UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION





WASHINGTON,
D.C. 20549









FORM
10-K





xANNUAL REPORT PURSUANT TO SECTION 13
OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934





For the
fiscal year ended     October 31,
2008





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





For the
transition period from  __________________to
__________________________________





Commission
file number   0-23806




Yayi International
Inc.









Delaware
              
              87-0046720State
      of other jurisdiction of
              
              (I.R.S.
      Employeeincorporation
      or organization
              
              Identification
      No.)





9
      Xing Guang Road, Zhing Bei Industrial ParkXi
      Qing District, Tianjin, China
                  
                  300384(Address
      of principal executive offices)
                  
                  (Zip
      Code)





Registrant’s
telephone number, including area
code:   +86-22-2798-4033





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





Securities
registered pursuant to Section 12(g) of the Act:





Common Stock(Title
      of class)





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    ̈





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 if disclosure of
delinquent fliers pursuant to Item 405 of Regulation S-K (§229.405 of this
chapter) 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. ̈









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





Large
      accelerated filer    ̈
              Accelerated
      filer   ̈Non-accelerated
      filer    ̈
              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





The
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the average bid and asked price of such
common equity, as of the last business day of the registrant’s most recently
completed second fiscal quarter was $9,872,627





As of
January 29, 2009, there were 25,000,000 shares outstanding of each of the
registrant’s common stock, the only class of its common stock
outstanding.





DOCUMENTS
INCORPORATED BY REFERENCE





NONE





TABLE OF
CONTENTS





Page No.Item 1.
                            Business
                            
                            1Item 2.
                            Properties
                            
                            17Item 3.
                            Legal Proceedings
                            
                            18Item 4.
                            Submission of Matters to a Vote of Security
      Holders
                            
                            18Item 5.
                            Market For Registrant’s Common Equity Related Stockholder
      Matters and Issuer Purchases of Equity Security
                            
                            19Item 6.
                            Selected Financial Data.
                            
                            19Item 7.
                            Management's Discussion and Analysis of Financial Condition
      and Results of Operations
                            
                            20Item 7A.
                            Quantitative and Qualitative Disclosures About Market
      Risk
                            
                            29Item 8.
                            Financial Statements and Supplementary
    Data
                            
                            29Item 9.
                            Changes in and Disagreements with Accountants on Accounting
      and Financial Disclosure.
                            
                            30Item 9A(T).
                            Controls and Procedures
                            
                            30Item 9B.
                            Other Information
                            
                            32Item 10.
                            Directors and Executive Officers
                            
                            32Item 11.
                            Executive Compensation
                            
                            34Item 12.
                            Security Ownership of Certain Beneficial Owners and
      Management and Related Stockholder Matters
                            
                            36Item 13.
                            Certain Relationships and Related
      Transactions
                            
                            36Item 14.
                            Principal Accountant Fees and Services
                            
                            37Item 15.
                            Exhibits and Financial Statement
    Schedules
                            
                            38










PART
I





Item 1.  Business





Background





We were organized in Delaware in 1986
under the name of Commercial Ventures Ltd.  The name was changed to
FIN U.S.A., Inc. in 1987,  and in 1993 to I/NET,
INC.  I/NET, developed and marketed computer software for mid range
computers.  In 2006 I/NET accepted an offer from Tryant, LLC for the
acquisition a significant stake in the Company. In connection therewith, the
business operations related to I/NET’s prior activities ended and it commenced
seeking other business opportunities.  On April 15, 2007, our name was
changed to Ardmore Holding Corporation and, in September 2008, following the
reverse subsidiary merger described below, our name was changed to Yayi
International Inc.





In June 2008, we entered into and
completed a series of transactions pursuant to which we, among other things, (i)
raised gross proceeds of $1.3 million from the sales of our convertible notes
and warrants and (ii) acquired, through a reverse subsidiary merger, Charleston
Industrial Co. Limited (“Charleston”).  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.  Tianjin Yayi
is a leading manufacturer and distributor of goat milk powder products in
China.  As a result of this reverse subsidiary merger, we became the
owner of Tianjin Yayi.  See notes 1 and 15 to our consolidated
financial statements for further information regarding the reverse merger, the
offering of our notes and warrants and the related transactions.





In August 2008, we acquired Fuping
Milkgoat Dairy Co., Ltd. (f/k/a Fuping Dongyang Dairy Co., Ltd.) for
approximately $620,000.  Fuping Milkgoat purchases raw goat milk and
processes it into powder.  See notes 1 and 4 to our consolidated
financial statements.





Summary





We are a leading manufacturer and
distributor of goat milk powder products in China.  We engage in the
processing, commercialization and distribution of a series of goat milk powder,
goat milk formula tablets, liquid goat milk and goat milk drinks throughout
China, and in particular in the Fujian, Hunan and Sichuan provinces, Shenzen
City and Shanghai.  We focus primarily on higher-priced premium infant
formula goat milk products, but our product lines include more affordable infant
formula goat milk products targeting the mass market and other goat milk
products targeted to the health-conscious consumer. We sell most of our products
primarily to distributors who resell the products to end customers through their
own distribution networks. Our distribution network serves approximately 3,600
retail outlets across China. Our sales, customer service and customer education
and distribution network has helped us build brand recognition and customer
loyalty in our primary markets.




- 1
-


Goat
Milk Products - Powder  and Liquid





We currently manufacture and distribute
powder and liquid goat milk products.  For our fiscal years ended
October 31, 2008 and 2007, powder products accounted for approximately 90% and
96% of net sales, respectively,  and liquid products accounted for
approximately 8% and 3% of net sales, respectively.  Sales of powdered
products began in Tianjin and Beijing during 2001 to 2003, in Southern China
during 2004 to 2006 and Northern China during 2006 through the
present.  Our powder products are sold throughout most of
China.  Sales of liquid products began in Tianjin in January 2007 and
in Beijing, Zhejiang and Fujian in March 2008.  We anticipate
gradually expanding the areas in which liquid products are
sold.  Powder products generally generate higher gross margins than
liquid products though we believe that over the long term, the sales volume of
our liquid products will be greater than powder products.





We sell approximately 23 different goat
milk powder products.  Our principal goat milk powder product lines
may generally be categorized as follows:





•             
Powders targeted to or formulated for infants aged 0 - 6 months old, babies 6 -
12 months old, toddlers from 1 - 3 years old, pre-schoolers from 3-7 years old
and children, teens and adolescents from 7-22 years old.  Generally,
powders targeted to age groups ranging from 0 to 7 years old represent between
60-70% of our net sales.





•             
Powders targeted to or formulated for pre-and post-natal women.





•             
Powders targeted to or formulated for those interested in maintaining general
health and well being, enhancing beauty, inducing restfulness and reducing eye
fatigue.


•             
Sugar-free goat milk powder targeted to or formulated for those who desire to
regulate their sugar intake.





•             
Powders targeted to or formulated for health conscious adults.





We also bottle and distribute
approximately seven different liquid goat milk products; these may generally be
categorized as targeted to (i) infants and babies and (ii) health conscious
consumers.





Most of our goat milk products are
formulated through the inclusion of supplements such as vitamins, calcium, iron,
selenium, chromium and omega-3 fatty acids, as needed to address the nutritional
or health needs of the consumer.




- 2
-




Supply





Our supply of goat milk comes from
Saanen dairy goats raised on individual and small-scale farms in Weinan City in
China’s Shaanxi Province.  This province is one of the three largest
goat milk producing areas in China; an area especially conducive to the
production of goat milk, with a reputation as one of the most fertile and
agriculturally rich regions in China in which to raise dairy
goats.  Saanen dairy goats are known for the quantity and quality of
milk they produce and usually yield the industry’s ideal of 3-4 percent milk
fat.  In fiscal 2008, approximately 18% of our goat milk requirements
were supplied by 18 small-scale farms (i.e., farms that generally
support flocks of between 100-200 goats), and approximately 82% of these
requirements were supplied by more than 4,000 individual farms (i.e., farms with flocks of
between 10-25 goats).  In fiscal 2008, we acquired an aggregate of
approximately 12,250 tons of raw goat milk, of which approximately 2,205 tons
was purchased from the 18 small scale farms and the balance was acquired from
the individual farms.  We have short-term supply arrangements with
local governmental and quasi-governmental authorities pursuant to which we
purchase all the milk produced by the small scale farms subject to that local
authority at a price negotiated from time to time by us and the individual
farm.  See “Purchase of Raw Material” in note 16 to our consolidated
financial statements.





We are not dependent on any single
supplier or group of suppliers for our raw milk supply.  No supplier
of raw goat milk accounted for more than five percent of our goat milk
requirements for the fiscal years ended October 31, 2008 and 2007.  We
believe that our relationships with our raw goat milk suppliers are satisfactory
and that alternative sources of supply are available to us on no less favorable
terms than are currently available.





Other materials used to produce
powdered and liquid milk include desalting whey powder, lactose, plant fat
powder, lactalbumin, whey protein concentrate, soybean lecithin, various vitamin
and mineral supplements and packaging materials.  During fiscal 2008,
LinTong Honxing Dairy Co., Ltd. accounted for  approximately 13% of
our purchasing volume and during fiscal 2007, each of Pacific Dairy Co., Ltd.
and LinTong Honxing accounted for 10% of our purchasing volume. We have not
experienced any significant difficulty in purchasing these or any other
materials.  We believe that alternative sources of supply are
available to us on no less favorable terms than are currently
available.





Processing





The raw goat milk is collected by hand
or machine and brought to a collection station.  There are
approximately 45 collection stations (eight of which are owned by
us)  distributed throughout Weinan County that are used to collect the
goat milk into refrigerated storage tanks, which are then delivered by
refrigerated vans to our processing plants.





The raw milk to be converted into a
powder is passed through a high pressure gauge, converting the milk into a fine
spray which, through the use of a high temperature fan, quickly dries the spray
into a powder.  The powder is then shipped to another processing
facility at which it is supplemented with various nutritional components and is
then packaged into various types of containers for distribution to our wholesale
distributors.





We have engaged two independent
processors to assist us in the processing of our raw goat milk into powder
products.  They provide, among other things,  production
facilities, offices, dormitories, equipment and personnel to assist in the
processing of raw goat milk into powder products.  These arrangements
expire in December 2009 - we believe that such arrangements can be renewed or
similar alternative arrangements obtained, if needed.  See “Process
Contracts” in note 16 of our consolidated financial statements.




- 3
-




Distribution





We use three independent trucking
contractors to distribute our products throughout China.   We
selected these trucking companies based on cost and efficiency.  We
believe that alternative shipping arrangements are available if required, on no
less favorable terms than are currently available.





Competition





The dairy industry in China is highly
competitive and we face substantial competition from both cow and goat milk
producers.





Cow milk accounts for more than 90% of
the milk consumed in China.  The principal producers and distributors
of cow milk are Inner Mongolia Yili Industrial Group Co., Ltd and Inner Mongolia
Meng Niu Dairy (Group) Co., Ltd.  We compete with cow milk based on
the potential nutritional advantages of goat milk.  Those advantages
include higher levels of proteins and vitamins (in particular, vitamins B1, B2 and C) and
ease of digestibility.  These factors make goat milk particularly
attractive for those interested in maintaining a healthy lifestyle and for use
by infants and other consumers sensitive to dairy products or allergic to cow
milk.  However, cow milk’s competitive advantages over goat milk
include more favorable pricing, easy availability, and greater market
acceptance.  This greater market acceptance is attributable to, among
other things, the historic association of goat milk with unfavorable smells, a
much larger supply of available cow milk, and the fact that goat
milk  has only recently developed as an alternative available to
consumers in China on a mass market basis.  We are working to improve
acceptance of goat milk through marketing efforts geared towards emphasizing its
nutritional advantages and its favorable taste and smell.





We also compete directly with China and
foreign-based goat milk manufacturers.  Our China based competitors
include Dalian Jiuyang, Shaanxi Red Star and Shaanxi Guanshan. We believe that
the principal competitive advantages in competing with our China-based
competitors are product recognition (including recognition based on quality
flavor and price), strong distribution relationships, established supply
sources, and quality.  Our foreign competitors include Karihome and
Mead Johnson.  We compete with our foreign competitors, and in
particular, the products sold by Mead Johnson principally through more favorable
pricing though we believe that the quality of our products  is
comparable to, if not superior to, the quality of our competitors’
products.





Intellectual
Property





In 2002, we registered in China the
trademark, “MeiKe GaoTe” (a transliteration of “Milk Goat” in Chinese) for use
with our liquid and powder products and the trademark,  “Yi Mei Shi”
for use with our powder products. The “Meike Gaote” mark is generally used for
all our products other than those formulated to provide a particular nutritional
or health benefit and the  “Yi Mei Shi” mark is used for those
products emphasizing a specific health or nutritional benefit.




- 4
-




We license the right to use goat odor
elimination technologies and are permitted to use these technologies with
respect to all of our products.  All payments required to be made by
us under this arrangement have been made and we are entitled to continue to use
these technologies after the expiration of the license. The license prohibits
us, with certain exceptions, from disclosing or transferring the
technology.  We believe that alternative odor elimination technologies
are available, if required, on terms reasonably acceptable to us.





Regulatory
Matters





We are regulated under national,
provincial and local laws in China. These regulations govern, among other
things, the manufacture and composition of products and ingredients, product
labeling and packaging (including the format and content of product labels
nutritional information), product safety and  specified manufacturing
practices (including mandating quality assurance programs).  Our
facilities are subject to inspection and licensing requirements and our trade
practices (including claims made with respect to product effectiveness of our
products) are regulated.





The
national, provincial and local governments have increased their oversight of the
production and distribution of dairy products in response to melamine
contamination of certain dairy products produced in China.  In
September 2008, our goat milk products were inspected by China's Administration
of Quality Supervision, Inspection and Quarantine (AQSIQ); AQSIQ determined that
such products are safe. We anticipate that we will incur additional expense in
complying with additional governmental regulation and oversight.  We
anticipate that we will generate additional net sales as consumers migrate to
dairy products processed by companies, such as Tianjin Yayi, with reputations
for producing quality products, though no assurance can be given in this
regard.





We believe that we comply in all
material respects with applicable rules and regulations.





Seasonality





While the consumption of goat milk is
not seasonal, goat milk production is seasonal because goats generally do not
produce milk from November through February.   During such
period, we generate sales of goat milk powder from our inventory that builds
during the period preceding such hiatus.





