairment and to improve consistency in impairment testing guidance among long-lived asset categories. The amendments permit an entity first to assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test in accordance with Subtopic 350-30, Intangibles – Goodwill and Other – General Intangibles Other than Goodwill. The more likely-than-not threshold is defined as having a likelihood of more than 50 percent. The amendments are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. The Company decided to adopt the amendment for the year starting with April 1, 2013. The Company does not expect the adoption of this pronouncement to have a significant impact on its financial condition or results of operations.

In June 2011, FASB issued an amendment to the FASB Codification Topic 220 – Presentation of Comprehensive Income. The objective of this Update is to improve the comparability, consistency, and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income. To increase the prominence of items reported in other comprehensive income and to facilitate convergence of U.S. generally accepted accounting principles (GAAP) and International Financial Reporting Standards (IFRS), the FASB decided to eliminate the option to present components of other comprehensive income as part of the statement of changes in stockholders equity. The amendments require that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In the two-statement approach, the first statement should present total net income and its components followed consecutively by a second statement that should present total other comprehensive income, the components of other comprehensive income, and the total of comprehensive income. The amendments in this Update should be applied retrospectively. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. For nonpublic entities, the amendments are effective for fiscal years ending after December 15, 2012, and interim and annual periods thereafter. Early adoption is permitted, and the amendments do not require any transition disclosures. The Company decided to adopt the amendment for the year starting with June 1, 2012. The Company does not expect the adoption of this pronouncement to have a significant impact on tis financial condition or results of operations.

In May 2011, FASB issued an amendment to FASB Codification Topic 820 - Fair Value Measurement. The amendments in this Update apply to all reporting entities that are required or permitted to measure or disclose the fair value of an asset, a liability, or an instrument classified in a reporting entity's shareholders' equity in the financial statements. The amendments in this Update result in common fair value measurement and disclosure requirements in U.S. GAAP and IFRSs. Consequently, the amendments change the wording used to value measurements. For many of the requirements, the Board does not intend for the amendments in this Update to result in a change in the application of the requirements in Topic 820. Some of the amendments clarify the Board’s intent about the application of existing fair value measurement requirements. Other amendments change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. The amendments in this Update are to be applied prospectively. For public entities, the amendments are effective during interim and annual periods beginning after December 15, 2011. For nonpublic entities, the amendments are effective for annual periods beginning after December 15, 2011. Early application by public entities is not permitted. Nonpublic entities may apply the amendments in this Update early, but no earlier than for interim periods beginning after December 15, 2011. The Company does not expect any significant impact in tis financial statements when it is adopted for the year starting from June 1, 2012. The Company does not expect the adoption of this pronouncement to have a significant impact on tis financial condition or results of operations.

In April 2011, FASB issued an amendment to FASB Codification Topic 310 – Receivables: A Creditor's Determination of Whether a Restructuring Is a Troubled Debt Restructuring. The amendment requires that, in evaluating whether a restructuring constitutes a troubled debt restructuring, a creditor must separately conclude that both exist: (1) the restructuring constitutes a concession. (2) The debtor is experiencing financial difficulties. The amendments to Topic 310 clarify the guidance on a creditor's evaluation of whether it has granted a concession as well as on a creditor's evaluation of whether a debtor is experiencing financial difficulties. In addition, the amendments to Topic 310 clarify that a creditor is precluded from using the effective interest rate test in the debtor's guidance on restructuring of payables when evaluating whether a restructuring constitutes a troubled debt restructuring. The amendments in this Update are effective for the first interim or annual period beginning on or after June 15, 2011, and should be applied retrospectively to the beginning of the annual period of adoption. As a result of applying these amendments, an entity may identify receivables that are newly considered impaired. For purposes of measuring impairment of those receivables, an entity should apply the amendments prospectively for the first interim or annual period beginning on or after June 15, 2011. As entity should disclose the total amount of receivables and the allowance for credit losses as of the end of the period of adoption related to those receivables that are newly considered impaired under Section 310-10-35 for which impairment was previously measured under Subtopic 450-20, Contingencies-Loss Contingencies. An entity should disclose the information required by paragraphs 310-10-50-33 through 50-34, which was deferred by Accounting Standards Update No. 2011-01, Receivables (Topic 310): Deferral of the Effective Date of disclosures about Troubled Debt Restructurings in Update No. 2010-20, for interim and annual periods beginning on or after June 15, 2011. For nonpublic entities, the amendments in this Update are effective for annual periods ending on or after December 15, 2012, including interim periods within those annual periods. Early adoption is permitted for public and nonpublic entities. A nonpublic entity may early adopt the amendments for any interim period of the fiscal year of adoption. A nonpublic entity that elects early adoption should apply the provisions of this Update retrospectively to restructurings occurring on or after the beginning of the fiscal year of adoption. The Company decides to adopt the amendment for the year starting from June 1, 2012, and the Company does not expect the adoption of this pronouncement to have a significant impact on its financial condition or results of operations.

