Yayi International Inc - FORM 10-K/A

Attached files

file	filename
EX-31.1 - EXHIBIT 31.1 - Yayi International Inc	exhibit31-1.htm
EX-31.2 - EXHIBIT 31.2 - Yayi International Inc	exhibit31-2.htm
EX-23.1 - EXHIBIT 23.1 - Yayi International Inc	exhibit23-1.htm
EX-32.2 - EXHIBIT 32.2 - Yayi International Inc	exhibit32-2.htm
EX-32.1 - EXHIBIT 32.1 - Yayi International Inc	exhibit32-1.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K/A
(Amendment No. 2)

[ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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

For the transition period from November 1, 2009 to March 31, 2010

Commission File Number: 000-23806

YAYI INTERNATIONAL INC.
(Exact name of registrant as specified in its charter)

Delaware	87-0046720
(State or other jurisdiction of	(I.R.S. Employer Identification Number)
incorporation or organization)

No. 9 Xingguang Road,
Northern Industrial Park of Zhongbei Town,
Xiqing District, Tianjin 300384, China
(Address of principal executive office and zip code)

(86)22-2798-4033
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None.

Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $0.001

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes [ ] No [X]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes [ ] No [X]

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 [ ] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]

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

Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [ ] Smaller reporting company [X ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

Yes [ ] No [ X ]

As of September 30, 2009 (the last business of the second quarter), the aggregate market value of the shares of the Registrant’s common stock held by non-affiliates (based upon the closing price of such shares as reported on the Over-the-Counter Bulletin Board) was approximately $7.18 million. Shares of the Registrant’s common stock held by each executive officer and director and each by each person who owns 10 percent or more of the outstanding common stock have been excluded in that such persons may be deemed to be affiliates of the Registrant. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

As of June 26, 2010, there were 26,428,099 shares of the Registrant’s common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE:

None.

EXPLANATORY NOTE

This Amendment No. 2 on Form 10-K/A (this "Amendment") hereby amends our Transition Report on Form 10-K for the five months ended March 31, 2010, previously filed with the Securities and Exchange Commission (the "Commission’) on June 29, 2010, as amended by Amendment No.1 on Form 10-K/A filed with the Commission on January 28, 2011 (the "Original Filing"). Among others, this Amendment is being filed mainly to:

1) correct an error in the financial statements for the five months ended March 31, 2010 due to the incorrect application of generally accepted accounting principles related to the classification of the slotting fees incurred by us in 2010. The slotting fees were originally recorded as one –year amortizable assets instead of a one-time offset to revenue as they are incurred.

2) restate certain disclosure included in our consolidated financial statements related to slotting fee offset to sales and income tax expenses for the five months ended March 31, 2010; and

3) restate the disclosure under the heading "Results of Operations" related to slotting fee offset to sales and income tax expenses during each of the periods presented in this Amendment.

This Amendment does not reflect events occurring after the filing of the Original Filing or modify or update those disclosures, including the exhibits to the Original Filing affected by subsequent events.

In addition, as required by Rule 12b-15 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), this Amendment contains new certifications pursuant to Rules 13a-14 and 15d-14 under the Exchange Act and Section 302 of the Sarbanes-Oxley Act of 2002.

Certain Terms

In this report, unless indicated otherwise:

“BVI” refers to the British Virgin Islands;
“China,” “Chinese” and “PRC,” refer to the People’s Republic of China;
“Exchange Act” refers to the Securities Exchange Act of 1934, as amended
“Fuping Milkgoat” refers to Fuping Milkgoat Dairy Co., Ltd., a company organized under the laws of the People’s Republic of China;
“Renminbi” and “RMB” refer to the legal currency of China;
“SEC” refers to the United States Securities and Exchange Commission;
“Securities Act” refers to the Securities Act of 1933, as amended;
“Tianjin Yayi” refers to Tianjin Yayi Industrial Co., Ltd., a company organized under the laws of the People’s Republic of China;
“U.S. dollars,” “dollars” and “$” refer to the legal currency of the United States;
“we,” “us,” “our company,” “our” and “Yayi” refer to the combined business of Yayi International Inc. and/or its consolidated subsidiaries, as the case may be; and
“Weinan Milkgoat” refers to Weinan Milkgoat Production Co., Limited, a company organized under the laws of the People’s Republic of China;

Special Note Regarding Forward Looking Statements

This transition report on Form 10-K contains forward-looking statements that are based on the beliefs of our management, and involve risks and uncertainties, as well as assumptions, that, if they ever materialize or prove incorrect, could cause actual results to differ materially from those expressed or implied by such forward-looking statements. The words “believe,” “expect,” “anticipate,” “project,” “targets,” “optimistic,” “intend,” “aim,” or similar expressions are intended to identify forward-looking statements. All statements, other than statements of historical fact, are statements that could be deemed forward-looking statements, including statements regarding new and existing products, technologies and opportunities; statements regarding market and industry segment growth and demand and acceptance of new and existing products; any projections of sales, earnings, revenue, margins or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements regarding future economic conditions or performance; uncertainties related to conducting business in China; and any statements of belief or intention. As such, they are subject to risks and uncertainties that could cause our results to differ materially from those expressed or implied by such forward looking statements. Such risks and uncertainties include any of the factors and risks mentioned in the “Risk Factors” sections of this transition report on Form 10-K for the five months ended March 31, 2010, and any statements of assumptions underlying any of the foregoing. All forward-looking statements included in this report are based on information available to us on the date of this report. We assume no obligation and do not intend to update these forward-looking statements, except as required by law.

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PART II

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Change in Fiscal Year

On March 26, 2010, our board of directors approved a change in our fiscal year end from October 31 to March 31, effective immediately. The fiscal year end change resulted in a five month reporting period from November 1, 2009 to March 31, 2010. As a result, this Form 10-K is a transition report and includes financial information for the transition period from November 1, 2009 to March 31, 2010.

The comparative financial information provided for the five months ended March 31, 2009 is unaudited, since it represented an interim period of the fiscal year ended October 31, 2009. The unaudited financial information for the five months ended March 31, 2009 includes all normal recurring adjustments necessary for the fair statement of the results for that period. The audited financial statements and results of operations for the years ended October 31, 2009 and 2008 were previously reported in the Form 10-K filed on February 16, 2010. The data of results of operations for the fiscal years ended March 31, 2010 and 2009 were not audited or reviewed and were included in this report for the sole purpose to provide additional information to the readers.

Overview

We are the first mover and a leading producer and distributor of premium goat milk formula products for infants, toddlers, young children, and adults in China. Our current formula product lines are targeted at the premium segment of the dairy market and health-conscious consumers. Headquartered in Tianjin, we sell and distribute our products through a nationwide network of retail points across China in 23 provinces and municipalities including supermarkets (including multinational chains), infant-maternity chain stores and drug stores, as well as catalogue sales and a dedicated online store at Taobao.com. We are vertically integrated and source raw goat milk from our proprietary dairy farms as well as neighboring goat dairy farmers on a long-term contract basis in milk collection centers, which helps us maintain quality control.

Recent Development

In January 2010, as part of our efforts to raise awareness of goat milk among the Chinese consumers and to build our brand, we started launching a 15-second advertisement campaign on China Central Television Channel 1 (CCTV-1) right before the start of the channel's flagship national news program (XinWenLianBo). The advertisement time is considered as one of the most valuable prime-time by Chinese advertisers. In addition to advertising before the national evening news program, we have also launched commercials on other television programs of several CCTV channels.

We also co-hosted the "China Goat Milk Industry Development Summit", or the Summit, together with the National Development and Reform Commission, or NDRC, and the China Dairy Association in the Great Hall of the People in Beijing on January 22, 2010. Attended by top goat milk industry experts and professionals as well as key government officials from NDRC and China Dairy Association, the Summit aimed to initiate discussions regarding scaling up China's goat milk industry and increasing the market recognition of the benefits and nutritional value of goat milk. We presented our "Milk Goat" branded products and market development strategy.

In conjunction with the Summit and with the intention to broaden our distribution network, we held a nationwide goat milk distributor conference in order to secure distribution agreements and provide distributors with marketing strategy and action plan that support our “Milk Goat” brand. We selectively invited over 240 distributors across China, including multinational players such as Carrefour and Wal-Mart, to attend the conference. Roughly 70% of those distributors attending the conference were new, as we hope to broaden our distribution network, and the remaining 30% represented existing distributors who have made contributions to expand our sales.

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During the first five months of 2010, we have added 1,080 retail points, including more Wal-Mart and Carrefour stores, Lotus, Shiji Lianhua, Shiji Hualian, Trust Mart and Ren Ren Le as well as other hypermarkets, local supermarket chains, infant-maternity stores, drug stores and convenience stores. The expansion of our distribution network has helped deepen our market penetration throughout China, with additions of 430 stores in North China, 333 stores in Central China, 208 stores in South China and 109 stores in East China. We have been restructuring our nationwide distribution network since the beginning of this year with more emphasis on developing our product coverage in the hypermarkets and supermarket chains while streamlining the smaller stores established in the past. As of the date of this report, we have approximately 3,800 retail points throughout China.

On April 30, 2010, we entered into a loan agreement, or the Loan, pursuant to which the Company borrowed $3 million from SAIF. SAIF currently owns 1,530,612 shares of the Company’s Series A Preferred Stock, which constitute all of the issued and outstanding Series A Preferred Stock of the Company. The Loan has an interest rate of twelve percent (12%) per annum, calculated on the basis of the actual number of days elapsed during the relevant period and a 360-day year. In addition, the entire principal amount of the Loan and any accrued interest on the Loan shall become fully due and payable on the date that is the earlier to occur of (i) the date that is six (6) months after the release of the principal of the Loan, unless extended in the sole discretion of the Lender; and (ii) the acceleration of the maturity of the Loan upon the occurrence of an Event of Default (as defined in the Loan Agreement), without further action on the part of the Lender. The Company can repay the entire principal and the accrued interest before the maturity of the Loan without any prepayment penalty.

On the same day, to secure repayment by the Company of the Loan, the Company’s major shareholder, Global Rock executed in favor of SAIF Partners a stock pledge agreement, pursuant to which Global Rock pledged 13,024,725 shares of common stock of the Company as security for the obligations of the Company under the Loan Agreement.

On May 31, 2010, the Board of Directors of the Company adopted the Plan. Up to 2,359,974 shares of common stock of the Company (subject to adjustment as described in the Plan) may be issued under the Plan. The Plan permits the grant of Nonqualified Stock Options, Restricted Stock, and Incentive Stock to employees, officers, directors, and consultants of the Company and its subsidiaries. As of the date of this report, the Company has granted options to its directors, executive officers and non-executive employees under the Plan to purchase an aggregate of 1,906,392 shares of common stock of the Company.

Taxation

United States

Yayi International Inc. is subject to United States tax at a tax rate of 41%. No provision for income taxes in the United States has been made as Yayi International Inc. had no income taxable in the United States.

British Virgin Islands

Charleston was incorporated in the BVI and under the current laws of the BVI, is not subject to income taxes.

PRC

In 2007, the PRC government promulgated the new Enterprise Income Tax Law, or EIT Law, and the relevant implementation rules, which became effective on January 1, 2008. Under the EIT Law and its implementation rules, all domestic and foreign investment companies will be subject to a uniform enterprise income tax at the rate of 25% and dividends from PRC subsidiaries to their non-PRC shareholders will be subject to a withholding tax at a rate of 20%, which is further reduced to 10% by the implementation rules, if the non-PRC shareholder is considered to be a non-PRC tax resident enterprise without any establishment or place within China or if the dividends payable has no connection with the non-PRC shareholder’s establishment or place within China, unless any such non-PRC shareholder’s jurisdiction of incorporation has a tax treaty with China that provides for a different withholding arrangement. In addition, pursuant to the EIT Law, enterprises established under the laws of non-PRC jurisdictions, but whose “de facto management body” is located in the PRC, should be treated as resident enterprises for PRC tax purposes However, it is currently uncertain whether we may be deemed a resident enterprise, or how to interpret whether any income or gain is derived from sources within China. See “Risk Factors - Under the New EIT Law, we may be classified as a “resident enterprise” of China. Such classification will likely result in unfavorable tax consequences to our non-PRC shareholders and us. If we, as a Delaware company with substantially all of our management located in China, were treated as a resident enterprise for PRC tax purposes, we will be subject to PRC tax on our worldwide income at the 25% uniform tax rate, which would have an impact on our effective tax rate.

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The EIT Law and the Implementing Rules also imposes a unified EIT of 25% on both foreign invested enterprises and domestic enterprises, effective January 1, 2008. As a result, each of our PRC subsidiaries, Tianjin Yayi, Weinan Milkgoat, Fuping Milkgoat, and Shaanxi Milkgoat have been subject to a 25% income tax rate in calendar year 2008, 2009 and 2010.

Results of Operations

Five Months Ended March 31, 2010 Compared to Five Months Ended March 31, 2009

The following table sets forth a summary of certain key components of our results of operations for periods indicated, in dollars and the percentage of change from the prior period.

		Five months ended March 31
		2010			2009
		(audited)			(unaudited)			change		variance

Net Sales	$	6,085,193		$	9,283,420		$	(3,198,227	)	-34.5%
Cost of goods sold		2,369,642			2,892,709			(523,067	)	-18.1%
Gross profit		3,715,551			6,390,711			(2,675,160	)	-41.9%
Operating expenses:
Sales and marketing expenses		3,908,573			1,973,212			1,935,361		98.1%
General and administrative expenses		1,318,077			685,843			632,234		92.2%
Income from continuing operations		(1,511,099	)		3,731,656			(5,242,755	)	-140.5%
Other income (expenses), net		(380,789	)		(686,878	)		306,089		-44.6%
Income tax benefit (expense)		289,093			(869,614	)		1,158,707		-133.2%
Net income from discontinued operations, net of tax
Foreign currency translation adjustment		6,039			(44,791	)		50,830		-113.5%
Net income attributable to Yayi International Inc.		(1,596,756	)		2,130,373			(3,727,129	)	-175.0%

Net Sales. Net sales for the five months ended March 31, 2010 were approximately $6.1 million, a decrease of 34.5% from the five months ended March 31, 2009. This decrease was primarily due to the restructuring of our product portfolio. From the end of 2009, we worked together with Trout & Partners to streamline our product portfolio and refine our brand image in order to position and strengthen our "Milk Goat" brand as the premium goat milk brand throughout China. Thereafter, we have restructured our original product portfolio of dozens of products and specifications and refined our marketing strategy during the three months ended October 31, 2009. As a result, we gradually reduced the production of original products from the end of 2009 in anticipation of the introduction of our new products in January 2010. Our new product portfolio consists of only ten formula products under the "Milk Goat" brand with only one product specification of 600 grams. We suspended our sales efforts in supermarkets during these few months as we transitioned from our original product portfolio to the new one with new packaging, stock-keeping units (SKUs), and new (higher) pricing. Our new product portfolio has only been launched in the market since January 2010.

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The following table sets forth the information relating to the quantity and sales price of goat milk powder we sold during the periods indicated:

		Five months		Five months
Product Name		ended		ended
		March		March
		31, 2010		31, 2009

Goat Milk Powder Quantity (ton)		351		510
Unit price	$	17,337	$	18,203

Cost of goods sold. Cost of goods sold for the five months ended March 31, 2010 was approximately $2.4 million, a decrease of 18.1% from the five months ended March 31, 2009, primarily due to the decrease in our net sales. However, the unit cost increased by 19.0% from $5,672.0 per ton to $6,751.1 per ton, primarily attributable to giveaways distributed to purchasers of our new products. To a lesser extent, increased prices of main raw materials also contributed to the increase in our unit cost.

Gross Profit. Gross profit for the five months ended March 31, 2010 was approximately $3.7 million, a decrease of 41.9% from the five months ended March 31, 2009. Our gross margin for the five months ended March 31, 2010 decreased to 61.1% compared to 68.8% for the five months ended March 31, 2009. This decrease was primarily attributable to promotional products distributed to purchasers of our new products and slotting fees paid to supermarkets. However, the gross margin of our new product portfolio is higher than original product portfolio which partially offset the decrease caused by promotional products and slotting fees paid to supermarkets.

Operating and administrative expenses. Our total operating and administrative expenses consist primarily of sales and marketing expenses and general and administrative expenses. Our total operating and administrative expenses increased by approximately $2.6 million, or 96.6 % from the five months ended March 31, 2009.

Sales and marketing expenses. For the five months ended March 31, 2010, sales and marketing expenses increased approximately 98.1% to $3.9 million from $2.0 million for the five months ended March 31, 2009. The increase was primarily attributable to the large increase in advertising and promotion expenses. Advertising and promotional expenses for the five months ended March 31, 2010 was approximately $2.7 million, an increase of 160.5% from the five months ended March 31, 2009. Advertising expenses were approximately $2.0 million for the five months ended March 31, 2010, an increase of 586.5% compared with $0.3 million for the five months ended March 31, 2009. The primary reason for the increase was that we launched our new television advertisement campaign to promote the new product portfolio nationwide. The television commercials started airing on January 1, 2010 on China Central Television Channel 1 (CCTV-1) right before the channel's flagship national news program (XinWenLianBo) at 7pm, which is generally considered one of the most valuable prime-time advertising time slots in China.

General and administrative expenses. General and administrative expenses for the five months ended March 31, 2010 increased by 92.2% to $1.3 million from $0.7 million for the five months ended March 31, 2009. It was primarily attributable to labor cost increase for recruiting senior managers and professionals such as CFO, Director of Production and compensation increase for CEO and director, professional fees increase for engaging Earnest &Young as our SOX consultant and IT expenditures as a result of the expansion of our business.

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Other income (expenses). Our other income (expenses) consists primarily of interest and finance cost. Other expenses decrease by approximately $ 0.3 million, or 44.6%, primarily attributable to the repayment of commercial loans of approximately US$ 2.7 million and decreased deferred debt issuance cost amortization.

Income Tax. Our income tax in the five months ended March 31, 2010 decreased by 133.2%, from an expense of approximately $0.9 million in the five months ended March 31, 2009 to a benefit of approximately $0.3 million in the five months ended March 31, 2010. The decrease was primarily attributable to losses experienced in the five months ended March 31, 2010.

Net Income(loss). As a result of the foregoing, net income attributable to Yayi International Inc. decreased by 175.0% in the five months ended March 31, 2010 as compared to the five months ended March 31, 2009.

Twelve Months Ended March 31, 2010 Compared to Twelve Months Ended March 31, 2009 (Unaudited and Unreviewed)

The following table sets forth a summary of certain key components of our results of operations for periods indicated, in dollars and the percentage of change from the prior period.

		Years ended March 31 (Unaudited)
		2010			2009			change		variance

Net Sales	$	21,362,733		$	24,697,548		$	(3,334,815	)	-13.5%
Cost of goods sold		7,267,807			8,274,455			(1,006,648	)	-12.2%
Gross profit		14,094,926			16,423,093			(2,328,167	)	-14.2%
Operating expenses:
Sales and marketing expenses		7,689,499			5,399,221			2,290,278		42.4%
General and administrative expenses		2,726,964			1,753,174			973,790		55.5%
Income from continuing operations		3,678,463			9,270,698			(5,592,235	)	-60.3%
Other income(expense), net		(1,219,092	)		(4,959,780	)		3,740,688		-75.4%
Income tax benefit(expense )		(953,071	)		(2,225,028	)		(1,271,957	)	-57.2%
Net income from discontinued operations, net of tax
Foreign currency translation adjustment		(113	)		(101,337	)		101,224		-99.9%
Net income attributable to Yayi International Inc.		1,506,187			1,984,553			(478,366	)	-24.1%

Net Sales. Net sales for the year ended March 31, 2010 were approximately $21.4 million, a decrease of 13.5% from the prior year. As described above, we gradually reduced the production of original products from the end of 2009 in anticipation of the introduction of our new products in January 2010. We suspended our sales efforts in supermarkets when we transitioned from our original product portfolio to the new one with new packaging, stock-keeping units (SKUs), and new (higher) pricing. Our new product portfolio has only been launched in the market since January 2010, and the new products portfolio has varieties and package specifications than the original products portfolio. As a result, our net sales reduced for the year ended March 31, 2010 as compared with the prior year.

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The following table sets forth the information relating to the quantity and sales price of goat milk powder we sold during the periods indicated:

Product Name Twelve Twelve

		months		months
		ended		ended
		March		March
		31, 2010		31, 2009

Goat Milk Powder Quantity (ton)		1,131		1,239
Unit price	$	18,897	$	19,933

Cost of goods sold. Cost of goods sold for the year ended March 31, 2010 was approximately $7.3 million, a decrease of 12.2% from prior year, mainly due to reduced production costs as a result of our acquisition of a supplier of raw goat milk, Fuping Milkgoat in August, 2008.

Gross Profit. Gross profit for the year ended March 31 2010 was approximately $14.1 million, a decrease of 14.2% from prior year. This decrease was primarily attributable to our lower net sales of new products portfolio and slotting fees paid to supermarkets, partially offset by the decrease in our cost of goods sold primarily as a result of our acquisition of Fuping Milkgoat in August, 2008.

Operating Expenses. Our total operating expenses consist primarily of sales and marketing expenses and general and administrative expenses. Total operating expenses increased approximately 45.6% to $10.4 million for the year ended March 31,2010 from $ 7.2 million for the year ended March 31, 2009.

Sales and marketing expenses. For the year ended March 31, 2010, the sales and marketing expense increased approximately 42.4% to $7.7 million from $5.4 million for the year ended March 31, 2009. The increase was primarily attributable to the large increase in advertising and promotion expenses. Advertising and promotion expenses were approximately $4.5 million for the year ended March 31, 2010, an increase of 102.0% compared with $2.2 million for the year ended March 31, 2009. The primary reason for the increase was that we launched our new television advertisement campaign to promote the new product portfolio nationwide. The television commercials started airing on January 1, 2010 on China Central Television Channel 1 (CCTV-1) right before the channel's flagship national news program (XinWenLianBo) at 7pm, which is generally considered one of the most valuable prime-time advertising time slots in China.