Employees





As of October 31, 2008, we had
approximately 708 employees. Of these, approximately 110 are managers, 493 are
salespeople, and 105 are general staff members. None of the employees is party
to a collective bargaining or similar agreement.  We believe our
relationship with our employees is satisfactory.




- 5
-




Research
and Development





For the years ended October 31, 2008
and 2007, we expended $113,309  and $93,689,  respectively,
with respect to research and development activities. Among other things, we
retain international experts to assist us in the composition of our various
formulated drinks.  We are in the process of developing
new  goat based products but do not anticipate that such products will
have a material impact in the near term on our results of
operations.





Item
1A   Risk Factors





You should consider carefully the
following factors and other information described in this Annual Report. The
risks and uncertainties described below are the principal risks facing our
company, but are not the only ones we face. Additional risks and uncertainties
that we do not presently know about or that we currently believe are immaterial
may also adversely impact our business operations. Negative consequences
associated with the following risks would likely cause our business, financial
condition or results of operations to suffer. In that case, the trading price of
our common stock could decline, and you could lose all or part of the money you
paid to buy our common stock.





Risks
to Our Business





We have a working capital deficit and
immediate cash and capital requirements.





As of October 31, 2008, we had a
working capital deficit of approximately $852,000.  While we believe
that cash flow from operations coupled with short term borrowings from
affiliated or unaffiliated third parties should be sufficient to address our
operating cash requirements, we have no committed sources of additional
financing, and there can be no assurance that any financing arrangements will be
available in amounts or on terms acceptable to us, if at all.





We plan on incurring significant
capital expenditures and may not have the resources to complete our
plan.





We plan on incurring capital
expenditures of approximately $26.9 million through fiscal 2011; as of October
31, 2008, we have committed to approximately $11 million in a capital purchase
obligations through fiscal 2011 in connection with our development
projects.  We currently anticipate that we will require external
financing of at least $15 million to fund these planned projects.  We
do not have any committed sources of financing for these planned and/or
committed capital expenditures and no assurance can give that the required funds
will be obtained.  If we are unable to obtain such funds, we may be
delayed or unable to grow our business, and may forfeit payments we have made in
connection with certain development initiatives. See “Item 2. Properties,” “Item
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations” and note 16 to our consolidated financial statements.




- 6
-




We depend on the national and local
governments to support our industry and us.





The government plays a significant role
in the economy in general  and, the dairy industry in
particular.  Governmental authorities provide support for the
development of the goat milk industry by, among other things, providing land,
space and equipment for goat farms, financing goat farms, waiving compliance
with otherwise applicable regulations, and reducing or eliminating tax
obligations.  Changes in governmental policies supportive of the
development of this industry or failure to maintain good relations with
governmental authorities may require us to incur expenses we are otherwise not
required to incur.  We may not have sufficient funds to pay such
additional expenses and even if we do, our profitability may be
reduced.





Recently discovered contamination of
milk powder products produced in China could result in negative publicity and
have a material adverse effect on our business.





Recently, a number of milk powder
products produced within China were found to contain unsafe levels of
tripolycyanamide, also known as melamine, sickening thousands of
infants.  This prompted the Chinese government to conduct a nationwide
investigation into how the milk powder was contaminated, and caused a worldwide
recall of certain milk powder products produced within
China.  Although we believe that the inevitable contraction in the
Chinese milk powder industry caused by this crisis will lead to increased demand
for our products, it is possible that the illnesses caused by contamination in
the milk powder industry may lead to a sustained decrease in demand for milk
powder products produced within China, thereby having a material adverse effect
on our business.  See “Item 1. Business-Regulatory
Matters.”




Our products may not achieve or
maintain market acceptance





We may have difficulty gaining market
acceptance for goat milk generally and our products in particular because cow
milk dominates the milk market in China, (constituting more than 90% of the milk
sold), the favorable pricing of cow milk compared to goat milk, and the historic
and long-term association of goat milk with unpleasant smells and
tastes.  As a result, achieving and maintaining market acceptance for
our products will require substantial marketing efforts and the expenditure of
significant funds to encourage consumption of goat milk in general, and the
purchase of our products in particular.  There is substantial risk
that the market may not accept or be receptive to our
products.  Market acceptance of our products will depend, in large
part upon our ability to inform potential customers that the distinctive
characteristics of our products make them superior to competitive products and
justify their pricing. Our products may not be accepted by consumers or be able
to compete effectively.




- 7
-




We depend on supplies of raw milk and
other raw materials, a shortage of which could result in reduced production and
sales revenues and/or increased production costs.





Raw goat milk is the primary raw
material we use to produce our products. We do not own our goats and depend on
small goat farms and individual goat farmers for our supply of raw goat milk. We
expect that we will need to continue to increase the number of farms and farmers
from which we source raw milk. If we are not able to maintain our relationships
with current suppliers and develop new sources of supply we will not be able to
meet our production goals and our sales will fall.  If we are forced
to expand our sources for raw milk, it may be more and more difficult for us to
maintain our quality control over the handling of the product in our supply and
manufacturing chain.  A decrease in the quality of our raw materials
would cause a decrease in the quality of our product and could damage our
reputation and cause sales to decrease.





Raw goat
milk production is, in turn, influenced by a number of factors that are beyond
our control including, but not limited to, the following:





•       
      seasonal factors: goats
generally do not produce milk from November through February; further goats
produce more milk in temperate weather than in cold or hot weather and extended
unseasonably cold or hot weather could lead to lower than expected production;
and





•            
 governmental
agricultural and environmental policy: declines in government grants,
subsidies, provision of land, technical assistance and other changes in
agricultural and environmental policies may have a negative effect on the
viability of individual and small farms, and the numbers of dairy cows and
quantities of milk they are able to produce.





Even if we are able to source
sufficient quantities of raw milk or our other raw materials to meet our needs,
downturns in the supply of such raw materials caused by one or more of these
factors could lead to increased raw material costs which we may not be able to
pass on to the consumers of our products, causing our profit margins to
decrease.





The milk business is highly competitive
and, therefore, we face substantial competition in connection with the marketing
and sale of our products.





We face competition from cow milk and
goat milk producers. Most of our competitors producing cow milk are well
established, have greater financial, marketing, personnel and other resources
than we have been in business for longer periods of time than we have, and have
products that have gained wide customer acceptance in the marketplace. The
greater financial resources of such competitors will permit them to procure
retail store shelf space and to implement extensive marketing and promotional
programs, both generally and in direct response to our advertising claims. The
milk industry is also characterized by the frequent introduction of new
products, accompanied by substantial promotional campaigns. We may be unable to
compete successfully or our competitors may develop products which have superior
qualities or gain wider market acceptance than ours.





We rely on third parties in the
processing of raw goat milk.





An important element of the processing
of our raw goat milk is the removal of unpleasant odors.  We have
licensed the technology to remove offensive smells. If for some reason this
technology becomes unavailable and we are unable to find replacement technology
on acceptable terms,  consumers will lose interest in our products and
our revenues and profits will suffer.




- 8
-




We are also dependent on two
independent contractors to assist us in the processing of raw goat
milk.  If such parties are unable or unwilling to provide such
services, or do not perform such services in a manner that satisfies applicable
quality and other standards, we could be adversely impacted.  See
“Item 1 Business-Processing” and “Process Contracts” in note 16 of our
consolidated financial statements.




The loss of any of our key executives
could cause an interruption of our business and an increase in our expenses if
we are forced to recruit a replacement; we have no key-man life insurance
covering these executives.




We are highly dependent on the services
of Li Liu, our Chairman and Chief Executive Officer and Feng Shek, our Vice
President. The loss of either of their services would have a material adverse
impact on our operations. We have not applied for key-man life insurance on
their lives and have no current plans to do so.




We have been dependent on our chief
executive officer to fund our working capital and capital expenditure
requirements.




Our chief executive officer, Li Liu,
has provided us with financing from time to time to fund our working capital and
capital expenditure requirements.  If she is unwilling or unable to
provide us with financing as and when needed on acceptable terms, we may be
required to find alternative sources of financing for such requirements. Our
inability to obtain alternative financing on acceptable terms would limit our
ability to generate revenue and may result in less profits.




Changing consumer preferences make
demand for our products unpredictable.




We are subject to changing consumer
preferences and nutritional and health-related concerns. Our business could be
affected by consumer concerns about dairy products, such as the fat,
cholesterol, calorie, sodium content or contamination of such
products.




Adverse medical research relating to
milk and demand for milk could decrease the demand for our products.
Periodically, medical and other studies are released and announcements by
medical and other groups are made which raise concerns over the healthfulness
of  milk in the human diet. A study may be published or an
announcement made concerning the healthfulness of milk which may result in a
decrease in demand for dairy products in China.




Possible volatility of raw milk costs
makes our operating results difficult to predict, and a steep cost increase
could cause our profits to diminish significantly.




The policy of China since the mid-1990s
has focused on moving the industry in a more market-oriented direction. These
reforms have resulted in the potential for greater price volatility relative to
past periods, as prices are more responsive to the fundamental supply and demand
aspects of the market. These changes in China’s dairy policy could increase the
risk of price volatility in the dairy industry, making our net income difficult
to predict. Also, if prices are allowed to escalate sharply, our costs will rise
which will lead to a decrease in profits.




- 9
-




We face the potential risk of product
liability associated with food products; Lack of general liability insurance
expose us to liability risks in the event of litigation against us.




We sell products for human consumption,
which involves risks such as product contamination or spoilage, product
tampering and other adulteration of our products. We may be subject to liability
if the consumption of any of our products causes injury, illness or death. In
addition, we may recall products in the event of contamination or damage. A
significant product liability judgment or a widespread product recall may
negatively impact our profitability for a period of time depending on product
availability, competitive reaction and consumer attitudes. Even if a product
liability claim is unsuccessful or is not fully pursued, the negative publicity
surrounding any assertion that our products caused illness or injury could
adversely affect our reputation with existing and potential customers and our
corporate and brand image. We would also have to incur defense costs, including
attorneys’ fees, even if a claim is unsuccessful. We do not have liability
insurance with respect to product liability claims. Any product liabilities
claims could have a material adverse effect on its business, operating results
and financial condition.




Our management has identified
weaknesses in our disclosure controls and in internal control over financial
reporting, which if not properly remediated could result in the failure to
disclose information on a timely basis and/or material misstatements in our
future interim and annual financial statements and have a material adverse
effect on our business, financial condition and results of operations and the
price of our common stock.




Our management is responsible for
establishing and maintaining adequate disclosure controls and internal control
over financial reporting.  Disclosure controls is a process generally
designed to, among other things, ensure  that material information
relating to us and our consolidated subsidiaries is made known to us by others
within the organization and that such information is made available to the
public, if required, on a timely basis.  Internal control over
financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements in accordance with U.S. generally accepted accounting
principles.




See “Item 9A(T). Controls and
Procedures” for a discussion of matters pertaining to deficiencies in our
disclosure controls and internal controls over financial reporting.




Although we are in the process of
implementing initiatives aimed at addressing these deficiencies, these
initiatives may not remediate the inadequacy. Failure to achieve and maintain an
effective disclosure and/or internal control environment could result in us not
being able to accurately report our financial results, prevent or detect fraud
or provide timely and reliable financial and other information pursuant to the
reporting obligations we have as a public company, which could have a material
adverse effect on our business, financial condition and results of operations.
Further, it could cause our investors to lose confidence in the information we
report, which could adversely affect the price of our common stock.




- 10
-




Risks
Related to Doing Business in China




Changes in China’s political or
economic situation could harm us and our operational results.




Economic reforms which have been
adopted by the Chinese government could change at any time.  Because
many reforms are unprecedented or experimental, they are expected to be refined
and adjusted. Other political, economic and social factors, such as political
changes, changes in the rates of economic growth, unemployment or inflation, or
in the disparities in per capita wealth between regions within China, could lead
to further readjustment of the reform measures. This refining and readjustment
process may negatively affect our operations  This could damage our
operations and profitability. Some of the things that could have this effect
are:




•
            level
      of government involvement in the
economy;




•
            control
      of foreign exchange;




•
            methods
      of allocating resources;




•
            balance
      of payments position;




•
            international
      trade restrictions; or




•
            international
      conflict.




The Chinese economy differs from the
economies of most countries belonging to the Organization for Economic
Cooperation and Development, or OECD, in many ways. As a result of these
differences, we may not develop in the same way or at the same rate as might be
expected if the Chinese economy were similar to those of the OECD member
countries.  It is possible that the Chinese government may abandon its
reforms all together and return to a more nationalized economy. Negative impact
upon economic reform policies or nationalization could result in a total
investment loss in our common stock.




Changes in the interpretations of
existing laws and the enactment of new laws may negatively impact our business
and results of operation.




There are substantial uncertainties
regarding the application of Chinese laws, especially with respect to existing
and future foreign investments in China. The Chinese legal system is a civil law
system based on written statutes. Unlike common law systems, it is a system in
which precedents set in earlier legal cases are not generally used. Laws and
regulations effecting foreign invested enterprises in China have only recently
been enacted and are evolving rapidly, and their interpretation and enforcement
involve uncertainties. Changes in existing laws or new interpretations of such
laws may have a significant impact on our methods and costs of doing business.
For example, new legislative proposals for product pricing, approval criteria
and manufacturing requirements may be proposed and adopted. Such new legislation
or regulatory requirements may have a material adverse effect on our financial
condition, results of operations or cash flows. In addition, we will be subject
to varying degrees of regulation and licensing by governmental agencies in The
Peoples Republic of China. Future regulatory, judicial and legislative changes
could have a material adverse effect on our Chinese operating
subsidiaries.  Regulators or third parties may raise material issues
with regard to our Chinese subsidiaries or our compliance or non-compliance with
applicable laws or regulations or changes in applicable laws or regulations may
have a material adverse effect on our operations. Because of the evolving nature
in the law, it will be difficult for us to manage and plan for changes that may
arise.




- 11
-




It will be difficult for our
shareholder to commence a legal action against our
executives.  Enforcing judgments won against them or us will be
difficult.




All of
our officers and directors reside outside of the United States. As a result, it
will be difficult, if not impossible, to acquire jurisdiction over those persons
in a lawsuit against any of them, including with respect to matters arising
under U.S. federal securities laws or applicable state securities
laws.  Because the majority of our assets are located in The People’s
Republic of China, it would also be extremely difficult to access those assets
to satisfy an award entered against us in United States court. Moreover, we have
been advised that the PRC does not have treaties with the United States
providing for the reciprocal recognition and enforcement of judgments of
courts.




