This Quarterly Report on Form 10-Q contains "forward-looking" statements as such term is defined in the Private Securities Litigation Reform Act of 1995 and information relating to the Company that is based on the beliefs of the Company's management as well as assumptions made by and information currently available to the Company's management. When used in this report, the words "anticipate," "believe," "estimate," "expect" and "intend" and words or phrases of similar import, as they relate to the Company or Company management, are intended to identify forward-looking statements. Such statements reflect the current risks, uncertainties and assumptions related to certain factors including, without limitations, 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. Based upon changing conditions, should any one or more of these risks or uncertainties materialize, or should any underlying assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated, expected or intended. The Company does not intend to update these forward-looking statements.

China YCT International Group, Inc. is a holding company whose business is carried out entirely by Shandong Spring Pharmaceutical Co., Ltd. ("Shandong Spring Pharmaceutical"). Shandong Spring Pharmaceutical was organized in 2005 under the laws of The People's Republic of China. From January 2006 until January 2007 management was engaged in developing the company's manufacturing facility and distribution network. In January 2007 Shandong Spring Pharmaceutical commenced revenue-producing activities, specifically distributing products manufactured by Shandong Yong Chun Tang Bioengineering Co., Ltd. ("Shandong Yong Chun Tang"), which is an affiliated company owned by Yan Tinghe, the Chairman of Shandong Spring Pharmaceutical.

Shandong Spring Pharmaceutical was originally organized as a subsidiary of Shandong Yong Chun Tang for the purpose of focusing on advanced technology related to the use of gingko as an aide to health. Shandong Yong Chun Tang later transferred ownership of Shandong Spring Pharmaceutical through to its equity-holders. Nevertheless the business plan remains focused on developing a fully-integrated business engaged primarily in the application of advanced biological engineering technology to the growth and refining of gingko and the use of its constituent compounds in products that will provide health benefits and/or cosmetic advantages.

In order to fully implement its business plan, Shandong Spring Pharmaceutical will require a large capital infusion to finance the creation of state-of-the-art facilities for the extraction of compounds from gingko and the formulation of products based on those compounds. In order to fund its operations and to attract investment, Shandong Spring Pharmaceutical is currently engaged in distribution of health and beauty aides as well as toiletries manufactured by Shandong Yong Chun Tang. This relatively profitable business is generating funds that can be applied to Shandong Spring Pharmaceutical's long-term plans. It is also helping Shandong Spring Pharmaceuticals develop the distribution network that could be used to market its own proprietary products, once the production begins.

Results of operations - the Three and Nine Months Ended December 31, 2008 compared to the Three and Nine Months Ended December 31, 2007

In general, the Company continued to benefit from the ongoing trend of growth and expanding acceptance of its products. During the first nine months of fiscal year 2009, April 1 2008 through December 31, 2008, the Company continued to witness the emergence and development of Shandong Spring Pharmaceutical as a marketing force. Having commenced revenue-producing operations only in January 2007, it has realized $981,849 in revenue for the year ended March 31, 2007. However, during fiscal year 2008, which ended on March 31, 2008, Shandong Spring Pharmaceutical realized $16,586,741 in revenue.

During the 2009 fiscal year, we are carrying on our growth steadily. The following tables summarize the results of our operations during the three and nine month periods ended December 31, 2008 and 2007 and provides information regarding the dollar and percentage increase or (decrease) from the 2008 fiscal period to the 2009 fiscal period:

                                                                  Dollar ($)
                                  Q3 2009         Q3 2008           Increase            Variance

 Net Revenue                    $ 8,634,345     $ 5,381,028     $  3,253,317               60.45 %
 Cost of Good Sold                3,777,786       2,382,088        1,395,698               58.59 %
 Gross Profit                     4,856,559       2,998,940        1,857,619               61.94 %
 Selling, General and
Administrative Expenses           1,772,191       1,421,987          350,204               24.62 %
 Research and Development
Expenses                             62,386               -           62,386                   -
 Income From Operations           3,021,981       1,576,953        1,445,028               91.63 %
 Net Income                       2,242,376         973,514        1,268,862              130.33 %



                                  9 Month Period     9 Month Period        Dollar ($)
                                  Ended 12/31/08     Ended 12/31/07          Increase            Variance

 Net Revenue                      $   21,973,438     $   10,628,628     $  11,344,810              106.73 %
 Cost of Good Sold                     9,587,697          4,701,605         4,886,092              103.92 %
 Gross Profit                         12,385,741          5,927,023         6,458,718              108.97 %
 Selling, General and
Administrative Expenses                3,563,003          2,494,626         1,068,377               42.82 %
 Research and Development
Expenses                                 139,603                  -           139,603                   -
 Income From Operations                8,683,136          3,432,397         5,250,739              152.97 %
 Net Income                            6,457,878          2,238,438         4,219,440              188.49 %

