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EX-32 - SPRING PHARMACEUTICAL GROUP, INC.v230479_ex32.htm
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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 December 31, 2010
 
¨           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
273200
China
 
   
(Adreess 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 ¨ No x
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No x
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
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
 
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes x No ¨
 
The number of shares outstanding of the issuer’s common stock June 16, 2011 was 29,461,304.
 
 
 

 
 
CHINA YCT INTERNATIONAL GROUP, INC.
 
FORM 10-Q
 
QUARTERLY PERIOD ENDED DECEMBER 31, 2010
 
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
 
4
         
Item 3:
 
Quantitative and Qualitative Disclosures About Market Risk
 
11
         
Item 4:
 
Controls and Procedures
 
11
         
   
PART II - OTHER INFORMATION
   
         
Item 1:
 
Legal Proceedings
 
12
         
Item 1A:
 
Risk Factors
 
12
         
Item 2:
 
Unregistered Sales of Equity Securities and Use of Proceeds
 
12
         
Item 3:
 
Defaults Upon Senior Securities
 
12
         
Item 4:
 
Removed and Reserved
 
13
         
Item 5:
 
Other Information
 
13
         
Item 6:
 
Exhibits
 
13
 
 
2

 
 
Item 1. Financial Statement
 
 
CHINA YCT INTERNATIONAL GROUP, INC.
 
   CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  
 
FOR THE NINE MONTHS ENDED DECEMBER 31, 2010 AND 2009 (UNAUDITED)
 
     
 
Table of Contents  
 
                                                                                                                                                               Page
     
 
Consolidated Balance Sheets as of December 31, 2010 (Unaudited) and March 31, 2010
 F-1
     
 
Consolidated Statements of Income for the nine months ended December 31, 2010 and 2009 (Unaudited)
 F-2
     
 
Consolidated Statements of Cash Flows for the nine months Ended December 31, 2010 and 2009 (Unaudited)
 F-3
     
 
Notes to Consolidated Financial Statement (Unaudited)
 
 
 
 
3

 
 
CHINA YCT INTERNATIONAL GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
 
         
UNIT: USD$
 
   
December 31,
2010
   
March 31,
2010
 
   
(Unaudited)
   
(Audited)
 
Assets
           
Current assets:
           
                 Cash and cash equivalent
  $ 1,903,839     $ 11,911,933  
                 Prepaid accounts
    15,446,064       91,962  
                 Inventory
    127,210       324,855  
                 Other receivable from related parties
    -       -  
                 Total current assets
    17,477,112       12,328,750  
Plant, property and equipment, net
    4,900,019       5,033,596  
Construction in progress
    4,896,384       4,627,665  
Intangible assets, net
    8,058,075       8,093,111  
                  Total assets
    35,331,590       30,083,122  
                 
Liabilities and Stockholders’ Equity (Deficit)
               
Liabilities:
               
Current liabilities:
               
                 Accounts payable
            2,299,928  
                 Tax payable
    1,482,672       1,204,097  
                 Other payable
    310,187       267,182  
                 Total current liabilities
    1,792,859       3,771,207  
                 
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; 29,476,274 and 29,461,304 shares authorized and issued at September 30, 2010 and March 31, 2010.
    29,476       29,461  
Additional paid-in capital
    4,158,225       4,138,480  
Statutory reserve
    956,633       956,633  
Retained earnings
    26,172,297       20,012,077  
Accumulated other comprehensive income
    2,199,600       1,152,764  
                 Total stockholders’ equity
    33,538,731       26,311,915  
                 Total liabilities and stockholders’ equity
  $ 35,331,590     $ 30,083,122  
 
 
 
F-1

 
CHINA YCT INTERNATIONAL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
 
UNIT: USD$
 
   
FOR THE THREE MONTHS ENDED
   
FOR THE NINE MONTHS ENDED
 
   
December 31,
2010
   
December 31,
2009
   
December 31,
2010
   
December 31,
2009
 
                         
Sales Revenue
  $ 9,886,824     $ 9,023,828     $ 21,301,142     $ 23,170,944  
Cost of Goods Sold
    4,613,157       3,949,319       10,788,613       10,135,827  
Gross Profit
    5,273,667       5,074,509       10,512,529       13,035,117  
                                 