Future inflation in China may inhibit
our ability to conduct business in China.




In recent years, the Chinese economy
has experienced periods of rapid expansion and high rates of inflation. During
the past ten years, the rate of inflation in China has been as high as 20.7% and
as low as 2.2%. These factors have led to the adoption by the Chinese
government, from time to time, of various corrective measures designed to
restrict the availability of credit or regulate growth and contain inflation.
High inflation may in the future cause the Chinese government to impose controls
on credit and/or prices, or to take other action, which could inhibit economic
activity in China, which could harm the market for our products and adversely
effect our operations and business.




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




The PRC historically has been deficient
in western-style management and financial reporting concepts and practices, as
well as in modern banking, computer and other control systems. We may have
difficulty in hiring and retaining a sufficient number of qualified employees to
work in the PRC. As a result of these factors, we may experience difficulty in
establishing management, legal and financial controls, collecting financial data
and preparing financial statements, books of account and corporate records and
instituting business practices that meet western standards.  If we are
not able to maintain adequate controls our financial statements may not properly
represent our financial condition, results of operation or cash
flows.  Weakness in our controls could also delay disclosure of
information to the public which is material to an investment decision with
respect to our stock.




- 12
-




Fluctuations in the exchange rate
between the Chinese currency and the United States dollar could adversely affect
our operating results.




The functional currency of our
operations in China is "Renminbi," or RMB. However, results of our operations
are translated at average exchange rates into United States dollars for purposes
of reporting results. As a result, fluctuations in exchange rates may adversely
affect our expenses and results of operations as well as the value of our assets
and liabilities. Fluctuations may adversely affect the comparability of
period-to-period results.  We currently do not use hedging techniques,
and even if in the future we do, we may not be able to eliminate the effects of
currency fluctuations. Thus, exchange rate fluctuations could cause our profits
to decline, which, in turn, may cause our stock prices, to decline.




Extensive regulation of the food
processing and distribution industry in China could increase our expenses
resulting in reduced profits.




We are subject to extensive regulation
by China's Agricultural Ministry, and by other county and local authorities in
jurisdictions in which our products are processed or sold, regarding the
processing, packaging, storage, distribution and labeling of our products.
Applicable laws and regulations governing our products may include nutritional
labeling and serving size requirements. Our processing facilities and products
are subject to periodic inspection by national, county and local authorities. To
the extent that new regulations are adopted, we will be required to conform our
activities in order to comply with such regulations. Our failure to comply with
applicable laws and regulations could subject us to civil remedies, including
fines, injunctions, recalls or seizures, as well as potential criminal
sanctions, which could have a material adverse effect on our business,
operations and finances.




Limited and uncertain trademark
protection in China makes the ownership and use of our trademark
uncertain.




We have obtained trademark
registrations for the use of certain trademarks. We believe that certain of
these trademarks are important to the establishment of consumer recognition of
our products. However, due to uncertainties in Chinese trademark law, the
protection afforded by our trademarks  may be less than we currently
expect and may, in fact, be insufficient. Moreover even if it is sufficient, in
the event it is challenged or infringed, we may not have the financial resources
to defend it against any challenge or infringement and such defense could in any
event be unsuccessful. Moreover, any events or conditions that negatively impact
our trademark could have a material adverse effect on our business, operations
and finances.




Our lack of patent protection could
permit our competitors to copy our trade secrets and formulae and thus gain a
competitive advantage.




We do not have patents covering our
products or production processes, and we expect to rely principally on know-how
and the confidentiality of our formula and production processes for our products
and our flavoring formula in producing competitive product lines. Any breach of
confidentiality by our executives or employees having access to our formulae
could result in our competitors gaining access to such formulae. The ensuing
competitive disadvantage could reduce our revenues and our profits.




- 13
-




Risks
Relating to the Market for Our Common Stock





The concentration of our stock
ownership may have the effect of delaying, preventing, or deterring a change of
control.





The ownership of our stock is
concentrated in one shareholder, Global Rock Stone Industrial Ltd., a British
Virgin Island limited liability company which beneficially owns more than 60% of
our outstanding common stock. Global Rock is controlled by Li Liu and Feng Shek,
our executive offers and two of our three directors.  Accordingly,
this stockholder or these individuals are able to control all matters requiring
the approval of our board of directors or stockholders, including the
compensation of management, the election of directors and approval of mergers
and other significant corporate transactions. This may deter third parties from
acquiring us, thereby depriving our other stockholders of an opportunity to
receive a premium for their shares as part of a sale of the Company;
concentration of ownership may also adversely affect the market price of our
common stock.





Because
we became public by means of a reverse merger, we may not be able to attract the
attention of major brokerage firms.





There may
be risks associated with our becoming public through a “reverse
merger.”  Because of our merger, we could be exposed to undisclosed
liabilities resulting from our operations prior to the merger and we could incur
losses, damages or other costs as a result.  In addition, securities
analysts of major brokerage firms may not provide coverage of us since there is
no incentive to brokerage firms to recommend the purchase of our common stock.
Brokerage firms may not want to conduct any secondary offerings on our behalf in
the future.




There
is currently no liquid trading market for our common stock and one may never
develop or be sustained.   Stockholders may not be able to
liquidate their investment at all, or may only be able to liquidate the
investment at a price less than our company’s value.





There is
currently no liquid trading market for our common stock and one may never
develop.  As a result, the price if traded may not reflect our value.
Consequently, investors may not be able to liquidate their investment at all, or
if they are able to liquidate it may only be at a price that does not reflect
the value of our business.  Because the price for our stock is low,
many brokerage firms may not be willing to effect transactions in the
securities. Even if an investor finds a broker willing to effect a transaction
in our stock, the combination of brokerage commissions, transfer fees, taxes, if
any, and any other selling costs may exceed the selling price. Further, many
lending institutions will not permit the use of common stock like ours as
collateral for any loans.  Even if a more active market should
develop, the price may be highly volatile. Our common stock is currently
approved for quotation on the OTC Bulletin Board.  We do not satisfy
the initial listing standards of either the American Stock Exchange, the New
York Stock Exchange or the Nasdaq Capital Market.  If we never are
able to satisfy any of those listing standards our common stock will never be
listed on an exchange.  As a result, the trading price of our stock
may be lower than if we were listed on an exchange. Our stock may be subject to
increased volatility.  When a stock is thinly traded, a trade of a
large block of shares can lead to a dramatic fluctuation in the share
price.




- 14
-




Our stock price may be volatile in
response to market and other factors.





The
market price for our stock after the merger may become volatile and subject to
price and volume fluctuations in response to market and other factors, including
the following, some of which are beyond our control:





·
            the
      increased concentration of the ownership of our shares by a limited number
      of affiliated stockholders following the merger may limit interest in our
      securities;




·
            variations
      in quarterly operating results from the expectations of securities
      analysts or investors;




·
            revisions
      in securities analysts’ estimates or reductions in security analysts’
      coverage;




·
            announcements
      of technological innovations or new products or services by us or our
      competitors;




·
            reductions
      in the market share of our
products;




·
            announcements
      by us or our competitors of significant acquisitions, strategic
      partnerships, joint ventures or capital
  commitments;




·
            general
      technological, market or economic
trends;




·
            volatility
      in our results of operations;




·
            investor
      perception of our industry or
prospects;




·
            insider
      selling or buying;




·
            investors
      entering into short sale contracts;




·
            regulatory
      developments affecting our industry;
and




·
            additions
      or departures of key personnel.




- 15
-




“Penny Stock” rules may make buying or
selling our Common Stock difficult.





Trading
in our Common Stock is subject to the “penny stock” rules. The Securities and
Exchange Commission, or SEC, has adopted regulations that generally define a
penny stock to be any equity security that has a market price of less than $5.00
per share, subject to certain exceptions. These rules require that any
broker-dealer that recommends our Common Stock to persons other than prior
customers and accredited investors, must, prior to the sale, make a special
written suitability determination for the purchaser and receive the purchaser’s
written agreement to execute the transaction. Unless an exception is available,
the regulations require the delivery, prior to any transaction involving a penny
stock, of a disclosure schedule explaining the penny stock market and the risks
associated with trading in the penny stock market. In addition, broker-dealers
must disclose commissions payable to both the broker-dealer and the registered
representative and current quotations for the securities they offer. The
additional burdens imposed upon broker-dealers by such requirements may
discourage broker-dealers from effecting transactions in our Common Stock, which
could severely limit the market price and liquidity of our Common
Stock.




We have the right to issue up to
10,000,000 shares of "blank check" preferred stock, which may adversely affect
the voting power of the holders of other of our securities and may deter hostile
takeovers or delay changes in management control.





Our
certificate of incorporation provides that we may issue up to 10,000,000 shares
of preferred stock from time to time in one or more series, and with such
rights, preferences and designations as our board of directors may determinate
from time to time. Our board of directors, without further approval of our
common stockholders, is authorized to fix the dividend rights and terms,
conversion rights, voting rights, redemption rights, liquidation preferences and
other rights and restrictions relating to any series of our preferred stock.
Issuances of shares of preferred stock could, among other things, adversely
affect the voting power of the holders of other of our securities and may, under
certain circumstances, have the effect of deterring hostile takeovers or
delaying changes in management control.  Such an issuance would dilute
existing stockholders, and the securities issued could have rights, preferences
and designations superior to our Common Stock.





Because we do not intend to pay any
dividends, stockholders must rely on stock appreciation for any return on their
investment in our common stock.





We have not paid any dividends on our
common stock and we do not intend to declare and pay any dividends on our common
stock. Earnings, if any, are expected to be retained by us to finance and expand
our business.





Item
1B.  Unresolved Staff Comments.





Not applicable to smaller reporting
companies.




- 16
-




Item 2. Properties





Under Chinese law, the government owns
all of the land in the PRC and companies and individuals are authorized to use
the land only through land use rights granted by the PRC government.




We own or lease the following
manufacturing and production facilities.  (For additional information
about our leased facilities, see “Process Contracts” in note 16 of our
consolidated financial statements):





·
            we
      own a facility located in Fuping County of Shaanxi Province capable of
      spray drying 40 metric tons  of raw milk per
  day.





·
            our
      wholly owned facility located in the XiQing District of Tianjin
      City,  which is, on the basis of a daily double shift, capable
      of combining and formulating the milk powder with the nutritional
      supplements and then packaging the end product at a rate of five metric
      tons per day.





·
            a
      spray drying facility in YanLiang District, Xian City, Shaanxi Province,
      with a capacity of 80 metric tons per day, pursuant to a lease that
      terminates in December 2009.





·
            a
      liquid milk production line in the Hexi District of Tianjin City, with a
      capacity of 20 metric tons per day, pursuant to a lease that terminates in
      December, 2009.





Currently, we have one production
line  for can-packed milk powder, which is able to produce 2,000 tons
of milk powder per year.  We also own a production line for box-packed
milk powder, which has the production capacity of 500 metric tons per
year.  These production lines are located at our XiQing
facility.





We also have approximately 18 sales
offices located throughout China; these offices assist in coordinating,
developing, and maintaining relationships with our distributors and
retailers.  The number of such offices fluctuates from time to time
based on our assessment of our marketing and sales requirements.  The
leases for the sales offices are generally on an annual basis.





Our current administrative, processing
and warehousing facilities are insufficient for our needs. Accordingly, we have
entered into a number of agreements and arrangements to expand our facilities
which are summarized below.





We and Tianjin Mengyang entered into an
agreement in January 2007, subsequently amended, pursuant to which they would
renovate and we would acquire a four-story office building, located in Tianjin
City, which would serve as our executive, sales and administrative
headquarters.  The renovation, which was delayed, is now expected to
be completed in May 2009.




- 17
-




We had, in January 2007, entered into a
factory and warehouse leasing agreement with Tianjin Mengyang pursuant to which
we were to lease through 2029 an approximately 30,000 square meter factory and
warehouse that was to be built in Tianjin City, China.  In September
2008, this agreement was cancelled and in lieu thereof, the parties entered into
a new agreement, subsequently amended, pursuant to which we have agreed to
acquire facilities which are to be converted into three warehouses and a
processing facility. In addition to the payments to be made to Tianjin Mengyang
in connection with this agreement, we anticipate that we will require
approximately $6 million to equip such facility to perform the contemplated
functions.  These facilities are to be completed by December
2009.





In July 2008, we entered into an
agreement, subsequently amended, with the government of Lin Wei District of
Weinan City (the “Weinan City Government”) pursuant to which we are to build a
goat milk processing facility in the Government’s industrial park.  It
is anticipated that initially such facility will be capable of spray drying 200
metric tons of raw goat milk per day and that at a later stage, such facility
may be expanded as requirements dictate.  We are to commence
construction of this facility by March 2009 and are to pay the Weinan City
Government an aggregate of approximately $1 million for the transfer of the land
use rights related to such facility, of which approximately $147,000 has been
paid and the balance is to be paid before construction begins.  In
addition to the payments to be made to the Weinan City Government, it is
estimated that this project will cost approximately $19 million (approximately
$11.7 million of fixed asset investment and approximately $7.4 million in
working capital when such facility commences operations) and that such facility
will commence operations in November 2010.





See “Item 7. Managements’ Discussion
and Analysis of Financial Condition and Results of Operations” and notes 8 and
16 of our consolidated financial statements for additional information regarding
(i) advances and loans to Tianjin Mengyang and (ii) our properties and proposed
expansion and development activities.





Item 3. Legal Proceedings





We are not presently subject to any
material litigation, and, to our knowledge, there are no material litigations
presently threatened against us.





Item 4.  Submission of Matters to a Vote of Security
Holders.





The information called for by this item
was previously reported in our Quarterly Report on Form 10-Q for the period
ended July 31, 2008.