NOTE 3 – PREPAID ACCOUNTS

The prepaid account is a prepayment to Shandong YCT for purchase of its health products. The amount is $20,786 and $20,887 as of June 30, 2012 and March 31, 2012, respectively.

NOTE 4 - INVENTORY

Inventory consists of finished goods, work-in-process, and raw materials. No allowance for inventory was made for the three months ended June 30, 2012 and 2011.

The components of inventories as of June 30, 2012 and March 31, 2012 were as follows:

	Period Ended
	June 30, 2012		March 31, 2012
Raw materials	$	750,363	$	272,873
Work-in-progress		1,307,284		414,390
Finished goods		702,457		1,291,225
Total Inventories	$	2,760,104	$	1,978,488

NOTE 5 – PLANT, PROPERTY AND EQUIPMENT, NET

The components of property and equipment as of June 30, 2012 and March 31, 2012 were as follows:

	Period Ended
	June 30, 2012			March 31, 2012
Machinery & Equipment	$	537,770		$	538,461
Furniture & Fixture		163,740			164,536
Building		10,060,650			10,109,560
Subtotal		10,762,160			10,812,557
Less: Accumulated Depreciation		(1,237,215	)		(1,149,219	)
Total plant, property and equipment, net	$	9,524,945		$	9,663,338

The depreciation expense for the three months ended June 30, 2012 and 2011 was $87,996 and $127,654, respectively.

NOTE 6 – CONSTRUCTION IN PROGRESS

Construction in progress represents direct costs of construction or acquisition and design fees incurred for the Company’s new plant and equipment. Capitalization of these costs ceases and the construction in progress is transferred to plant and equipment when substantially all the activities necessary to prepare the assets for their intended use are completed. No depreciation is made until construction is completed and put into use.

NOTE 7 - MAJOR CUSTOMER AND VENDOR

In the three months ended June 30, 2012, the Company mainly sells products to individual retail customers through nine major distributors.

For the three months ended June 30, 2012, the purchase from the three major vendors was $4,744,384, representing 92% of the Company’s total purchase for the quarter.

Shandong Kangyuan		2,667,460
Shandong YCT		1,342,190
Shandong Yongfeng		734,735
Total	$	4,744,384

NOTE 8 - INTANGIBLE ASSETS, NET

The intangible assets of the Company consist of land use right and purchased patents.

Net land use right and purchased patents were as follows:

	Amortization	As of
	Period	June 30, 2012			March 31, 2012
Land use right	50 years	$	1,604,452		$	1,612,252
Less: Accumulated amortization			(185,224	)		(178,052	)
Land use right, net			1,419,228			1,434,200
Patent 1	16.5 years		7,272,842			7,308,199
Patent (non-US No. ZL200510045001.9)	13.75 years		9,802,526			9,850,182
Patent (non-US No. ZL200710013301.8)	14.95 years		1,581,053			1,588,739
Less: Accumulated amortization			(1,621,528	)		(1,317,810	))
Patents, net		$	17,034,893		$	17,429,310

The amortization expense of land use right for the three months ended June 30, 2012 and 2011 was $7,172 and $9,805, respectively.

The amortization expense of the patents for the three months ended June 30, 2012 and 2011 was $303,718 and $1,174,887, respectively.

NOTE 9 - TAX PAYABLE

Tax payable at June 30, 2012 and March 31, 2012 were as follows:

	As of
	June 31, 2012		March 31, 2012

Corporate Income Tax	$	348,333	$	774,423
Value-Added Tax		43,542		225,223
Other Tax & Fees		3,315		18,897

Total Tax Payable	$	395,190	$	1,018,543

NOTE 10 - INCOME TAXES

Shandong Spring Pharmaceutical Co., Ltd is subject to the Enterprise income tax (“EIT”) at a statutory rate of 25%.