Selling Expenses
    843,458       1,423,816       1,776,853       3,743,564  
G&A Expense
    352,096               855,011          
R&D Expenses
    111,221       155,814       233,210       330,269  
Total expense
    1,306,775       1,579,630       2,865,074       4,073,833  
Income from operation
    3,966,892       3,494,879       7,647,455       8,961,284  
Interest income (Expense)
    18,273       -       18,273       -  
Other income (Expense)
    580,211       (21,657 )     580,211       (70,262 )
Profit before tax
    4,565,376       3,473,222       8,245,939       8,891,022  
Income tax
    1,141,919       974,189       2,085,719       2,330,741  
                                 
Net income
    3,423,457       2,499,034       6,160,220       6,560,282  
 Other comprehensive income
                               
        Foreign currency translation adjustment
    510,647       932       2,199,600       68,968  
 Compenhensive income
  $ 3,934,104     $ 2,499,966     $ 8,359,820     $ 6,629,250  
                                 
Basic and diluted income per common share
                               
      Basic and Diluted
    0.12       0.08       0.21       0.22  
                                 
Weighted average number of common shares outstanding
                         
      Basic and Diluted
    29,473,902       29,425,467       29,473,902       29,414,177  
 
 
F-2

 
CHINA YCT INTERNATIONAL GROUP, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
 
UNIT: USD$
 
CHINA YCT INTERNATIONAL GROUP, INC.  
Preferred Stock
Series A
   
Common shares
    Additional                          
                            paid    
Statutory
   
Accumulated
   
Retained
       
   
Shares
   
Amount
   
Shares
   
Amount
    in capital     Reserve    
OCI
   
Earnings
   
Total
 
Balance - March 31, 2008
    45     $ 22,500       81,231     $ 29,380     $ 4,063,039           $ 857,763     $ 4,034,108     $ 9,006,790  
                                                                       
Comprehensive income
                                                                     
Net income for the year
                                                          7,481,543       7,481,543  
Foreign currency translation adjustment
                                                  272,813               272,813  
                                                                       
Balance - March 31, 2009
    45       22,500       29,380,073       29,380       4,063,039             1,130,576       11,515,651       16,761,146  
                                                                       
 Issuance of common shares to independent directors                     81,231       81       75,441                             75,522  
Net income for the year
                                                          9,453,059       9,453,059  
Statutory reserve
                                            956,633               (956,633 )     -  
Foreign currency translation adjustment
                                                    22,188               22,188  
                                                                         
Balance - March 31, 2010
    45       22,500       29,461,304       29,461       4,138,480       956,633       1,152,764       20,012,077       26,311,915  
Issuance of common shares to
 independent directors
                    14,970       15       19,745                               19,745  
Comprehensive income
                                                                       
Net income for the year
                                                            6,160,220       6,160,220  
Other Comprehensive income, net of tax
                                                                       
Foreign currency translation adjustment
                                                    1,046,836               1,046,836  
                                                                         
Balance - December 31, 2010
    45     $ 22,500       29,476,274     $ 29,476     $ 4,158,225     $ 956,633     $ 2,199,600     $ 26,172,297     $ 33,538,731  
 
 
F-3

 
CHINA YCT INTERNATIONAL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW
(Unaudited)
 
         
UNIT: USD$
 
   
NINE MONTH ENDED
 
   
December 31,
2010
   
December 31,
2009
 
Cash Flows From Operating Activities:
           
             Net income
  $ 6,160,220     $ 6,560,282  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation and amortization
    463,077       159,697  
Issue of common shares as compensation
    19,760       93,395  
Changes in operating assets and liabilities:
               
Inventory
    197,645       (488,977 )
Advance to suppliers
               
Other receivable from related parties
               
Accounts payable
    (2,299,928 )     (456,846 )
Customer deposit
               
Taxes payable
    278,575       693,074  
Accrued expenses and other payables
    43,005       (62,071 )
                 