- 18
-




PART II





Item 5.  Market For Registrant’s Common Equity Related
Stockholder Matters and Issuer Purchases of Equity Security





Our common stock has been listed
on the OTCBB since September 26, 2007.  The current ticker symbol for
the common stock is "YYIN". The approximate high and low bid prices for the
fiscal years ended October 31, 2008 and 2007 are summarized by quarter
below:





High
                                        
                                        
                                        Low2008November
      1, 2007- January 31, 2008
                                        
                                        $
                                        1.10
                                        
                                        
                                        $
                                        1.10February
      1, 2008-April 30, 2008
                                        
                                        
                                        1.10
                                        
                                        
                                        
                                        1.10May
      1, 2008-July 31, 2008
                                        
                                        
                                        1.60
                                        
                                        
                                        
                                        1.10August
      1, 2008-October 31, 2008
                                        
                                        
                                        3.60
                                        
                                        
                                        
                                        1.252007November
      1, 2006- January 31, 2007
                                        
                                        $
                                        0.02
                                        
                                        
                                        $
                                        0.01February
      1, 2007-April 30, 2007
                                        
                                        
                                        0.01
                                        
                                        
                                        
                                        0.01May
      1, 2007-July 31, 2007
                                        
                                        
                                        1.20
                                        
                                        
                                        
                                        0.01August
      1, 2007-October 31, 2007
                                        
                                        
                                        1.15
                                        
                                        
                                        
                                        1.10





The above quotations, as provided by
the Yahoo Finance website, represent prices between dealers and do not include
retail markup, markdown or commission. In addition, these quotations do not
represent actual transactions.





As of January 26, 2009, our common
stock was held of record by approximately 374 shareholders. This number does not
include beneficial owners of common stock whose shares are held in the names of
various dealers, clearing agencies, banks, brokers and other
fiduciaries




Dividends





We have not paid any cash dividends to
date and it is the present intention of management to use all available funds
for the development of our business. Further, the ability of our cash generating
subsidiaries to distribute funds to our parent corporation, Yayi International
Inc., and its ability,  in turn, to make distributions to our
stockholders, is limited by PRC law which, among other things, imposes
restrictions on our subsidiaries’ ability to distribute funds outside of China
and further requires that such subsidiaries maintain certain statutory
reserves.  See note 2 to our consolidated financials
statements.  Accordingly, we do not anticipate paying dividends in the
foreseeable future.





Item 6.  Selected Financial Data.





Not applicable to smaller reporting
companies.




- 19
-




Item 7.  Management's Discussion and Analysis of Financial
Condition and Results of Operations





THE FOLLOWING DISCUSSION SHOULD BE READ
TOGETHER WITH OUR CONSOLIDATED FINANCIAL STATEMENTS AND NOTES
THERETO.





This Annual Report on Form 10-K
contains forward-looking statements, within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act and the Private Securities
Litigation Reform Act of 1995, including statements regarding our expected
financial position, business and financing plans. To the extent that any
statements made in this report contain information that is not historical, these
statements are essentially forward-looking. Forward-looking statements can be
identified by the use of words such as “expects,” “plans,” “will,” “may,”
“anticipates,” believes,” “should,” “intends,” “estimates,” and other words of
similar meaning. These statements are subject to risks and uncertainties that
cannot be predicted or quantified and, consequently, actual results may differ
materially from those expressed or implied by such forward-looking statements.
Such risks and uncertainties are outlined in “Item 1A.   Risk
Factors.” We do not undertake any obligation to publicly update any
forward-looking statements. As a result, investors should not place undue
reliance on these forward-looking statements.





Information regarding market and
industry statistics contained in this Annual Report on Form 10-K is included
based on information available to us that we believe is accurate. We have not
reviewed or included data from all sources, and cannot assure investors of the
accuracy or completeness of the data included in this Annual Report on Form
10-K. Forecasts and other forward-looking information obtained from these
sources are subject to the same qualifications and the additional uncertainties
accompanying any estimates of future market size, revenue and market acceptance
of products and services. We do not undertake any obligation to publicly update
any forward-looking statements. As a result, investors should not place undue
reliance on these forward-looking statements.





The following discussion reflects
management's analysis of our operating history for us and our consolidated
subsidiaries for the fiscal years ended October 31, 2008  and 2007. As
such, the discussion only represents management's current assessment of the
operations of the business. There can be no implication that the results
discussed herein will necessarily continue into the future, or that any of the
conclusions expressed below will necessarily be indicative of actual operating
results in the future.




Overview





We engage in the processing,
commercialization and distribution of a series of goat milk formula powder, goat
milk tablets, liquid goat milk and goat milk drinks throughout China. Our
principal brand under which products are sold is MeiKe GaoTe. We are focused
primarily on higher-priced premium infant formula.  However, our goat
milk product line also includes more affordable infant formula products,
targeting the mass market, and other goat milk products that target the
health-conscious consumer. We sell substantially all of our products in China,
primarily using distributors who resell the products through their own
distribution networks, typically composed of sub-distributors and retail
outlets,




- 20
-




Our distribution network serves
approximately 3,600 retail outlets across China. Our sales, customer service and
education and distribution network has helped us build brand recognition and
customer loyalty in the primary markets where we concentrated our sales and
marketing efforts.


- 21
-


Strategy





The Chinese government has initiated
programs to promote milk consumption and is providing incentives to increase
dairy production. Today, the Chinese dairy market is a $13 billion industry and
is expected to grow at a rate of 15% per year for the next few
years.





We believe that Chinese consumers’
consumption power is increasing. Accordingly, while we serve the lower and
middle tier markets we are focused on (i) premium products which we believe
generate greater sales volume (as measured by currency) and higher gross margins
and (ii) regions in which we believe we can generate a better return on our
investment.  Though we currently distribute our goat milk powder
products throughout most of China, our efforts are focused on Shanghai, Fujian
Province, Hunan Province, Sichuan Province and Shenzhen.





Currently, we are primarily selling
goat milk powder products, popularizing liquid goat milk products, conducting
small-scale tests for goat milk yogurt products, and exploring the development
goat milk cheese products. When we believe the market for our goat milk liquid
and powder products is mature, we intend to launch our goat milk yogurt and then
goat milk cheese products. Currently, we are also trying to launch some goat
milk tea products and goat milk cornmeal.





We are also, as described under
“-Liquidity and Capital Resources” engaged in expanding our administrative,
processing and warehousing facilities.  See also “Item 2.
Properties”.





Critical
Accounting Policies and Estimates





We prepare our financial statement in
accordance with generally accepted accounting principles in the United States,
which requires us to make estimates and assumptions that affect the reported
amounts of our assets and liabilities, to disclose contingent assets and
liabilities on the date of the financial statements, and to disclose the
reported amounts of revenues and expenses incurred during the financial
reporting period. We continue to evaluate these estimates and assumptions that
we believe to be reasonable under the circumstances. We rely on these
evaluations as the basis for making judgments about the carrying values of
assets and liabilities that are not readily apparent from other sources. Since
the use of estimates is an integral component of the financial reporting
process, actual results could differ from those estimates. Some of our
accounting policies require higher degrees of judgment than others in their
application.





Revenue
Recognition





Our revenue is generated from sales of
goat milk powder and liquid products, and is recognized when all of the
following criteria are met:





 ̈ The
amount of revenue can be measured reliably;


 ̈ It is
probable that the economic benefits associated with the transaction will flow to
the enterprise;




- 22
-




 ̈ The
costs incurred or to be incurred in respect of the transaction can be measured
reliably; and


 ̈
Collectability is reasonably assured.





We recognize 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. We are subject to VAT
which is levied on the majority of our products at the rate of 17% on the
invoiced value of sales. In addition to the invoiced value of sales, output VAT
is borne by customers.  In addition to the invoiced value of
purchases, input VAT is borne by us to the extent the tax is not refunded for
export sales. Input VAT paid is recoverable from output VAT charged to
customers.





Fair
Value of Financial Instruments





Our financial instruments include
restricted cash, accounts receivable, due from related parties, other
receivables, other payables and accrued liabilities, short-term loans, other
current liabilities and deferred taxes.  Due to their short-term
nature, the estimated fair value of the carrying amount is an approximation. The
fair value of our long-term loans is estimated based on the current rates
offered to us for debt of similar terms and maturities.





Impairment
of Long-Lived Assets





We periodically review the carrying
amounts of long-lived assets including property, plant and equipment and
long-term investment with finite useful lives or beneficial periods, to assess
whether they are impaired. We evaluate these assets for impairment whenever
events or changes in circumstances, such as a change of business plan or a
period of continuous losses, indicate that their carrying amounts may not be
recoverable.





Recoverability of assets to be held and
used is measured by a comparison of the carrying amount of an asset to the
estimated undiscounted future cash flows expected to be generated by the asset.
If the carrying amount of an asset exceeds its projected future cash flows, an
impairment charge is recognized by the amount by which the carrying amount of
the asset exceeds the fair value of the assets. In determining estimates of
future cash flows, significant judgment in terms of projection of future cash
flows and assumptions is required. We are not aware of any events or
circumstances that indicate the existence of impairment which would be material
to our financial statements.





Contingencies





In the normal course of business, we
are subject to contingencies, including legal proceedings and claims arising out
of business that relates to a wide range of matters. If we determine that it is
probable that a loss has been incurred and a reasonable estimate of the loss can
be made, we recognize a liability for such contingency. We may consider many
factors in making these assessments, including past history and the specifics of
each matter.




- 23
-




Results
of operations for the fiscal year ended October 31, 2008 and 2007





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 corresponding
period.





Fiscal Year
                      ended October 31,2008
                    
                    
                    2007
                    
                    
                    Change
                    
                    
                    VarianceNet
      sales
                    
                    $
                    21,791,268
                    
                    
                    $
                    14,283,730
                    
                    
                    $
                    7,507,538
                    
                    
                    
                    53
                    %Cost
      of goods sold
                    
                    
                    7,600,454
                    
                    
                    
                    5,008,788
                    
                    
                    
                    2,591,665
                    
                    
                    
                    52
                    %Gross
      profit
                    
                    
                    14,190,814
                    
                    
                    
                    9,274,942
                    
                    
                    
                    4,915,872
                    
                    
                    
                    53
                    %Operating
      expenses
                    
                    
                    6,309,113
                    
                    
                    
                    4,889,288
                    
                    
                    
                    1,419,825
                    
                    
                    
                    29
                    %





Net sales for fiscal 2008 increased by
approximately 53% from fiscal 2007. The increase is attributable to an increase
of approximately 111% in the volume of products sold which was partially offset
by a decrease of approximately 11% in the weighted average price at which
products were sold.  The volume of products sold increased because of
the price reductions for certain of our non-premium products, our increased
promotional activities at the retail stores carrying our products, an increase
in the number of retail stores to which we sell directly, and an increase in the
numbers of distributors carrying our products.  The average price at
which our products were sold decreased because of our adjustment, in the spring
of 2008, of the prices at which certain products were sold; in particular, the
reduction of prices in certain non-premium products to gain greater market share
for such product lines which was partially offset by the increase in prices for
certain premium products for which we believed demand was
inelastic.





Cost of goods sold increased in fiscal
2008 by approximately 52% from fiscal 2007, which increase was proportional to
the increase in net sales.





Operating expenses in fiscal 2008
increased approximately 29% from fiscal 2007.  The  increase
is primarily attributable to the approximately 108% increase in other selling,
general and administrative expenses, and to a lesser extent, increases in
salaries and marketing and promotion expense, which increases were partially
offset by the 62% decrease in commissions.  Other selling, general and
administrative expense increased because of increases in (i) store entry fees
which increased due to the increases in promotional activities (including an
increase in the number of people engaged in such activities) conducted at retail
stores carrying our products and the number of retail stores carrying our
products, (ii) freight costs, which increased principally because of the
increased cost of shipping a unit of product (which increase is attributable in
part to the melamine contamination of certain dairy products and our need to
re-ship previously distributed products to comply with government testing
requirements and to the establishment of a warehouse in Shanghai to accelerate
the distribution of our products in Southern China) and, to a lesser extent, the
increase in the volume of product shipped,  (iii) travel and
entertainment expense, which increased because of our increased marketing
efforts, (iv) professional fees and expenses, which increased due to the reverse
subsidiary merger (including the related transactions), and our status as a
reporting company and (v) more favorable benefits provided to our employees.
Advertising and promotion expense increased because of additional marketing
efforts and salaries increased due to the increase in the number of sales and
marketing personnel.  Commissions decreased because incentive
performance thresholds were not attained in fiscal 2008 by certain sales
personnel.  Operating expense as a percentage of net sales decreased
from 34% in fiscal 2007 to 29% in fiscal 2008.




- 24
-




Merger
expense for fiscal 2008 was $3.46 million.  No merger expense was
incurred in fiscal 2007.  The merger expense resulted from our
payment, through issuance of securities, warrants and cash to service providers
that rendered services in connection with the consummation of the reverse merger
and related transactions. Included in the merger expense was $3.4 million of
non-cash charges primarily attributable to the issuance of 2,000,000 shares of
common stock and Series B warrants to acquire 2,148,148 shares of common stock
incurred in connection therewith.  See note 15 of notes to our
consolidated financial statements.





Interest
expense increased in fiscal 2008 by approximately 530% from fiscal 2007 mainly
because of the amortization of deferred financing costs associated with the
issuance of Series E warrants to Allied Merit to purchase 250,000 shares of the
Company’s stock, amortization of debt discount and beneficial conversion feature
associated with the
issuance of $1,300,000 in face amount of convertible promissory notes and
related warrants, and, to a lesser extent, our increased net borrowings coupled
with higher rates of interest on such borrowings. See notes 10, 12 and 15 of our
consolidated financial statements.





Income
tax was $1.6 million and zero for fiscal 2008 and 2007, respectively. There was
no income tax expense for fiscal 2007 because we were exempt from such taxes
through October 31, 2007. The loss of the tax exemption had the effect of
reducing reported net income. Beginning January 1, 2008, the applicable income
tax rate was approximately 25% of taxable income and it is anticipated to
continue at such rate in fiscal 2009.





Though
operating profit in fiscal 2008 was approximately 80% higher than in fiscal
2007, net income for fiscal 2008, decreased approximately 58% from fiscal 2007.
This decrease was primarily due to the non-recurring merger expenses $3.46
million, of which approximately $3.34 million is attributable to non-cash
charges and our income tax expense of approximately $1.63 million.