General and administrative expenses. For the year ended March 31, 2010, the general and administrative expenses increased by 55.5% to $2.7 million from $1.8 million for the year ended March 31, 2009. The increase was primarily attributable to the increase in professional fees paid to professional firms for legal service, audit service and SOX compliance from $0.34 million to $0.84 million which accounted for 50.6% of the total variance. In addition, $0.18 million increase was due to the increase of compensation of our CEO and director since June 2009.

Other income (Expenses). Our other income (expenses) consists primarily of merger cost, interest and finance cost. Other expense for the year ended March 31, 2010 decreased by 75.4% from the prior year mainly due to $3.5 million of merger cost occurred in June 2008. The interest expense decreased mainly because the repayment of commercial loans for the year ended March 31, 2010.

Income Tax. Income tax for the year ended March 31, 2010 decreased by approximately 57.2% from $2.2 million to $1.0 million compared to prior year. The decrease is primarily attributable to the decrease in sales and taxable income for the year ended March 31, 2010.

Net Income(loss) . As a result of the foregoing, net income attributable to Yayi International Inc. decreased by 24.1% for the year ended March 31, 2010 as compared to prior year.

Fiscal Year Ended October 31, 2009 Compared to Fiscal Year Ended October 31, 2008

The following table sets forth a summary of certain key components of our results of operations for periods indicated, in dollars and the percentage of change from the prior period.

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		Fiscal Years ended October 31 (Audited)
		2009		2008			change		variance

Net Sales	$	24,845,685	$	21,791,268		$	3,054,417		14.0%
Cost of goods sold		8,025,009		7,600,454			424,555		5.6%
Gross profit		16,820,676		14,190,814			2,629,862		18.5%
Operating expenses:
Sales and marketing expenses		5,760,446		5,201,779			558,667		10.7%
General and administrative expenses		1,972,190		1,107,333			864,857		78.1%
Income from continuing operations		9,088,040		7,881,702			1,206,338		15.3%
Other income (expense), net		1,491,027		(4,422,539	)		(5,913,566	)	-134%
Income tax expense		2,201,032		1,633,946			567,086		34.7%
Net income attributable to Yayi International Inc.		5,395,981		1,825,217			3,570,764		195.6%

Net Sales. Net sales for fiscal 2009 were approximately $24.8 million, an increase of 14% from the prior year. The increase is mainly attributable to the increase in the volume of products sold which was partially offset by a decrease of approximately 1% in the weighted average price at which products were sold. The volume of products sold increased because of the improvement of incentives for sales team that resulted in better sales efforts coupled with better advertisement and promotion. The weighted average price decreased because of difference in portfolio mix of products between the two years. Changes in the currency exchange rate and the weakening of the U.S. dollar also contribute to 18% of the increase in net sales.

The following table sets forth the information relating to the quantity and sales price of goat milk powder we sold during the periods indicated:

		Fiscal year		Fiscal year
Product Name		ended		ended
		October		October
		31, 2009		31, 2008

Goat Milk Powder Quantity (ton)		1,259		1,023
Unit price	$	19,683	$	20,078

Gross Profit. Gross profit for fiscal 2009 was approximately $16.82 million, an increase of 19% from the prior year. Our gross margin for 2009 was 68% compared to 65% for 2008. Approximately 19% of the increase in gross profit is attributable to changes in the currency exchange rate; the balance of the increase is primarily attributable to the increase in net sales (excluding the currency effects) coupled with reduced material costs as a result of our acquisition in August, 2008 of a supplier of raw goat milk, Fuping Milkgoat. Such vertical integration of our operations allows us to benefit from a higher profit margin for our products.

Operating Expenses. Our total operating expenses consist primarily of sales and marketing expenses and general and administrative expenses. Total operating expenses increased approximately 23% to $7.7 million from $ 6.3 million for the year ended October 31, 2008.

Sales and marketing expenses. For the year ended October 31, 2009, the sales and marketing expense increased approximately 10.7% to $5.7 million from $5.2 million for the year ended October 31, 2008. The increase is primarily attributable to (i) marketing strategy consulting fee, which increased by about $512,000 because the Company has engaged Trout & Partners China to assist in streamlining its product portfolio and refining its brand image in order to position and strengthen its “Milk Goat” brand as the premium goat milk brand throughout China; (ii) freight costs, which increased because of the volume of product delivered; (iii) Labor cost increased due to the rise in the average sales pay rate and commission paid to our sales representatives along with the sales revenue increase. The increase of selling and marketing expenses is partially offset by the decrease of charges by retail stores, because the Company has been in the process of streamlining its products. The Company consciously restrained its marketing activities in the fourth quarter.

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General and administrative expenses. For the year ended March 31, 2009, the general and administrative expenses increased by 78.1% to $2.0 million from $1.1 million for the year ended October 31, 2008. It was primarily attributable to labor cost increase for recruiting senior managers and professionals such as CFO, Director of Production and pay increase for CEO and executive director, professional fees increase for engaging E&Y as our SOX Consultant and IT expenditures due to as a result of the expansion of our business.

Other income (Expenses). Our other income (expenses) consists primarily of interest and finance cost. Interest expense in fiscal 2009 increased by 19% from the prior year mainly because of our increased net borrowings although rates of interest on such borrowings is slightly lower than that of the corresponding period in the prior year. Changes in currency exchange rates had only a minimal impact on changes in interest expense. See notes 9 and 11 of our consolidated financial statements. Accretion of debt discount and deferred financing cost increased by 649% from prior year which is mainly due to the fact that the convertible notes beneficial period is from June 2008 to December 2009.

Income Tax. Income tax in fiscal 2009 increased by approximately 35% from the corresponding period in the prior year. The increase is primarily attributable to the increased in sales and taxable income in fiscal 2009.

Net Income(loss) . Net income increased by approximately $3.57 million to approximately $5.4 million in fiscal 2009. After excluding merger costs in the prior year, accretion of debt discount and deferred financing cost of convertible notes and liquidated damage of convertible notes accrued this year , net income increased by approximately $750,000, or 14%, as a result of the factors described above.

LIQUIDITY AND CAPITAL RESOURCES

As of March 31, 2010, we had cash and cash equivalents of approximately $4.7 million and working capital of approximately $3.0 million.

We intend to, and are in the process of, expanding our administrative and production facilities to meet our current needs and anticipated increased demand for our products. In connection therewith, we plan to spend approximately $18.7 million during the fiscal years ending March 31, 2011 through 2012 ($11.9 million during the fiscal year ending March 31, 2011 and $6.8 million during the fiscal year ended March 31, 2012). The aggregate amount of $18.7 million in capital expenditure is mainly used for the following items: the purchase of machinery and equipment for the new powder processing plant in Weinan, Shaanxi and machinery and equipment in Fuping, Shaanxi with the capital expenditure of $10.0million; the purchase of livestock, the construction of goat farms and goat milk collection stations in an amount of $3.6million; the packing equipment purchase and renovation of the office and staff apartment building in Jinghai, Tianjin in an amount of $2.7 million; the purchase of IT equipment and system including computers and computer servers in an amount of $0.35million, and User Friendly version U9 accounting software in an amount of $0.18million.

On June 3, 2010, the Company renewed its loans from Tianjin Rural Cooperative Bank, Kexin Branch, or Rural Bank by entering into four separate short-term loan agreements with Rural Bank. Pursuant to the loan agreements, Rural Bank agreed to loan to the Company an aggregate RMB 30,000,000 (approximately $4,400,000) for the use as working capital. The loan has a monthly interest rate of 0.48675% and the interests must be paid on a quarterly basis on the 20 ^thof the last month of each quarter. The loan expires on June 2, 2011 but can be renewed upon the written consent by Rural Bank. Under the terms of the loan agreements, the Company is subject to customary affirmative and negative covenants. The loan may be accelerated and Rural Bank may demand immediate payment of the principal and accrued interests upon the occurrence of an event of default which includes, among other things, a failure to make principal or interest payments, a failure to comply with other covenants and certain events of liquidation or bankruptcy.

We believe that our currently available working capital should be adequate to sustain our operations at our current levels through at least the next twelve months. However, depending on our future needs, changes and trends in the capital markets affecting our shares and the Company, we may determine to seek additional debt financing from commercial bank or equity financing in the private or public markets.

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The following table summarizes information about our net cash flows for the following periods.

		Five Months Ended					Years Ended
		March 31,					October 31,
		2010			2009		2009		2008
		(Audited)			(Unaudited)		(Audited)		(Audited)
Net cash provided by (used in) operating activities	$	(3,896,858	)	$	3,285,902		6,534,843		3,816,554
Net cash used in investing activities		(1,980,422	)		(4,192,349	)	(12,400,482	)	(5,658,527	)
Net cash provided by financing activities		235,867			1,648,847		15,360,090		2,387,373
Net increase (decrease) in cash and cash equivalent		(5,640,536	)		740,289		9,476,935		634,961

Operating Activities:

Net cash used in operating activities was approximately $3.9 million for the five months ended March 31, 2010, as compared to net cash provided by operating activities of approximately $3.3 million for the five months ended March 31, 2009. Net cash used in operating activities for the five months ended March 31, 2010 was mainly due to net loss of 1.6 million, non-cash items not affecting transition period cash flows of $0.3 million and a $2,6 million increase in working capital. The changes in working capital for the five months ended March 31, 2010 were primarily related to a $0.9 million increase in advance due to prepayment for raw goat milk powder and other materials, a $0.5 million increase in accounts receivable due to our extended credit term for new products promotion, a $0.5 million increase in deferred tax assets due to taxable temporary difference such as advertice expenses and allowance for bad debt, a $0.6 million decrease in accounts payable due to the shorten payment term of main materials.

Net cash provided by operating activities was approximately $6.53 million and $3.82 million for fiscal 2009 and 2008, respectively. Approximately 9% of the increase in the net cash provided by operating activities is attributable to the change in currency exchange rates; the balance of the increase is attributable primarily to the increase of net income and to a lesser extent attribute to the decrease in inventory. Inventory decreased due to increased sales coupled with more judicious efforts in replenishing our inventory. The increase in the net cash provided by operating activities was partially offset by increases in accounts receivable. Accounts receivable increase as a result of the increase in sales.

Investing Activities:

Net cash used in investing activities for the five months ended March 31, 2010 was approximately $2.0 million, a decrease of approximately $2.5 million from the five months ended March 31, 2009. This decrease in net cash used in investing activities is primarily because we prepaid $ 3.8 million for the construction of Jing Hai factory and warehouse during the five months ended March 31, 2009, but did not make any same kind of payment during the five months ended March 31, 2010. During the five months ended March 31, 2010, there was also an increase in capital spending of approximately $2.0 million, among which $0.4 million was for purchasing equipment, $0.6 million was for purchasing livestock and $0.80 million was for acquisition of land-use rights from Shaanxi Province. See note 5 of our consolidated financial statements.

Net cash used in investing activities for fiscal 2009 was approximately $12.40 million, an increase of approximately $6.74 million from 2008. Approximately 12% of the increase is attributable to the change in currency exchange rates while the balance is attributable primarily to advances to Tianjin Mengyang for the construction and development of certain facilities. In addition, the increase came from our construction of farm facilities located in Weinan, Shaanxi and to a lesser extent attribute to the purchase of equipment for enhancing our production capacity in Weinan and Tianjin in fiscal 2010.

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Financing Activities:

Net cash provided by financing activities for the five months ended March 31, 2010 was approximately $0.2 million compared to approximately $1.6 million of net cash provided by these activities during the corresponding period in the prior year. The change is primarily attributable to the repayment of approximately $2.7 million of bank loan, which is $2.0 million more than the corresponding period in the prior year, partially offset by the borrowings of approximately $3.0 million of bank loan that is $0.6 million more than the corresponding period in the prior year. See note 9 of our consolidated financial statements.

Net cash provided by financing activities for the fiscal year ended October 31, 2009 was approximately $15.4 million compared to approximately $2.4 million of net cash provided by these activities in the fiscal year 2008. The change is primarily attributable to issuing and selling to the investor, SAIF 1,530,612 shares of the Company’s Series A Preferred Stock at a price per share of $9.80 for an aggregate purchase price of $15.0 million.

Critical Accounting Policies

The consolidated financial statements include the financial statements of us and our subsidiaries. All transactions and balances among us and our subsidiaries have been eliminated upon consolidation. Certain amounts included in or affecting our consolidated financial statements and related disclosures must be estimated, requiring us to make certain assumptions with respect to values or conditions that cannot be known with certainty at the time the financial statements are prepared. These estimates and assumptions affect the amounts we report for assets and liabilities, our disclosure of contingent assets and liabilities at the date of our financial statements, and the reported amounts of revenues and expenses during the reported periods. We routinely evaluate these estimates, utilizing historical experience, consulting with experts and utilizing other methods we consider reasonable in the particular circumstances. Nevertheless, actual results may differ significantly from our estimates. Any effects on our business, financial position or results of operations resulting from revisions to these estimates are recorded in the period in which the facts that give rise to the revision become known.

Estimates of allowances for bad debts – We must periodically review our trade and other receivables to determine if all are collectible or whether an allowance is required for possible uncollectible balances. When determining the allowances, a number of factors are considered, including the length of time the receivable is past due, past loss history, the counter party’s current ability to pay and the general condition of the economy and industry. Accounts receivable are written off if reasonable collection efforts are not successful.

Estimate of the useful lives of property and equipment and biological assets – We must estimate the useful lives and residual values of our property and equipment and biological assets. We must also review property and equipment and biological assets for possible impairment whenever events and circumstances indicate that the carrying value of those assets may not be recovered from the estimated future cash flows expected to result from their use and eventual disposition.

Inventory – We value inventories at the lower of cost or market value. We determine the cost of inventories using the weighted average cost method and include any related production overhead costs incurred in bringing the inventories to their present location and condition. We must determine whether we have any excessive, slow moving, obsolete or impaired inventory. We perform this review quarterly, which requires management to estimate the future demand of our products and market conditions. We make provisions on the value of inventories at period end equal to the difference between the cost and the estimated market value. If actual market conditions change, additional provisions may be required. In addition, we may write off some provisions if we later sell some of the subject inventory.

Goodwill – We must test goodwill annually for impairment or more frequently if events or changes in circumstances indicate that it might be impaired. We perform impairment tests at the reporting unit level to identify potential goodwill impairment. We recognize a goodwill impairment loss in our statements of operations and comprehensive income when the carrying amount of goodwill exceeds its implied fair value. We perform the impairment test at the end of the fourth quarter each year.

Land use rights – Land use rights are stated at cost less accumulated amortization. Amortization is charged using the straight-line method over the period of lease term.

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Revenue recognition – Revenue from the sale of goods is recognized on the transfer of risks and rewards of ownership, which generally coincides with the time when the goods are delivered to customers and the title has passed. Net sales of products represent the invoiced value of goods, net of value added taxes ("VAT"), sales returns, trade discounts and allowances.

Prior to January 1, 2009, the Company allows for exchange of goods that are near expiration. The Company provided for an allowance for return products since the Company has experienced returns in the normal course of business. Subsequent to January 1, 2009, the Company revised its sales contracts to disallow returns for sales made after January 1, 2009.

The Company treats temporary price reduction programs, merchandising fees, co-operative advertising and slotting expenses as a reduction in gross sales. The Company records the liability when pervasive evidence exists that the Company and the customer or distributor have reached agreement and that an advertising action will result in an expense to the company in the near future. The liability is maintained until the customer takes the deduction against payments due. In addition, in accordance with ASC 605-50 in accounting for customer payments and incentives, if the temporary price reduction recorded is in excess of gross sale for any retailer, the amount in excess will be recorded as selling expense.

Slotting fees - The Company accounts for slotting fees in accordance with ASC 605-50. ASC 605-50 requires that cash considerations, including sales incentives, given by a vendor to a customer is presumed to be a reduction of the selling price, and therefore, should be characterized as a reduction to gross sales. This presumption is overcome and the consideration would be characterized as an expense incurred if the vendor receives an identifiable benefit in exchange for the consideration and the fair value of that identifiable benefit can be reasonably estimated. Furthermore, if the consideration recorded is in excess of gross sale of any retailer, the amount in excess will be recorded as selling expense.

The Company treats one-time slotting fees paid to retails shops who are direct customers of the Company’s distributors as a reduction in gross sales.

Slotting fees of $1.345,838 and $0 were recorded as a reduction of sales revenue for the five months ended March 31, 2010 and 2009.

Effects of Inflation

Inflation and changing prices have not had a material effect on our business and we do not expect that inflation or changing prices will materially affect our business in the foreseeable future. However, our management will closely monitor the price change and continually maintain effective cost control in operations.

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 our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity or capital expenditures or capital resources that is material to an investor in our securities.

Recent Accounting Pronouncements

Accounting Standards Codification

In June 2009, the Financial Accounting Standards Board ("FASB") issued a standard that established the FASB Accounting Standards Codification (the "ASC"), which effectively amended the hierarchy of U.S. generally accepted accounting principles ("GAAP") and established only two levels of GAAP, authoritative and nonauthoritative. All previously existing accounting standard documents were superseded, and the ASC became the single source of authoritative, nongovernmental GAAP, except for rules and interpretive releases of the Securities and Exchange Commission ("SEC"), which are sources of authoritative GAAP for SEC registrants. All other non-grandfathered, non-SEC accounting literature not included in the ASC became non-authoritative. The ASC was intended to provide access to the authoritative guidance related to a particular topic in one place. New guidance issued subsequent to June 30, 2009 will be communicated by the FASB through Accounting Standards Updates. The ASC was effective for financial statements for interim or annual reporting periods ending after September 15, 2009. We adopted and applied the provisions of the ASC for the Company’s fiscal year ended October 31, 2009, and have eliminated references to pre-ASC accounting standards throughout the consolidated financial statements. The adoption of the ASC did not have a material impact on the Company’s consolidated financial statements.

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Fair Value Measurement

In January 2010, the FASB issued authoritative guidance to improve disclosures about fair value measurements. This guidance amends previous guidance on fair value measurements to add new requirements for disclosures about transfers into and out of Levels 1 and 2 and separate disclosures about purchases, sales, issuances, and settlements relating to Level 3 measurement on a gross basis rather than on a net basis as currently required. This guidance also clarifies existing fair value disclosures about the level of disaggregation and about inputs and valuation techniques used to measure fair value. This guidance is effective for annual and interim periods beginning after December 15, 2009, except for the requirement to provide the Level 3 activities of purchases, sales, issuances, and settlements on a gross basis, which will be effective for annual and interim periods beginning after December 15, 2010. Early application is permitted and, in the period of initial adoption, entities are not required to provide the amended disclosures for any previous periods presented for comparative purposes. The adoption of this pronouncement did not have a significant impact on the Company’s financial statements.

Decreases in Ownership of a Subsidiary – a Scope Clarification

In January 2010, the FASB issued Accounting Standards Update (ASU) No. 2010-02 update to address the accounting and reporting for Decreases in ownership of a subsidiary. This amendment to Topic 810 clarifies, but does not change, the scope of current US GAAP. It clarifies the decrease in ownership provisions of Subtopic 810-10 and removes the potential conflict between guidance in that Subtopic and asset derecognition and gain or loss recognition guidance that may exist in other US GAAP. An entity will be required to follow the amended guidance beginning in the period that it first adopts FASB ASC 810 (now included in Subtopic 810-10). For those entities that have already adopted FASB ASC 810, the amendments are effective at the beginning of the first interim or annual reporting period ending on or after December 15, 2009. The amendments should be applied retrospectively to the first period that an entity adopted FASB ASC 810. The adoption of this standard did not have a material effect on the financial position, results of operations, or cash flows of the Company.

Distributions to Shareholders with Components of Stock and Cash

In January 2010, the FASB issued Accounting Standards Update (ASU) No. 2010-01 update to address the accounting for distributions to shareholders with components of stock and cash (A Consensus of the FASB Emerging Issues Task Force). This amendment to Topic 505 clarifies the stock portion of a distribution to shareholders that allows them to elect to receive cash or stock with a limit on the amount of cash that will be distributed is not a stock dividend for purposes of applying Topics 505 and 260 for interim and annual periods ending on or after December 15, 2009, and should be applied on a retrospective basis. The adoption of this standard did not have a material effect on the financial position, results of operations, or cash flows of the Company.

Measuring Liabilities at Fair Value

In August 2009, the FASB issued Accounting Standards Update (ASU) No. 2009-05 update that amended the accounting standard for fair value measurements. Specifically, Accounting Standards Update (ASU) No. 2009-05 update provides clarification that in circumstances in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using one or more of the following methods: 1) a valuation technique that uses a) the quoted price of the identical liability when traded as an asset or b) quoted prices for similar liabilities or similar liabilities when traded as assets and/or 2) a valuation technique that is consistent with the principles of the accounting standard on fair value measurements (e.g. an income approach or market approach). Accounting Standards Update (ASU) No. 2009-05 also clarifies that when estimating the fair value of a liability, a reporting entity is not required to adjust to include inputs relating to the existence of transfer restrictions on that liability. This standard will be effective for the first interim period beginning November 1, 2009. The adoption of this standard did not have a material impact on its consolidated financial statements.

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Convertible Debt Instruments

In May 2008, the FASB issued FASB ASC 470-20 related to convertible debt instruments. FASB ASC 470-20 requires the issuer of certain convertible debt instruments that may be settled in cash (or other assets) on conversion, including partial cash settlement, to separately account for the liability (debt) and equity (conversion option) components of the instrument in a manner that reflects the issuer's non-convertible debt borrowing rate. FASB ASC 470-20 is effective for the Company’s fiscal year beginning November 1, 2009, and retrospective application is required for all periods presented. The adoption of this standard did not have a material impact on its consolidated financial statements.