                            Net cash provided by (used in) operating activities
    4,862,354       6,498,554  
                 
Cash flows from investing activities:
               
Addition to plant and equipment
    (563,183 )     (1,224,112 )
Loan repaid from (provided to) related party
            (4,467,259 )
Prepayment/deposit to Shandong Chinese Medecine Research Institute for puchasing of drug patents
    (15,354,102 )     -  
                 
                                Net cash provided by (used in) investing activities
    (15,917,285 )     (5,691,370 )
                 
            Effect of exchange rate changes on cash and cash equivalents
    1,046,836       10,002  
                 
                                Net increase (decrease) in cash and cash equivalents
    (10,008,095 )     817,184  
                 
                               Cash and cash equivalents at beginning of period
    11,911,933       10,048,380  
                 
                                    Cash and cash equivalents at ending of period
  $ 1,903,839     $ 10,865,564  
                 
Supplemental disclosures of cash flow information:
               
Cash paid during the periods for:
               
Interest
    -       -  
Income taxes
  $ 2,144,058     $ 1,691,966  

 
 

 
 
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operation
 
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. 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.
 
 
4

 
 
Results of Operations – For the Three Months Ended December 31, 2010 compared to the Three Months Ended December 31, 2009
 
Net Sales
 
Starting from April 2010, we restructured our product distribution line due to the profitability consideration. We discontinued the distribution of 24 cosmetic and daily necessities products and continued the distribution of our10 most profitable health care supplement products. Furthermore, since September 2009, we have started to engage in production and distribution of our own patented drug – Huoliyuan Capsule and develop the distribution channels for the drug. As the result of the restructure of our businesses and product distribution lines, we adjusted our sales policies and marketing efforts, which caused the slight slowing down of our overall sales during the nine months ended December 31, 2010. During the three months ended December 31, 2010, we realized $9,886,824 in revenue, representing an increase of 10% or $862,996 as compared to $9,023,828 for the same period of 2009.  
 
The following table set forth a sales breakdown by product for the period as indicated.
 
   
December
31, 2010
   
December
31, 2009
   
Change in $
   
Variance
 
Revenue from :
                       
Health care supplements
  $ 5,507,466     $ 5,208,160     $ 299,306       (6 )%
Cosmetics and toiletries
    0       1,918,218       (1,918,218 )     (100 )%
Daily necessities
    0       1,897,450       (1,897,450 )     (100 )%
Drugs
    4,379,358       0       4,379,358          
Total
  $ 9,886,824     $ 9,023,828     $ 862,996       10 %
 
During the quarter ended December 31, 2010, our health care supplements products and the drug accounted for about 56% and 44% of our revenue, respectively. Each of the total 11 products under these two categories contributed to our sales revenue.
 
Cost of Goods Sold
 
 Our costs of revenue comprised primarily of the cost of finished goods we purchased from Shandong YCT, the raw materials we purchased from third party vendors, and the manufacturing cost of our own patented drug, – Huoliyuan Capsule. During the three months ended December 31, 2010, our cost of goods sold totaled $4,613,657, representing an increase of $663,838 or 17% as compared to $3,949,319 for the same period of 2009.  The percentages of the costs of goods sold to total revenues during the three months ended December 31, 2010 increased to 47% from 44% as compared to the same quarter of the previous year.
 
 
5

 
 
The increase of the cost of goods sold was mainly caused by the combination of increased sales and increased output VAT which can’t be offset by input VAT.  Prior to April 2010, all of our resale products purchased from Shandong Yong Chun Tang were subject to a favorable 3% valued added tax rate.  Starting with April 2010, we have no longer had this tax benefit, and all of our products including our self-manufactured drug have been subjected to a 17% value added tax rate.  However, we were not able to adjust our sales prices to our distributors accordingly and to net off the increased output VAT in the quarter ended December 31, 2010.  As the result, our overall cost ratio for the quarter ended December 31, 2010 also increased by 3% as compared with the same period of 2009.
 