Liquidity
and Capital Resources





As of
October 31, 2008, we had cash and cash equivalents of approximately $891,000 and
a working capital deficit of approximately $852,000.  The working
capital deficit includes an aggregate of approximately $5.5 million (consisting
$4.5 million in dividends incurred in connection with Charleston’s acquisition
of Tianjin Yayi and $978,000 in principal amount of loans) payable to related
parties or their affiliates or associates. We have been informally advised that
these related parties will only require the repayment of the obligations when we
have sufficient financial resources to allow for such
repayment.  However, there is no agreement pursuant to which they have
agreed to defer the payment of these obligations, they could demand payment of
such sums at any time and, in fiscal 2008, approximately $401,000 was repaid to
such related parties upon their demand. Subsequent to October 31, 2008, we
borrowed an aggregate of approximately $2.78 million from three
lenders.  Such loans bear interest ranging from 5.83% to 7.992% per
annum and mature one year from the date of such borrowing.  We paid an
aggregate of approximately $39,000 in guaranty fees in connection with these
borrowings.  See note 21 to our consolidated financial
statements.




- 25
-




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 on spending approximately $26.9 million during
fiscal 2009-2011 ($15.6 million in fiscal 2009 and $11.3 million during fiscal
2010-2011).  Included in the $26.9 million are expenditures of
approximately $11.1 million during 2009-2011 (approximately $8.7 million in
fiscal 2009 and $2.4 million during fiscal 2010-2011) to which, subject to
adjustment described below, we are contractually obligated.   The
planned expenditures exclude an aggregate of approximately $7.4 million
(approximately $1.5 million in fiscal 2011 and approximately $5.9 million
thereafter) of working capital that we currently anticipate will be required by
the Weinan City project when it commences operations.  See
“-Contractual Obligations,” “Item 2. Properties” and note 16 of our consolidated
financial statements.





Historically we have relied on loans
from our chief executive officer, Li Liu, and short-term borrowings to meet our
cash, working capital and capital expenditure requirements. We anticipate that
we will be able to fund our working capital deficit and our operating cash
requirements from cash flow from operations coupled with short-term
borrowings.  While we believe short term borrowings will continue to
be available to us from affiliated or unaffiliated third parties to satisfy our
cash requirements, we do not have a line of credit or other assured source of
short term financing.





We currently plan on seeking at least
$15 million in financing to fund the approximately $26.9 million in planned
capital expenditures.  No assurance can be given that we will be able
to secure the financing required for these capital expenditures or that such
financing will be sufficient.  Further, in the event we obtain
financing through the issuance of equity or equity-linked securities, such
financing may be dilutive to our security holders.  If we are unable
to fund such expenditures in the time frames contemplated (either because we
cannot secure the $15 million in financing or such financing, together with cash
flow from operations and short-term borrowings, is insufficient), we may be
required to defer, modify the scope of, or terminate the implementation of the
Weinan City project and/or delay or defer the equipping of the warehouses and
processing facilities to be developed in Tianjin City.  If we are
unable to expand our facilities, we contemplate that we will continue to rely,
as we currently do in part, on third parties to assist us in the fulfillment of
our goat milk processing requirements.  Such third parties may be
unwilling or unable to assist in fulfilling such processing requirements and,
even if able to fulfill such requirements, our profits would be negatively
impacted if we are required to rely on such third party processors.




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




- 26
-




Fiscal
      year
                      Ended October 31,2008
                    
                    
                    2007Net
      cash provided by (used in) operating activities
                    
                    $
                    3,816,554
                    
                    
                    $
                    3,063,881Net
      cash provided (used in) investing activities
                    
                    
                    (5,658,527
                    )
                    
                    
                    (3,345,918
                    )Net
      cash provided by (used in) financing activities
                    
                    
                    2,387,373
                    
                    
                    
                    (674,509
                    )





Operating
Activities:





Net cash provided by operating
activities was approximately $3.9 million for fiscal 2008 compared to net cash
of approximately $3.1 million provided by operating activities in fiscal 2007.
The increase is attributable primarily to higher operating profit, the
collection of accounts receivables on an accelerated basis, the improved
collections with respect to other receivables (attributable in part to the
repayment of approximately $650,000 owed to us by the Nanda Technology- see note
6 of our consolidated financial statements) and the decrease in restricted cash,
offset by increases in inventories and decreases in accounts payable and bills
payable. Inventories increased due to an increase in purchases of raw materials,
finished products and packaging to meet anticipated increased sales demand.
Accounts payable and bills payable decreased because we accelerated payments to
suppliers for the purchases of raw materials and packaging. We accelerated these
payments because we believe it enables us to obtain improved terms from our
suppliers.





Investing
Activities:





Net cash used in investing activities
for fiscal 2008 was approximately $5.7 million, an increase from approximately
$3.3 million from fiscal 2007. The increase is attributable to payments relating
to the acquisition of equipment and facilities and in particular, payments to
Tianjin Mengyang and approximately $621,000 paid in connection with our purchase
of Fuping Milkgoat.  See “Item 2. Properties” and notes 4, 8 and 16 of
our consolidated financial statements.





Financing
Activities





Net cash provided by financing
activities in fiscal 2008 was approximately $2.4 million compared to
approximately $675,000 of net cash used by these activities in fiscal 2007. The
increase in cash flow from financing activities is attributable to the $5.4
million from proceeds from our short term borrowings and the net proceeds from
the offering of notes and warrants issued in connection with our reverse
subsidiary merger.  See note 15 of notes to our consolidated financial
statements.  The increase in cash flow from financing activities was
partially offset by the repayment of approximately $3.6 million in short term
loans and the repayment of approximately $401,000 to related
parties.


- 27
-


Foreign
Currency Translation





During fiscal 2008, the RMB, the
functional currency of our operations in China, generally appreciated against
the U.S. dollar.  This generally had a favorable impact on our results
of operations (including cash flow from operations) and on our cash
position.  This positive effect of the currency exchange rate may not
continue in the future.





Off
Balance Sheet Arrangements





We are not a party to any off balance
sheet arrangements.





Contractual
Obligations





The
following table summarizes our significant contractual obligations at October
31, 2008 (except as otherwise noted below):


Payments Due by PeriodTotal
                                                        
                                                        
                                                        FY
                                                          2009
                                                        
                                                        
                                                        FY
                                                          2010-2011
                                                        
                                                        
                                                        FY
                                                          2012-2013
                                                        
                                                        
                                                        After
                                                          FY 2013Contractual
      Obligations:Operating
      Lease Obligations1
                                                        
                                                        $
                                                        628,730
                                                        
                                                        
                                                        $
                                                        79,110
                                                        
                                                        
                                                        $
                                                        163,592
                                                        
                                                        
                                                        $
                                                        164,080
                                                        
                                                        
                                                        $
                                                        221,948Capital
      Purchase Obligations2
                                                        
                                                        
                                                        11,031,464
                                                        
                                                        
                                                        
                                                        8,674,265
                                                        
                                                        
                                                        
                                                        2,357,199
                                                        
                                                        
                                                        
                                                        —
                                                        
                                                        
                                                        
                                                        —Other
      Purchase Obligations and Commitments3
                                                        
                                                        
                                                        4,270,563
                                                        
                                                        
                                                        
                                                        1,257,390
                                                        
                                                        
                                                        
                                                        1,949,157
                                                        
                                                        
                                                        
                                                        1,064,016
                                                        
                                                        
                                                        
                                                        —Long-Term
      Debt Obligations4
                                                        
                                                        
                                                        873,647
                                                        
                                                        
                                                        
                                                        34,089
                                                        
                                                        
                                                        
                                                        839,558
                                                        
                                                        
                                                        
                                                        —
                                                        
                                                        
                                                        
                                                        —Total:
                                                        
                                                        
                                                        16,804,404
                                                        
                                                        
                                                        
                                                        10,,044,854
                                                        
                                                        
                                                        
                                                        5,309,506
                                                        
                                                        
                                                        
                                                        1,228,096
                                                        
                                                        
                                                        
                                                        221,948





1 See
“Operating Leases” in note 16 to our consolidated financial
statements.




2 Reflects
payments to be made to (i) the Weinan City government in connection with its
transfer to us of land use rights but not the approximately $19.1 million ($11.7
million in fixed asset investments contemplated to be expended in fiscal
2009-2011 and $7.4 million in working capital contemplated to be required in
fiscal 2011 and thereafter) required to develop the contemplated spray drying
facility (see “Item 2. Properties” and “Land Use Rights Agreement” of note 16 of
notes to our consolidated financial statements), (ii) Tianjin Mengyang, pursuant
to which we are to acquire from them, and they are to renovate on our behalf, a
four story office building in Tianjin City (see “Item 2. Properties” and
“Purchase of Office Building” of note 16 to our consolidated financial
statements), and (iii) Tianjin Mengyang, pursuant to a factory transfer
agreement signed on September 26, 2008, as supplemented on January 20, 2009 (but
not the $6 million anticipated to be required in fiscal 2009 to equip the
facilities contemplated by such agreement).  The payment schedule
reflected above gives effect to this January 2009 supplement.  The
factory transfer agreement, as supplemented, provides, among other things, that
in the event that the financing contemplated by our financing plan is not raised
by April 30, 2009, the amounts due pursuant thereto are to be
adjusted.  As so adjusted, our aggregate capital purchase obligation
in fiscal 2009 would be reduced to approximately $6.04 million and such
obligations payable in fiscal 2010 -2011 would be increased to $8.4
million.  We believe that our plan (and therefore, our entitlement to
an adjustment) contemplates a financing of at least $15 million though the
amount of the threshold is not specifically provided for in the supplement to
such agreement. See “Item 2. Properties” and “Purchase of Factory &
Warehouse” of note 16 to our consolidated financial statements.




- 28
-




3
Represents payments to be made pursuant to process contracts (see “Process
Contracts” of note 16 to our consolidated financial statements) and agreements
with village committees for the minimum purchase obligations of raw goat
milk.  For the purposes of calculating the payment obligation with
respect to the purchase of raw goat milk, we assumed that we would only purchase
the minimum amount required by these agreements for the applicable
period.  The minimum quantity of raw goat milk we must purchase is
2,205 tons in fiscal 2009, 4,251 tons in fiscal 2010-2011 and 1,788 tons in
fiscal 2012.  Note that in fiscal 2008, we purchased approximately
12,250 tons of raw goat milk.  We further assumed a purchase price of
$432 per metric ton, the market price as of October 31, 2008.  The
purchase price is determined by the market and actual amounts vary based on
market price fluctuations.  In fiscal 2008, the market price ranged
from a low of $432 per ton to a high of $532 per ton.  See “Purchase
of Raw Material” of note 16 to our consolidated financial
statements.




4 Does not
include interest expense (excluding all non-cash charges such as amortization of
deferred financing costs) of $104,000 for fiscal 2009 and $208,000 for fiscal
2010-2011 that will accrue on such borrowings at the interest rate provided for
in the governing instruments.





Item 7A.        Quantitative
and Qualitative Disclosures About Market Risk





No applicable to smaller reporting
companies.





Item 8.      Financial Statements and
Supplementary Data




YAYI
INTERNATIONAL INC. AND SUBSIDIARIES
 (formerly
Ardmore Holding Corporation)
 
 FOR
THE YEARS ENDED OCTOBER 31, 2008 AND 2007
 
 INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 PageReport
      of Independent Registered Public Accounting Firm
                F-1Consolidated
      Balance Sheets
                F-2Consolidated
      Statements of Income and Comprehensive Income
                F-3Consolidated
      Statements of Stockholders’ Equity
                F-4Consolidated
      Statements of Cash Flows
                F-5Notes
      to Consolidated Financial Statements
                F-6
      - F-28




- 29
-




YAYI
INTERNATIONAL INC. AND SUBSIDIARIES
 (formerly
Ardmore Holding Corporation)
 
 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 October 31, 2008 and 2007, and the related
consolidated statements of operations,  comprehensive income,
stockholders' equity and cash flows for the years then ended. 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
October 31, 2008 and 2007, and the consolidated results of their operations and
their cash flows for the years then ended, in conformity with accounting
principles generally accepted in the United States of America.
 
 As
discussed in Note 20 to the financial statements, net income for the year ended
October 31, 2007 was reduced by $90,417 and the accumulated deficit balance as
of October 31, 2006 was increased by $64,415 in order to account for estimated
sales returns.  Accordingly, the 2007 financial statements have been
restated.
 
 /s/Morison
      Cogen LLPBala
      Cynwyd, PennsylvaniaJanuary
      30,  2009
  F-1
  YAYI
INTERNATIONAL INC. AND SUBSIDIARIES
 (formerly
Ardmore Holding Corporation)
 
 CONSOLIDATED
BALANCE SHEETS
 2008
                          
                          
                          2007(restated)ASSETSCurrent
      assets:Cash
      and cash equivalents
                          
                          $
                          891,278
                          
                          
                          $
                          256,317Restricted
      cash
                          
                          
                          -
                          
                          
                          
                          715,939Accounts
      receivables, net of allowances of $41,050 and $126,660
                          
                          
                          2,603,078
                          
                          
                          
                          2,357,534Other
      receivable, net of allowances of $29,207 and $125,807
                          
                          
                          122,732
                          
                          
                          
                          936,329Inventory
                          
                          
                          3,329,776
                          
                          
                          
                          1,161,803Prepaid
      expenses
                          
                          
                          39,702
                          
                          
                          
                          -Advances
                          
                          
                          5,904,885
                          
                          
                          
                          3,536,487Deferred
      financing cost
                          
                          
                          184,846
                          
                          
                          
                          -Total
      current assets
                          
                          
                          13,076,297
                          
                          
                          
                          8,964,409Property,
      plant and equipment, net
                          
                          
                          2,580,385
                          
                          
                          
                          1,808,216Goodwill
                          
                          
                          278,787
                          
                          
                          
                          -Deferred
      financing cost
                          
                          
                          18,686
                          
                          
                          
                          -Advances
                          
                          
                          3,575,186
                          
                          
                          
                          -Rental
      deposits
                          
                          
                          -
                          
                          
                          
                          588,613Deferred
      tax asset
                          
                          
                          9,402
                          
                          
                          
                          -Other
      assets
                          
                          
                          5,627
                          
                          
                          
                          -Total
      assets
                          
                          $
                          19,544,370
                          
                          
                          $
                          11,361,238LIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrent
      liabilities:Short
      term loans
                          
                          $
                          5,274,996
                          
                          
                          $
                          2,940,390Accounts
      payable
                          
                          
                          1,466,745
                          
                          
                          
                          1,761,202Bills
      payable
                          
                          
                          -
                          
                          
                          
                          676,645Other
      payable and accrued expenses
                          
                          
                          212,922
                          
                          
                          
                          399,640Dividend
      payable
                          
                          
                          4,468,250
                          
                          
                          