The expense associated with the recognition of a contingent obligation under ASC 480-10-25-8, is not tax deductible in China. Per ASC 740-10-25-3A, “An excess of the amount for financial reporting over the tax basis of an investment in a foreign subsidiary or a foreign corporate joint venture that is essentially permanent in duration. ” Therefore, the tax difference in the amount of $1,382,973 ($5,531,892 x 25% tax rate) caused by expense recognized at our book but not in the Chinese tax return at March 31, 2012 will be a permanent difference. In addition, the loss from impairment of the US patent is not tax deductible in China. Therefore, the tax difference in the amount of $7,920,122 ($31,680,487 x 25%) caused by loss recognized at our book but not in the Chinese tax return at March 31, 2012 will be a permanent difference as well.

For the quarters ended June 30, 2012 and 2011, Shandong Spring Pharmaceutical Co., Ltd. recorded income tax provisions of $743,226 and $412,051, respectively.

NOTE 11 – OTHER LIABILITY

On February 28, 2011, the Company entered into a purchase agreement with L.Y. Research Corp., a New Jersey corporation (“LY Research”), which purchase agreement was amended and restated on August 15, 2011 and amended on October 21, 2011 (the “Purchase Agreement). Pursuant to the terms of the Purchase Agreement, the Company acquired a patent (the “LY Patent”) from L.Y. (HK) Biotech Limited, a wholly owned company by L.Y. Research Corp., in exchange for 44,254,952 shares of the Company’s common stock at inception date. In addition, there will be two contingent considerations of total 31,610,544 shares to be issued upon the occurrences of some pre-determined events. The first contingent consideration of 11,063,968 shares should be issued upon the Company’s stock being listed on OTCBB or OTCQB.

Because the obligation to issue additional shares to LY Research Cop is contingent upon the occurrence of certain predetermined events, the liability is recognized when the contingencies are resolved. On September 9, 2011, LY Research Corp became entitled to the issuance of 11,063,968 shares of common stock upon the occurrence of the quotation of the Company’s common stock on the OTCQB. Therefore, the liability to issue 11,063,968 shares of common stocks should be recorded for the quarter ended September 30, 2011 and forward.

The amount of the liability is calculated by multiplying the 11,063,968 shares of stocks by the quoted average stock price on September 9, 2011. The stock price per share on September 9, 2011 was $0.25. The calculation of the liability to issue 11,063,968 shares of the common stocks is as followed:

Other Liability $2,765,992 = 11,063,968 shares x $0.25

We recognized $2,765,992 as an “Other Liability” and an addition to the US patent, for the quarter ended September 30, 2011 and forward.

NOTE 12 – DERIVATIVE LIABILITY

On February 28, 2011, the Company entered into a purchase agreement with L.Y. Research Corp., a New Jersey corporation (“LY Research”); and the purchase agreement was amended and restated on August 15, 2011 (the “Purchase Agreement”). Pursuant to the terms of the Purchase Agreement, the Company acquired a patent (the “LY Patent”) from L.Y. (HK) Biotech Limited, a wholly owned company by L.Y. Research Corp., in exchange for 44,254,952 shares of common stock at the acquisition date. In addition, 11,063,968 shares of common stock will be issued to the seller upon the occurrence of the quotation of the Company’s common stock on the OTCQB or OTCBB; and 20,546,711 shares will be issued to the seller upon the receipt by the Company of a minimum of $20,000,000 in gross proceeds from a debt or equity financing, or a series of debt and/or equity financings (the “Financing”); or upon the quotation of its common stock on NASDAQ or a major stock exchange located outside of the United States (collectively, “Events”). On September 9, 2011, the Company’s stock became quoted at OTCQB; therefore, 11,063,968 shares of common stock became issuable on September 9, 2011.

On October 21, 2011, the Purchase Agreement was further amended to state that if either of the Events should not occur within one year from October 21, 2011; the shares issued pursuant to the Purchase Agreement shall be returned to the Company and the LY Patent shall be returned to LY Research and the Purchase Agreement, as amended, shall be cancelled and of no further force or effect. Because the Company is required to acquire the issued shares by returning the US patent if the predetermined financing event is not met, the term meets the definition under the ASC 480-10-25-8, “Obligations to Repurchase Issuer’s Equity Shares by Transferring Assets”. Per ASC 480-10-25-8, the obligation to repurchase an issuer’s own shares by transferring asset should be recognized as a liability at inception.