Gross Profit
 
Gross profit during the three months ended December 31, 2010 was $5,273,667, a decrease of 4% or $199,158 as compared to the same period for the previous year.  Gross profit as a percentage of net revenues was 53% for the three months ended December 31, 2010, a decrease of 3% as compared to the same period of the prior year.  The decrease in gross profit and gross profit percentage was primarily due to the higher output VAT which was not netted by input VAT.
 
The following table set forth a breakdown of our gross margin by different products:
 
   
Gross profit for the
quarter ended
December 31,
   
Gross Margin for the
quarter ended
December 31,
 
   
2010
   
2009
   
2010
   
2009
 
Product
                       
Health care supplements
  $ 2,958,431     $ 2,832,925       54 %     54 %
Cosmetics and toiletries
            1,192,163               62 %
Daily necessities
            1,049,422               55 %
Drugs
    2,315,236       0       53 %        
Overall
  $ 5,273,667     $ 5,074,509       53 %     56 %
 
Research and Development Expenses. 
 
Our R&D expenses for the three months ended December 31, 2010 and 2009 were $111,221 or approximate 1% of total corresponding revenue and $155,814 or approximately 2% of total corresponding revenue, respectively.  We did not incur any significant R&D expenses recently. However, our long term goal is to utilize advanced biological technology to refine and extract the beneficial compounds in plants that have traditionally been known to have medicinal benefits, primarily gingko. Toward this 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.
 
 
6

 
 
Selling, General and Administrative Expenses (the “SGA”).
 
During the quarter ended December 31, 2010, our SG&A expenses consist primarily of sales commissions, promotion expenses, freight charges and related compensations. Our overall SG&A expenses for the quarter ended December 31, 2010 were $1,195,554 or 12% of our net sales for the period, representing a decrease of 4% or $228,262 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 reduction of selling expenses, advertising expense, and professional expenses.
 
Net Income
 
During the quarter ended December 31, 2010, we realized $3,423,457 in net income, representing a 37% or $924,424 increase as compared to $2,499,034 for the quarter ended December 31, 2009. The increase of our net income was a result of the higher sales revenue and the lower R&D expenses and SG&A expenses during the quarter.
 
Results of Operations – During the nine months ended December 31, 2010 compared to the Nine Months Ended December 31, 2009
 
Net Sales
 
For the same reason above, during the nine months ended December 31, 2010, we realized revenue of $21,301,142, a decrease of$1,869,802 or 8% from $23,170,944 as compared to the same period of 2009.
 
Our sales breakdown by product line for the period indicated was as follows:
 
   
For nine months ended
December 31
             
   
2010
   
2009
   
Change in $
   
Variance
 
Revenue from :
                       
Health care supplements
  $ 12,674,554     $ 14,537,873     $ (1,863,319 )     (13 )%
Cosmetics and toiletries
    0       5,256,783       (5,256,783 )     (100 )%
Daily necessities
    0       3,376,288       (3,376,288 )     (100 )%
Drugs
    8,626,587       0       8,626,587          
Total
  $ 21,301,141     $ 23,170,944     $ (1,869,803 )     (8 )%
 
 
7

 
 
Cost of Goods Sold
 
During the nine months ended December 31, 2010, our cost of goods sold totaled $10,788,613, representing an increase of $652,786 or 6.4% as compared to $10,135,827 for the same period of 2009.  The percentages of the costs of goods sold to total revenues during the nine months ended December 31, 2010 increased to 50.6% from 43.7% as compared to the nine months ended December 31, 2009.
 
Gross Margin
 
Our gross margin during the nine months ended December 31, 2010 was $10,512,529 or 49%, a decrease of 19% as compared to the same period of the previous fiscal year.  The decrease of the gross margin was primarily due to the reduced sales revenue and increased cost of goods sold.
 
Below was the gross margin breakdown by product line for the period.
 