                          -Advance
      from customers
                          
                          
                          3,589
                          
                          
                          
                          105,911Income
      and other tax payable
                          
                          
                          1,246,211
                          
                          
                          
                          1,043,154Accrued
      sales return
                          
                          
                          243,774
                          
                          
                          
                          160,856Due
      to related parties
                          
                          
                          977,950
                          
                          
                          
                          1,247,110Long
      term loans - current portion
                          
                          
                          34,089
                          
                          
                          
                          31,208Total
      current liabilities
                          
                          
                          13,928,526
                          
                          
                          
                          8,366,116Long-term
      liabilities:Long-term
      loans, net of debt discount of $460,442
                          
                          
                          839,558
                          
                          
                          
                          31,100Minority
      interest in consolidated subsidiary
                          
                          
                          -
                          
                          
                          
                          1,236839,558
                          
                          
                          
                          32,336Total
      liabilities
                          
                          
                          14,768,084
                          
                          
                          
                          8,398,452Commitments
      and contingencies (Note 16)STOCKHOLDERS'
      EQUITYCommon
      stock, par value $0.001, 100,000,000 shares authorized, 25,000,000 and
      22,325,000 shares issued and outstanding in 2008 and 2007
                          
                          
                          25,000
                          
                          
                          
                          22,325Additional
      paid in capital
                          
                          
                          3,228,244
                          
                          
                          
                          3,684,764Statutory
      surplus reserve fund
                          
                          
                          502,438
                          
                          
                          
                          -Retained
      earning (deficit)
                          
                          
                          667,873
                          
                          
                          
                          (654,906
                          )Accumulated
      other comprehensive income (loss)
                          
                          
                          352,731
                          
                          
                          
                          (89,397
                          )Total
      stockholders’ equity
                          
                          
                          4,776,286
                          
                          
                          
                          2,962,786Total
      liabilities and stockholders' equity
                          
                          $
                          19,544,370
                          
                          
                          $
                          11,361,238
 
 The
accompanying notes are an integral part of these consolidated financial
statements
  F-2
  YAYI
INTERNATIONAL INC. AND SUBSIDIARIES
 (formerly
Ardmore Holding Corporation)
 
 CONSOLIDATED
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
 Year
      endedOctober
      31,2008
                      
                      
                      2007(restated)Net
      sales
                      
                      
                      21,791,268
                      
                      
                      
                      14,283,730Cost
      of goods sold
                      
                      
                      7,600,454
                      
                      
                      
                      5,008,788Gross
      profit
                      
                      
                      14,190,814
                      
                      
                      
                      9,274,942Operating
      expensesAdvertising
      and promotion expense
                      
                      
                      1,723,569
                      
                      
                      
                      1,402,171Salaries
                      
                      
                      1,333,775
                      
                      
                      
                      1,021,163Other
      selling, general and administrative expenses
                      
                      
                      2,735,313
                      
                      
                      
                      1,316,651Commission
                      
                      
                      405,146
                      
                      
                      
                      1,055,614Research
      and development expense
                      
                      
                      111,309
                      
                      
                      
                      93,6896,309,112
                      
                      
                      
                      4,889,288Operating
      profit
                      
                      
                      7,881,702
                      
                      
                      
                      4,385,654Other
      income (expenses)Merger
      costs
                      
                      
                      (3,456,784
                      )
                      
                      
                      -Interest
      income
                      
                      
                      7,826
                      
                      
                      
                      4,839Other
      income
                      
                      
                      40,537
                      
                      
                      
                      -Interest
      expense
                      
                      
                      (668,167
                      )
                      
                      
                      (105,988
                      )Allowance
      from government
                      
                      
                      -
                      
                      
                      
                      52,005Other
      expense
                      
                      
                      (345,951
                      )
                      
                      
                      (8,637
                      )Other
      expense
                      
                      
                      (4,422,539
                      )
                      
                      
                      (57,781
                      )Income
      before income taxes
                      
                      
                      3,459,163
                      
                      
                      
                      4,327,873Income
      taxes
                      
                      
                      1,633,946
                      
                      
                      
                      -Net
      income
                      
                      
                      1,825,217
                      
                      
                      
                      4,327,873Other
      comprehensive incomeForeign
      currency translation adjustment
                      
                      
                      442,128
                      
                      
                      
                      44,835Comprehensive
      income
                      
                      $
                      2,267,345
                      
                      
                      $
                      4,372,708Basic
      weighted average number of shares outstanding
                      
                      
                      23,402,329
                      
                      
                      
                      22,325,000Basic
      earnings per share
                      
                      $
                      0.08
                      
                      
                      $
                      0.19Diluted
      weighted average number of shares outstanding
                      
                      
                      24,441,031
                      
                      
                      
                      22,325,000Diluted
      earnings per share
                      
                      $
                      0.05
                      
                      
                      $
                      0.19
 
 The
accompanying notes are an integral part of these consolidated financial
statements
  F-3
  YAYI
INTERNATIONAL INC. AND SUBSIDIARIES
 (formerly
Ardmore Holding Corporation)
 
 CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY
 
 Common
      stock
                            
                            
                            Additional paid in
                            
                            
                            Statutory Surplus
                            
                            
                            Retained Earnings /
                            
                            
                            Accumulated
                              Other
                              Comprehensive
                            
                            
                            Total Stockholders’Number of shares
                            
                            
                            Amount
                            
                            
                            capital
                            
                            
                            Reserve Fund
                            
                            
                            (Deficit)
                            
                            
                            Income (Loss)
                            
                            
                            Equity (Deficit)(restated)
                            
                            
                            (restated)
                            
                            
                            (restated)Balance
      at October 31, 2006 (as previously reported)
                            
                            
                            22,325,000
                            
                            
                            $
                            22,325
                            
                            
                            $
                            3,684,764
                            
                            
                            $
                            -
                            
                            
                            $
                            (4,918,364
                            )
                            
                            $
                            (134,232
                            )
                            
                            $
                            (1,345,507
                            )Cumulative
      effect of restatement related to accrued sales return (Note
      20)
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            (64,415
                            )
                            
                            
                            
                            
                            
                            
                            (64,415
                            )Balance
      at October 31, 2006 (restated)
                            
                            
                            22,325,000
                            
                            
                            $
                            22,325
                            
                            
                            $
                            3,684,764
                            
                            
                            $
                            -
                            
                            
                            $
                            (4,982,779
                            )
                            
                            $
                            (134,232
                            )
                            
                            $
                            (1,409,922
                            )Foreign
      currency translation (restated)
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            44,835
                            
                            
                            
                            44,835Net
      income for the year ended October 31, 2007 (restated)
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            4,327,873
                            
                            
                            
                            -
                            
                            
                            
                            4,327,873Balance
      at October 31, 2007  (restated)
                            
                            
                            22,325,000
                            
                            
                            $
                            22,325
                            
                            
                            $
                            3,684,764
                            
                            
                            $
                            -
                            
                            
                            $
                            (654,906
                            )
                            
                            $
                            (89,397
                            )
                            
                            $
                            2,962,786Issue
      of common stock at merger
                            
                            
                            1,000,198
                            
                            
                            
                            1,000
                            
                            
                            
                            (977
                            )
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            23Cancellation
      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
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            2,200,000Issuance
      of Series A warrants with convertible notes
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            280,726
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            280,726Issuance
      of Series B warrants for finder's fee
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            1,144,743
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            1,144,743Issuance
      of Series C warrants for cancellation of common stock
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            86,367
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            86,367Issuance
      of Series D warrants for placement agent
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            67,368
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            67,368Issuance
      of Series E warrants for extension of note payable
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            233,547
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            233,547Beneficial
      conversion feature on convertible note
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            304,800
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            304,800Dividend
      declared
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (4,235,052
                            )
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (4,235,052
                            )Net
      income for the year ended October 31, 2008
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            1,825,217
                            
                            
                            
                            -
                            
                            
                            
                            1,825,217Transfer
      to statutory surplus reserve fund
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            502,438
                            
                            
                            
                            (502,438
                            )
                            
                            
                            -
                            
                            
                            
                            -Foreign
      currency translation
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            442,128
                            
                            
                            
                            442,128Balance
      at October 31, 2008
                            
                            
                            25,000,000
                            
                            
                            $
                            25,000
                            
                            
                            $
                            3,228,244
                            
                            
                            $
                            502,438
                            
                            
                            $
                            667,873
                            
                            
                            $
                            352,731
                            
                            
                            $
                            4,776,286
  The
accompanying notes are an integral part of these consolidated financial
statements
  F-4
  YAYI
INTERNATIONAL INC. AND SUBSIDIARIES
 (formerly
Ardmore Holding Corporation)
 
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 Year
      EndedOctober
      31,2008
                          
                          
                          2007(restated)Cash
      flow from operating activitiesNet
      income
                          
                          $
                          1,825,217
                          
                          
                          $
                          4,327,873Adjustments
      to reconcile net income to net cash provided by operating
      activities:Net
      foreign currency transaction loss
                          
                          
                          196,439
                          
                          
                          
                          -Depreciation
      of property, plant and equipment
                          
                          
                          271,000
                          
                          
                          
                          126,497Amortization
      of deferred financing cost
                          
                          
                          180,841
                          
                          
                          
                          -Allowance
      of bad debts-Accounts receivable
                          
                          
                          (92,193
                          )
                          
                          
                          19,852Allowance
      of bad debts-Other receivable
                          
                          
                          (104,438
                          )
                          
                          
                          91,561Sales
      return allowance
                          
                          
                          82,918
                          
                          
                          
                          96,441Merger
      costs from issuance of warrants and common stock
                          
                          
                          3,359,291
                          
                          
                          
                          -Minority
      interests
                          
                          
                          -
                          
                          
                          
                          (98
                          )Accretion
      of debt discount
                          
                          
                          125,084
                          
                          
                          
                          -(Increase)
      decrease in operating assets, net of effect of
acquisition:Restricted
      cash
                          
                          
                          728,670
                          
                          
                          
                          (387,776
                          )Accounts
      receivables
                          
                          
                          40,242
                          
                          
                          
                          (1,512,309
                          )Other
      receivables
                          
                          
                          1,050,228
                          
                          
                          
                          (713,698
                          )Inventories
                          
                          
                          (1,113,093
                          )
                          
                          
                          101,054Prepaid
      expenses
                          
                          
                          (39,677
                          )
                          
                          
                          -Advances
                          
                          
                          (362,858
                          )
                          
                          
                          247,076Deferred
      tax asset
                          
                          
                          (8,953
                          )
                          
                          
                          (2,852
                          )Rental
      Deposit
                          
                          
                          -
                          
                          
                          
                          (572,565
                          )Increase
      (decrease) in operating liability, net of effect of
      acquisition:Accounts
      payable
                          
                          
                          (1,300,891
                          )
                          
                          
                          642,407Bills
      payable
                          
                          
                          (688,713
                          )
                          
                          
                          396,356Accrued
      payroll
                          
                          
                          47,792
                          
                          
                          
                          -Advance
      from customers
                          
                          
                          (129,222
                          )
                          
                          
                          (212,579
                          )Other
      taxes payable
                          
                          
                          54,829
                          
                          
                          
                          198,242Other
      current liabilities
                          
                          
                          (305,959
                          )
                          
                          
                          218,399Net
      cash provided by operating activities
                          
                          
                          3,816,554
                          
                          
                          
                          3,063,881Cash
      flows from investing activitiesPurchase
      of equipment
                          
                          
                          (183,019
                          )
                          
                          
                          (139,901
                          )Advance
      for construction of factory and warehouse
                          
                          
                          (2,928,200
                          )
                          
                          
                          -Advance
      for construction of office building
                          
                          
                          (1,966,551
                          )
                          
                          
                          (3,207,298
                          )Cash
      acquired from Ardmore
                          
                          
                          23
                          
                          
                          
                          -Cash
      acquired from Charleston
                          
                          
                          -
                          
                          
                          
                          1,281Cash
      acquired in subsidiary
                          
                          
                          40,504
                          
                          
                          
                          -Purchase
      of subsidiary
                          
                          
                          (621,284
                          )
                          
                          
                          -Net
      cash used in investing activities
                          
                          
                          (5,658,527
                          )
                          
                          
                          (3,345,918
                          )Cash
      flows from financing activitiesProceeds
      from bank borrowings
                          
                          
                          -
                          
                          
                          
                          2,860,226Proceeds
      from short term loans
                          
                          
                          5,440,619
                          
                          
                          
                          -Proceeds
      from long term loans
                          
                          
                          -
                          
                          
                          
                          48,299Repayment
      of short term loans
                          
                          
                          (3,619,991
                          )
                          
                          
                          (390,031
                          )Repayment
      of long term loans
                          
                          
                          (33,141
                          )
                          
                          
                          -(Repayment)
      Proceeds from minority stockholders
                          
                          
                          (1,257
                          )
                          
                          
                          1,334Net
      proceeds from private placement
                          
                          
                          1,001,993
                          
                          
                          
                          -Due
      to related parties
                          
                          
                          (400,850
                          )
                          
                          
                          (3,194,337
                          )Net
      cash provided by (used in) financing activities
                          
                          
                          2,387,373
                          
                          
                          
                          (674,509
                          )Effect
      of exchange rate changes in cash
                          
                          
                          89,561
                          
                          
                          
                          30,967Net
      increase (decrease) in cash and cash equivalents
                          
                          
                          634,961
                          
                          
                          
                          (925,579
                          )Cash
      and cash equivalents, beginning of year
                          
                          
                          256,317
                          
                          
                          
                          1,181,896Cash
      and cash equivalents, end of year
                          
                          $
                          891,278
                          
                          
                          $
                          256,317Supplemental
      disclosure of cash flow informationCash
      paid during the yearInterest
      paid
                          
                          $
                          310,926
                          
                          
                          $
                          105,988Income
      tax paid
                          
                          $
                          1,586,394
                          
                          
                          $
                          -Supplemental
      disclosure of non-cash financing and investing activities;Dividend
      payable
                          
                          $
                          4,235,052
                          
                          
                          $
                          -Rental
      deposit applied as advance to construction of factory and
      warehouse
                          
                          $
                          644,790
                          
                          
                          $
                          -Note
      payable to Tryant for cancellation of common stock
                          
                          $
                          250,000
                          
                          
                          $
                          -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
                          
                          
                          $
                          -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
                          
                          
                          $
                          -
  The
accompanying notes are an integral part of these consolidated financial
statements
  F-5
 
 YAYI
INTERNATIONAL INC. AND SUBSIDIARIES
 (formerly
Ardmore Holding Corporation)
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED OCTOBER 31, 2008 AND 2007
 
 1.
              Organization
      and Nature of Business
 
 Yayi
International, Inc (“Yayi International” or the “Company”), 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.  The equity section of the accompanying consolidated
financial statements has been restated to reflect the recapitalization of the
Company due to the reverse acquisition as of the first day of the first period
presented.
 