Business Combination

In December 2007, the FASB issued FASB ASC 805 which related to business combinations. FASB ASC 805 expands the definition of a business and a business combination; requires recognition of assets acquired, liabilities assumed, and contingent consideration at their fair value on the acquisition date with subsequent changes recognized in earnings; requires acquisition-related expenses and restructuring costs to be recognized separately from the business combination and expensed as incurred; requires in-process research and development to be capitalized at fair value as an indefinite-lived intangible asset; and requires that changes in accounting for deferred tax asset valuation allowances and acquired income tax uncertainties after the measurement period be recognized as a component of provision for taxes. FASB ASC 805 also establishes disclosure requirements to enable the evaluation of the nature and financial effects of the business combination. In April 2009, the FASB issued FASB ASC 805 which clarified the accounting for pre-acquisition contingencies. This standard is effective for the Company beginning November 1, 2009 and will change the accounting for business combinations on a prospective basis. The Company did not have any business combination during the year ended March 31, 2010; therefore the adoption of this standard had no impact on the Company’s consolidated financial statements.

Recently Issued Accounting Pronouncements Not Yet Adopted

Own-Share Lending Arrangements in Contemplation of Convertible Debt issuance or Other Financing

In October 2009, the FASB issued FASB ASC 470-20 update to address equity-classified share lending arrangements on an entity’s own shares, when executed in contemplation of a convertible debt offering or other financing. This accounting update addresses how to account for the share-lending arrangement and the effect, if any, that the loaned shares have on earnings-per-share calculations. The share lending arrangement is required to be measured at fair value and recognized as an issuance cost associated with the convertible debt offering or other financing. Earnings-per-share calculations would not be affected by the loaned shares unless the share borrower defaults on the arrangement and does not return the shares. If counterparty default is probable, the share lender is required to recognize an expense equal to the then fair value of the unreturned shares, net of the fair value of probable recoveries. FASB ASC 470-20 is effective for share lending agreements entered into after June 15, 2009, and effective for fiscal years and interim periods within those years beginning on or after December 15, 2009 for all other outstanding arrangements, with retrospective application to those arrangements on the effective date. The Company is currently evaluating the impact of this standard upon its adoption on the Company’s consolidated financial statements.

Embedded credit derivative

On March 5, 2010, the FASB issued authoritative guidance to clarify the type of embedded credit derivative that is exempt from embedded derivative bifurcation requirements. Specifically, only one form of embedded credit derivative qualifies for the exemption – one that is related only to the subordination of one financial instrument to another. As a result, entities that have contracts containing an embedded credit derivative feature in a form other than such subordination may need to separately account for the embedded credit derivative feature. This guidance also has transition provisions, which permit entities to make a special one-time election to apply the fair value option to any investment in a beneficial interest in securitized financial assets, regardless of whether such investments contain embedded derivative features. This guidance is effective on the first day of the first fiscal quarter beginning after June 15, 2010. Early adoption is permitted at the beginning of any fiscal quarter beginning after March 5, 2010. This amendment is not expected to have a material impact on the Company’s financial statements.

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Share-based payment awards

In March 2010, FASB issued an authoritative pronouncement regarding the effect of denominating the exercise price of a share-based payment awards in the currency of the market in which the underlying equity securities trades and that currency is different from (1) entity’s functional currency, (2) functional currency of the foreign operation for which the employee provides services, and (3) payroll currency of the employee. The guidance clarifies that an employee share-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the entity’s equity securities trades should be considered an equity award assuming all other criteria for equity classification are met. The pronouncement will be effective for interim and annual periods beginning on or after December 15, 2010, and will be applied prospectively. Affected entities will be required to record a cumulative catch-up adjustment for all awards outstanding as of the beginning of the annual period in which the guidance is adopted. This amendment is not expected to have a material impact on the Company’s financial statements.

The milestone method of revenue recognition

In April 2010, the FASB issued an authoritative pronouncement regarding the milestone method of revenue recognition. The scope of this pronouncement is limited to arrangements that include milestones relating to research or development deliverables. The pronouncement specifies criteria that must be met for a vendor to recognize consideration that is contingent upon achievement of a substantive milestone in its entirety in the period in which the milestone is achieved. The criteria apply to milestones in arrangements within the scope of this pronouncement regardless of whether the arrangement is determined to have single or multiple deliverables or units of accounting. The pronouncement will be effective for fiscal years, and interim periods within those years, beginning on or after June 15, 2010. Early application is permitted. Companies can apply this guidance prospectively to milestones achieved after adoption. However, retrospective application to all prior periods is also permitted. This amendment is not expected to have a material impact on the Company’s financial statements.

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on our consolidated financial statements upon adoption.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL DATA

The Company’s consolidated audited financial statements for the five months ended March 31, 2010 and years ended October 31, 2009 and 2008, together with the report of the independent certified public accounting firm thereon and the notes thereto, are presented beginning at page F-1 of this report.

ITEM 9A(T). CONTROLS AND PROCEDURES.

(a) Evaluation of Disclosure Controls and Procedures.

Our management, with the participation of our chief executive officer and chief financial officer, Ms. Li Liu and Ms. Veronica Jing Chen, respectively, evaluated the effectiveness of our disclosure controls and procedures. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports, such as this report, that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company's management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on that evaluation, Ms. Li Liu and Ms. Veronica Jing Chen concluded that as of March 31, 2010, our disclosure controls and procedures were not effective due to the significant deficiencies in our internal control over financial reporting for the period as disclosed below.

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(b) Management’s annual report on internal control over financial reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Internal control over financial reporting refers to the process designed by, or under the supervision of, our chief executive officer and chief financial officer, and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP, and includes those policies and procedures that:

1)	pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;

2)	provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that our receipts and expenditures are being made only in accordance with the authorization of our management and directors; and

3)	provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

Management assessed our internal control over financial reporting as of March 31, 2010. Management's assessment of internal control over financial reporting was conducted using the criteria in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on that evaluation, our management concluded that our internal controls over financial reporting as of March 31, 2010 were not effective due to the following significant deficiencies:

1)	Our internal audit function is significantly deficient due to insufficient qualified resources and appropriate system to perform such function. Therefore, our ability to prevent and control lapses and errors in our accounting function could not be rendered effectively.

2)	Our current accounting staff is relatively inexperienced with respect to U.S. GAAP and needs substantial training to meet the higher demands of being a U.S. public company.

In order to correct the foregoing significant deficiencies, during the five months ended March 31, 2010, we have taken and are taking the following remediation measures that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting:

1)	We have engaged a third party professional consultant, as announced on November 17, 2009, to assist us in assessing, improving and monitoring our internal control over financial reporting. We have been actively working with the external consultant to assess our data collection, financial reporting, and control procedures and to strengthen our internal controls over financial reporting.

2)	We are committed to develop a comprehensive and risk-based internal audit function within the Company. Due to the scarcity of qualified candidates with extensive experience in U.S. GAAP reporting and accounting in the region, we have engaged an external professional consultancy firm to assist the management in developing the internal audit system. At the same time, we have employed experienced staff with respect to U.S. GAAP-based reporting. We have enhanced our efforts to hire sufficient internal audit resources with assistance from recruiters and through referrals.

3)	Ms. Veronica Jing Chen was appointed as our new Chief Financial Officer, effective February 24, 2010, who is a seasoned executive with more than 20 years of experience in accounting, financial management, and general management of several U.S.-listed Chinese companies.

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4)	Ms. Ping An was appointed as our senior finance manager, effective April 19, 2010, who has more than five years experience in a “Big Four” Accounting firm - Deloitte & Touch Tianjin.

In connection with the above remediation measures, we agreed to pay the third party professional consultant a service fee of approximately RMB 0.7 million (approximately $0.11 million) for their assistance in the improvement of our internal control over financial reporting. In addition, we hired five more staff to work in our SOX compliance department with an aggregate monthly salary of RMB17, 980 (approximately $2,700).

Our management is committed to improving our internal controls. We believe that the foregoing steps will remediate the significant deficiencies identified above, and we will continue to monitor the effectiveness of these steps and make any changes that our management deems appropriate to put effective controls in place.

This transition report on Form 10-K does not include an attestation report of the company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the company's registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the company to provide only management's report in this transition report on Form 10-K.

(c) Changes in internal control over financial reporting

We will regularly review our system of internal control over financial reporting and make changes to our processes and systems to improve controls and increase efficiency, while ensuring that we maintain an effective internal control environment. Changes may include such activities as implementing new and more efficient systems, consolidating activities, and migrating processes.

Except as described above, during the five months ended March 31, 2010, there were no changes in our internal controls over financial reporting that have materially affected, or are reasonably likely to affect materially, our internal control over financial reporting.

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PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES.

(a) The following documents are filed as part of this report:

(1)	Financial Statement are set forth beginning on page F-1 of the Report

	Report of Independent Registered Public Accounting Firm

	Consolidated Balance Sheets

	Consolidated Statements of Income and Comprehensive Income

	Consolidated Statements of Stockholders’ Equity

	Consolidated Statements of Cash Flows

	Notes to Consolidated Financial Statements

(2)	Financial Statement Schedules: All Schedules are omitted because the information called for is not applicable, is not required, or because the financial information is set forth in the financial statements or notes thereto.

(3)	Exhibits

Exhibits (including those incorporated by reference)

Exhibit No.		Description

2.1		Agreement and Plan of Merger by and among Ardmore, Ardmore Acquisition Corp, Tryant LLC and Charleston Industrial Ltd. [incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on June 12, 2008].

3.1		Amended and Restated Certificate of Incorporation [incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q filed on September 22, 2008].

3.2		Bylaws of the Company adopted on February 21, 2008 [incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K/A-2 filed on April 10, 2008].

3.3		Certificate of Designation of Series A Preferred Stock, as filed with the Secretary of State of the State of Delaware, June 16, 2009 [incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on June 19, 2009].

4.1		Form of 8% Convertible Promissory Note [incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on June 12, 2008].

4.2		Form of Series A Warrant [incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on June 12, 2008].

4.3		Form of Series B Warrant [incorporated by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K filed on June 12, 2008].

4.4		Form of Series C Warrant [incorporated by reference to Exhibit 4.4 to the Company’s Current Report on Form 8-K filed on June 12, 2008].

-18-

4.5	Form of Series D Warrant [incorporated by reference to Exhibit 4.5 to the Company’s Quarterly Report on Form 10-Q filed on September 22, 2008].

4.6	Form of Series E Warrant [incorporated by reference to Exhibit 4.6 to the Company’s Quarterly Report on Form 10-Q filed on September 22, 2008].

4.7	Investor and Registration Rights Agreement, by and among Yayi International Inc., Global Rock Stone Industrial Ltd, Li Liu, Fung Shek and SAIF Partners III L.P., dated June 18, 2009 [incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on June 19, 2009].

10.1	Form of Amended and Restated Securities Purchase Agreement dated as of May 12, 2008, by and among Ardmore and the investors signatories thereto [incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 12, 2008].

10.2	Form of Registration Rights Agreement dated as of May 12, 2008 [incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on June 12, 2008].

10.3	Lease Contract of Premises between Tianjin Milk Goat Dairy Co., Ltd. and Tianjin Yayi Industrial Co., Ltd. (Translation) [incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on June 12, 2008].

10.4	Building Property Transfer Agreement between Tianjin Milk Goat Dairy Co., Ltd. and Tianjin Yayi Industrial Co, Ltd. (Translation) [incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on June 12, 2008].

10.5	Project Construction Contract between Tainjin Yayi Industrial Co., Ltd. and the People’s Government of Linwei District, Weinan City [incorporated by reference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q filed on September 22, 2008].

10.6	Supplementary Agreement to the Project Construction Contract dated July 25, 2008 between Tianjin Yayi Industrial Co., Ltd. and the People’s Government of Linwei District, Weinan City [incorporated by reference to Exhibit 10.6 to the Company’s Quarterly Report on Form 10-Q filed on September 22, 2008].

10.7	Plant Transfer Contract dated September 26, 2008 between Tianjin Yayi and Tianjin Mengyang Biotechnology Co., Ltd. [incorporated by reference to Exhibit 10.7 to the Company’s Annual Report on Form 10-K filed on February 13, 2009].

10.8	Supplementary Agreement dated October 12, 2008 between Tianjin Yayi and Tianjin Mengyang Biotechnology Co., Ltd. to the House Property Transfer Contract dated January 15, 2007 [incorporated by reference to Exhibit 10.8 to the Company’s Annual Report on Form 10-K filed on February 13, 2009].

10.9	Supplementary Agreement dated January 20, 2009 between Tianjin Yayi and Tianjin Mengyang Biotechnology Co., Ltd. to the Plant Transfer Contract dated September 26, 2008 [incorporated by reference to Exhibit 10.9 to the Company’s Annual Report on Form 10-K filed on February 13, 2009].

10.10	Short Term Loan Agreement for RMB 10 million with Shanghai Pudong Development Bank “SPDB” [incorporated by reference to Exhibit 10.10 to the Company’s Quarterly Report on Form 10-Q filed on March 23, 2009].

10.11	Entrusted Loan Contract by and among SPDB, Tianjin Yayi Industrial Co., Ltd. and Tianjin Haitai Investment Guarantee Co., Ltd. [incorporated by reference to Exhibit 10.11 to the Company’s

-19-

	Quarterly Report on Form 10-Q filed on March 23, 2009]

10.12	Loan Contract between Tianjin Yayi Industrial Co., Ltd. and Tianjin Rural Cooperative Bank. [incorporated by reference to Exhibit 10.12 to the Company’s Quarterly Report on Form 10-Q filed on March 23, 2009]

10.13	Loan Contract for Operating Fund between Tianjin Yayi Industrial Co., Ltd. and Industrial & Commercial Bank of China. [incorporated by reference to Exhibit 10.13 to the Company’s Quarterly Report on Form 10-Q filed on March 23, 2009]

10.14	Short Term Loan Agreement for RMB 10 million with Shanghai Pudong Development Bank [incorporated by reference to Exhibit 10.10 to the Company’s Current Report on Form 8-K filed on April 8, 2009].

10.15	Series A Preferred Stock Purchase Agreement, by and among Yayi International Inc., Global Rock Stone Industrial Ltd, Charleston Industrial Ltd, Tianjin Yayi Industrial Co., Ltd., Li Liu, Fung Shek and SAIF Partners III L.P., dated June 18, 2009 [incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 19, 2009].

10.16	Voting Agreement, by and among Yayi International Inc., Global Rock Stone Industrial Ltd, Li Liu, Fung Shek and SAIF Partners III L.P., dated June 18, 2009 [incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on June 19, 2009].

10.17	Management Rights Agreement, by and between Yayi International Inc. and SAIF Partners III L.P., dated June 18, 2009 [incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on June 19, 2009].

10.18	Form of Indemnification Agreement [incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on June 19, 2009].

10.19	Termination and Release Agreement, by and among the Company, Global Rock and Allied Merit, dated July 8, 2009 [incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on July 14, 2009].

10.20	English Summary of Loan Agreement, by and between Tianjin Yayi and Rural Corporative Bank of Tianjin, dated May 22, 2009 [incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on September 14, 2009].

10.21	English Summary of Comprehensive Credit Agreement, by and between Tianjin Yayi and Rural Corporative Bank of Tianjin, dated July 3, 2009 [incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed on September 14, 2009].

10.22	English Translation of Zhuangli Construction Agreement, by and between Weinan Milkgoat and Zhuangli Construction Team, dated June 10, 2009 [incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q filed on September 14, 2009].

10.23	English Translation of Qinzheng Construction Agreement, by and between Weinan Milkgoat and Fuping County Qinzheng Construction Engineering Corporation, dated July 2, 2009 [incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q filed on September 14, 2009].

10.24	Project Installation Agreement, by and between Shaanxi Milkgoat and Heilongjiang Tianhong, dated October 28, 2009 [incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on November 3, 2009].

10.25	Form of Settlement Agreement, by and among the Company and the Investors, dated November

-20-

	24, 2009 [incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 1, 2009].

10.26	English Translation of Employment Agreement, dated February 24, 2010, by and between Tianjin Yayi Industrial Co. Ltd. and Veronica Chen [incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on March 2, 2010].**

10.27	Loan Agreement, by and between the Company and SAIF Partners III L.P., dated April 30, 2010 [incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on May 6, 2010].

10.28	Yayi International Inc. 2010 Employee Stock Option and Stock Award Plan [incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on May 31, 2010].

10.29	Form of Yayi International Inc. 2010 Employee Stock Option and Stock Award Plan Award Agreement [incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on May 31, 2010].**

10.30	English Translation of Employment Agreement, dated June 1, 2010, by and between Tianjin Yay iIndustrial Co. Ltd. and Li Liu [incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on May 31, 2010].**

10.31	English Translation of Licensing Agreement, dated April 10, 2001, by and among Tianjin Yayi and Taiwan Richlink.***

10.32	English Translation of Supplemental Agreement, dated June 12, 2009, by and among Tianjin Yayi, Taiwan Richlink Enterprise Company Ltd. and Li Liu.***

10.33	English Translation of Supplemental Agreement, dated June 12, 2009, by and between Tianjin Yayi and Tianjin Mengyang.***

10.34	English Translation of Form of Loan Agreement, dated June 3, 2010, by and between Tianjin Yayi Industrial Co. Ltd. and Tianjin Rural Cooperative Bank, Kexin Branch.***

14	Code of Ethics and Business Conduct for Officers, Directors and Employees of the Company [incorporated by reference to Exhibit 14 to the Company’s Annual Report on Form 10-KSB filed on March 31, 2008]

21	Subsidiaries of the Company***

23.1	Consent of Morison Cogen LLP, Independent Registered Public Accounting Firm.*

31.1	Certification of Principal Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

31.2	Certification of Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

32.1	Certifications of Principal Executive Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

32.2	Certifications of Principal Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

* Filed herewith.
** Represents management contract or compensatory plan or arrangement.
*** Filed with the Original Filing

-21-

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		YAYI INTERNATIONAL INC.

	By:	/s/ Li Liu
		Li Liu
		Chief Executive Officer

		Date: June 28, 2011


		/s/ Veronica Jing Chen
		Veronica Jing Chen
		Chief Financial Officer
		(Principal Financial Officer and Accounting Officer)

		Date: June 28, 2011

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company in the capacities and on the dates indicated.

Signature	Capacity	Date

/s/ Li Liu	President and Chief Executive Officer	June 28, 2011
Li Liu	(Principal Executive Officer)

/s/ Veronica Jing Cheng	Chief Financial Officer (Principal Financial	June 28, 2011
Veronica Jing Chen	Officer and Principal Accounting Officer)

*	Vice President and Director
Fung Shek

*	Director
Cili Yan

*	Director
Kenneth Jue Lee

*	Director
Gang Sheng

*By : /s/ Li Liu		June 28, 2011
Li Liu, Attorney -in-Fact

-22-

YAYI INTERNATIONAL INC. AND SUBSIDIARIES

FOR THE FIVE MONTHS ENDED MARCH 31, 2010 AND 2009

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page
Report of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets	F-3
Consolidated Statements of Operations and Comprehensive Income (Loss)	F-5
Consolidated Statements of Stockholders’ Equity	F-6
Consolidated Statements of Cash Flows	F-9
Notes to Consolidated Financial Statements	F-12

F-1

YAYI INTERNATIONAL INC. AND SUBSIDIARIES
Report of Independent Registered Public Accounting Firm

To the Board of Directors and
Stockholders of Yayi International Inc.

We have audited the accompanying consolidated balance sheets of Yayi International Inc. (“the Company”) as of March 31, 2010, October 31, 2009 and 2008, and the related consolidated statements of operations and comprehensive income (loss), stockholders' equity and cash flows for the five months ended March 31, 2010 and for each of the two years in the period ended October 31, 2009. The Company’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of March 31, 2010, October 31, 2009 and 2008, and the consolidated results of their operations and their cash flows for the five months ended March 31, 2010 and for each of the two years in the period ended October 31, 2009, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 2 to the consolidated financial statements, the accompanying 2010 financial statements have been restated in relation to the accounting for slotting fees incurred during the five months ended March 31, 2010.