   
Gross profit for nine months
ended December 31,
   
Gross Margin for
nine months ended
December 31,
 
   
2010
   
2009
   
2010
   
2009
 
Product
                       
Health care supplements
  $ 6,191,198     $ 7,632,082       49 %     52 %
Cosmetics and toiletries
    0       3,416,138               65 %
Daily necessities
    0       1,986,898               59 %
Drugs
    4,321,330       0       50 %        
Overall
  $ 5,238,861     $ 13,035,117       49 %     56 %
 
Operating expenses
 
Our operating expenses during the nine months ended December 31, 2010 were equal to 13% of our revenue, a decrease of $1,208,759 or 30% as compared to 18% for the same period in 2009.  The decrease of our operating expenses was primarily a result of reduced selling expenses, travel expenses, and R&D expenses.
 
 
8

 

Pre-tax Income
 
Our operations produced net pre-tax income of $7,647,755 during the nine months ended December 31, 2010, a decrease of $1,313,829 or 15% as compared to $8,891,022 for the same time period in 2009. The decrease of the pre-tax income was the result of the lower sales revenue and the higher cost of goods sold.  
 
Other Comprehensive Income
 
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 comprehensive income below the line of net income. The net income is added to the retained earnings on our balance sheet; while the translation adjustment is added to a line item on our balance sheet labeled “other comprehensive income,” since it is more reflective of changes in the relative values of U.S. and Chinese currencies than of the success of our business. During the nine months ended December 31, 2010, the effect of converting our financial results to Dollars was an addition of $2,199,600 to our other comprehensive income. In the three months ended December 31, 2010, the effect of converting our financial results to Dollars was to add $510,647.
 
 Liquidity and Capital Resources
 
Our principal sources of liquidity were funds generated from our operations. As of December 31, 2010, our company had $15,684,253 in working capital, an increase of $7,126,710 or 83% as compared to $8,557,543 the working capital as of March 31, 2010. The increase in the working capital at December 31, 2010 was primarily due to increased funds generated from operation during the nine months ended December 31, 2010 and the decrease in accounts payable to 0 from $2,299,928 caused by the acquisition of manufacturing equipment for Huoliyuan Capsule operation on March 31, 2010. 
 
As of December 31, 2010, cash and cash equivalents were $1,903,835, a decrease of $10,008,094 or 84% as compared to $11,911,933 as of March 31, 2010. During the quarter ended December 31, 2010, we canceled a previously proposed acquisition of a drug patent from Da Tong Wei Hua Pharmecitial Company and received refunds of the prepayment in the amount of $7,437,187.  During the same quarter, we started another acquisition of three patents from Jining Tian Ri Tong Corporation and made prepayment of $15,917,285 for the acquisition. We are in the process of obtaining the titles of these patents.  The decrease in cash and cash equivalents was mainly due to the prepayment of $15,917,285 made to Jining Tian Ri Tong Corporation.
 
Based on our current operating plan, we believe that existing cash and cash equivalents balances, as well as cash forecast by management to be generated by operations will be sufficient to meet our working capital and capital requirements for our current operations. Our operations have produced positive cash flow, with $4,862,354 provided by operating activities during the nine months ended December 31, 2010. We did not have accounts receivable outstanding as of December 31, 2010. We expect our marketing activities to continue to operate cash-positively. However, once we commence our own manufacturing operations, the working capital requirements of manufacturing may put pressure on our cash flow, and we may be required to seek additional capital and reduce certain spending as needed. There can be no assurance that any additional financing will be available on acceptable terms.
 
 
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In order to fully implement our business plan, however, we will require capital contributions far in excess of our current asset value. Our budget for bringing our manufacturing facility to an operating level that assures profitability is $10 million. To fully implement our business plan - including development of a facility to utilize our proprietary method of extracting flavones from ginkgo by using enzyme technology - we will need $40 million. Our expectation, therefore, is that we will seek to access the capital markets in both the U.S. and China to obtain the funds we require. At the present time, however, we do not have commitments of funds from any source.
 