 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 $4,468,250) 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. The consolidated financial statements have been restated for
all periods prior to the merger to include the financial position, results of
operations and cash flows of the commonly controlled companies.
 
 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
slice, liquid goat milk as well as goat milk drink throughout the
PRC.
  F-6
  YAYI
INTERNATIONAL INC. AND SUBSIDIARIES
 (formerly
Ardmore Holding Corporation)
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED OCTOBER 31, 2008 AND 2007
 1.
              Organization
      and Nature of Business - Continued
 
 Weinan
Milkgoat Production Co., Limited
 
 Weinan
Milkgoat was formed on December 8, 2006. Tianjin Yayi invested $277,708
(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 $1,389 (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 $415,174 (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 $694,271 (RMB
5,000,000).
 
 Fuping
Milkgoat Dairy Co., Ltd. (formerly Fuping Dongyang Dairy Co., Ltd.)
 
 Fuping
Milkgoat’s principal activities are the purchase of raw goat milk and processing
it into milk powder.  On August 8, 2008, Tianjin Yayi acquired Fuping
Milkgoat Dairy Co., Ltd. (“Fuping Milkgoat”) for $621,284 (RMB
4,240,846).  As a result, Tianjin Yayi owns 100% shares of Fuping
Dongyang with a registered capital of $146,000 (RMB 1,000,000).
 .
 2.
              Summary
      of Significant Accounting Policies
  The
principal activities of the Company and its subsidiaries consist of
manufacturing and selling of goat milk powder and liquid goat
milk.  All activities of the Company are conducted principally by its
subsidiaries Tianjin Yayi, Weinan Milkgoat, and Fuping 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 and Fuping Milkgoat.  All
material intercompany transactions have been eliminated in
consolidation.
 
 Reclassification–
Reclassification have been made to accounts receivable and advance from
customers as at October 31, 2007 for right of offset to conform to the October
31, 2008 presentation.
 
 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 collectibility.  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.
  F-7
  YAYI
INTERNATIONAL INC. AND SUBSIDIARIES
 (formerly
Ardmore Holding Corporation)
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED OCTOBER 31, 2008 AND 2007
 2.
              Summary
      of Significant Accounting Policies -
Continued
  Based on
management’s evaluation of historical experience, the following policy for
allowance of doubtful accounts is established:
 
 Trade
      and other receivables due:
                    
                    % of BalanceWithin
      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
                    %
 
 Fair Value of Financial Instruments-SFAS No. 107,
“Disclosures about Fair Values of Financial Instruments”, 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
                        3
      yearsPlant
      and machinery
                        10
      yearsFurniture, fixtures and equipment
                        5
      yearsMotor
      vehicles
                        5
      years
 
 Recoverability of Long Lived Assets-The Company follows Statement of Financial Accounting Standard (“SFAS”)
No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets.  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 Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible
Assets”, 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.
 
 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-8
  YAYI
INTERNATIONAL INC. AND SUBSIDIARIES
 (formerly
Ardmore Holding Corporation)
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED OCTOBER 31, 2008 AND 2007
 
 2.     Summary
of Significant Accounting Policies - Continued
  The
Company allows for exchange of goods that are near expiration.  The
Company provides for an allowance for return products since the Company has
experienced returns in the normal course of business and expects to continue in
future periods.
  Research and development -Research and development costs are expensed as incurred. Research and
development expenses amounted to $111,309 and $93,689 for the year ended October
31, 2008 and 2007, 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 October 31, 2008, there was no capitalized direct-response
advertising. All other advertising costs are expensed as incurred. Advertising
and promotion costs amounted to $1,723,569 and $1,402,171 for the year ended
October 31, 2008 and 2007, respectively.
 
 Comprehensive income - The
Company follows the Statement of Financial Accounting Standard (“SFAS”) No. 130,
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 income and foreign currency translation
adjustments.
 
 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.
 
 Foreign currency transaction- The consolidated financial statements of the Company are presented in
United States Dollars (“US$”). Transactions in foreign currencies during the
year are translated into US$ at the exchange rates prevailing on the transaction
dates. Monetary assets and liabilities denominated in foreign currencies on the
balance sheet date are translated into US$ at the exchange rates prevailing on
that date. All transaction differences are recorded in the income
statement.
 
 Foreign currency translation- Assets and liabilities of subsidiaries with a functional currency other
than US$ are translated into US$ using period end exchange rates. Income and
expense items are translated at the average exchange rates in effect during the
period. Foreign currency translation differences are included as a component of
Accumulated Other Comprehensive Income in Stockholders’ Equity.
 
 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 SFAS No. 128, Earnings Per Share, 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.  Since the Company does not have any
potential common stock equivalent in fiscal year 2007, the basic and diluted
earnings per share for the year ended October 31, 2007 are the
same.
 
 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 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.
  F-9
  YAYI
INTERNATIONAL INC. AND SUBSIDIARIES
 (formerly
Ardmore Holding Corporation)
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED OCTOBER 31, 2008 AND 2007
 
 2.     Summary
of Significant Accounting Policies - Continued
  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 year
ended October 31, 2008 and 2007, shipping and handling costs were $346,796 and
$138,857, respectively.
 
 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.
 
 3.     Recently
Issued Accounting Pronouncements
 
 FIN 48 – Accounting for
Uncertainty in Income Taxes
 
 In June
2006, the Financial Accounting Standard Board (“FASB”) issued Interpretation No.
48 (FIN 48), Accounting for
Uncertainty in Income Taxes. FIN 48 prescribes detailed guidance for the
financial statement recognition, measurement and disclosure of uncertain tax
positions recognized in an enterprise’s financial statements in accordance with
FASB Statement No. 109, Accounting for Income Taxes.
Tax positions must meet a more-likely-than-not recognition threshold at the
effective date to be recognized upon the adoption of FIN 48 and in subsequent
periods.   The provisions of FIN 48 are to be applied to all tax
positions under Statement No. 109 upon initial adoption.  The
cumulative effect of applying the provisions of this interpretation is to be
reported as an adjustment to the opening balance of retained earnings for that
fiscal year.  FIN 48 was effective for fiscal years beginning after
December 15, 2006. In January 2008, the FASB approved FASB Staff Position (FSP)
No. FIN 48-6 – “Effective Date
of FASB Interpretation No. 48 for Nonpublic Enterprise”, permitting
nonpublic enterprise to defer implementation of FIN 48 until period beginning
after December 15, 2007.  Since the Company became a public company on
June 6, 2008, the Company adopted FIN 48 effective November 1, 2007. The
adoption of FIN 48 did not require an adjustment to the opening balance of
retained earnings as of November 1, 2007.
  F-10
  YAYI
INTERNATIONAL INC. AND SUBSIDIARIES
 (formerly
Ardmore Holding Corporation)
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED OCTOBER 31, 2008 AND 2007
 
 3.
              Recently
      Issued Accounting Pronouncements –
Continued
 
 SFAS No. 157 – Fair Value
Measurements
 
 In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. SFAS
No. 157 establishes a framework for measuring fair value and expands disclosures
about fair value measurements. The changes to current practice resulting from
the application of this statement relate to the definition of fair value, the
methods used to measure fair value, and the expanded disclosures about fair
value measurements. SFAS No. 157 is effective for fiscal years
beginning after November 15, 2007. The FASB has granted a one-year deferral for
non-financial assets and liabilities to comply with this statement. The Company
has not yet determined the impact the implementation of SFAS 157 will have on
the Company’s non-financial assets and liabilities which are not recognized or
disclosed on a recurring basis. However, the Company does not anticipate that
the full adoption of SFAS 157 will significantly impact their consolidated
financial statements.
 
 SFAS No. 159 – The Fair
Value Option for Financial Assets and Financial Liabilities
 
 In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities.This statement permits entities to
choose to measure many financial instruments and certain other items at fair
value that are not currently required to be measured at fair value. The
objective is to improve financial reporting by providing entities with the
opportunity to mitigate volatility in reported earnings caused by measuring
related assets and liabilities differently without having to apply complex hedge
accounting provisions. This statement also establishes presentation and
disclosure requirements designed to facilitate comparisons between entities that
choose different measurement attributes for similar types of assets and
liabilities. This statement is effective for financial statements issued for
fiscal years beginning after November 15, 2007. The Company has not yet
determined the impact of the adoption of SFAS No.159 on its consolidated
financial statements and footnote disclosure.
  SFAS No. 160 –
Noncontrolling interest in Consolidated Financial Statements
  On
December 4, 2007, the FASB issued SFAS No. 160, Noncontrolling interest in
Consolidated Financial Statements (SFAS No. 160).  SFAS No. 160
requires all entities to report noncontrolling (minority) interests in
subsidiaries as equity in the consolidated financial statements. The statement
establishes a single method of accounting for changes in a parent’s ownership
interest in a subsidiary that do not result in deconsolidation and expands
disclosures in the consolidated financial statements. SFAS No. 160 is effective
for fiscal years beginning after December 15, 2008 and interim periods within
those fiscal years.  The Company has not yet determined the impact of
the adoption of SFAS No. 160 on its consolidated financial statements and
footnote disclosures.
  SFAS No. 141R – Business
Combinations
  In
December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations
(“SFAS 141R”). SFAS 141R establishes principles and requirements for
how an acquirer recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, any noncontrolling
interest in the acquiree and the goodwill acquired. SFAS 141R also
establishes disclosure requirements to enable the evaluation of the nature and
financial effects of the business combination. This statement is effective for
the Company beginning November 1, 2009 and will change the accounting for
business combinations on a prospective basis.
 
 SFAS No. 161 – Disclosures
about Derivative Instruments and Hedging
  In March
2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities, which is effective January 1, 2009.
SFAS 161 requires enhanced disclosures about derivative instruments and hedging
activities to allow for a better understanding of their effects on an entity’s
financial position, financial performance, and cash flows. Among other things,
SFAS 161 requires disclosures of the fair values of derivative instruments and
associated gains and losses in a tabular formant. SFAS 161 is not currently
applicable to the Company since the Company does not have derivative instruments
or hedging activity.
  F-11
  YAYI
INTERNATIONAL INC. AND SUBSIDIARIES
 (formerly
Ardmore Holding Corporation)
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED OCTOBER 31, 2008 AND 2007
  3.
              Recently
      Issued Accounting Pronouncements –
Continued
 
 SFAS No. 162 – The Hierarchy
of Generally Accepted Accounting Principles
 
 In May
2008, the FASB issued Statement of Financial Accounting Standards No. 162, The Hierarchyof Generally Accepted Accounting
Principles(“FAS 162"). This Standard identifies the sources of
accounting principles and the framework for selecting the principles to be used
in the preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles. FAS 162
directs thehierarchy to the
entity, rather than the independent auditors, as the entity is responsible for
selecting accounting principles for financial statements that are presented in
conformity with generally accepted accounting principles. The Standard is
effective 60 days
following SEC approval of the Public Company Accounting Oversight Board
amendments to remove the hierarchy of generally accepted accounting principles
from the auditing standards. FAS 162 is not expected to have an impact on the
consolidated financial statements.
 
 FSA 142-3 – Determination of
the Useful Life of Intangible Assets
 
 In April
2008, the FASB issued FASB Staff Position (FSP) FAS 142-3, Determination of the Useful Life of
Intangible Assets, 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 under FASB Statement No. 142, Goodwill and Other Intangible
Assets.This Staff Position 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 FSP is not
currently applicable to the Company.
 
 EITF 03-6-1 – Determining
Whether Instruments Granted in Share-Based Payment Transactions are
Participating Securities
 
 In June
2008, the FASB issued FSP EITF 03-6-1, Determining Whether Instruments
Granted in Share-Based Payment Transactions are Participating Securities.
This FSP provides that unvested share-based payment awards that contain
nonforfeitable rights to dividends or dividend equivalents (whether paid or
unpaid) are participating securities and shall be included in the computation of
earnings per share pursuant to the two-class method. The Company does not
currently have any share-based awards that would qualify as participating
securities. Therefore, application of this FSP is not expected to have an effect
on the Company's financial reporting.
 
 APB 14-1 – Accounting for
Convertible Debt That May Be Settled in Cash upon Conversion (Including Partial
Cash Settlement) (“FSP 14-1”)
 
 In May
2008, the FASB issued FASB Staff Position (FSP) APB 14-1, Accounting for Convertible Debt That
May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)("FSP 14-1"). FSP 14-1 will be effective for financial statements issued
for fiscal years beginning after December 15, 2008. The FSP includes guidance
that convertible debt instruments that may be settled in cash upon conversion
should be separated between the liability and equity components, with each
component being accounted for in a manner that will reflect the entity's
nonconvertible debt borrowing rate when interest costs are recognized in
subsequent periods. However, because the Company’s existing convertible debt
instruments are settled only in stock upon maturity, this guidance will not
apply, and as a result will not have an impact on the consolidated financial
statements.
  F-12
  YAYI
INTERNATIONAL INC. AND SUBSIDIARIES
 (formerly
Ardmore Holding Corporation)
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED OCTOBER 31, 2008 AND 2007
 3.
              Recently
      Issued Accounting Pronouncements -
Continued
  EITF
07-05 – Determining Whether an Instrument (or Embedded Feature) is Indexed to an
Entity’s Own Stock
  In June
2008, the FASB issued EITF Issue No. 07-5, EITF 07-Determining Whether an Instrument
(or Embedded Feature) is Indexed to an Entity’s Own Stock(“EITF Issue
No. 07-5”) which is effective for financial statements for fiscal years
beginning after December 15, 2008, and interim periods within those fiscal
years.  The Issue addresses the determination of whether an instrument
(or an embedded feature) is indexed to an entity’s own stock, which is the first
part of the scope exception in Paragraph 11(a) of SFAS No. 133 for the purpose
of determining whether the instrument is classified as an equity instrument or
accounted for as a derivative instrument which would be recognized either as an
asset or liability and measured at fair value.  The guidance shall be
applied to outstanding instruments as of the beginning of the fiscal year in
which this Issue is initially applied.  Any debt discount that was
recognized when the conversion option was initially bifurcated from the
convertible debt instrument shall continue to be amortized.  The
cumulative effect of the change in accounting principles shall be recognized as
an adjustment to the opening balance of retained earnings.  The
Company is currently evaluating the impact of EITF Issue No. 07-5 on its
consolidated financial statements and footnote disclosure.
 