In addition, because the acquisition is not a certain future event as of October 21, 2011 and June 30, 2012, the Company considers the contingent obligation to repurchase its own shares as a written put option. Per ASC 480-10-30-7, all financial instruments, recognized under the guidance in Section 480-10-25, other than certain physically settled forward purchase contracts, shall be measured initially at fair value.

The fair value of the obligation on October 21, 2011 should be the market price of the shares that the Company is obligated to repurchase if the financing is not consummated and weighted by the probability of the Company failing to meet the financing target of $20,000,000 or achieving the listing on NASDAQ or a major foreign stock exchange. On October 21, 2011, the Company had issued and was obligated to issue 55,318,920 common shares to Dr. Liu. Therefore, the number of potential shares needed to repurchase was 55,318,920 on October 21, 2011 and June 30, 2012.

Determination of the market price of the shares:

Per ASC 820-10-20 “Readily Determinable Fair Value”, “ The fair value of an equity security is readily determinable if sales prices or bid-and-asked quotations are currently available on a securities exchange registered with the U.S. Securities and Exchange Commission (SEC) or in the over-the-counter market, provided that those prices or quotations for the over-the-counter market are publicly reported by the National Association of Securities Dealers Automated Quotations systems or by Pink Sheets LLC. Restricted stock meets that definition if the restriction terminates within one year. ” Because the sales price of the Company’s common stock was currently available in the over-the-counter market, the fair value of the company’s stock is readily determinable and is the sales price of the stock on October 21, 2011. Because the Company’s common stock was not traded on October 21, 2011, the closest quotations were the prices on October 23, 2011, which was $0.40/share; therefore, the fair values per share was $0.40 for October 21, 2011. As of June 30, 2012, the most recent quoted CYIG stock price was $0.10 (at June 26, 2012).

Determination of the probability of the Company failing to meet the predetermined event:

The Company determined that on October 21, 2011, the chance that the final contingency would not be met, thereby triggering our obligation to repurchase those shares, was around 15% based on the reasons described in its amended 10Q for the quarter ended December 31, 2011. Therefore, the Company recognized $3,319,135 as a derivative liability as of December 31, 2011.

However, during March 2012, the Company was informed by its placement agent that it was highly unlikely that they could achieve the $20,00,000 financing by October 21, 2012. Therefore, the Company reassessed the probability of failing to achieve the financing target by October 21, 2012 to be 100% as of June 30, 2012 and March 31, 2012.

The fair value of the derivative obligation at June 30, 2012 and March 31, 2012 was calculated as follows:

$5,531,892 = 55,318,920 x $0.10/share x 100%

NOTE 13 - STOCKHOLDERS’ EQUITY

Stock Issued to Independent Directors

During the three months ended June 30, 2012, the Company issued an aggregate of 50,000 shares of its common stock to the Company’s three independent directors as compensation for their services. The shares were valued at $0.10 per share, which was the average market price of the common stock for the five days before the grant date. Therefore, the total amount of compensation in the form of issuing shares of common stock to the independent directors was $5,000 for the three months ended June 30, 2012.

Stock Issued for Acquisition of Patent

On February 28, 2011, the Company issued 44,254,952 shares of common stocks, as a partial of total considerations to acquire a U.S. patent No. 6,475,531 B1 titled “Safe Botanical Drug for Treatment and Prevention of Influenza and Increasing Immune Function”) from L.Y. Research Corp., a New Jersey Corporation. The shares of the common stocks were valued at the average closing market price on February 28, 2011 in the amount of $32,748,665.

Statutory Reserve

Subsidiaries incorporated in China are required to make appropriations to reserve funds, based on after-tax net income determined in accordance with generally accepted accounting principles of the People’s Republic of China (“PRC GAAP”). Effective January 1, 2006, the Company is only required to contribute to one statutory reserve fund at 10% of net income after tax per annum, and any contributions are not to exceed 50% of the respective companies’ registered capital.