/s/Morison Cogen LLP

Bala Cynwyd, Pennsylvania
June 29, 2010, except for Note 2,
to which the date is June 28, 2011

F-2

YAYI INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

		March 31		October 31		October 31
		2010		2009		2008
		(audited)		(audited)		(audited)
		(restated)
ASSETS
Current assets:
Cash and cash equivalents	$	4,727,677	$	10,368,213	$	891,278
Restricted cash		28,314		-		-
Accounts receivables, net of allowances of $53,771 and $46,259		3,530,937		3,037,667		2,603,078
Other receivable, net of allowances of $22,833 and $9,146		598,170		751,775		122,732
Inventories		2,561,265		2,506,310		3,329,776
Prepaid expenses		121,523		83,912		39,702
Land use rights, current portion		18,847		-		-
Advances		1,560,743		1,105,089		229,185
Deferred financing cost		-		18,686		184,846
Total current assets		13,147,476		17,871,652		7,400,597

Property, plant and equipment, net		6,505,130		5,794,885		2,580,385
Livestock		659,584		107,441		-
Goodwill		278,372		278,291		278,787
Land use rights		923,525		-		-
Deferred financing cost		-		-		18,686
Advances		17,816,135		17,796,873		9,250,886
Deferred tax asset		472,889		-		9,402
Other assets		-		-		5,627

Total assets	$	39,803,111	$	41,849,142	$	19,544,370

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Short term loans	$	6,704,406	$	6,468,497	$	5,274,996
Accounts payable		662,120		1,268,253		1,466,745
Other payable and accrued expenses		1,257,185		1,387,105		212,922
Dividend payable		-		-		4,468,250
Advance from customers		141,136		56,350		3,589
Income and other tax payable		1,338,194		1,568,916		1,246,211
Accrued sales return		45,503		166,476		243,774
Deferred tax liability		-		2,424		-
Long term loans - current portion		40,823		1,227,459		34,089

Total current liabilities		10,189,367		12,145,480		12,950,576

Long-term liabilities:
Due to related parties		5,312,801		5,311,472		977,950
Long-term loans		17,009		-		839,558
		5,329,810		5,311,472		1,817,508

Total liabilities		15,519,177		17,456,952		14,768,084

Commitments and contingencies (Note 15)		-		-		-

F-3

PREFERRED STOCK, par value $0.001, 10,000,000 shares authorized, Series A 10% non-cumulative redeemable convertible preferred stock, redemption $9.80 per share plus 25% interest from date of issuance to date of redemption, 1,530,612 shares issued and outstanding		14,264,871		14,264,871		-

STOCKHOLDERS' EQUITY

Common stock, par value $0.001, 100,000,000 shares authorized, 26,387,728 and 25,000,000 shares issued and outstanding, respectively		26,387		25,000		25,000
Additional paid in capital		4,721,337		3,234,224		3,228,244
Statutory surplus reserve fund		1,142,397		1,142,397		502,438
Retained earning		3,821,100		5,423,895		667,873
Accumulated other comprehensive income		307,842		301,803		352,731

Total stockholders’ equity		10,019,063		10,127,319		4,776,286

Total liabilities and stockholders' equity	$	39,803,111	$	41,849,142	$	19,544,370

The accompanying notes are an integral part of these consolidated financial statements

F-4

YAYI INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

		Five months ended						Years ended
		March 31,						October 31,
		2010			2009			2009			2008
		(audited)			(unaudited)			(audited)			(audited)
		(restated)
Sales	$	6,085,193		$	9,283,420		$	24,845,685		$	21,791,268

Cost of goods sold		(2,369,642	)		(2,892,709	)		(8,025,009	)		(7,600,454	)

Gross profit		3,715,551			6,390,711			16,820,676			14,190,814

Operating expenses:
Sales and marketing expenses		(3,908,573	)		(1,973,212	)		(5,760,446	)		(5,201,779	)
General and administrative expenses		(1,318,077	)		(685,843	)		(1,972,190	)		(1,107,333	)

Total operating expenses		(5,226,650	)		(2,659,055	)		(7,732,636	)		(6,309,112	)

Income from continuing operations		(1,511,099	)		3,731,656			9,088,040			7,881,702

Other income (expenses):
Interest income		8,250			2,902			11,993			7,826
Interest expenses		(221,549	)		(359,014	)		(706,750	)		(591,707	)
Amortization of deferred debt issuance cost		(91,227	)		(333,160	)		-			-
Warrant modification expense		(88,500	)		-			-			-
Accretion of debt discount and deferred financing cost		-			-			(572,747	)		(76,460	)
Liquidated damages		-			-			(140,000	)		-
Merger costs		-			-			-			(3,456,784	)
Other income (expenses), net		12,237			2,394			(83,523	)		(305,414	)

Income before income tax		(1,891,888	)		3,044,778			7,597,013			3,459,163

Income tax benefit (expense)		289,093			(869,614	)		(2,201,032	)		(1,633,946	)

Net (loss) income from continuing operations, net of tax		(1,602,795	)		2,175,164			5,395,981			1,825,217

Other comprehensive income
Foreign currency translation adjustment		6,039			(44,791	)		(50,928	)		442,128

Comprehensive (loss) income	$	(1,596,756	)	$	2,130,373		$	5,345,053		$	2,267,345

Earnings per share of common stock
- Basic		(0.06	)		0.09			0.22			0.08
- Diluted		(0.06	)		0.09			0.22			0.05
Weighted average shares of common stock outstanding
- Basic		26,017,835			25,000,000			25,000,000			23,402,329
- Diluted		26,017,835			25,000,000			25,000,000			24,441,031

The accompanying notes are an integral part of these consolidated financial statements

F-5

YAYI INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

										Statutory					Accumulated			Total
	Common stock						Additional			Surplus		Retained			Other			Stockholders’
	Number of						paid in			Reserve		Earnings /			Comprehensive			Equity
	shares			Amount			capital			Fund		(Deficit)			Income (Loss)			(Deficit)
Balance at October 31, 2007	22,325,000		$	22,325		$	3,684,764		$	-	$	(654,906	)	$	(89,397	)	$	2,962,786

Issue of common stock at merger	1,000,198			1,000			(977	)		-		-			-			23

Cancellation of common stock	(325,198	)		(325	)		(536,042	)		-		-			-			(536,367	)

Issuance of common stock for finder's fee as offering costs	2,000,000			2,000			2,198,000			-		-			-			2,200,000

Issuance of Series A warrants with convertible notes	-			-			280,726			-		-			-			280,726

Issuance of Series B warrants for finder's fee	-			-			1,144,743			-		-			-			1,144,743

Issuance of Series C warrants for cancellation of common stock	-			-			86,367			-		-			-			86,367

Issuance of Series D warrants for placement agent	-			-			67,368			-		-			-			67,368

Issuance of Series E warrants for extension of note payable	-			-			233,547			-		-			-			233,547

Beneficial conversion feature on convertible note	-			-			304,800			-		-			-			304,800

Dividend declared	-			-			(4,235,052	)		-		-			-			(4,235,052	)

F-6

Net income for the year ended October 31, 2008	-		-		-			-		1,825,217			-			1,825,217

Transfer to statutory surplus reserve fund	-		-		-			502,438		(502,438	)		-			-

Foreign currency translation	-		-		-			-		-			442,128			442,128

Balance at October 31, 2008	25,000,000	$	25,000	$	3,228,244		$	502,438	$	667,873		$	352,731		$	4,776,286

Capital contribution from shareholder	-		-		5,980			-		-			-			5,980

Net income for the year ended October 31, 2009	-		-		-			-		5,395,981			-			5,395,981

Transfer to statutory surplus reserve fund	-		-		-			639,959		(639,959	)		-			-

Foreign currency translation	-		-		-			-		-			(50,928	)		(50,928	)

Balance at October 31, 2009	25,000,000	$	25,000	$	3,234,224		$	1,142,397	$	5,423,895		$	301,803		$	10,127,319

Conversion of convertible notes and accrued interest into 1,296,274 shares of common stock	1,296,274		1,296		1,398,704			-		-			-			1,400,000

Warrant modification expense	-		-		88,500			-		-			-			88,500

Cashless exercise of 110,000 Series D Warrants into 78,432 shares of common stock	78,432		78		(78	)		-		-			-			-

F-7

Cashless exercise of 17,363 Series A warrants into 13,022 shares of common stock	13,022		13		(13	)		-		-			-		-

Net income for the five months ended March 31, 2010	-		-		-			-		(1,602,795	)		-		(1,602,794	)

Foreign currency translation	-		-		-			-		-			6,039		6,039

Balance at March 31, 2010 (restated)	26,387,728	$	26,387	$	4,721,337		$	1,142,397	$	3,821,100		$	307,842	$	10,019,063

The accompanying notes are as integral part of these consolidated financial statements

F-8

YAYI INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

		Five Months Ended						Years Ended
		March 31,						October 31,
		2010			2009			2009			2008
		(audited)			(unaudited)			(audited)			(audited)
		(restated)
Cash flow from operating activities
Net (loss) income	$	(1,602,795	)	$	2,175,164		$	5,395,981		$	1,825,217
Adjustments to reconcile net income to net cash provided by operating activities:
Net foreign currency transaction loss		337			-			15,743			196,439
Depreciation of property, plant and equipment		195,151			143,189			348,561			271,000
Depreciation of livestock		11,600			1,449			6,126			-
Amortization of deferred financing cost		18,686			-			184,846			180,841
Disposal of property, plant and equipment		6,144			-			-			-
Allowance of bad debts-Accounts receivable		7,498			-			5,263			(92,193	)
Allowance of bad debts-Other receivable		13,684			-			(20,078	)		(104,438	)
Sales return allowance		(121,025	)		107,544			(77,770	)		82,918
Warrant modification expense		88,500			-			-			-

Merger costs from issuance of warrants and common stock		-			-			-			3,359,291
Minority interests
Accretion of debt discount		72,541			-			387,901			125,084

(Increase) decrease in operating assets, net of effect of
acquisition:
Restricted cash		(28,314	)		-			396			728,670
Accounts receivables		(499,891	)		(632,746	)		(443,691	)		40,242
Other receivables		110,629			(332,944	)		(646,217	)		1,050,228
Inventories		(54,224	)		554,803			816,331			(1,113,093	)
Prepaid expenses		(37,588	)		(3,394	)		(44,199	)		(39,677	)
Advances		(875,434	)		387,347			(669,021	)		(362,858	)
Other assets		-			-			(4,078	)		-
Deferred tax asset and current assets		(475,320	)		176,258			15,888			(8,953	)

Increase (decrease) in operating liability, net of effect of acquisition:
Accounts payable		(606,517	)		(288,104	)		(194,617	)		(1,300,891	)
Bills payable		-			-			-			(688,713	)
Advance from customers		84,769			(3,576	)		52,713			(129,222	)
Income and other tax payable		(231,178	)		230,797			324,290			54,829
Other payable and accrued expenses		25,889			770,114			1,080,475			(258,167	)
Net cash (used in) provided by operating activities		(3,896,858	)		3,285,902			6,534,843			3,816,554

Cash flows from investing activities
Purchase of equipment		(235,785	)		(180,776	)		(1,465,876	)		(183,019	)
Advance for construction of office building		-			-			-			(1,966,551	)
Advance for construction of factory and warehouse		-			(3,795,704	)		(6,462,478	)		(2,928,200	)
Advance for acquisition of land use rights		-			(145,989	)		(145,940	)		-
Advance for purchase of equipment		(208,980	)		-			(2,091,053	)		-
Construction in progress		(175,828	)		5,607			(2,120,196	)		-
Cash acquired from Ardmore		-			-			-			23
Cash acquired in subsidiary		-			-			-			40,504
Purchase and breeding of livestock		(563,723	)		(75,487	)		(114,939	)		-
Purchase of subsidiary		-			-			-			(621,284	)
Acquisition of land use right		(796,106	)		-			-			-

F-9

Net cash used in investing activities		(1,980,422	)		(4,192,349	)		(12,400,482	)		(5,658,527	)

Cash flows from financing activities
Proceeds from short term loans		2,925,705			2,232,020			6,681,198			5,440,619
Repayment of short term loans		(2,691,648	)		(729,943	)		(5,433,460	)		(3,619,991	)
Proceeds from long term loans		61,235			167,579			-			-
Repayment of long term loans		(3,402	)		(14,473	)		(33,999	)		(33,141	)
Repayment of convertible debt and accrued interest		(56,000	)		-			-			-
Repayment to minority stockholders		-			-			-			(1,257	)
Net proceeds from private placement		-			-			-			1,001,993
Net proceeds from issuance of Series A preferred stock		-			-			14,264,871			-
Dividend paid to previous stockholders of Tianjin Yayi		-			-			(2,550,504	)		-
Capital contribution from shareholders		-			-			5,979			-
Due (from) to related parties		(23	)		(6,336	)		2,426,005			(400,850	)
Net cash provided by financing activities		235,867			1,648,847			15,360,090			2,387,373

Effect of exchange rate changes in cash		877			(2,110	)		(17,516	)		89,561

Net (decrease) increase in cash and cash equivalents		(5,640,536	)		740,289			9,476,935			634,961

Cash and cash equivalents, beginning of period		10,368,213			891,278			891,278			256,317

Cash and cash equivalents, end of period	$	4,727,677		$	1,631,567		$	10,368,213		$	891,278

Supplemental disclosure of cash flow information
Cash paid during the period

Interest paid	$	242,458		$	316,883		$	604,633		$	310,926

Income tax paid	$	372,528		$	421,461		$	2,050,646		$	1,586,394

Supplemental disclosure of non-cash financing and investing activities;
Repayment of short-term loan from Tianjin Mengyang offset against advances	$	-		$	-		$	877,508		$	-
Dividend payable	$	-		$	-		$	-		$	4,235,052
Settlement of dividend payable	$	-		$	-		$	1,916,669		$	-
Rental deposit applied as advance to construction of factory and warehouse	$	-		$	-		$	-		$	644,790

Note payable to Tryant for cancellation of common stock	$	-		$	-		$	-		$	250,000

Non-cash exercise of 10,000 warrants into common stock	$	91		$	-		$	-		$	-

Conversion of convertible note plus accrued interest into common stock	$	1,400,000		$	-		$	-		$	-

Issuance of Series C warrants for cancellation of common stock	$	-		$	-		$	-		$	86,367

Issuance of Series A warrants with convertible notes	$	-		$	-		$	-		$	280,726

Issuance of common stock and Series B warrants for finder's fee	$	-		$	-		$	-		$	3,344,743

F-10

Beneficial conversion feature of convertible notes	$	-	$	-	$	-	$	304,800

Deferred financing cost from issuance of Series D warrants	$	-	$	-	$	-	$	52,820

Proceeds from convertible note applied to deferred financing cost	$	-	$	-	$	-	$	98,007

Deferred financing costs from issuance of Series E warrants to Allied Merit for extension of note payable	$	-	$	-	$	-	$	233,547

Transfer from advances to land use rights	$	146,285	$	-	$	-	$	-

Transfer from advances to construction in progress	$	269,124	$	-	$	-	$	-

The accompanying notes are an integral part of these consolidated financial statements

F-11

YAYI INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FIVE MONTHS ENDED MARCH 31, 2010 AND 2009

1. Organization and Nature of Business

Yayi International, Inc (“Yayi International”), formerly known as Ardmore Holding Corporation or “Ardmore”, was originally organized under the laws of the state of Delaware in 1986 under the name of a predecessor corporation which engaged in a software development and consulting service business. During 2007 and 2006, Ardmore sold 875,000 post-stock split adjusted shares to Tryant, LLC, a then unrelated party, which represented over 85% of Ardmore’s outstanding shares. Subsequently, Ardmore's management decided to wind up all business operations related to the former products sold by the predecessor corporation. On April 16, 2007, the name of the predecessor corporation was changed to Ardmore Holding Corporation. From April 16, 2007 until June 6, 2008 when the Company completed a reverse acquisition transaction with Charleston Industrial Limited (“Charleston”), the Company was a blank check company and did not engage in active business operations other than its search for, and evaluation of, potential business opportunities for acquisition or participation. The Company changed its fiscal year from December 31 to October 31. The Company amended its articles of incorporation on September 12, 2008 and changed its name to Yayi International Inc.

On June 6, 2008, Ardmore, its wholly owned subsidiary, Ardmore Acquisition Corp. (“Ardmore Acquisition”), Charleston Industrial Ltd., (“Charleston”) and Tryant LLC, a Delaware limited liability company and at such time the holder of a majority of Ardmore’s outstanding shares of common stock, consummated a merger pursuant to which Ardmore Acquisition was merged into Charleston and Charleston became Ardmore’s wholly owned subsidiary. Charleston is the owner of Tianjin Yayi Industrial Co., Ltd. (“Tianjin Yayi”), an entity organized under the laws of the People’s Republic of China and as a result of this merger, Ardmore became the owner of Tianjin Yayi. Pursuant to the merger, all 50,000 shares of Charleston’s stock were exchanged for 22,325,000 shares newly issued common stock of Ardmore. Accordingly, all references to shares of Charleston’s common stock and per share amounts have been retroactively restated to reflect the equivalent numbers of Ardmore shares. Charleston thereby became the Company’s wholly owned subsidiary and the former stockholders of Charleston became the Company’s controlling stockholders.

Under accounting principles generally accepted in the United States, the merger is considered to be a capital transaction in substance, rather than a business combination. That is, the merger is equivalent to the issuance of stock by Charleston for the net monetary assets of Ardmore, accompanied by a recapitalization, and is accounted for as a change in capital structure. Accordingly, the accounting for the merger will be identical to that resulting from a reverse acquisition, except that no goodwill will be recorded. Under reverse takeover accounting, the post reverse acquisition comparative historical financial statements of the legal acquirer, Ardmore, are those of the legal acquiree, Charleston and subsidiary, which are considered to be the accounting acquirer.

Charleston Industrial Limited

Charleston is a limited liability company organized under the laws of British Virgin Islands on October 31, 2007 in anticipation of a business combination with a U.S. reporting company.

On January 15, 2008, Charleston acquired Tianjin Yayi and its wholly-owned subsidiary, Weinan Milkgoat Production Co., Limited (“Weinan Milkgoat”). Under the terms of the merger agreement, all stockholders of Tianjin Yayi are entitled to receive a dividend from Charleston in the amount of RMB30,500,000 (equivalent to $4,461,608) for all of the shares of Tianjin Yayi. Since the ownership of Charleston and Tianjin Yayi are substantially the same, the merger was accounted for as a transaction between entities under common control, whereby Charleston recognized the assets and liabilities of Tianjin Yayi transferred at their carrying amounts.

YAYI INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FIVE MONTHS ENDED MARCH 31, 2010 AND 2009

1. Organization and Nature of Business - Continued

Tianjin Yayi Industrial Co., Limited

Tianjin Yayi is a Chinese enterprise organized in the People’s Republic of China (“PRC”) in May 1994 in accordance with the Laws of the People’s Republic of China. Tianjin Yayi currently engages in the processing, commercialization and distribution of a series of goat milk powder, goat milk tablets, liquid goat milk as well as other goat milk drinks in the PRC.

On August 18, 2009, Tianjin Yayi was granted approval from Tianjin Municipal People’s Government to increase its registered capital by $8,792,000 (RMB 60,000,000), from RMB30,000,000 to RMB 90,000,000. The capital verification process has been completed. Tianjin Yayi was granted approval from Tianjin Municipal Government to increase its registered capital by $1,170,258 (RMB8,000,000) to $14,335,659 (RMB98,000,000), which amount was injected in February, 2010.

Weinan Milkgoat Production Co., Limited

Weinan Milkgoat was established on December 8, 2006. Tianjin Yayi invested $292,564(equivalent to RMB 2,000,000) in Weinan Milkgoat and owned a 99.5% interest in Weinan Milkgoat. Liu Li, a major shareholder of Tianjin Yayi owned the remaining interest of 0.5% amounting to $1,463 (equivalent to RMB 10,000). Weinan Milkgoat engages in processing and distribution of goat milk.

On December 6, 2007, Tianjin Yayi increased its investment in Weinan Milkgoat amounting to $437,384 (RMB 2,990,000) while Liu Li transferred her 0.5% interest in Weinan Milkgoat to Tianjin Yayi. As a result, Tianjin Yayi owns 100% shares of Weinan Milkgoat with a registered capital of $731,411(RMB 5,000,000).

Fuping Milkgoat Dairy Co., Ltd. (formerly Fuping Dongyuang Dairy Co., Ltd.)

On August 8, 2008, Tianjin Yayi acquired Fuping Milkgoat Dairy Co., Ltd. ("Fuping Milkgoat") for $620,360 (RMB 4,240,846). As a result, Tianjin Yayi owns 100% shares of Fuping Dongyuan with a registered capital of $731,411 (RMB 5,000,000). Fuping Milkgoat’s principal activity is to purchase raw liquid goat milk and process it into raw goat milk powder. Fuping Milkgoat is formerly known as Fuping Dongyuan Dairy Co., Ltd, which used to be our major supplier.

The acquisition of Fuping Milkgoat was accounted for under the purchase method of accounting. In accordance with this method, the results of Fuping Milkgoat have been included in the Company’s consolidated financial statements from the date of acquisition, August 8, 2008.

The following unaudited pro forma financial information presents the consolidated results of the Company as though the acquisition of Fuping Milkgoat was completed as at the beginning of year ended October 31, 2008:

	2008
Net sales	21,791,268
Net income	1,806,575
Earnings per share - basic	0.08
Earnings per share - diluted	0.05

Shaanxi Milkgoat Dairy Co., Ltd

On September 9, 2009, Tianjin Yayi formed a wholly-owned subsidiary company, Shaanxi Milkgoat Dairy Co., Ltd (“Shaanxi Milkgoat”), and has obtained the business license from the Industrial and Commercial Bureau of Weinan City, Shaanxi Province with a registered capital of $731,411 (RMB5,000,000). Shaanxi Milkgoat’s principal activity is to purchase raw liquid goat milk and processing it into raw goat milk powder. Shaanxi Milkgoat increased its registered capital by $3,657,056 (RMB25,000,000) to $4,388,467 (RMB30,000,000) in 2010. 50% of it, $1,828,528 (RMB12,500,000) has been injected in February, 2010 and the balance of it $1,828,528 (RMB12,500,000) has been injected in March, 2010.

Change in Fiscal Year End

In March 2010, the Company has changed its fiscal year from October 31 to March 31.

F-13

YAYI INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FIVE MONTHS ENDED MARCH 31, 2010 AND 2009

2. Restatement of Previously Issued Financial Statements

On June 1, 2011, the Company filed with the Securities and Exchange Commission (“SEC”) a Current Report on Form 8-K, to report management’s determination that the Company’s financial statements for the five months ended March 31, 2010, included in its Amended Annual Report on Form 10-K filed with the SEC on January 28, 2011 (the “2010 Form 10-K/A”), should no longer be relied upon. The error in such financial statements is primarily due to the incorrect application of generally accepted accounting principles related to the classification of the slotting fees incurred by the Company in 2010 as one-year amortizable assets instead of a one time offset to revenue as they are incurred. According to the distribution agreements the Company entered into with its distributors, the Company is responsible for the payment of slotting fees charged by the retail outlets to sell its products. Slotting fee for each product was paid in one lump sum to the retailers before the product is placed in the shelves of the stores for selling to end consumers. The Company had previously believed that this upfront payment of slotting fees fit the definition of an asset in accordance with FASB Concept No.6 and accordingly recorded the slotting fees in prepaid expenses and amortized the slotting fees paid upfront over a one-year period, which is the standard term of the distribution agreements. The Company determined that the historical financial statements for the five months ended March 31, 2010 included in the Company’s 2010 Form 10-K/A require restatement to properly record the slotting fees as a one time fee offset with revenue as they are incurred.