The following table set forth a summary of our cash flows for the periods as indicated:
 
   
Nine months ended Sept 30,
 
   
2010
   
2009
 
Net cash provided by operating activities
  $ 4,862,354     $ 6,498,554  
Net cash provided by(used in)  investing activities
  $ (15,917,285 )   $ (5,691,370 )
Net cash provided by financing activities
  $ 0     $ 0  
Effect of exchange rate change on cash and cash equivalents
  $ 1,046,836     $ 10,002  
Net increase in cash and cash equivalents
  $ (10,008,095 )   $ 817,184  
Cash and cash equivalents, beginning balance
  $ 11,911,933     $ 10,048,308  
Cash and cash equivalents, ending balance
  $ 1,903,839     $ 10,865,564  
 
Operating Activities
 
Net cash provided by operating activities was $4,862,354 for the nine-month period ended December 31, 2010, which was a decrease of 25% or $1,636,200 from $6,498,554 net cash provided by operating activities for the same period of 2009.  The decrease was mainly attributable to the decrease of our net income and payment made to reduce the balance of account payable.
 
Investing Activities
 
During the nine months ended December 31, 2010, our net cash used in investing activities was $15,917,285, as compared to $5,691,370 of net cash used in investing activities for the nine months ended December 31, 2009.  We prepaid $15,917,285 to Jining Tian Ri Tong Corporation for acquisition of three drug patents. We are in process to obtain the titles of these patents.   In the same quarter, we canceled a previously proposed acquisition of a drug patent from Da Tong Wei Hua Pharmecitial Company, and received a refund of prepayment in the amount of $7,437,187.  
 
 
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Financing Activities
 
No net cash was generated or used by financing activities over the nine-month period ended December 31, 2010 and 2009.
 
Off-Balance Sheet Arrangements
 
We do not have any off-balance sheet arrangements.
 
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.  
 
Our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of our disclosure controls and procedures as of December 31, 2010. Pursuant to Rule 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, “disclosure controls and procedures” means controls and other procedures that are designed to insure that information required to be disclosed by China YCT International Group in the reports that it files with the Securities and Exchange Commission is recorded, processed, summarized and reported within the time limits specified in the Commission’s rules.  “Disclosure controls and procedures” include, without limitation, controls and procedures designed to insure that information China YCT International Group is required to disclose in the reports it files with the Commission is accumulated and communicated to our Chief Executive Officer and Chief Financial Officer as appropriate to allow timely decisions regarding required disclosure. Based on their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that China YCT International Group’s system of disclosure controls and procedures was effective as of December 31, 2010 for the purposes described in this paragraph.
 
 
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Changes in Internal Controls.  
 
There was no change in internal controls over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) identified in connection with the evaluation described in the preceding paragraph that occurred during the three months ended June 30, 2010 that has materially affected or is reasonably likely to materially affect China YCT International Group’s internal control over financial reporting. Pursuant to Rule 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, the term “internal control over financial reporting” is defined as a process designed by, or under the supervision of, the issuer's principal executive and principal financial officers, or persons performing similar functions, and effected by the issuer's board of directors, management and other personnel, 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 and includes those policies and procedures that:
 
 
·
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the issuer;
 
·
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the issuer are being made only in accordance with authorizations of management and directors of the issuer; and
 
·
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the issuer's assets that could have a material effect on the financial statements.
 
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
 
None
 
Item 3. Defaults Upon Senior Securities.
 
None
 
 
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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
 
 
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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:  
 
Date: June 16, 2011
 
/s/ Yan Tinghe
 
Yan Tinghe, Chief Executive Officer
 
/s/ Li Chuanmin,
 
Li Chuanmin, Chief Financial Officer
 
In accordance with the Exchange Act, this Report has been signed below on June 16 , 2011 by the following persons, on behalf of the Registrant and in the capacities and on the dates indicated.
 
/s/ Yan Tinghe
 
Yan Tinghe, Director
 
Chief Executive Officer
 
 
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/s/ Li Chuanmin
 
Li Chuanmin,
 
Chief Financial Officer
 
Robert J. Fanella
 
/s/ Robert J. Fanella
 
Director
 
Dr. Bai Junying
 
/s/ Bai Junying
 
Director
 
Zhang Wengao
 
/s/ Zhang Wengao
 
Director
 
 
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