During the three months ended December 31, 2008, we realized $8,634,345 in revenue, an increase of 60% or $3,253,317 as compared to $5,381,028 in revenue reported during the same period of fiscal year 2008. During the nine months ended December 31, 2008, we realized $21,973,438 in revenue, about 106% or $11,344,810 higher than revenues reported during the same period of fiscal year 2008. Overall, higher revenues were primarily attributable to increasing sales volume and income from our core business segments. During the past 2 years of operations, we have a total of 38 products each contributed to revenue, including health care supplements, cosmetics and toiletries and daily necessities, and no single product has accounted for more than 20% of our revenue.

All of the business reflected in the financial statements filed with this Report consisted of resale of products purchased by Shandong Spring Pharmaceutical from Shandong Yong Chun Tang. The purchases were made pursuant to a Purchase & Sale Contract dated December 26, 2006, which sets forth the wholesale price that Shandong Spring Pharmaceutical pays to Shandong Yong Chun Tang for each of the 38 products governed by the Contract. Since Shandong Spring Pharmaceutical was not an exclusive distributor for Shandong Yong Chun Tang during this period, its resale prices are determined in large part by competition. For that reason, the gross margin realized by Shandong Spring Pharmaceutical during the quarter ended December 31, 2008 was nearly identical to gross margin in each quarter of the 2009 fiscal year, averaging 56%, despite the growth in sales from quarter to quarter.

Costs of Revenue. Our costs of revenue are primarily comprised of the cost of finished goods purchased from Shandong Yong Chun Tang and our direct labor and other expenses. Our cost of revenue increased period to period as a result of higher sales. For three months ended December 31, 2008, the percentages of the costs of revenue to total revenues decreased to 43% from 44% for the three-month periods ended on December 31, 2007. And the percentage of cumulative costs of revenue to total revenue for nine-month periods ended December 31, 2008 declined to 43% from 44% for the same period of fiscal year 2008. The cost ratio is relatively steady. It is primarily attributable to the steady relationship between us and our major supplier, Shandong Yong Chun Tang, as a result, we are always able to acquire products at a fixed cost basis.

Gross Profit. Gross profit for the three months ended December 31, 2008 was $4,856,559, an increase of 61% or $1,857,619 as compared to the same period in fiscal year 2008. And gross profit for nine months ended December 31, 2008 was $12,385,741, an increase of 108% or $6,458,718 as compared to the same period in fiscal year 2008. The increase in gross profit is a result of our increase in revenues as we experienced an increase in demand for our products. Gross profit as a percentage of net revenues was 56% for the three months ended December 31, 2008, representing a tiny improvement as compared to 55% for the three months ended December 31, 2007. Also, gross margin for nine months ended December 31, 2008 was 56%, representing a tiny increase as well compared to 55% for the nine-month periods ended December 31, 2007. Overall, our gross margin largely remained unchanged.

The following table is showing gross margins of our different product segments:

                               Gross Margin for nine months ended December 31
                                    2008                             2007
Product
Health care supplements                     54.28 %                          54.21 %
Cosmetics and toiletries                    60.12 %                          60.06 %
Daily necessities                           59.23 %                          58.97 %

Overall                                     57.87 %                          57.74 %

Our R&D expenses for the nine and three months ended December 31, 2008 were $139,603 or 0.6% of total corresponding revenue and $62,386 or 0.7% of total corresponding revenue, respectively. During fiscal year 2008, which ended on March 31, 2008, we incurred R&D expenses of $141,241. Our 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 that end, we have a staff of eight currently engaged in research and development of new technologies and resulting products. In addition we maintain close ties to the research staffs at Tsinghua University, China Agriculture University, Shandong Herbal Medicine University, and the Shandong Herbal Medicine Research Institute.

Selling, General and Administrative Expenses. Our SG&A expenses consist primarily of sales commissions, advertising and promotion expenses, freight charges and related compensation. Our overall SG&A expenses for three months ended December 31, 2008 were $1,772,191 or 20% of our net sales for the period, representing an increase of 24% or $350,204 as compared with the SG&A expenses for the same period of fiscal year 2008. However, this increase can not be directly used to measure our ongoing SG&A expenses stream trend. It needs to be examined and measured in line with the movement of net sales. In particular, for the three-month periods ended December 31, 2008, the SG&A expenses to sales ratio is 20%, where it is 26% for the same period of fiscal year 2008. It sufficiently indicates we have made progress on reasonably controlling SG&A expenses. From this perspective, for the nine months ended December 31, 2008, our SG&A expenses to sales ratio was 16%, representing a descending trend as compared to 23% for nine months ended December 31, 2007.