The Current Report on Form 8-K which the Company filed with the SEC on June 1, 2011 also reported management’s determination that the Company’s following financial statements should no longer be relied upon due to an error in such financial statements with respect to the accounting for the slotting fees:

(i)	for the fiscal quarter ended June 30, 2010, included in its Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2010, filed with the SEC on August 16, 2010 (the “June 2010 Form 10-Q”);

(ii)	for the fiscal quarter ended September 30, 2010, included in its Amended Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2010, filed with the SEC on January 28, 2011 (the “September 2010 Form 10- Q/A”);

(iii)	for the fiscal quarter ended December 31, 2010, included in its Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 2010, filed with the SEC on January 28, 2011 (the “December 2010 Form 10-Q” and, collectively with the June 2010 Form 10-Q and September 2010 Form 10-Q/A, the “Form 10-Qs”).

The Company is in the process of preparing amendments to the Form 10-Qs for the prior periods noted above reflecting the restatement of the financial statements for such prior periods and plans to file those amendments with the SEC shortly after the filing of this amended Annual Report on Form 10-K.

This amended Annual Report on Form 10-K for the five months ended March 31, 2010 incorporates corrections made in response to the accounting errors described above by restating the Company’s financial statements presented herein for the five months ended March 31, 2010.

The effect of the restatements on the financial statements as of March 31, 2010 and for the five months then ended is set forth below:

Consolidated Balance Sheet:		As of March 31, 2010
		As reported		Adjustment			As restated
ASSETS
Prepaid expenses	$	1,002,494	$	(880,971	)	$	121,523
Total current assets		14,028,447		(880,971	)		13,147,476

Deferred tax asset		252,646		220,243			472,889
TOTAL ASSETS		40,463,839		(660,728	)		39,803,111

STOCKHOLDERS’ EQUITY
Retained earning		4,481,843		(660,743	)		3,821,100
Accumulated other comprehensive income		307,827		15			307,842
TOTAL STOCKHOLDERS’ EQUITY		10,679,791		(660,728	)		10,019,063

F-14

YAYI INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FIVE MONTHS ENDED MARCH 31, 2010 AND 2009

Consolidated Statements of Operations and Comprehensive		For the Five Months Ended March 31, 2010
Income (Loss):
		As reported			Adjustment			As restated
Net sales	$	6,966,183		$	(880,990	)	$	6,085,193
Gross profit		4,596,541			(880,990	)		3,715,551
Provision of income taxes		68,846			220,247			289,093
Net loss from continuing operations, net of tax		(942,052	)		(660,743	)		(1,602,795	)
Foreign currency translation adjustment		6,024			14			6,038
Comprehensive loss		(936,028	)		(660,728	)		(1,596,756	)

Loss per share - Basic	$	(0.04	)	$	(0.02	)	$	(0.06	)
Loss per share - Diluted	$	(0.04	)	$	(0.02	)	$	(0.06	)

Consolidated Statements of Cash Flows:		For the Five Months Ended March 31, 2010
		As reported			Adjustment			As restated
Net (loss)	$	(942,052	)	$	(660,743	)	$	(1,602,795	)
(Increase) decrease in operating assets:
Prepaid expenses		(918,577	)		880,989			(37,588	)
Deferred tax asset and current assets		(255,075	)		(220,247	)		(475,320	)
Net cash used in operating activities		(3,896,858	)		-			(3,896,858	)

F-15

YAYI INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FIVE MONTHS ENDED MARCH 31, 2010 AND 2009

3. Summary of Significant Accounting Policies

The principal activities of Yayi International and all of its subsidiaries (collectively, the “Company”) consist of manufacturing and selling of goat milk powder. All activities of the Company are conducted principally by its subsidiaries Tianjin Yayi, Weinan Milkgoat, Fuping Milkgoat and Shaanxi Milkgoat operating in the PRC.

Basis of Consolidation - The consolidated financial statements include the accounts of Yayi International Inc. and its wholly-owned subsidiary, Charleston together with its wholly-owned subsidiaries, Tianjin Yayi, Weinan Milkgoat Fuping Milkgoat and Shaanxi Milkgoat. All material intercompany transactions have been eliminated in consolidation.

Credit risk - The Company may be exposed to credit risk from its cash at bank, fixed deposits, and bills and accounts receivable. Bills and accounts receivable are subjected to credit evaluations. An allowance has been made for estimated irrecoverable amounts determined by reference to past default experience and the current economic environment.

Cash and cash equivalents - Cash and cash equivalents include cash on hand, cash accounts, interest bearing savings accounts and time certificates of deposit with a maturity of three months or less when purchased.

Inventory - Inventory is stated at the lower of cost or market, determined by the weighted average method. Work-in-progress and finished goods inventories consist of raw materials, direct labor and overhead associated with the manufacturing process.

Trade accounts receivable - Trade accounts receivable are stated at the amount management expects to collect from balances outstanding at the period end.

Outstanding account balances are reviewed individually for collectability. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.

Allowances for doubtful accounts receivable balances are recorded when circumstances indicate that collection is doubtful for particular accounts receivable or as a general reserve for all accounts receivable. Management estimates such allowances based on historical evidence such as amounts that are subject to risk. Accounts receivable are written off if reasonable collection efforts are not successful.

Based on management’s evaluation of historical experience, the following policy for allowance of doubtful accounts is established:

Trade and other receivables due:	% of Balance
Within 90 days:	1.5%
Between 91 and 180 days:	5.0%
Between 181 and 360 days:	20.0%
Between 361 and 720 days:	50.0%
Over 721 days:	100.0%

Livestock – Livestock consists of goats for milk production and for breeding purposes. The livestock is depreciated according to its estimated useful lives, which is 5 years for male goats and 7 years for female goats. The cost of raising the young goat is allocated to livestock and depreciation starts upon reaching maturity 13 months from date of birth. Not all young goats survive to maturity or disposition. Normal losses of young goats are not expensed directly but allocated to the surviving young goats. When abnormal losses of young goats occur, the accumulated costs of young goats lost are written off in the period in which the abnormal losses occur.

F-16

YAYI INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FIVE MONTHS ENDED MARCH 31, 2010 AND 2009

3. Summary of Significant Accounting Policies - Continued

Fair Value of Financial Instruments – FASB ASC 820-10 requires disclosing fair value to the extent practicable for financial instruments that are recognized or unrecognized in the balance sheet. The fair value of the financial instruments disclosed herein is not necessarily representative of the amount that could be realized or settled, nor does the fair value amount consider the tax consequences of realization or settlement.

For certain financial instruments, including cash, accounts and other receivables, accounts payable, short-term loans, accruals and other payables, it was assumed that the carrying amounts approximate fair value because of the near term maturities of such obligations. The carrying amounts of long-term loans payable approximate fair value since the interest rate associated with the debt approximates the current market interest rate.

Property, plant and equipment-Property, plant and equipment are stated at cost including the cost of improvements. Maintenance and repairs are charged to expense as incurred. Assets under construction are not depreciated until construction is completed and the assets are ready for their intended use. Depreciation and amortization are provided on the straight-line method based on the shorter of the estimated useful lives of the assets or lease term as follows:

Leasehold improvement	Lesser of term of the lease or the estimated useful lives of the assets
Plant and machinery	10 years
Furniture, fixtures and equipment	5 years
Motor vehicles	5 years

Recoverability of Long Lived Assets -The Company follows FASB ASC 360. Long-lived assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the related carrying amount may not be recoverable. The Company is not aware of any events or circumstances that indicate the existence of impairment, which would be material to the Company’s financial statements.

Goodwill - Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in a business combination, In accordance with FASB ASC 350-30, goodwill is no longer subject to amortization. Rather, goodwill will be subject to at least an annual assessment for impairment, applying a fair-value based test fair value is generally determined using a discounted cash flow analysis.

Land use rights– Land use rights are stated at cost less accumulated amortization. Amortization is charged using the straight-line method over the period of lease term.

Revenue recognition - The Company recognizes revenue on product sales when products are delivered and the customer takes ownership and assumes risk of loss, collection of the relevant receivable is probable, persuasive evidence of an arrangement exists and the sales price is fixed or determinable. Net sales of products represent the invoiced value of goods, net of value added taxes (“VAT”), sales returns, trade discounts and allowances. The Company is subject to VAT which is levied on majority of the Company’s products at the rate of 17% on the invoiced value of sales. Output VAT is borne by customers in addition to the invoiced value of sales and input VAT is borne by the Company in addition to the invoiced value of purchases to the extent not refunded for export sales. Input VAT paid is recoverable from output VAT charged to customers.

F-17

YAYI INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FIVE MONTHS ENDED MARCH 31, 2010 AND 2009

3. Summary of Significant Accounting Policies - Continued

Research and development - Research and development costs are expensed as incurred. Research and development expenses amounted to $40,898 and $57,558 for the five months ended March 31, 2010 and 2009, respectively,$150,101 and $111,309 for the year ended October 31, 2009 and 2008, respectively.

Advertising and promotion costs - Costs incurred in direct-response advertising are capitalized and amortized on a straight-line basis over the duration of the advertising campaign. As of March 31, 2010, there was no capitalized direct-response advertising. All other advertising costs are expensed as incurred. Advertising and promotion costs amounted to $2,727,631 and $1,046,940 for the five months ended March 31, 2010 and 2009, respectively. As of October 31, 2009, there was no capitalized direct-response advertising. All other advertising costs are expensed as incurred. Advertising and promotion costs amounted to $1,956,512 and $1,723,569 for the year ended October 31, 2009 and 2008, respectively.

Comprehensive income - The Company follows FASB ASC 220-10 in reporting comprehensive income. Comprehensive income is defined as the change in equity of a company during a period from transactions and other events and circumstances excluding transactions resulting from investments from owners and distributions to owners. For the Company, comprehensive income for the periods presented includes net (loss) income and foreign currency translation adjustments.

Income taxes – The Company follows FASB ASC 740 when accounting for income taxes. Income taxes are provided on an asset and liability approach for financial accounting and reporting of income taxes. Current tax is based on the profit or loss from ordinary activities adjusted for items that are non-assessable or disallowable for income tax purpose and is calculated using tax rates that have been enacted or substantively enacted at the balance sheet date. Deferred income tax liabilities or assets are recorded to reflect the tax consequences in future differences between the tax basis of assets and liabilities and the financial reporting amounts at each year end. A valuation allowance is recognized if it is more likely than not that some portion, or all, of a deferred tax asset will not be realized.

The Company adopted the provisions of Financial Accounting Standards Board (“FASB”) Interpretation No. 48(“FIN 48”), “Accounting for Uncertainty in Income Taxes”, (codified in FASB Accounting Standards Codification (“ASC”) 740), as of January 1, 2007. As a result of the implementation of FIN 48, the Company made a comprehensive review of its portfolio of tax positions in accordance with the recognition standards established by FIN 48. As a result of the implementation of FIN 48, the Company recognized no material adjustments to liabilities or stockholders’ equity. The Company did not recognize any interest or penalties related to unrecognized tax benefits for 5 months ended March 31, 2010 and 2009, and year ended October 31, 2009 and 2008. The Company had no uncertain positions that would necessitate recording of tax related liability. The Company is subject to examination by the respective tax authorities.

Foreign currency translation and transactions – The accompanying consolidated financial statements are presented in United States Dollars (“US$”). The Company’s functional currency is the US$, while the Charleston’s functional currency is its local currency and the wholly-owned Chinese subsidiaries’ functional currency is the Renminbi (“RMB”). The functional currencies of the Company’s foreign operations are translated into US$ for balance sheet accounts using the current exchange rates in effect as of the balance sheet date and for revenue and expense accounts using the weighted-average exchange rate during the fiscal year. The translation adjustments are recorded as a separate component of stockholders’ equity, captioned accumulated other comprehensive income (loss). Gains and losses resulting from transactions denominated in foreign currencies are included in other income (expense) in the consolidated statements of operations.

Post-retirement and post-employment benefits - The Company’s subsidiaries contribute to a state pension plan in respect of its PRC employees. Other than the above, neither the Company nor its subsidiary provides any other post-retirement or post-employment benefits.

Earnings Per Common Share - The Company follows FASB ASC 260-10, resulting in the presentation of basic and diluted earnings per share. Diluted earnings per common share assumes that outstanding common shares were increased by shares issuable upon exercise of those stock warrants for which market price exceeds the exercise price, less shares that could have been purchased by the Company with related proceeds.

F-18

YAYI INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FIVE MONTHS ENDED MARCH 31, 2010 AND 2009

3. Summary of Significant Accounting Policies - Continued

Use of estimates - The preparation of the Company’s financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts in the financial statements and related disclosure in the accompanying notes. Actual results could differ from those estimates. The financial statements include some amounts that are based on management’s best estimates and judgments. The most significant estimates relate to warrants valuation, discount on convertible notes, debts issuance cost, allowance for uncollectible accounts receivable, work in process inventory valuation, inventory obsolescence, depreciation, useful lives of property, plant and equipment, taxes, contingencies and employee benefit plans. These estimates may be adjusted as more current information becomes available and any adjustment could be significant. Estimates and assumptions are periodically reviewed and the effects of revisions are reflected in the consolidated financial statements in the period they are determined to be necessary.

Cost of goods sold - Cost of goods sold consists primarily of costs of raw materials, direct labor, depreciation of plant and machinery, and overhead associated with the manufacturing process.

Shipping and handling cost - Shipping and handling costs related to delivery of finished goods are included in other selling, general and administrative expenses. During the five months ended March 31, 2010 and 2009, shipping and handling costs were $137,942 and $89,011, respectively. During the year ended October 31, 2009 and 2008, shipping and handling costs were $504,353 and $346,796, respectively.

The Company treats one-time slotting fees paid to retails shops who are direct customers of the Company’s distributors and the fees pays to distributors upon signing of contract as a reduction in gross sales.

Slotting fees of $1,032,609 and $0 were recorded as a reduction of sales revenue for the five months ended March 31, 2010 and 2009. During the year ended October 31, 2009 and 2008, there were no slotting fees incurred.

Retained earnings-appropriated - In accordance with the relevant PRC regulations and the Company’s PRC subsidiaries’ articles of association, Tianjin Yayi, Weinan Milkgoat and Fuping Milkgoat are required to allocate their respective net income to statutory surplus reserve.

Statutory surplus reserve - In accordance with the relevant laws and regulations of the PRC and the articles of associations of the Company’s PRC subsidiaries, Tianjin Yayi, Weinan Milkgoat and Fuping Milkgoat are required to allocate 10% of their net income reported in the PRC statutory accounts, after offsetting any prior years’ losses, to the statutory surplus reserve, on an annual basis. When the balance of such reserve reaches 50% of the respective registered capital of the subsidiaries, any further allocation is optional.

The statutory surplus reserves can be used to offset prior years’ losses, if any, and may be converted into registered capital, provided that the remaining balances of the reserve after such conversion is not less than 25% of registered capital. The statutory surplus reserve is non-distributable.

F-19

YAYI INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FIVE MONTHS ENDED MARCH 31, 2010 AND 2009

3. Summary of Significant Accounting Policies - Continued

Recently Adopted Accounting Pronouncements

Subsequent Events

In May 2009, the FASB issued FASB ASC 855-10 on the treatment of subsequent events which is intended to establish general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. Specifically, management of a reporting entity is required to evaluate subsequent events through the date that financial statements are issued. FASB ASC 855-10 was effective for fiscal years and interim periods ended after June 15, 2009, and must be applied prospectively. The Company adopted this standard in the quarter ended July 31, 2009. Subsequent events have been evaluated through the date the consolidated financial statements were issued.

Fair Value Measurement

In September 2006, the FASB issued FASB ASC 820 related to fair value measurements. FASB ASC 820 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. In February 2008, the FASB issued FASB ASC 820-10 which delayed the effective date of the fair value measurements and disclosures for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). In August 2009, the FASB issued Accounting Standards Update (ASU) No. 2009-05, "Measuring Liabilities at Fair Value" in relation to the fair value measurement of liabilities. The Company adopted the applicable portions of the provisions of the new standards as of November 1, 2008, and adopted the provision related to the nonfinancial assets and nonfinancial liabilities on November 1, 2009. The adoption of this standard for financial and nonfinancial assets and financial and nonfinancial liabilities did not have a material impact on its consolidated financial statements.

Decreases in Ownership of a Subsidiary – a Scope Clarification

Distributions to Shareholders with Components of Stock and Cash

F-20

YAYI INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FIVE MONTHS ENDED MARCH 31, 2010 AND 2009

3. Summary of Significant Accounting Policies - Continued

Measuring Liabilities at Fair Value

Convertible Debt Instruments

Useful Life of Intangible Asset

In April 2008, the FASB issued FASB ASC 350-30 which amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset. FASB ASC 350-30 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is prohibited. Application of this standard is not currently applicable to the Company.

Business Combination

In December 2007, the FASB issued FASB ASC 805 which related to business combinations. FASB ASC 805 expands the definition of a business and a business combination; requires recognition of assets acquired, liabilities assumed, and contingent consideration at their fair value on the acquisition date with subsequent changes recognized in earnings; requires acquisition-related expenses and restructuring costs to be recognized separately from the business combination and expensed as incurred; requires in-process research and development to be capitalized at fair value as an indefinite-lived intangible asset; and requires that changes in accounting for deferred tax asset valuation allowances and acquired income tax uncertainties after the measurement period be recognized as a component of provision for taxes. FASB ASC 805 also establishes disclosure requirements to enable the evaluation of the nature and financial effects of the business combination. In April 2009, the FASB issued FASB ASC 805 which clarified the accounting for pre-acquisition contingencies. This standard is effective for the Company beginning November 1, 2009 and will change the accounting for business combinations on a prospective basis. The Company did not have any business combination during the period ended March 31, 2010; therefore the adoption of this standard had no impact on the Company’s consolidated financial statements.

F-21

YAYI INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FIVE MONTHS ENDED MARCH 31, 2010 AND 2009

3. Summary of Significant Accounting Policies – Continued

Recently Issued Accounting Pronouncements Not Yet Adopted

Own-Share Lending Arrangements in Contemplation of Convertible Debt issuance or Other Financing

In October 2009, the FASB issued FASB ASC 470-20 update to address equity-classified share lending arrangements on an entity’s own shares, when executed in contemplation of a convertible debt offering or other financing. This accounting update addresses how to account for the share-lending arrangement and the effect, if any, that the loaned shares have on earnings-per-share calculations. The share lending arrangement is required to be measured at fair value and recognized as an issuance cost associated with the convertible debt offering or other financing. Earnings-per-share calculations would not be affected by the loaned shares unless the share borrower defaults on the arrangement and does not return the shares. If counterparty default is probable, the share lender is required to recognize an expense equal to the then fair value of the unreturned shares, net of the fair value of probable recoveries. FASB ASC 470-20 is effective for share lending agreements entered into after June 15, 2009, and effective for fiscal years and interim periods within those years beginning on or after December 15, 2009 for all other outstanding arrangements, with retrospective application to those arrangements on the effective date. This standard was adopted on February 1, 2010 and did not have a material impact on the Company’s Consolidated Financial Statements.

F-22

YAYI INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FIVE MONTHS ENDED MARCH 31, 2010 AND 2009

4. Other Receivables

		March 31,			October 31,			October 31,
		2010			2009			2008

Advance to staff	$	28,542		$	79,097		$	42,196
Due from a unrelated party		585,130			-			37,940
Prepayment		-			660,970			71,803
Sundry		7,331			20,854			-

		621,003			760,921			151,939
Less: allowance for bad debts		(22,833	)		(9,146	)		(29,207	)
	$	598,170		$	751,775		$	122,732

The amount due from unrelated parties is interest-free, unsecured and has no stated terms of repayment.

5. Inventories

Inventories consist of:

		March 31,		October 31,			October 31,
		2010		2009			2008

Raw materials	$	1,678,207	$	1,795,275		$	1,852,213
Packaging		289,188		370,920			446,031
Finished goods		593,870		381,885			1,031,532
		2,561,265		2,548,080			3,329,776
Less: allowance		-		(41,770	)		-
	$	2,561,265	$	2,506,310 $		$	3,329,776

As of March 31, 2010 and October 31, 2008, there was no allowance made for obsolete or slow moving inventory.

There was allowance made for obsolete or slow moving inventory of $41,770 as of October 31, 2009.

F-23

YAYI INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FIVE MONTHS ENDED MARCH 31, 2010 AND 2009

6. Advances

Advances consist of:

		March 31,		October 31,		October 31,
		2010		2009		2008
Advances to Tianjin Mengyang Biological Development Co., Ltd
("Tianjin Menyang"), formerly Tianjin Milkgoat Dairy Co., Ltd.
- purchase of office building (Note 15)	$	4,179,284	$	4,178,061	$	4,185,505
- purchase of factory and warehouse (Note 15)		11,042,041		11,038,812		3,575,186
- advances for renovation of office building (Note 15)		342,300		342,200		342,810
-short term loan		-		-		1,001,185
Advanced payment to other suppliers		1,165,620		739,587		229,185
Advanced payment for construction in progress (Note 15)		331,696		350,975		-

Advanced payment for purchasing machinery and equipment (Note 15)		1,920,814		1,740,586		-
Advance to branch manager		395,123		365,502		-
Advanced payment for acquisition of land use rights		-		146,239		146,200
	$	19,376,878	$	18,901,962	$	9,480,071

Less: Long-term portion - purchase of factory and warehouse		17,816,135		17,796,873		9,250,886

	$	1,560,743	$	1,105,089	$	229,185

The construction of office building was postponed from the original estimated completion date of December 31, 2009 to September 2010 (Note 15). According to the contract between the company and Tianjin Mengyang, if these projects continue to be delayed , the company has the right to terminate the contract and is entitled to receive a full refund of the paid advances plus accrued interests from Tianjin Mengyang.