As of June 30, 2012, the Company appropriated $956,633 to the statutory reserve.

Item 2. Management’s Discussion and Analysis of Financial Condition and Result of Operations.

You should read the following discussion together with our consolidated financial statements and the related notes included elsewhere in this Form 10-Q and our audited financial statements included in our Annual Report on Form 10-K for the year ended March 31,2012. This discussion contains forward-looking statements. These forward-looking statements are based on information available at the time the statements are made and/or management’s belief as of that time with respect to future events and involve risks and uncertainties that could cause actual results and outcomes to be materially different. Important factors that could cause such differences include but are not limited to: competitive factors, general economic conditions, customer relations, relationships with vendors, the interest rate environment, governmental regulation and supervision, seasonality, distribution networks, product introductions and acceptance, technological change, changes in industry practices, onetime events and other factors described herein and in other filings made by the company with the Securities and Exchange Commission. While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, and therefore, you should not rely on these forward-looking statements as representing our views as of any date subsequent to the date this Form 10-Q is filed with the Securities and Exchange Commission.

Overview

China YCT International Group, Inc. (“CYIG”) was incorporated in the State of Florida in January 1989, and reincorporated in the State of Delaware on April 4, 2007. China YCT principally operates through two of its wholly-owned subsidiaries: Landway Nano Bio-Tech, Inc., incorporated in Delaware, and Shandong Spring Pharmaceutical Co., Ltd. (“Shandong Spring”), incorporated in the People’s Republic of China (the “PRC”). China YCT International Group, Inc. and its subsidiaries are collectively referred to as the “Company” or CYIG. CYIG, through its wholly-owned subsidiary, Shandong Spring, is engaged in the business of developing, manufacturing and marketing gingko and distributing other dietary supplement products in the PRC.

Results of Operations – Three Months ended June 30, 2012 compared to the Three Months ended June 30, 2011

Net Sales

During the three months ended June 30, 2012, we realized $8,916,979 of sales revenue, an increase of 12% or $972,715 as compared to $7,944,264 for the same period in 2011.

We entered into a purchase and sale contract with Shandong Yong Chun Tang (“Shandong YCT”) on December 26, 2006 (the “Purchase and Sale Contract”), which sets forth the wholesale price that we pay to Shandong YCT for distributing their products. On February 9, 2010, we renewed the Purchase and Sale Contract with Shandong YCT for a term of five years ending on February 28, 2015. Pursuant to the renewed contract, we can purchase 10 types of health care supplement products from Shandong YCT on a fixed price, which were selected according to their sales volume and profit margin. For the three months ended June 30, 2012, 31% of our revenue were from the sale of the 10 products, compared to 35% in the three months ended June 30, 2011.

Since September 2009, we started to engage in the production and distribution of our own non-prescription drug, Huoliyuan Capsule, which is patented in China, and developed distribution channels for the drug. Our sales have increased since September 2009 as a result of the establishment of our manufacturing and distribution channels of Huoliyuan Capsule.

Since July 2010, the Company changed from being solely a distributor of Shandong YCT to both a manufacturer and distributor of our own products, the Huoliyuan Capsules. As a result, we obtained new customers and expanded our sales of Huoliyuann Capsules. The Huoliyuan Capsule product accounted for 64% of our revenue for the three months ended June 30, 2012, compared to 58% for the three months ended June 30, 2011.

The following table sets forth a sales breakdown comparison by product for the periods under review:

Sales from:	June 30, 2012		June 30, 2011		Change in $			Variance
Health care supplements		2,764,932		2,769,518		(4,586	)		0	%
Drugs		5,731,973		4,627,751		1,104,222			24	%
Others		420,074		546,995		(126,921	)		-23	%
Total		8,916,979		7,944,264		972,715			12	%

Cost of Goods Sold

Our costs of revenue were comprised primarily of the cost of finished goods we purchased from Shandong YCT, the manufacturing cost of Huoliyuan Capsules, and the raw materials we purchased from third party vendors. During the three months ended June 30, 2012, our cost of goods sold totaled $4,368,921, representing an increase of $786,576 or 22% as compared to $3,582,345 during the same period of 2011. The percentage of the costs of goods sold to total revenues increased to 49% from 45%, as compared to the same quarter of the previous year.