The increase in the amount of SG&A expenses was primarily due to the increase in advertising expenditures. As a result of intensive competition, in order to market our products more broadly, we have incurred cumulative advertising costs of approximately $1,106,859 for the nine months ended December 31, 2008, which represents an increase of 122% or $610,492 as compared to what we have incurred for the nine months ended December 31, 2007. Notwithstanding the efficiencies that we expect to realize from continued growth, we expect that several factors will cause our selling, general and administrative expenses to increase in the coming months:

· If we are successful in obtaining the funds to complete our manufacturing facility, we will initiate manufacturing activities. This will cause us to incur facility costs and the expense of administrative personnel.

· Although we have $4.44 million in property, plant and equipment on our balance sheet, we are not recording any significant amount of depreciation, since we have not put our facility into service yet. When we commence manufacturing, we will begin to depreciate our property - which will have a substantially larger book value at that time - and incur the expense as a general expense to the extent it is not allocable to cost of goods sold.

Effective in January 2008, the income tax rate imposed by the government of China was reduced from 33% to 25%. The new tax provisions added to our improved results, as we realized $2,242,376 in net income for the quarter ended December 31, 2008 ($.076 per share), a 130% or $1,268,863 increase as compared to $973,514 for the quarter ended December 31, 2007 ($.03 per share), in line with the increased revenues. For the nine months ended December 31, 2008, the company had net income of $6,457,878, an increase of 188% or $4,219,440 as compared to the net income for the same period in 2007. We expect to experience the ongoing positive trend in our financial performance to continue into the last quarter of fiscal year 2009 and through fiscal year 2010.

Our principal sources of liquidity were primarily generated from our operations. As of December 31, 2008, Shandong Spring Pharmaceutical had $9,901,751 in working capital, an increase of $5,382,796 since March 31, 2008, the end of the last fiscal year. The increase was primarily a result of our net income for the nine-month period. Cash and cash equivalents were $10,297,023, an increase of 537% or $8,682,687 from $1,614,336 as of March 31, 2008, which was primarily due to net cash inflows from operations. In addition to $10,297,023 in cash and cash equivalents, the other significant portion of our current working capital consists of a loan receivable of $954,818 from Changqing Paper Co., an affiliated company also majority owned by our chairman, Mr. Yan Tinghe. This loan matured on August 20, 2008, but on October 27, 2008 the Company extended the payment date to October 26, 2009. The loan bears interest at 1% per annum, and as of December 31, 2008, the Company has recorded $1,044 interest receivable on the unpaid balance.

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 $9,798,162 for the nine months ended December 31, 2008, and $2,067,597 for the nine months ended December 31, 2007. Because we carry relatively little inventory and no accounts receivable, 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.

To this point the development of Shandong Spring Pharmaceutical and its initial operations have been funded by capital contributions from its shareholders and by occasional loans from management and their associates, all of which have been repaid. As a result, at December 31, 2008 Shandong Spring Pharmaceutical had over $5,865,487 in fixed assets and no debt.

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.

                                 Nine months ended December 30
                                     2008               2007
Net cash provided by
operating activities           $       9,798,162    $  2,067,597
Net cash used in investing
activities                            (1,328,402 )      (765,533 )
Net cash provided by (used
in) financing activities                  45,095        (534,683 )
Effect of exchange rate
change on cash and cash
equivalents                              167,832         260,254
Net increase in cash and
cash equivalents                       8,682,687       1,027,635
Cash and cash equivalents,
beginning balance                      1,614,336         679,770
Cash and cash equivalents,
ending balance                        10,297,023       1,707,405

Net cash provided by operating activities was $9,798,162 for the nine-month period ended December 31, 2008, which was an increase of 373% or $7,730,565 from the $2,067,597 net cash provided by operating activities for the same period in 2007. The increase was mainly attributable to an overall increase in our net sales. With respect to our sales of the daily necessity sector, the fastest growing segment among overall products by sales volume, it jumped to $2,589,516 from $800,726 for the same period in 2007, representing an increase of 223% $1,788,790.

Our main uses of cash for investing activities were payment for construction in progress for plant and equipment for gingko based products. Net cash used in investing activities in the nine-month period ended December 31, 2008 was $1,328,402, which is an increase of 73% or $562,869 as compared to net cash used in investing activities of $765,533 in the same period of 2007. The increase was due to the construction of gingko based products' production facilities.

Net cash proceeds from financing activities in the nine-month period ended December 31, 2008 was $45,095.

None of our officers or shareholders has made commitments to the Company for financing in the form of advances, loans or credit lines.

The Company has no 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.

You should carefully consider the risks described below before buying our common stock. If any of the risks described below actually occurs, that event could cause the trading price of our common stock to decline, and you could lose all or part of your investment.