The construction of factory and warehouse is estimated to be completed on September 2010 and trial production will commence thereafter (Note 15). According to the contract between the company and Tianjin Mengyang, if these projects continue to be delayed , the company has the right to terminate the contract and is entitled to receive a full refund of the paid advances plus accrued interests from Tianjin Mengyang.

The construction in progress related to the construction and installation of central system pipelines is estimated to be completed in August 2010 (Note 15).

At March 31, 2010 and October 31, 2009, advance to branch manager is the operating and marketing fund for sales offices.

F-24

YAYI INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FIVE MONTHS ENDED MARCH 31, 2010 AND 2009

7. Property, Plant and Equipment, net

Property, plant and equipment consist of the following:

		March 31,			October 31,			October 31,
		2010			2009			2008
At cost:
Leasehold improvement	$	68,924		$	68,903		$	69,026
								378,346
Plant and buildings		1,708,463			1,702,435
								2,303,599
Machinery		2,525,876			2,439,042
Furniture, fixtures and equipment		202,581			192,243			184,829
Motor vehicles		324,936			197,175			197,526

		4,830,780			4,599,798			3,133,326

Less: accumulated depreciation		(1,096,228	)		(900,817	)		(552,941	)

		3,734,552			3,698,981			2,580,385

Construction in progress		2,770,578			2,095,904			-

	$	6,505,130		$	5,794,885		$	2,580,385

During the five months ended March 31, 2010, depreciation expenses amounted to $195,151, of which $165,485 and $29,666 was recorded as cost of sales and other selling, general and administrative expense, respectively.

During the five months ended March 31, 2009, depreciation expenses amounted to $143,189, of which $111,087 and $32,102 was recorded as cost of sales and other selling, general and administrative expense, respectively.

During the year ended October 31, 2009, depreciation expenses amounted to $348,561, of which $275,487 and $73,074 was recorded as cost of sales and other selling, general and administrative expense, respectively.

During the year ended October 31, 2008, depreciation expenses amounted to $271,000, of which $91,980 and $179,020 was recorded as cost of sales and other selling, general and administrative expense, respectively.

F-25

YAYI INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FIVE MONTHS ENDED MARCH 31, 2010 AND 2009

8. Land use rights

Land use rights consist of:

		March 31,		October 31,		October 31,
		2010		2009		2008
Land use rights	$	942,372	$	-	$	-
Less: accumulated amortization		-		-		-
		942,372		-		-
Less: current portion		18,847		-		-
Land use rights, net of current portion	$	923,525	$	-	$	-

The estimated aggregate amortization expenses for land use rights for the five succeeding years are as follows:

Year
2010	$	18,847
2011		18,847
2012		18,847
2013		18,847
2014		18,847
Thereafter		848,137
	$	942,372

F-26

YAYI INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FIVE MONTHS ENDED MARCH 31, 2010 AND 2009

9. Short Term Loans

Short-term loans due within one year as of March 31, 2010 and October 31, 2009, 2008 consist of the following:

Collateral /

Interest Rate

March 31,

October 31,

Lender

Loan Period

Guarantee

per annum

2010

2009

2008

Industrial &

Commercial Bank

November 26, 2007 to

of China

November 12, 2008

8.0%

586,000

Rural Cooperative

December 29, 2007 to

Bank of Tianjin

December 27, 2008

9.0%

937,600

Tianjin Yinna

Gonggong Hangdao

Shujun Company

September 24, 2008 to

Limited

December 24, 2008

439,501

Guaranteed by the

Tianjin Haitai

Tianjin City

July 25, 2008 to July

Investment Guarantee

Commercial Bank

24, 2009

Co., Ltd.

9.7%

2,197,500

Allied Merit

Secured against

International

2,000,000 shares

Investment, Inc.

April 12, 2008 to July

owned by Global Rock

(Note 14)

31, 2009

Stone Industrial Ltd.

8.0%

1,000,000

Guaranteed by the

Medium and Small-

Industrial &

Size Enterprise Credit

Commercial Bank

November 14, 2008 to

Guarantee Center of

of China

November 11, 2009

Tianjin

8.0%

584,958

Guaranteed by the

Tianjin Haitai

Rural Cooperative

January 20, 2009 to

Investment Guarantee

Bank of Tianjin

January 19, 2010

Co., Ltd.

6.4%

643,454

November 5, 2007 to

Allied Merit

the completion of first

International

round of fund raising

Investment, Inc.

after the reverse merger

121,705

114,395

November 28, 2008 to

November 28, 2009, it

Guaranteed by the

has been renewed and

Tianjin Haitai

Shanghai Pudong

extended to December

Investment Guarantee

Development Bank

14, 2010

Co., Ltd.

7.3%

1,462,394

Guaranteed by the

Tianjin Haitai

Rural Cooperative

May 22, 2009 to May

Investment Guarantee

Bank of Tianjin

21, 2010

Co., Ltd.

6.4%

1,462,822

1,462,394

Guaranteed by the

Tianjin Haitai

Rural Cooperative

July 3, 2009 to May 21,

Investment Guarantee

Bank of Tianjin

2010

Co., Ltd.

6.4%

2,194,234

2,193,592

Guaranteed by the

Tianjin Haitai

Shanghai Pudong

December 14, 2009 to

Investment Guarantee

Development Bank

December 14, 2010

Co., Ltd.

6.4%

292,565

Guaranteed by the

Tianjin Haitai

Shanghai Pudong

December 14, 2009 to

Investment Guarantee

Development Bank

December 14, 2010

Co., Ltd.

6.4%

1,170,258

F-27

YAYI INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FIVE MONTHS ENDED MARCH 31, 2010 AND 2009

		Guaranteed by the
		Tianjin Haitai
China Development	December 25, 2009 to	Investment Guarantee
Bank Co., Ltd.	December 24, 2010	Co., Ltd.	5.8%		1,462,822		-		-

				$	6,704,406	$	6,468,497	$	5,274,996

F-28

YAYI INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FIVE MONTHS ENDED MARCH 31, 2010 AND 2009

9. Short Term Loans - Continued

Short-term loans from Industrial & Commercial Bank of China and Rural Cooperative Bank of Tianjin are guaranteed by third parties in which the Company paid a one-time guarantee fee based on 1.0% to 1.5% of the guaranteed amount. The guarantee fee was amortized in 12 months and included in other expense for the five months ended March 31, 2010 and 2009 was $29,861 and $28,431, for the years ended October 31, 2009 and 2008 was $72,621 and $30,154.

On November 14, 2008, the Company entered into a loan agreement with Industrial & Commercial Bank of China, for $584,958 (RMB4,000,000). The annual interest rate is 8.0% and was due on and paid off on November 11, 2009. The loan is guaranteed by the Medium and Small-Size Enterprise Credit Guarantee Center of Tianjin with a guarantee fee of 1% of the original loan amount and was amortized in 12 months.

On January 20, 2009, the Company entered into a loan agreement with Rural Cooperative Bank of Tianjin for $643,454 (RMB4,400,000). The annual interest rate is 6.4% and was due on and paid off on January 19, 2010.

On November 5, 2007, Charleston entered into a loan agreement with Allied Merit International Investment, Inc. (“Allied Merit”) for $114,395. The loan represents various professional expenses related to the merger paid by Allied Merit on behalf of Charleston, including the $50,000 paid to Tryant in January 2008 as discussed in Note 13. The loan incurs interest at 8% per annum and is due upon the first round of funds raised subsequent to the $1,300,000 fund raised upon listing on the U.S Over the Counter (“OTC”) market. Pursuant to the agreement, Allied Merit agreed to convert accrued interest into the Company’s common stock conversion rate of $2.00 per share. As of March 31, 2010, there was no conversion of accrued interest into the Company’s common stock. Pursuant to an agreement dated June 15, 2009, signed between Charleston and Allied Merit, Allied Merit agreed to waive the previously accrued interest on the loan. During the year ended October 31, 2009, Allied Merit lent an additional $78,877 to Charleston. As of March 31, 2010, the total amount owed to Allied Merit is $121,705.

On November 28, 2008, the Company entered into a loan agreement with Shanghai Pudong Development Bank for $1,462,394 (RMB10,000,000). The annual interest rate is 7.3% and is due on and paid off on November 28, 2009. The loan is guaranteed by the Tianjin Haitai Investment Guarantee Co., Ltd. with a guarantee fee amortized in 12 months.

On May 22, 2009, the Company entered into a loan agreement with Rural Corporative Bank of Tianjin for $1,462,822 (RMB10,000,000). The annual interest rate is 6.4% and is due on May 21, 2010. The loan is guaranteed by the Tianjin Haitai Investment Guarantee Co., Ltd. with a guarantee fee of $21,942 (RMB150,000) and was amortized in 12 months.

On July 3, 2009, the Company entered into two loan agreements with Rural Corporative Bank of Tianjin for $1,097,117 (RMB7,500,000) each with a total of $2,194,234 (RMB15,000,000). The annual interest rate is 6.4% and was due and repaid on May 21, 2010. The loan is guaranteed by the Tianjin Haitai Investment Guarantee Co., Ltd with a guarantee fee of $21,942 (RMB150,000) and was amortized in 12 months.

On December 14, 2009, the Company entered into two loan agreements with Shanghai Pudong Development Bank for $292,565 (RMB2,000,000) and $1,170,258 (RMB8,000,000) with a total of $1,462,823 (RMB10,000,000). The annual interest rate is 6.4% and is due on December 14, 2010. The loan is guaranteed by the Tianjin Haitai Investment Guarantee Co., Ltd. with a guarantee fee of $14,570 (RMB99,600) and was amortized in 12 months.

On December 25, 2009, the Company entered into a loan agreement with China Development Bank for $1,462,822 (RMB10,000,000). The annual interest rate is 5.8% and is due on December 24, 2010. The loan is guaranteed by the Tianjin Haitai Investment Guarantee Co., Ltd.

F-29

YAYI INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FIVE MONTHS ENDED MARCH 31, 2010 AND 2009

10. Due to Related Parties

		March 31,		October 31,		October 31,
		2010		2009		2008


Li Liu, a director of the Company, officer and principal shareholder	$	3,394,534	$	3,393,542	$	977,950
Other shareholders		1,918,267		1,917,930		-

	$	5,312,801	$	5,311,472	$	977,950

The amount due to Li Liu and other shareholders are unsecured with no stated interest or repayment terms.

11. Long-Term Loans

As of March 31, 2010 and October 31, 2009, the Company has the following long-term loans:

		March 31,			October 31,			October 31,
		2010			2009			2008


Installment loan GMAC-SAIC Automotive Finance Company Limited, interest at 7.33% per annum, monthly principal and interest payment of $322 from July 15, 2005 to June 17, 2009	$	-		$	-			2,295
Installment loan from Daimler-Chrysler Automotive Finance Ltd, interest at 7.83% per annum, monthly principal and interest payment of $2,484 from September 30, 2007 to September 30, 2009	$	-		$	-			31,794
Convertible notes in principal amounts of $1,300,000, less debt discount of $365,886, interest at 8% per annum, due December 2009. These notes were either paid off or converted into common stock in December 2009 (Note 14)	$	-		$	1,227,459			839,558

Installment loan from Daimler-Chrysler Automotive Finance Ltd, interest free, monthly principal and interest payment of $3,402 from February 5, 2010 to August 5, 2011		57,832			-			-
		57,832			1,227,459			873,647
Less: current portion		(40,823	)		(1,227,459	)		(34,089	)

Long-term loans, net of current portion	$	17,009		$	-		$	839,558

F-30

YAYI INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FIVE MONTHS ENDED MARCH 31, 2010 AND 2009

11. Long-Term Loans - Continued

The convertible notes payable, net of debt discount consists of the following as of March 31, 2010 and October 31, 2009:

		March 31,		October 31,			October 31,
		2010		2009			2008

Convertible notes payable	$	-	$	1,300,000		$	1,300,000
Less: Debt discount - Series A Warrants		-		(280,726	)		(280,726	)
Less: Debt discount - beneficial conversion feature		-		(304,800	)		(304,800	)
Accretion of debt discount - warrants and beneficial		-		512,985			125,084
conversion feature
Convertible notes payable, net	$	-	$	1,227,459		$	839,558

Accrued interest on the convertible notes payable as of March 31, 2010 was $0 and interest expense on the convertible notes for the five months ended March 31, 2010 was $9,829. These notes have been converted into common shares on December 6, 2009 (Note 14).

Accrued interest on the convertible notes payable as of October 31, 2009 was $146,170 and interest expense on the convertible notes for the year ended October 31, 2009 was $104,001

Accrued interest on the convertible notes payable as of October 31, 2008 and interest expense for the year ended October 31, 2008 was $42,179.

12. Income and Other Tax Payables

Income and other tax payables consist of the following:

		March 31,		October 31,		October 31,
		2010		2009		2008

Income tax payable	$	17,585	$	207,510	$	65,075
Value added tax payable		1,295,321		1,320,149		1,157,293
Individual income withholding tax payable		316		680		-
Other tax payables		24,972		40,577		23,843
	$	1,338,194	$	1,568,916	$	1,246,211

F-31

YAYI INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FIVE MONTHS ENDED MARCH 31, 2010 AND 2009

13. Income Tax

The enterprise income tax is reported on a separate entity basis.

United States

The Company was incorporated in Delaware and is subject to United States of America tax law. No provisions for income taxes have been made as the Company has a taxable loss for the five months ended March 31, 2010. No tax benefit has been realized since a valuation allowance has offset the deferred tax asset.

BVI

Charleston was organized in the British Virgin Islands and is not subject to income taxes under the current laws of the British Virgin Islands.

PRC

Tianjin Yayi, Weinan Milkgoat, Fuping Milkgoat and Shaanxi Milkgoat are subject to PRC income tax. Income tax (benefit) expense for the five months ended March 31, 2010 and 2009 were ($289,093) and $869,614, respectively. Income tax expense for the year ended October 31, 2009 and 2008 were $2,201,032 and $1,633,946, respectively.

Effective January 1, 2008, the statutory PRC tax rate is 25%. Therefore, the statutory PRC rate for the five months ended March 31, 2010 and 2009 was 25% for the year ended October 31, 2009 was 25%, and for the year ended October 31, 2008 was 26.3% .

The income tax provision consists of the following:

		Five months ended March 31,						Year ended March 31,
		2010			2009			2009			2008

Current	$	(155,700	)	$	1,090,628		$	2,189,207		$	1,643,348
Deferred		(472,893			(17,514	)		(455,475	)		(1,728,502	)
Change in valuation allowance		339,500			(203,500	)		467,300			1,719,100
	$	(289,093	)	$	869,614		$	2,201,032		$	1,633,946

F-32

YAYI INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FIVE MONTHS ENDED MARCH 31, 2010 AND 2009

13. Income Tax - Continued

The following is a reconciliation of the tax derived by applying the PRC Statutory Rate to the earnings before income taxes, and comparing that to the recorded income tax provision (benefit):

	Five months ended			Year ended
	March 31			October 31,
	2010		2009	2009	2008

Tax provision (benefit) at PRC statutory rate	(25.0%	)	25.0%	25.0%	26.3%
Tax exemption	-		-	-	-5.0%
Permanent differences	-		0.1%	1.7%	-
Unrecognized tax benefit of current year losses	0.6%		-	-	-
Parent company's expenses not subject to PRC tax	9.1%		3.5%	2.3%	2.3%

Effective tax rate	(15.3%	)	28.6%	29.0%	23.6%

The components of the deferred tax assets and deferred tax liability are as follows:

	March 31,		October 31,		October 31
	2010		2009		2008
Deferred tax asset for NOL carryforwards - China	173,000		99,700		55,700
Deferred tax asset for NOL carryforwards - US	1,618,300		1,374,000		1,104,000
Warrant expense	743,200		721,300		568,000
Temporary difference from advertisement	232,236		-		-
Temporary difference from intercompany sales profit	1,259		1,258		-
Temporary difference from allowance for doubtful accounts receivable	19,151		-		9,402
Temporary difference from slotting fee	220,243		-		-
	3,007,389		2,196,258		1,737,102
	-
Valuation allowance	(2,534,500	)	(2,195,000	)	(1,727,700	)
Total deferred tax assets	472,889		1,258		9,402
Allowance for doubtful accounts receivable	-		3,682		-
Total deferred tax liability	-		3,682		-
Net deferred tax assets (liability)	472,889		(2,424		) 9,402

F-33

YAYI INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FIVE MONTHS ENDED MARCH 31, 2010 AND 2009

13. Income Tax – Continued

Deferred income taxes have been classified in the consolidated balance sheets as of March 31, 2010 and October 31, 2009 as follows:

		March 31,		October 31,		October 31,
		2010		2009		2008
Current assets	$	-	$	-
Current liability		-		(2,424	)
Noncurrent assets		472,889		-		9,402
Net deferred tax assets (liability)	$	472,889	$	(2,424	)	9,402

The valuation allowance for deferred tax assets as of March 31, 2010 and October 31, 2009 and 2008 was $2,534,500, $2,195,000 and $1,727,700. The change in total allowance for the five months ended March 31, 2010 and during the years ended October 31, 2009 and 2008 was an increase of $339,500,an increase of $467,300 and an increase of $1,719,100 respectively.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which the net operating losses and temporary differences become deductible. Management considered projected future taxable income and tax planning strategies in making this assessment. At March 31, 2010, the Company had net operating loss carry forwards for United States Federal and State income tax purposes of approximately $3,946,670 (the “NOL carry forwards-US”), which were available to offset future US taxable income, if any, through 2029. At March 31, 2010, the Company had net operating loss carry forwards, associated with its subsidiaries Weinan Milkgoat, Fuping Milkgoat and Shaanxi Milkgoat, for PRC income tax purposes of approximately $173,040 (the “NOL carry forwards – China”), which are available to offset future PRC taxable income, if any, until it is fully offset against future taxable income subject to the approval of the Chinese tax authority. Based upon the uncertainty of future US taxable income, the limited operating histories of its subsidiaries, Weinan Milkgoat, Fuping Milkgoat, and Shaanxi Milkgoat, and these subsidiaries’ losses incurred to date, management has fully reserved the deferred tax asset associated with the warrant expense and NOL carry forwards for US and PRC income tax purposes.

The company adopted the provisions of Financial Accounting Standards Board (“FASB”) Interpretation No. 48(“FIN 48”), “Accounting for Uncertainty in Income Taxes”, (codified in FASB) Accounting Standards Codification (“ASC”) 740), as of January 1, 2007. As a result of the implementation of FIN 48, the Company made a comprehensive review of its portfolio of tax positions in accordance with the recognition standards established by FIN 48. As a result of the implementation of FIN 48, the Company recognized no material adjustments to liabilities or stockholders’ equity. The company did not recognize any interest or penalties related to unrecognized tax benefits in year March 31, 2010 and October 31, 2009. The company had no uncertain positions that would necessitate recording of tax related liability. The company is subject to examination by the respective tax authorities.

F-34

YAYI INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FIVE MONTHS ENDED MARCH 31, 2010 AND 2009

14. Merger and Offering

Series B Warrants

On June 6, 2008, in consideration for introducing Ardmore to Tianjin Yayi, Ardmore issued to Grand Orient Fortune Investment Ltd., a British Virgin Islands limited liability company and its designees (collectively, “Grand Orient”) an aggregate of 2,000,000 shares of the Company common stock, valued at $2,200,000 (based on the stock price on June 6, 2008, the date of issuance) and Series B Warrants to acquire 2,148,148 shares of Ardmore’s common stock at an exercise price of $1.08 per share, valued at $1,144,743, fair value. The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the warrant with the following assumptions: no dividend yield, expected volatility of 70.31%, and a risk-free interest rate of 2.73% . In determining volatility of the Company’s warrant, the Company used the average volatility of the Company’s stock. These warrants are considered to be indexed to the Company’s own stock accordance with Emerging Issue Task Force (“EITF”) No. 01-6. These warrants are exercisable on a cashless basis and may be exercised through June 2011. The exercise price of these warrants and the number of shares issuable upon their exercise is subject to adjustment upon the occurrence of specified events. Grand Orient was granted piggyback registration rights with respect to these shares and the shares of common stock issuable upon exercise of the Series B Warrants. The fair value of the common stock and Series B Warrants was expensed as merger costs.

Cancellation of shares and Issuance of Series C Warrants

In connection with this merger, on June 6, 2008, Ardmore entered into an indemnification agreement with Tryant, LLC, pursuant to which Tryant agreed to the cancellation of 325,198 shares of common stock it owned and agreed to, among other things, indemnify Ardmore for one year for breaches of representations and warranties in the merger agreement. In exchange, Ardmore (i) paid Tryant an aggregate of $200,000 (excluding $50,000 that had been previously paid by Charleston and expensed in merger costs), (ii) issued Tryant a note in principal amount of $250,000 (which matured and was paid in August 2008), and (iii) issued Tryant and its designees, Series C Warrants, exercisable on a cashless basis to acquire through June 2011, an aggregate of 185,185 shares of Ardmore common stock at an exercise price of $1.35 per share, valued at $86,367, fair value. The exercise price and number of shares issuable upon exercise of these warrants is subject to specified anti-dilution adjustments. Tryant and its designees were granted piggyback rights with respect to the shares of the Company’s common stock it owned prior to these transactions and the shares issuable upon exercise of these Series C Warrants. This transaction in the total amount of $536,367 is reflected as cancellation of common stock.