Gross Profit

Gross profit during the three months ended June 30, 2011 was $4,548,058, an increase of 4% or $186,193 as compared to the same period in the previous year. The increase in gross profit is a result of increased sales revenue exceeding the increase of cost of goods sold. Gross profit as a percentage of revenue was 51% during the three months ended June 30, 2012, a decrease of 7% as compared to the same period of the prior year. The decrease in gross profit and gross margin are primarily due to the increased cost of goods sold during the quarter ended June 30, 2012.

The following table sets forth a breakdown of our gross profits of different products during the three months ended June 30, 2012 and 2011:

	June 30, 2012		June 30, 2011		Change in $			Variance
Health care supplements		1,476,705		1,523,235		(46,529	)		(3	)%
Drugs		2,855,413		2,498,986		356,427			14	%
Others		215,940		339,699		(123,759	)		(36	)%
Total		4,548,058		4,361,919		186,139			4	%

Research and Development Expenses

Our R&D expenses during the three months ended June 30, 2012 and 2011 were $222,566 or approximate 2% of total corresponding revenue and $193,518 or approximate 2% of total corresponding revenue, respectively. Our long term goal is to utilize advanced biological technology to refine and extract the beneficial compounds in plants, primarily gingko, that has traditionally been known to have medicinal benefits. As of June 30, 2012, we have 25 employees working on R&D. In addition we maintain close ties to the research staffs at Tsinghua University, China Agriculture University, Shandong Herbal Medicine University, and the Shandong Herbal Medicine Research Institute.

Selling, General and Administrative Expenses (SG&A Expenses)

During the quarter ended June 30, 2012, our SG&A expenses consisted primarily of sales commissions, amortization expense, promotion expenses, freight charges and related compensation. Our overall SG&A expenses for three months ended June 30, 2012 were $1,357,587 or 15% of our net sales for the period, representing an decrease of 65% or $921,437 as compared with the SG&A expenses for the same period of the previous year. The decrease in our overall SG&A expenses was primarily due to the decrease of the selling expenses and the amortization expense of an acquired patent, which was written-off as of March 31, 2012.

Net Income

During the quarter ended June 30, 2012, we realized net income of $2,252,710, representing an 82% or $1,016,558 increase as compared to $1,236,152 during the quarter ended June 30, 2011. The increase of our net income was a result of the decrease in the selling expenses and the amortization expense for the US patent that was acquired in February 2011..

Liquidity and Capital Resources

Our principal sources of liquidity were primarily generated from our operations. As of June 30, 2012, Shandong Spring Pharmaceutical had $21,241,737 in working capital, an increase of $2,765,679 or 15% as compared to $18,476,058 in working capital at March 31, 2012. The increase in the working capital at June 30, 2012 was primarily due to the increase in inventory to $2,760,104 from $1,978,488 as of March 31, 2012. We purchased additional raw materials during the three months ended June 30, 2012 to maintain the inventory level. The increase was also due to a decrease in tax payable from $1,018,543 as of March 31, 2012 to $395,190 as of June 30, 2012. Value-Added Tax (“VAT”) payable decreased as a result of offsetting from the VAT the purchased raw materials.

Based on our current operating plan, we believe that existing cash and cash equivalents balance, and the funds to be generated by operations will be sufficient to meet our working capital and capital requirements for our current operations for at least the next 12 months. Our operations produced positive cash flow of $1,404,097 during the three months ended June 30, 2012. The Company reconciles its sales to the distributors’ records and recognizes revenue and accounts receivables at the end of each month. We did not have accounts receivable outstanding as of June 30, 2012. We expect our marketing activities to continue to help generate positive cash flow. The development of our own manufacturing since fiscal year 2010 has put some pressure on our cash flow. We may be required to seek additional capital and reduce certain spending as needed on an on-going basis. There can be no assurance that any additional financing will be available on acceptable terms.