Because we have not yet commenced our gingko production operations, unexpected factors may hamper our efforts to implement our business plan.

Our business plan contemplates that we will become a fully-integrated grower, manufacturer and marketer of products derived from gingko. At the present time, however, our entire business consists of distributing health and beauty aids manufactured by Shandong Yong Chun Tang. In order to fully implement our business plan, we will have to successfully complete the development of an agricultural facility and an industrial facility. The complexity of this undertaking means that we are likely to face many challenges, some of which are not yet foreseeable. Problems may occur with our raw material production and with the roll-out of efficient manufacturing processes. If we are not able to minimize the costs and delays that result, our business plan may fall short of its goals, and the current profitability or our distribution activities may be offset by losses from the new gingko business.

The capital investments that we plan may result in dilution of the equity of our present shareholders.

Our business plan contemplates that we will invest approximately $40 million in capital improvements during the next five years. At very least, we estimate that we will be unable to achieve profitable operations as an independent producer of gingko products unless we invest over $10 million in our facility. We intend to raise the largest portion of the necessary funds by selling equity in our company. At present we have no commitment from any source for those funds. We cannot determine, therefore, the terms on which we will be able to raise the necessary funds. It is possible that we will be required to dilute the value of our current shareholders' equity in order to obtain the funds. If, however, we are unable to raise the necessary funds, our growth will be limited, as will our ability to compete effectively.

We are subject to the risk of natural disasters.

We intend to produce the greater portion of our raw materials. In particular, we intend to produce our own gingko. Gingko is a very sensitive crop, which can be readily damaged by harsh weather, by disease, and by pests. If our crops are destroyed by drought, flood, storm, blight, or the other woes of farming, we will not be able to meet the demands of our manufacturing facility, which will then become inefficient and unprofitable. In addition, if we are unable to produce sufficient products to meet demand, our distribution network is likely to atrophy. This could have a long-term negative effect on our ability to grow our business, in addition to the near-term loss of income.

If we lost control of our distribution network, our business would fail.

We depend on our distribution network for the success of our business. Competitors may seek to pull our distribution network away from us. In addition, if dominant members of our distribution network become dissatisfied with their relationship with Shandong Spring Pharmaceutical, a concerted effort by the distribution network could force us to accept less favorable financial terms from the distribution network. Either of these possibilities, if realized, would have an adverse effect on our business.

At present, there is no significant government regulation of the health claims that participants in our industry make regarding their products. In addition, there is only limited government regulation of the conditions under which we will manufacture our products. Other developed countries, such as the United States and, in particular, members of the European Community, have far more extensive regulation of the operations of nutraceuticals and plant-based cosmetics, including strict limitations on the health-related claims that can be made without scientifically-tested evidence. It is not unlikely, therefore, that China will increase its regulation of our activities in the future. To the extent that new regulations required us to conduct a regimen of scientific tests of the efficacy of our products, the expense of such testing would reduce our profitability. In addition, to the extent that the health benefits of some of our products could not be fully supported by scientific evidence, our sales might be reduced.

Our bank deposits are not insured.

There is no insurance program in the PRC that protects bank deposits, in the way that bank deposits in the U.S. are given limited protection by the FDIC. If the bank in which we maintain our cash assets were to fail, it is likely that we would lose most or all of our deposits.

Our business and growth will suffer if we are unable to hire and retain key personnel that are in high demand.

Our future success depends on our ability to attract and retain highly skilled agronomists, biologists, chemists, industrial technicians, production supervisors, and marketing personnel. In general, qualified individuals are in high demand in China, and there are insufficient experienced personnel to fill the demand. In a specialized scientific field, such as ours, the demand for qualified individuals is even greater. If we are unable to successfully attract or retain the personnel we need to succeed, we will be unable to implement our business plan.

We may have difficulty establishing adequate management and financial controls in China.

The People's Republic of China has only recently begun to adopt the management and financial reporting concepts and practices that investors in the United States are familiar with. We may have difficulty in hiring and retaining employees in China who have the experience necessary to implement the kind of management and financial controls that are expected of a United States public company. If we cannot establish such controls, we may experience difficulty in collecting financial data and preparing financial statements, books of account and corporate records and instituting business practices that meet U.S. standards.

Government regulation may hinder our ability to function efficiently.

The national, provincial and local governments in the People's Republic of China are highly bureaucratized. The day-to-day operations of our business will require frequent interaction with representatives of the Chinese government institutions. The effort to obtain the registrations, licenses and permits necessary to carry out our business activities can be daunting. Significant delays can result from the need to obtain governmental approval of our activities. These delays can have an adverse effect on the profitability of our operations. In addition, compliance with regulatory requirements applicable to agriculture and to nutraceutical manufacturing and . . .