F-35

YAYI INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FIVE MONTHS ENDED MARCH 31, 2010 AND 2009

14. Merger and Offering – Continued

Convertible Promissory Note and Issuance of Series A Warrants

Contemporaneously with, and as a condition to, the completion of the merger, Ardmore issued 52 units for an aggregate purchase price of $1,300,000. Each unit consisted of: (i) an 8% convertible promissory note in principal amount of $25,000 and (ii) Ardmore’s Series A Warrants. Interest on these notes is payable at maturity, the notes mature in December 2009, are unsecured and are convertible, at the holder’s option, into the Company common stock at a conversion price of $1.08. The Series A Warrants included in each unit are exercisable (under specified circumstances, on a cashless basis) through June 2011 (subject to extension if, under specified circumstances, the underlying shares are not registered for resale) to acquire 11,575 shares of Ardmore’s common stock at an exercise price equal to the lesser of $1.35 and the Next Round Value. The term “Next Round Value” means the per share dollar value of the securities issued by Ardmore in the first private placement that is effected after the merger, such dollar value to be equal to a fraction, the numerator of which is the aggregate purchase price of the securities sold in such private placement and the denominator of which is the number of shares of common stock (including and after giving effect to the shares of common stock issuable upon exercise or conversion of the securities issued or issuable in such private placement, determined as of the date of the first closing of such private placement), issued in such private placement. The convertible notes and Series A Warrants provide for anti-dilution adjustments upon the occurrence of specified events.

The Series A Warrants that were issued with the convertible notes gave the holders the right to purchase an aggregate of 601,900 shares of Ardmore’s common stock. These warrants were valued at $280,726, fair value, and in accordance with EITF No. 00-19, the warrants were classified as equity. The fair value was based on the Black Scholes. In determining volatility of the Company’s warrant, the Company used the average volatility of the Company’s stock. The value of these warrants was recorded as a discount on the convertible notes. The conversion option is deemed to be an embedded derivative which is classified as equity under EITF 00-19. The intrinsic value of this embedded derivative is $304,800 and is recorded as a discount on the convertible notes. The original face amount of the convertible notes of $1,300,000 was reduced by the value of the warrants issued ($280,726) and the intrinsic value of the embedded derivative ($304,800), resulting in an initial carrying value of $714,474.

The convertible notes are being accreted to their maturity value of $1,300,000 using the interest method and an effective monthly rate of 5.22% . The discount on the convertible notes was fully accreted on December 6, 2009.

On December 6, 2009, $1,250,000 of the convertible notes plus accrued interest of $150,000 were converted to 1,296,274 shares of common stock. $50,000 of the convertible notes plus accrued interest of $6,000 were paid off in cash on maturity date. (Note11)

Pursuant to a registration rights agreement with the purchasers of these units, Ardmore agreed to register the resale of the shares of common stock underlying the notes and Series A Warrants. Generally, if Ardmore fails, subject to specified exceptions, to comply with certain of its obligations under this agreement, Ardmore may be required to pay the investors, as of the date of such failure and each monthly anniversary of such failure, partial liquidated damages equal to 1.5% of the purchase price paid by them for any unregistered securities held by them that are required to be registered; provided, however , that (i) Ardmore will not be liable for liquidated damages in excess of 1.5% of the aggregate purchase price in any 30 day period and (ii) the maximum amount payable to each purchaser shall not exceed 20% of their purchase price. Ardmore did not file a registration statement by July 21, 2008, as required by the agreement. On November 24, 2009, the Company and Investors entered into a Settlement Agreement (the "Settlement Agreement") to settle the Company’s obligations under the promissory notes, the Series A Warrants and the Registration Rights Agreement.

As of March 31, 2010, cashless exercise of 17,363 of series A Warrants were converted to 13,022 shares of common stock.

F-36

YAYI INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FIVE MONTHS ENDED MARCH 31, 2010 AND 2009

14. Merger and Offering – Continued

Settlement of Registration Rights Agreement

On November 24, 2009, the Company and Investors entered into a Settlement Agreement (the "Settlement Agreement") to settle the Company’s obligations under the aforementioned Registration Rights Agreement for failure to file a registration statement in accordance with the terms of the Registration Rights Agreement. Pursuant to the Settlement Agreement, each Investor is entitled to convert the entire principal amount of and accrued interest on all of the Notes it holds into the Company’s common stock at a conversion price of $1.08 per share. In addition, the Company adjusted the Series A and Series D warrant exercise price to $0.98 per share. In December 2009, the Company paid to the Investors liquidated damages in the aggregate amount equal to $140,000, which was accrued as of October 31, 2009, through Wellfleet Partners, Inc., the representative of the Investors for pro rata distribution to the Investors. The fair value of the reduction in Series A and Series D warrant exercise price totaled $88,500 was recorded as a penalty for the five months ended March 31, 2010.

Upon making such payment, the Registration Rights Agreement, as between the Company and each Investor, terminated and all obligations of the Company thereunder are discharged and all claims against the Company arising there from are released.

Series D Warrants and Placement Agent Fee

Ardmore paid the placement agent an aggregate of approximately $104,000 in commissions and approximately $21,000 for expenses for its services in the offering. Ardmore also issued the placement agent and its designees Series D Warrants (which generally have the same terms as the Series A Warrants) to acquire an aggregate of 144,448 shares of common stock. The Series D Warrants were valued at $67,368, fair value. Of the total placement agent expense of $192,368, $150,082 was allocated to debt issuance costs and the remaining $41,540 of advisory cost was recorded as an expense. The debt issuance costs are amortized by the interest method over the term of the convertible notes.

For the five months ended March 31, 2010 and 2009, amortization of debt issuance costs and accretion of debt discount from the warrants and embedded derivatives issued in respect of the merger on June 6, 2008 (“merger”) totaled $91,227 and $118,913, respectively.

For the years ended October 31, 2009 and 2008, amortization of debt issuance costs and accretion of debt discount from the warrants and embedded derivatives issued in respect of the merger on June 6, 2008 (“merger”) totaled $487,821 and $157,304, respectively.

Each series of warrants issued in respect of the merger were valued using a Black-Scholes model. The following assumptions were used to calculate the fair value of Series B,C,E warrants: dividend yield of 0%, expected volatility of 70.31%, risk-free interest rate of 2.73%, expected life of 3 years, and stock price of $1.10 per share with exercise price of $1.08 -$1.35 per share. Assumptions were used to calculate the fair value of Series A and D warrants: dividend yield of 0%, expected volatility of 100%, risk-free interest rate of 0.73%, expected life of 1.5 years, and stock price of $1.4 per share with exercise price of $0.98 per share.

The Company modified the Series A and Series D warrant exercise price to $0.98 per share as a result of the aforementioned settlement of the registration rights agreement. Additional expenses of $71,400 and $17,100, respectively, were recorded as a result of the reduction in Series A and Series D warrant exercise price.

As of March 31, 2010, cashless exercise of 110,000 warrants were converted to 78,432 shares of common stock.

F-37

YAYI INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FIVE MONTHS ENDED MARCH 31, 2010 AND 2009

14. Merger and Offering – Continued

The following table summarizes all of the Company’s warrant outstanding as of March 31, 2010.

	Shares	Fair Value
	outstanding

Warrants outstanding respect of the merger:
Series A Warrants	584,537	459,388
Series B Warrants	2,148,148	1,144,743
Series C Warrants	185,185	86,367
Series D Warrants	34,448	27,073
	2,952,318	1,717,571
Warrants outstanding for extension of maturity date of loan from Allied Merit:
Series E Warrants	250,000	233,547
	3,202,318	1,951,118

						Exercise Price
	Option		Vested			per Common
	Shares		Shares			Stock Range

Balance, October 31, 2007	-		-			-
Granted or vested during the year ended October 31, 2008	3,329,681		3,329,681		$	1.08 - $1.15
Balance October 31, 2008	3,329,681		3,329,681		$	1.08 - $1.15
Granted or vested during the year ended October 31, 2009	-		-			-
Balance, October 31, 2009	3,329,681		3,329,681		$	1.08-$1.35
Granted or vested during the 5 months ended March 31, 2010	-		-			-
Exercised during the 5 months ended March 31, 2010	(127,363	)	(127,363	)	$	0.98
Expired during the 5 months ended March 31, 2010	-		-			-
Balance, March 31, 2010	3,202,318		3,202,318		$	0.98-$1.35

The following table summarizes the weighted average remaining contractual life and exercise price of the Company’s outstanding warrants.

Warrants Outstanding
	Number Outstanding	Weighted Average	Weighted Average
Range of	Currently Exercisable	Remaining	Exercise Price of Warrants
Exercise Prices	at March 31, 2010	Contractual Life (Years)	Currently Exercisable

$0.98-1.35	3,202,318	1.19	$1.08

F-38

YAYI INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FIVE MONTHS ENDED MARCH 31, 2010 AND 2009

15. Commitments and Contingencies

Operating Leases

In the normal course of business, the Company leases office space and factory under operating leases agreements, which expire through 2029. The Company rents office space, primarily for regional sales administration offices, in commercial office complexes that are conducive to administrative operations. The operating leases agreements generally contain renewal options that may be exercised in the Company's discretion after the completion of the base rental terms. In addition, many of the leases provide for regular increases to the base rental rate at specified intervals, which usually occur on an annual basis.

As of March 31, 2010, the Company was obligated under operating leases requiring minimum rentals as follows:

2011		81,918
2012		81,918
2013		84,356
2014		84,844
2015		84,844
Thereafter		98,984
	$	516,864

For the five months ended March 31, 2010 and 2009, rent expense amounted to $111,058 and $80,056 respectively.

For the years ended October 31, 2009 and 2008, rent expense amounted to $213,914 and $221,989 respectively.

Purchase of Office Building

On January 15, 2007, the Company signed a sales and purchase agreement with Tianjin Mengyang to buy a four-story office building of an approximate construction area of 7,800 square meters situated at Jinghai Industrial Park for a total consideration of $ 4,335,806 (equivalent to RMB29,640,000). Tianjin Mengyang is responsible for renovation of the building. As of July 31, 2009, the Company had advanced a total of $4,179,284 (equivalent to RMB 28,570,000) to Tianjin Mengyang in connection with this agreement. There is a 3% penalty payable to Tianjin Mengyang for funds not paid by the Company according to schedule and a 3% penalty payable to the Company by Tianjin Mengyang on the uncompleted portion of the total consideration if the project is not completed and handed over to the Company for use by September 30, 2008. Due to the 2008 Beijing Olympics, the Tianjin city government temporarily discontinued all existing construction projects; therefore, the estimated completion date of project has been postponed to December 31, 2009. It was agreed between both parties in a supplementary agreement signed on October 12, 2008 that no penalty would be charged to each other for this delay. Due to the freezing weather, the estimated completion date is further delayed to September 2010. 50% of the remaining balance, $78,261 (RMB535,000) is due upon receiving the certificate of house property.

The Company also advanced $342,300 (equivalent to RMB2,340,000) to Tianjin Mengyang for interior renovation of the building. The remaining $342,300 is to be paid upon inspection of the completed renovation project. If the remaining balance is not paid upon completion of the project, Tianjin Mengyang will accrue interest on the remaining balance at the PRC prime interbank rate of 6.03% per annum for a 3 month loan.

F-39

YAYI INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FIVE MONTHS ENDED MARCH 31, 2010 AND 2009

15. Commitments and Contingencies – Continued

Purchase of Factory & Warehouse

On January 15, 2007, the Company signed a factory and warehouse leasing agreement with Tianjin Mengyang to rent a total gross area of 30,165 square meters for an annual rent of $1,288,480 (RMB8,808,180) for 21 years from September 1, 2008 to August 31, 2029. A half-year deposit of $644,227 (RMB4,404,000) was paid as of April 30, 2008. The property is to be located in Jinghai Industrial Park and Tianjin Mengyang is responsible for its construction.

On September 26, 2008, the Company signed a new factory transfer agreement with Tianjin Mengyang that cancelled the factory and warehouse leasing agreement signed on January 15, 2007. The new agreement is to purchase three warehouses and a factory of an approximate construction area of 30,165 square meters situated at Jinghai Economic Park for a total consideration of $13,237,811 (RMB90,495,000). The rental deposit of $644,227 (RMB4,404,000), paid with respect to the factory and warehouse leasing agreement signed on January 15, 2007, was used to partially offset the total consideration. As of December 31, 2008, the Company paid a total of $6,495,516 (RMB44,404,000) after including the amount of $644,227 (RMB4,404,000) paid originally as deposit for lease.

On January 20, 2009, the Company signed a supplemental agreement with Tianjin Mengyang to postpone the construction completion date to December 31, 2009. Under this supplement agreement, a monthly payment of $438,847 (RMB3,000,000) is due at the end of each month from January 2009 to November 2009, totaling $4,827,314 (RMB33,000,000). Total payment made as of March 31, 2010 totaled $11,042,042 (RMB75,484,500). $877,694 (RMB6,000,000) of the payment was paid via an offset with the short term loan due from Tianjin Mengyang. The remaining balance of $2,195,770 (RMB15,010,500) is scheduled to be paid progressively from July 2010.

On June 12, 2009, the Company signed a supplemental agreement with Tianjin Mengyang which the remaining balance for purchase of office building, factory and warehouse is $4,704,584 (RMB32,161,000). As of March 31, 2010, 50% of this remaining balance, $2,352,292 (RMB16,080,500) has been paid on the completion of the main framework of the construction. 25% of the remaining balance, $1,176,146 (RMB8,040,250) is due upon satisfactory inspection of the construction and transfer of title (on or before July 31, 2010). The remaining 25% of the balance, $1,176,146 (RMB8,040,250) is due upon receiving the certificate of ownership (on or before September 2010).

The Company received the main body construction verification report. The total verified area of the office building, factory and warehouse is 39,142 square meters which is 1,177 square meters more than the area stated in the supplemental agreement (37,965 square meters). According to the supplemental agreement, the Company committed to pay more on the additional area built. This resulted in an increase in the costs by $419,486 (RMB2,867,650).

Purchase of Machinery & Equipment

During the year ended March 31, 2010, the Company signed two contracts for purchasing machinery and equipment to expand its goat milk powder production lines and liquid goat milk production line, with the total amount of $3,415,544 (RMB23,349,000). $1,858,121 (RMB12,702,300) has been paid as of March 31, 2010. The remaining balance of $1,557,423 (RMB10,646,700) will be paid progressively. The machinery and equipment is expected to be delivered and inspected by August 2010 and final payment of 5% is to be paid within 6 months after approval of final inspection of equipment received.

Since the period ended March 31, 2010, the Company has adopted a new marketing strategy and will not produce the liquid goat milk within three years. Now the Company is negotiating with one of its liquid goat milk equipment suppliers to terminate one of the contracts for purchasing machinery and equipment. As of March 31, 2010, this equipment supplier has delivered machinery and equipment to the Company amounting to $248,680 (RMB1,700,000), and the Company has advanced $770,834 (RMB5,269,500) to the supplier for equipment purchase. The Company has negotiated with this supplier regarding termination of the contract and transferring the $770,834 to the Company’s other construction project. The Company is still in negotiation stage with the supplier for the potential compensation with approximately 1% of the $770,834 (RMB5,269,500) advance to the supplier, which is approximately $7,708 (RMB52,695).

F-40

YAYI INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FIVE MONTHS ENDED MARCH 31, 2010 AND 2009

15. Commitments and Contingencies – Continued

Construction in progress of goat farm facilities

As of March 31, 2010 the Company has agreements with two construction companies, Zhuangli Construction Team (“Zhuangli”) and Fupin County Qinzheng Construction Engineering Corporation (“Qinzheng”) for the construction of farm facilities with the total amount of $2,524,831 (RMB17,260,000). On September 2009, the company signed an supplementary agreement with Qinzheng for reducing the total amount of costs by $277,936 (RMB1,900,000) due to the changes of construction location. As of March 31, 2010, Qinzheng refunded $277,936 (RMB1,900,000) to the Company, and the Company has paid $1,749,828 (RMB11,962,000) to these two construction. The remaining balance of $497,067 (RMB3,398,000) will be paid progressively from September 2010. The final payment of 25% of Zhuangli is due one year after the construction is approved and accepted. The remaining balance for the construction by Qinzheng will be paid progressively and final payment of 10% is due one year after the construction is approved and accepted. Due to the changes of some construction location, the completion date was postponed to October 2010.

The Company signed an agreement with Zhuangli for the construction of goat milking stations with the total amount of $482,731 (RMB3,300,000). $459,326 (RMB3,140,000) has been paid as of March 31, 2010. The remaining balance of $23,405 (RMB160,000) is due one year after the construction is approved and accepted. Due to the low milk production season, the Company decided to postpone the date for installing equipment to October 2010.

Purchase of Raw Material

The Company has written agreements with 18 village committees for the purchase of goat milk and goat placenta to ensure the steady supply of its raw material.

The details of agreements are listed as follows and the Company is obligated under the purchase agreement requiring minimum purchases as follows:

		Tons
2010		1,456
2011		2,184
2012		3,280
2013		3,608
2014		3,969
Thereafter		-
		14,497

The price for the goat milk and goat placenta is determined by the market. As of March 31, 2010, the market price for the goat milk and goat placenta is $483 per ton (equivalent to RMB3,300 per ton).

Purchase of Goat Milk Powder

In August 2009, the Company entered into contracts with 3 suppliers for purchase of a total of 420 ton goat milk powder. Total purchase commitment is $1,437,662 (RMB9,828,000). As of March 31, 2010, the Company has prepaid $575,065 (RMB3,931,200) of the contract amount in which $308,070 (RMB2,106,000) of powder was received during the 5 months ended March 31, 2010; the remaining contract amount of $862,597 (RMB5,896,800) will be paid upon delivery of the goat milk powder.

F-41

YAYI INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FIVE MONTHS ENDED MARCH 31, 2010 AND 2009

15. Commitments and Contingencies – Continued

Land Use Rights Agreement

On July 25, 2008, the Company entered into an agreement with the Government of the Linwei District of Weinan City (“Government”) pursuant to which the Company is to build a 30,000 square meter goat milk processing facility in one of the Government’s industrial parks. The construction project is estimated to cost approximately $19,016,691 (RMB130,000,000), which includes fixed assets investment of approximately $11,702,579 (RMB80,000,000) and working capital of approximately $7,314,112 (RMB50,000,000). In connection with this agreement, the Government will transfer land use rights of approximately 67,000 square meter to the Company for 50 years for approximately $994,719 (RMB6,800,000). Pursuant to a supplemental agreement entered into on September 16, 2008 with the Government, the Company is required to commence construction within six months of the date of the supplemental agreement. Subsequent to January 31, 2009, the Company reached an oral agreement with the Government to extend the commencement date of the construction to no later than May 31, 2009. As of October 31, 2009, the Company has obtained the related approval documents from the Government to begin construction. In accordance with the supplemental agreement, the Company paid $146,282 (RMB1,000,000) for part of the consideration of the land use rights. According to the land surveying from Government, the remaining balance has been revised from $848,437 (RMB5,800,000) to $796,090 (RMB5,442,150) and the remaining balance has been paid on November 24, 2009. The Company has received the certificate on land use right from the local government and the construction has commenced in March 2010. Amortization is provided over estimated useful live of 50 years.

Installation of central system pipelines

On October 28, 2009, Shaanxi Milkgoat entered into a Project Installation Agreement ("Installation Agreement") with Heilongjiang Tianhong Food Equipment Co., Ltd. ("Heilongjiang Tianhong"), which provided for, among others, and install all the process pipelines and the central system pipelines at Shaanxi Milkgoat’s new joint production facility. Pursuant to the Installation Agreement, Shaanxi Milkgoat agreed to pay Heilongjiang Tianhong an aggregate of $1,833,647 (RMB 12,535,000) in five installments for the service that Heilongjiang Tianhong will provide. According to the agreement, 30% of it, $550,094 (RMB3,760,500) is the first installment. $351,077 (RMB2,400,000) has been paid as of October 31, 2009 and the rest of the first installment, $199,017 (RMB1,360,500) was paid on November 30, 2009. 30% of it, $550,094 (RMB3,760,500) is expected to be paid within seven days after the beginning of installation, 10% of it, $183,365 (RMB1,253,500) is expected to be paid within ten days after completion of installation, 25% of it $458,412 (RMB3,133,750) is expected to be paid in within ten days after inspection of installation and the rest of 5%, $91,682 (RMB626,750) is expected to be paid one year after the inspection of installation. Heilongjiang Tianhong agreed to complete the installation within 90 days after Shaanxi Milkgoat provides to Heilongjiang Tianhong an appropriate construction site for the installation according to the Installation Agreement. The installation is estimated to be completed on August 2010.

F-42

YAYI INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FIVE MONTHS ENDED MARCH 31, 2010 AND 2009

16. Concentrations, Risks, and Uncertainties

The Company did not have any customer constituting greater than 10% of net sales for the five months ended March 31, 2010 and 2009.

The Company has not experienced any significant difficulty in collecting its accounts receivable in the past and is not aware of any financial difficulties being experienced by its major customers.

The Company has the following concentrations of business with suppliers constituting greater than 10% of the Company’s purchasing volume for the five months ended March 31, 2010 and 2009:

	Five months ended
	March 31,
	2010	2009

Lintong Hongxing Dairy Co., Ltd.	*	*
CPMC Holding (Tianjin) Limited	15.4%	*
Pacific Dairy Ingredients (Shanghai) Co., Ltd.	*	*

* Constitute less than 10% of the Company's purchasing volume.

As at March 31, 2010, amount due to CPMC Holding (Tianjin) Limited included in accounts payable was approximately $16,122.

17. Operating Risk

Interest rate risk

The interest rates and terms of repayment of bank and other borrowings are disclosed in Note 8 and Note 10. Other financial assets and liabilities do not have material interest rate risk.