The following table sets forth a summary of our cash flows for the periods as indicated:

	Three months ended
	June 30, 2012			June 30, 2011
Net cash provided by operating activities	$	1,294,912		$	1,158,537
Net cash provided by (used in) investing activities	$	(1,914	)	$	9,953,092
Net cash provided by financing activities	$	-		$	-
Effect of exchange rate change on cash and cash equivalents	$	111,099		$	(841,973	)
Net increase in cash and cash equivalents	$	1,404,097		$	10,269,655
Cash and cash equivalents, beginning balance	$	22,146,240		$	6,046,804
Cash and cash equivalents, ending balance	$	23,550,337		$	16,316,460

Operating Activities

Net cash provided by operating activities was $1,294,912 for the three month period ended June 30, 2012, an increase of 12% or $136,375 from the $1,158,537 net cash provided by operating activities during the three month ended June 30, 2011. The increase was attributable to the increase in the net sales, the decrease in amortization expenses, and changes in accounts receivable and accounts payable.

Investing Activities

During the three months ended June 30, 2012, our net cash used by investing activities was $1,914, as compared to $9,953,092 as compared to net cash provided by investing activities during the same period ended June 30, 2011. The change was primarily due to the refund from Jining Tianruitong Technology Development Limited Company during the three months ended June 30, 2011.

Financing Activities

No net cash was provided or used by financing activities over the three months ended June 30, 2012 and 2011.

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 their financial condition or results of operations.

Critical Accounting Policies

This section should be read together with the Summary of Significant Accounting Policies included as Note 2 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended March 31, 2012 and 10-Qs filed with the SEC.

We prepare our financial statements in conformity with U.S. GAAP, which requires us to make estimates and assumptions that affect our reporting of, among other things, assets and liabilities, contingent liabilities and revenues and expenses. We continually evaluate these estimates and assumptions based on the most recently available information, our own historical experiences and other factors that we believe to be relevant under the circumstances. Since our financial reporting process inherently relies on the use of estimates and assumptions, our actual results could differ from our expectations. This is especially true with some accounting policies that require higher degrees of judgment than others in their application. We consider the policies discussed below to be critical to an understanding of our audited and unaudited consolidated financial statements because they involve the greatest reliance on our management’s judgment.

Principles of consolidation

The consolidated financial statements for the three months ended June 30, 2012 and 2011 include the accounts of China YCT International Group, Inc and Shandong Spring Pharmaceutical Company. Our consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”). All significant inter-company balances and transactions are eliminated in consolidation.

Revenue recognition

Our revenue recognition policies are in compliance with Staff Accounting Bulletin (“SAB”) 104, included in the Codification as ASC 605, Revenue Recognition. Sales revenue is recognized at the date of shipment to customers when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, no other significant obligations of the Company exist and collectability is reasonably assured. Payments received before all of the relevant criteria for revenue recognition are recorded as customer deposits.

Inventories

Inventory is primarily composed of raw materials and packing materials for manufacturing, work in process, and finished goods. Inventories are valued at the lower of cost or market with cost determined on a weighted average basis. Management compares the cost of inventory with the market value and an allowance is made to write down the inventory to market value, if lower than cost.

Stock Based Compensation

Recent Accounting Pronouncements

Item 3. Quantitative and Qualitative Disclosures about Market Risk

A smaller reporting company is not required to provide the information required by this Item.

Item 4. Controls and Procedures

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 quarterly report on Form 10Q (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.

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 quarter ended June 30, 2012, 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.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

There are no material pending legal proceedings to which the Company is a party.

Item 1A. Risk Factors

A smaller reporting company is not required to provide the information required by this Item.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On June 26, 2012, the Company issued an aggregate of 50,000 shares of its common stock to the Company’s three independent directors as compensation for their services. The offer and sale of the common stock therein were exempt from the registration requirements of the Securities Act of 1933 by virtue of Section 4(2) thereof and Regulation D promulgated thereunder, as transactions by an issuer not involving a public offering.

Item 3. Defaults Upon Senior Securities.

None

Item 4. Removed and Reserved

Item 5. Other Information

None

Item 6. Exhibits

31.1	Rule 13a-14(a)/ 15d-14(a) Certification of Chief Executive Officer
31.2	Rule 13a-14(a)/ 15d-14(a) Certification of Chief Financial Officer
32.1	Section 1350 Certification of Chief Executive Officer
32.2	Section 1350 Certification of Chief Financial Officer

XBRL Exhibit*

* To be filed with an amendment to this report on Form 10-Q/A.

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.

Date: August 13, 2012

/s/ Yan Tinghe

Yan Tinghe Chief Executive Officer

(Principal Executive Officer)

/s/ Li Chuanmin

Li Chuanmin Chief Financial Officer

(Principal Financial Officer)