Foreign currency risk

Most of the transactions of the Company were settled in Renminbi and U.S. dollars. In the opinion of the directors, the Company does not have significant foreign currency risk exposure.

Company’s operations are substantially in foreign countries

Substantially all of the Company’s products are processed in China. The Company’s operations are subject to various political, economic, and other risks and uncertainties inherent in China. Among other risks, the Company’s operations are subject to the risks of restrictions on transfer of funds; export duties, quotas, and embargoes; domestic and international customs and tariffs; changing taxation policies; foreign exchange restrictions; and political conditions and governmental regulations.

F-43

YAYI INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FIVE MONTHS ENDED MARCH 31, 2010 AND 2009

18. Earnings Per Share

Basic earnings per share are computed on the basis of the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed on the basis of the weighted average number of shares of common stock plus the effect of dilutive potential common shares outstanding during the period using the if-converted method for the convertible notes and the treasury stock method for warrants. The following table sets forth the computation of basic and diluted net income per share:

		Five months ended						Years ended
		March 31,						October 31,
		2010			2009			2009		2008
Net (loss) income available for common shareholders - basic	$	(1,602,795	)	$	2,175,164		$	5,395,981	$	1,825,217
Less: write-off of total debt discount on convertible debt since unamortized debt discount is written-off upon conversion		-			(167,578	)		-		(585,526	)
Less: write-off of total deferred financing costs on convertible debt since unamortized financing costs are written- off upon conversion		-			(43,167	)		-		(150,827	)
Add: Interest expense on convertible note		-			43,025			-		199,475
Net (loss) income available for common shareholders - diluted	$	(1,602,795	)	$	2,007,444		$	5,395,981	$	1,288,339

Weighted average outstanding shares of common stock		26,017,835			25,000,000			25,000,000		23,402,329
Dilutive effect of warrants		-			-			-		553,923
Dilutive effect of convertible notes		-			-			-		484,779
Diluted weighted average outstanding shares		26,017,835			25,000,000			25,000,000		24,441,031

Earnings per share:
Basic		(0.06	)		0.09			0.22		0.08

Diluted		(0.06	)		0.09			0.22		0.05

The Company reported a net loss for the five months ended March 31, 2010, common stock equivalents including convertible preferred stock and warrants were anti-dilutive; therefore, the amounts reported for basic and diluted loss per share are the same.

For the five months ended March 31, 2009, common stock equivalents including convertible preferred stock, convertible notes and warrants were anti-dilutive; therefore the amounts reported for basic and dilutive earning per share were the same.

For the year ended October 31, 2009, common stock equivalents including convertible preferred stock, convertible notes and warrants were anti-dilutive; therefore the amounts reported for basic and dilutive earning per share were the same.

F-44

YAYI INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FIVE MONTHS ENDED MARCH 31, 2010 AND 2009

19. Series A Redeemable Preferred Stock

Series A Redeemable Convertible Preferred Stock

On June 18, 2009, the Company entered into a series A preferred stock purchase agreement (the “Stock Purchase Agreement”) where it issued and sold to an accredited investor, SAIF Partners III L.P. (“SAIF”) 1,530,612 shares of the Company’s Series A Preferred Stock, par value $0.001 per share (the “Series A Redeemable Convertible Preferred Stock”) at a price per share of $9.80 for an aggregate purchase price of $15.0 million (the “Private Placement”). The Series A Redeemable Convertible Preferred Stock is convertible into the Company’s common stock, at the option of the holder at any time, at an initial conversion price at $0.98 per share, which conversion price is subject to stock split, recapitalization and other anti-dilution protection, as well as adjustments based on the Company’s financial performance.

In connection with the Private Placement, the Company filed a Certificate of Designation of Series A Redeemable Convertible Preferred Stock with the Secretary of State of the State of Delaware (the “Certificate”) on June 16, 2009, which became effective upon filing. Pursuant to the Certificate, there are 1,530,612 shares of Series A Redeemable Convertible Preferred Stock authorized.

Dividends and Liquidation Rights

The holders of the Series A Redeemable Convertible Preferred Stock are entitled to receive non-cumulative dividends prior and in preference to any declaration or payment of dividend on the Company’s common stock, at the rate of 10% of US$9.80 per share per annum, when, as and if declared by the Board. In the event of the Company’s Liquidation Event, as defined in the Certificate, the holders of the Series A Redeemable Convertible Preferred Stock will be entitled to receive, prior to any distribution to holders of the common stock, an amount per share equal to the sum of (i) $9.80 plus an annualized internal rate of return of 15% for the period from the issuance date of the Series A Redeemable Convertible Preferred Stock to the date when the full payment is made and (ii) an amount equal to all declared but unpaid dividends for each outstanding share of Series A Redeemable Convertible Preferred Stock, subject to stock split, stock dividend, recapitalization or other similar events as provided for in the Certificate.

Voting Rights

The holders of Series A Redeemable Convertible Preferred Stock have the right to one vote for each share of the Company’s common stock into which a share of Series A Redeemable Convertible Preferred Stock could then be converted. The holders of Series A Redeemable Convertible Preferred Stock have full voting rights and powers equal to the voting rights and powers of the holders of the Company’s common stock, and are entitled to notice of any stockholders’ meeting in accordance with the Bylaws of the Company and to vote, together with the holders of the Company’s common stock as a single class, with respect to any matter upon which holders of the Company’s common stock have the right to vote. In addition, as long as there are at least 15,306 shares of Series A Redeemable Convertible Preferred Stock outstanding, the Company may not, without the approval of the holders of at least two-thirds of the then outstanding shares of Series A Redeemable Convertible Preferred Stock voting together as a single class or the approval from at least one director elected by the holders of shares of Series A Redeemable Convertible Preferred Stock, take certain material corporate actions as provided for in the Certificate.

F-45

YAYI INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FIVE MONTHS ENDED MARCH 31, 2010 AND 2009

19. Series A Redeemable Preferred Stock - Continued

Redemption

At any time and from time to time after June 30, 2012, the holders of not less than a majority of the then outstanding Series A Redeemable Convertible Preferred Stock have the right to request the Company to redeem all of the then outstanding shares of Series A Redeemable Convertible Preferred Stock in cash, if the following qualified events has not occurred: (i) the Company’s shares of common stock or American Depository Shares representing shares of the common stock are listed on the New York Stock Exchange or the NASDAQ Global Market, and (ii) the closing market price of such listing securities represents a price of no less than $4.25 per share of common stock, subject to adjustment, in any consecutive 30-trading-day period. The per share redemption amount is equal to the sum of (i) the purchase price of $9.8 per share plus an internal rate of return of 25% for the period from the issuance date of the Series A Redeemable Convertible Preferred Stock to the redemption date, and (ii) an amount equal to all declared but unpaid dividends for each outstanding share of Series A Redeemable Convertible Preferred Stock. As of March 31, 2010, the aggregate redemption amount is $17,938,353 (1,530,612 shares x $9.8 x (1+25% / 365 days x 286 days)).

The Series A Redeemable Convertible Preferred Stock is not redeemable currently and it is not probable that it will become redeemable; therefore subsequent adjustment to the Series A Redeemable Convertible Preferred Stock’s redemption amount is not necessary until it is probable that the Series A Redeemable Convertible Preferred Stock will become redeemable. Based on management’s future projection of earnings per share and considering P/E ratio of similar companies in the dairy industry, management believes it is probable that the Company will be able to maintain a closing market price of no less than $4.25 per share of common stock for 30 consecutive trading days. In addition, the Company is currently working on complying with the NASDAQ listing requirements. The Company believes it is probable that the qualified events, as defined above, will occur. As such, it is not probable that the Series A Redeemable Convertible Preferred Stock will become redeemable and hence no accretion to redemption value was made.

In accordance with FASB’s accounting standard, the Series A Redeemable Convertible Preferred Stock is classified outside of permanent equity because the occurrence of the qualified events are not solely within the control of the Company. In accordance with FASB’s accounting standard, the issuance costs of $735,129 are netted against the Private Placement of the Series A Redeemable Convertible Preferred Stock.

20. Dividend Payable

On June 12, 2009, the former natural shareholders of Tianjin Yayi before Charleston acquired their interests on January 15, 2008 (“natural shareholders”), entered into a restructuring agreement whereby the natural shareholders, upon receipt of $4,461,608 (RMB30,500,000) of dividend payable from Charleston, will give an interest-free loan of the same amount to Tianjin Yayi.

The entire amount of dividend has been paid and lent to Tianjin Yayi by the natural shareholders. The amount owing to the natural shareholders who are also shareholders of the Company is included in due to related parties in the balance sheet (Note 10).

In connection with the restructuring agreement, the natural shareholders also agree to reinvest the money received of $4,461,608 (RMB30,500,000) in a subsidiary of Yayi International which will be confirmed as the Company works through relevant regulatory approval process.

As the first private placement subsequent to the date of the restructuring agreement has occurred, as of March 31, 2010, the restructuring process has been initiated.

F-46

YAYI INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FIVE MONTHS ENDED MARCH 31, 2010 AND 2009

21. Subsequent Event

Entry into a material definitive agreement

On April 30, 2010, the Company entered into a loan agreement with SAIF Partners III L.P. (“SAIF Partners”), pursuant to which the Company borrowed $3 million from SAIF Partners with an interest rate of twelve percent (12%) per annum. SAIF Partners currently owns 1,530,612 shares of the Company’s Series A Preferred Stock with par value $0.001 per share (the “Series A Preferred Stock”), which constitute all of the issued and outstanding Series A Preferred Stock of the Company. To secure repayment by the Company of the Loan, the Company’s major shareholder, Global Rock Stone Industrial Ltd (“Global Rock”) executed in favor of SAIF Partners a stock pledge agreement, pursuant to which Global Rock pledged 13,024,725 shares of common stock of the Company as security for the obligations of the Company under the Loan Agreement.

Adoption of Employee Stock Ownership Plan

On May 31, 2010, the Company adopted 2010 Employee Stock Option and Stock Award Plan (the “Plan”). Up to 2,359,974 shares of common stock of the Company, par value $0.001 per share may be issued under the Plan. This permits the grant of Nonqualified Stock Options, Restricted Stock, and Incentive Stock to employees, officers, directors, and consultants of the Company and its subsidiaries. The “Plan” became effective on May 31, 2010 when it was adopted by the Board of Directors but is subject to approval by the stockholders of the Company within twelve months after it.

The Company also entered into separate Yayi International Inc. 2010 Employee Stock Option and Stock Award Plan Award Agreements (the “Option Agreements”) with each of Ms. Jing Chen, the Company's Chief Financial Officer and Mr. Fung Shek, the Company's Vice President and Director. Under the terms of the Option Agreements, the Company agreed to grant a stock option, at an exercise price at $2.25 per share, to each of Ms. Chen and Mr. Shek for the purchase of 250,000 shares of Common Stock and 106,000 shares of Common Stock, respectively. According to the Option Agreements, 25% of the option granted to each of Ms. Chen and Mr. Shek will vest on the first anniversary of the grant date, and the balance will vest in equal quarterly installments over the next three years on the last day of each quarter, subject to Ms. Chen's and Mr. Shek's continuing employment with the Company through these dates.

On May 31, 2010, the company also entered into separate option agreements under the plan with certain non-executive employees, pursuant to which the company granted to these employees options to purchase an aggregate of 842,400 shares of common stock, at an exercise price of $2.25 per share. These options vest in tranches based on the vesting schedule but are contingent upon the performance goals established by the department manager.

These options have been valued at $1,918,059. The company uses the black-scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 90%, risk free interest rate of 3.31% and expected option life of ten years. The options expire ten years from the date of issuance.

On June 11, 2010, the Company entered into an Option Agreement under the Company’s Plan with Mr. Kenneth Lee. Under the terms of the Option Agreement, the Company granted a stock option, at an exercise price at $0.98 per share, to Mr. Lee for the purchase of 707,992 shares of common stock of the Company. According to the Option Agreement, the Option will fully vest after six months from the grant date. Pursuant to the employment arrangement between Mr. Lee and SAIF, Mr. Lee is deemed to hold such option for the benefit of SAIF.

Employment Agreement with CEO

On June 1, 2010, the Company's indirect, wholly-owned subsidiary, Tianjin Yayi Industrial Co. Ltd. entered into a supplemental employment agreement (the “Employment Agreement”) with Ms. Li Liu, the Company's CEO. The Employment Agreement provides that Ms. Liu's annual compensation will be $75,000 (RMB 510,000). The annual compensation will be paid pro rata monthly.

F-47

YAYI INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FIVE MONTHS ENDED MARCH 31, 2010 AND 2009

Entry into 4 loan agreements

On June 3, 2010, the Company entered into 3 loan agreements with Rural Cooperative Bank of Tianjin for $1,170,258 (RMB8,000,000) each. The annual interest rate is 5.8% and is due on June 2, 2011.

On June 3, 2010, the Company entered into a loan agreement with Rural Cooperative Bank of Tianjin for $877,693 (RMB6,000,000) each. The annual interest rate is 5.8% and is due on June 2, 2011.

F-48

EXHIBITS

Exhibit No.		Description

2.1		Agreement and Plan of Merger by and among Ardmore, Ardmore Acquisition Corp, Tryant LLC and Charleston Industrial Ltd. [incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on June 12, 2008].

3.1		Amended and Restated Certificate of Incorporation [incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q filed on September 22, 2008].

3.2		Bylaws of the Company adopted on February 21, 2008 [incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K/A-2 filed on April 10, 2008].

3.3		Certificate of Designation of Series A Preferred Stock, as filed with the Secretary of State of the State of Delaware, June 16, 2009 [incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on June 19, 2009].

4.1		Form of 8% Convertible Promissory Note [incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on June 12, 2008].

4.2		Form of Series A Warrant [incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on June 12, 2008].

4.3		Form of Series B Warrant [incorporated by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K filed on June 12, 2008].

4.4		Form of Series C Warrant [incorporated by reference to Exhibit 4.4 to the Company’s Current Report on Form 8-K filed on June 12, 2008].

4.5		Form of Series D Warrant [incorporated by reference to Exhibit 4.5 to the Company’s Quarterly Report on Form 10-Q filed on September 22, 2008].

4.6		Form of Series E Warrant [incorporated by reference to Exhibit 4.6 to the Company’s Quarterly Report on Form 10-Q filed on September 22, 2008].

4.7		Investor and Registration Rights Agreement, by and among Yayi International Inc., Global Rock Stone Industrial Ltd, Li Liu, Fung Shek and SAIF Partners III L.P., dated June 18, 2009 [incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on June 19, 2009].

10.1		Form of Amended and Restated Securities Purchase Agreement dated as of May 12, 2008, by and among Ardmore and the investors signatories thereto [incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 12, 2008].

10.2		Form of Registration Rights Agreement dated as of May 12, 2008 [incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on June 12, 2008].

10.3		Lease Contract of Premises between Tianjin Milk Goat Dairy Co., Ltd. and Tianjin Yayi Industrial Co., Ltd. (Translation) [incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on June 12, 2008].

10.4		Building Property Transfer Agreement between Tianjin Milk Goat Dairy Co., Ltd. and Tianjin Yayi Industrial Co, Ltd. (Translation) [incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on June 12, 2008].

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10.5	Project Construction Contract between Tainjin Yayi Industrial Co., Ltd. and the People’s Government of Linwei District, Weinan City [incorporated by reference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q filed on September 22, 2008].

10.6	Supplementary Agreement to the Project Construction Contract dated July 25, 2008 between Tianjin Yayi Industrial Co., Ltd. and the People’s Government of Linwei District, Weinan City [incorporated by reference to Exhibit 10.6 to the Company’s Quarterly Report on Form 10-Q filed on September 22, 2008].

10.7	Plant Transfer Contract dated September 26, 2008 between Tianjin Yayi and Tianjin Mengyang Biotechnology Co., Ltd. [incorporated by reference to Exhibit 10.7 to the Company’s Annual Report on Form 10-K filed on February 13, 2009].

10.8	Supplementary Agreement dated October 12, 2008 between Tianjin Yayi and Tianjin Mengyang Biotechnology Co., Ltd. to the House Property Transfer Contract dated January 15, 2007 [incorporated by reference to Exhibit 10.8 to the Company’s Annual Report on Form 10-K filed on February 13, 2009].

10.9	Supplementary Agreement dated January 20, 2009 between Tianjin Yayi and Tianjin Mengyang Biotechnology Co., Ltd. to the Plant Transfer Contract dated September 26, 2008 [incorporated by reference to Exhibit 10.9 to the Company’s Annual Report on Form 10-K filed on February 13, 2009].

10.10	Short Term Loan Agreement for RMB 10 million with Shanghai Pudong Development Bank “SPDB” [incorporated by reference to Exhibit 10.10 to the Company’s Quarterly Report on Form 10-Q filed on March 23, 2009].

10.11	Entrusted Loan Contract by and among SPDB, Tianjin Yayi Industrial Co., Ltd. and Tianjin Haitai Investment Guarantee Co., Ltd. [incorporated by reference to Exhibit 10.11 to the Company’s Quarterly Report on Form 10-Q filed on March 23, 2009]

10.12	Loan Contract between Tianjin Yayi Industrial Co., Ltd. and Tianjin Rural Cooperative Bank. [incorporated by reference to Exhibit 10.12 to the Company’s Quarterly Report on Form 10-Q filed on March 23, 2009]

10.13	Loan Contract for Operating Fund between Tianjin Yayi Industrial Co., Ltd. and Industrial & Commercial Bank of China. [incorporated by reference to Exhibit 10.13 to the Company’s Quarterly Report on Form 10-Q filed on March 23, 2009]

10.14	Short Term Loan Agreement for RMB 10 million with Shanghai Pudong Development Bank [incorporated by reference to Exhibit 10.10 to the Company’s Current Report on Form 8-K filed on April 8, 2009].

10.15	Series A Preferred Stock Purchase Agreement, by and among Yayi International Inc., Global Rock Stone Industrial Ltd, Charleston Industrial Ltd, Tianjin Yayi Industrial Co., Ltd., Li Liu, Fung Shek and SAIF Partners III L.P., dated June 18, 2009 [incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 19, 2009].

10.16	Voting Agreement, by and among Yayi International Inc., Global Rock Stone Industrial Ltd, Li Liu, Fung Shek and SAIF Partners III L.P., dated June 18, 2009 [incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on June 19, 2009].

10.17	Management Rights Agreement, by and between Yayi International Inc. and SAIF Partners III L.P., dated June 18, 2009 [incorporated by reference to Exhibit 10.3 to the Company’s CurrentReport on Form 8-K filed on June 19, 2009].

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10.18	Form of Indemnification Agreement [incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on June 19, 2009].

10.19	Termination and Release Agreement, by and among the Company, Global Rock and Allied Merit, dated July 8, 2009 [incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on July 14, 2009].

10.20	English Summary of Loan Agreement, by and between Tianjin Yayi and Rural Corporative Bank of Tianjin, dated May 22, 2009 [incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on September 14, 2009].

10.21	English Summary of Comprehensive Credit Agreement, by and between Tianjin Yayi and Rural Corporative Bank of Tianjin, dated July 3, 2009 [incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed on September 14, 2009].

10.22	English Translation of Zhuangli Construction Agreement, by and between Weinan Milkgoat and Zhuangli Construction Team, dated June 10, 2009 [incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q filed on September 14, 2009].

10.23	English Translation of Qinzheng Construction Agreement, by and between Weinan Milkgoat and Fuping County Qinzheng Construction Engineering Corporation, dated July 2, 2009 [incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q filed on September 14, 2009].

10.24	Project Installation Agreement, by and between Shaanxi Milkgoat and Heilongjiang Tianhong, dated October 28, 2009 [incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on November 3, 2009].

10.25	Form of Settlement Agreement, by and among the Company and the Investors, dated November 24, 2009 [incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 1, 2009].

10.26	English Translation of Employment Agreement, dated February 24, 2010, by and between Tianjin Yayi Industrial Co. Ltd. and Veronica Chen [incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on March 2, 2010].**

10.27	Loan Agreement, by and between the Company and SAIF Partners III L.P., dated April 30, 2010 [incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on May 6, 2010].

10.28	Yayi International Inc. 2010 Employee Stock Option and Stock Award Plan [incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on May 31, 2010].

10.29	Form of Yayi International Inc. 2010 Employee Stock Option and Stock Award Plan Award Agreement [incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on May 31, 2010].**

10.30	English Translation of Employment Agreement, dated June 1, 2010, by and between Tianjin Yayi Industrial Co. Ltd. and Li Liu [incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on May 31, 2010].**

10.31	English Translation of Licensing Agreement, dated April 10, 2001, by and among Tianjin Yayi and Taiwan Richlink.***

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10.32	English Translation of Supplemental Agreement, dated June 12, 2009, by and among Tianjin Yayi, Taiwan Richlink Enterprise Company Ltd. and Li Liu.***

10.33	English Translation of Supplemental Agreement, dated June 12, 2009, by and between Tianjin Yayi and Tianjin Mengyang.***

10.34	English Translation of Form of Loan Agreement, dated June 3, 2010, by and between Tianjin Yayi Industrial Co. Ltd. and Tianjin Rural Cooperative Bank, Kexin Branch.***

14	Code of Ethics and Business Conduct for Officers, Directors and Employees of the Company [incorporated by reference to Exhibit 14 to the Company’s Annual Report on Form 10-KSB filed on March 31, 2008]

21	Subsidiaries of the Company***

23.1	Consent of Morison Cogen LLP, Independent Registered Public Accounting Firm.*

31.1	Certification of Principal Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

31.2	Certification of Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

32.1	Certifications of Principal Executive Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

32.2	Certifications of Principal Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

* Filed herewith
** Represents management contract or compensatory plan or arrangement.
*** Filed with the Original Filing

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