 4.
              Acquisition
 
 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
purchase price in the form of cash for Fuping Milkgoat was allocated to tangible
assets acquired and liabilities assumed.  The estimated fair value of
the tangible assets acquired and liabilities assumed approximated the historical
cost basis.  The excess of the purchase price over the fair value of
the tangible assets was allocated to goodwill since there were no other
identifiable intangible assets. The purchase price was allocated as
follows:
  Cash
      and cash equivalents
                    
                    $
                    40,529Accounts
      receivable
                    
                    
                    18,891Other
      receivable
                    
                    
                    200,893Advances
      to suppliers
                    
                    
                    947Inventories
                    
                    
                    723,893Fixed
      Assets, net
                    
                    
                    681,386Construction
      in progress
                    
                    
                    9,348Accounts
      payable
                    
                    
                    (870,851
                    )Taxes
      payable
                    
                    
                    (37,190
                    )Other
      payable and accrued expenses
                    
                    
                    (8,410
                    )Advance
      from Tianjin Yayi
                    
                    
                    (416,939
                    )Net
      assets acquired
                    
                    $
                    342,497Goodwill
      upon acquisition of remaining interests
                    
                    
                    278,787Total
      purchase price
                    
                    $
                    621,284
  F-13
  YAYI
INTERNATIONAL INC. AND SUBSIDIARIES
 (formerly
Ardmore Holding Corporation)
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED OCTOBER 31, 2008 AND 2007
  4.
              Acquisition-
      Continued
 
 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 years ended October 31,
2008 and 2007:
  2008
                                    
                                    
                                    2007Net
      sales
                                    
                                    $
                                    21,791,268
                                    
                                    
                                    $
                                    14,632,513Net
      income
                                    
                                    
                                    1,806,575
                                    
                                    
                                    
                                    4,268,951Earnings
      per share - basic
                                    
                                    
                                    0.08
                                    
                                    
                                    
                                    0.19Earnings
      per share - diluted
                                    
                                    
                                    0.05
                                    
                                    
                                    
                                    0.19
  5.
              Restricted
      Cash
 
 Restricted
cash consists of:
 
 2008
                        
                        
                        2007Bank
      deposits held as collateral for bills payable
                        
                        $
                        -
                        
                        
                        $
                        715,939$
                        -
                        
                        
                        $
                        715,939
 
 During
the year ended October 31, 2007, the Company was requested by certain of its
suppliers to settle amounts owed to such suppliers by the issuance of bills
through banks for which the banks undertake to guarantee the Company’s
settlement of these amounts at maturity. These bills are interest−free with
maturity dates of three months and six months from the date of issuance. As
security for the banks’ undertaking, the Company is required to pay bank charges
as well as place a deposit with such banks equivalent to 100% of the bills’
amount at the time of such issuance.
  6.
Other Receivables
  Other
      receivable consists of:
                      
                      2008
                      
                      
                      2007Advance
      to staff
                      
                      $
                      42,196
                      
                      
                      $
                      221,335Due
      from unrelated party
                      
                      
                      37,940
                      
                      
                      
                      681,632Prepaid
      expenses
                      
                      
                      71,803
                      
                      
                      
                      159,169151,939
                      
                      
                      
                      1,062,136Less:
      allowance for bad debts
                      
                      
                      (29,207
                      )
                      
                      
                      (125,807
                      )$
                      122,732
                      
                      
                      $
                      936,329
 
 Amount
due from unrelated party represents refund due from Nanda Technology Company
Limited on research and development contract that was terminated on October 10,
2007.
  F-14
  YAYI
INTERNATIONAL INC. AND SUBSIDIARIES
 (formerly
Ardmore Holding Corporation)
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED OCTOBER 31, 2008 AND 2007
 7.
Inventory
 
 Inventory
consists of:
 2008
                            
                            
                            2007Raw
      materials
                            
                            $
                            1,852,213
                            
                            
                            $
                            347,531Packaging
                            
                            
                            446,031
                            
                            
                            
                            485,188Finished
      goods
                            
                            
                            1,031,532
                            
                            
                            
                            329,084$
                            3,329,776
                            
                            
                            $
                            1,161,803
 
 There was
no allowance made for obsolete or slow moving inventory as of October 31, 2008
and 2007.
 
 8.  Advances
 
 Advances
consist of:
 2008
                    
                    
                    2007Advances
      to Tianjin Mengyang Biological Development Co., Ltd ("Tianjin Menyang"),
      formerly Tianjin Milkgoat Dairy Co., Ltd.- purchase
      of office building (Note 16)
                    
                    $
                    4,185,505
                    
                    
                    $
                    3,207,298-
      purchase of factory and warehouse (Note 16)
                    
                    
                    3,575,186
                    
                    
                    
                    --
      for renovation of office building (Note 16)
                    
                    
                    342,810
                    
                    
                    
                    --
      short term loan
                    
                    
                    1,001,185
                    
                    
                    
                    -Advanced
      payment to other suppliers
                    
                    
                    229,185
                    
                    
                    
                    329,189Land
      use rights
                    
                    
                    146,200
                    
                    
                    
                    -$
                    9,480,071
                    
                    
                    $
                    3,536,487Less:
      Long-term portion - purchase of factory and warehouse
                    
                    
                    (3,575,186
                    )
                    
                    
                    -$
                    5,904,885
                    
                    
                    $
                    3,536,487
  As of
October 31, 2008, the Company extended an interest-free and unsecured loan to
Tianjin Mengyang for a total of $1,001,185 (equivalent to
RMB6,834,000).  The loan is to be repaid by Tianjin Mengyang before
March 31, 2009. If the loan is not repaid before this date, penalty will be
charged at the PRC prime interbank rate of 6.03% per annum.
 
 The
construction of office building was postponed from the original estimated
completed date of September 30, 2008 to  May 31, 2009 (Note
16).
 
 The
construction of factory and warehouse is estimated to be completed by December
31, 2009.   Accordingly, the amount paid of $3,575,186 is
reclassified to long term portion.
 
 F-15
 YAYI
INTERNATIONAL INC. AND SUBSIDIARIES
 (formerly
Ardmore Holding Corporation)
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED OCTOBER 31, 2008 AND 2007
  9.  Property,
Plant and Equipment
 
 Property,
plant and equipment consist of the following:
 2008
                    
                    
                    2007At
      cost:Leashhold
      improvement
                    
                    $
                    447,372
                    
                    
                    $
                    62,974Plant
      and machinery
                    
                    
                    2,303,599
                    
                    
                    
                    1,786,764Furniture,
      fixtures and equipment
                    
                    
                    184,829
                    
                    
                    
                    67,608Motor
      vehicles
                    
                    
                    197,526
                    
                    
                    
                    141,7293,133,326
                    
                    
                    
                    2,059,075Less:
      accumulated depreciation and amortization
                    
                    
                    (552,941
                    )
                    
                    
                    (250,859
                    )$
                    2,580,385
                    
                    
                    $
                    1,808,216
 
 Motor
vehicles are collateralized against long term payable (Note 12).
 
 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.
 
 During
the year ended October 31, 2007, depreciation expenses amounted to $126,497, of
which $103,855 and $22,642 were recorded as cost of sales and other selling,
general and administrative expense, respectively.
 
 10.  Short
Term Loans
 
 Short-term
loans due within one year as of October 31, 2008 and October 31, 2007 consist of
the following:
 2008
                                              
                                              
                                              2007Lender
                                              
                                              Loan
      Period
                                              
                                              Interest Rate
                                                per annumIndustrial
      & Commercial Bank
                                              
                                              November
      26, 2007 to November 12, 2008
                                              
                                              
                                              8.0
                                              %
                                              
                                              $
                                              586,000
                                              
                                              
                                              $
                                              534,616Rural
      Cooperative Bank
                                              
                                              December
      29, 2007 to December 27, 2008
                                              
                                              
                                              9.0
                                              %
                                              
                                              
                                              937,600
                                              
                                              
                                              
                                              1,069,233Tianjin
      City Commercial Bank
                                              
                                              July
      25, 2008 to July 24, 2009
                                              
                                              
                                              9.7
                                              %
                                              
                                              
                                              2,197,500
                                              
                                              
                                              
                                              1,336,541Allied
      Merit International Investment, Inc. (Note 15)
                                              
                                              July
      15, 2008 to December 31, 2008
                                              
                                              
                                              0
                                              %
                                              
                                              
                                              1,000,000
                                              
                                              
                                              
                                              -Allied
      Merit International Investment, Inc.
                                              
                                              November
      5, 2007 to the completion of first round of fund raising after the reverse
      merger
                                              
                                              
                                              8.0
                                              %
                                              
                                              
                                              114,395
                                              
                                              
                                              
                                              -Tianjin
      Yinna Gonggong Hangdao Shujun Company Limited
                                              
                                              September
      24, 2008 to December 24, 2008
                                              
                                              
                                              0
                                              %
                                              
                                              
                                              439,501
                                              
                                              
                                              
                                              -$
                                              5,274,996
                                              
                                              
                                              $
                                              2,940,390
  F-16
  YAYI
INTERNATIONAL INC. AND SUBSIDIARIES
 (formerly
Ardmore Holding Corporation)
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED OCTOBER 31, 2008 AND 2007
 10.  Short
Term Loans  - Continued
 
 Short-term
loans from Industrial & Commercial Bank, Rural Cooperative Bank, and Tianjin
City Commercial Bank 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 included in other selling, general and
administrative expenses for the year ended October 31, 2008 and 2007 was $30,154
and $30,161.These
loans were paid off subsequent to year end.
 
 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 15.  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 October 31, 2008, there was no conversion of accrued interest into
the Company’s common stock.  Interest of $9,152 was accrued for the
year ended October 31, 2008.
 
 On April
3, 2008, the Company entered into a loan agreement with Allied Merit for
$1,000,000.  The loan does not bear interest and was originally due on
July 7, 2008.  In July 1, 2008, in exchange for extending the maturity
date to December
31, 2008, the Company granted to Allied Merit Series E warrants to purchase
250,000 shares of the Company’s common stock at an exercise price of $1.08 per
share. The warrants expire on the third anniversary of the grant date. The fair
value of the Series E warrants is $233,547, valued using the Black Scholes
pricing model, and recorded as debt issuance costs.  The debt issuance
costs will be amortized over the term of the loan; amortization expense for the
year ended October 31, 2008 was $148,621.  The following assumptions
were used to calculate the fair value of these warrants: dividend yield of 0%,
expected volatility of 70.31%, risk-free interest rate of 2.73%, expected life
of 3 years, stock price of $1.60 per share, exercise price of $1.08 per
share.  On or about December 29, 2008, the due date of this loan was
extended as follows: 200,000 is due on or before each of April 30 and May 31,
2009, and $300,000 is due on each of June 30 and July 31, 2009. This loan is
secured by the pledge of 2,000,000 shares owned by Global Rock Stone Industrial,
Ltd. (“Global Rock”). Global Rock is the Company’s principal stockholder and Li
Liu, the Company’s principal executive officer, is affiliated with Global
Rock.
 
 On
September 24, 2008, the Company borrowed $439,501 (RMB3,000,000) from Tianjin
Yinna Gonggong Hangdao Shujun Company Limited.  The loan does not bear
interest and was due on January 9, 2009.  The loan is guaranteed by
Ms. Li Liu, CEO and major shareholder of the Company.  The loan was
paid off subsequent to October 31, 2008.
 
 On July
12, 2008, the Company entered into a loan agreement with Wuhan Asia Heart
Hospital for $730,994 (RMB5,000,000).  The monthly interest rate is 1%
and the loan is secured by the pledge of 1,500,000 shares of the Company owned
by Global Rock.  The loan is due on August 12, 2008.  The
Company repaid RMB3,000,000 of the loan in August 2008. On August 13, 2008, the
Company obtained an extension of the loan maturity date to October 12, 2008 for
the remaining RMB2,000,000 balance. The monthly interest rate on the
RMB2,000,000 loan is 1% and the loan is secured by 600,000 shares of the
Company’s common stock on the OTC market.   On September 26,
2008, the Company paid off the remaining RMB2,000,000 balance.
 
 The note
payable to Tyrant (Note 15) of $250,000 was paid in August
2008.
  F-17
  YAYI
INTERNATIONAL INC. AND SUBSIDIARIES
 (formerly
Ardmore Holding Corporation)
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED OCTOBER 31, 2008 AND 2007
 11.  Due
to Related Parties
 
 2008
                    
                    
                    2007Li
      Liu, a director of the Company, officer and principal
      shareholder
                    
                    $
                    977,950
                    
                    
                    $
                    1,247,110$
                    977,950
                    
                    
                    $
                    1,247,110
  The
amount due to Li Liu is unsecured with no stated interest or repayment terms and
for the use as working capital.
 
 12.  Long-Term
Loans
 
 As of
October 31, 2008 and 2007, the Company has the following long-term
loans:
  2008
                          
                          
                          
                          2007Installment
      loan from Bank of Agriculture, interest at 5.28% per annum, monthly
      principal and interest payment of $200 from May 19, 2005 to May 18, 2008
      (Note 9)
                          
                          $
                          -
                          
                          
                          
                          $
                          1,100Installment
      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 (Note 9)
                          
                          
                          2,295
                          
                          
                          
                          
                          5,801Installment
      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 (Note 9)
                          
                          
                          31,794
                          
                          
                          
                          
                          55,407Convertible
      notes in principal amounts of $1,300,000, less debt discount of $460,442,
      interest at 8% per annum, due December 2009 (Note 16)
                          
                          
                          839,558
                          
                          (a)
                          
                          
                          -873,647
                          
                          
                          
                          
                          62,308Less:
      current portion
                          
                          
                          (34,089
                          )
                          
                          
                          
                          (31,208
                          )Long-term
      loans, net of current portion
                          
                          $
                          839,558
                          
                          
                          
                          $
                          31,100
 
 Future
maturities of long-term loans as of October 31, 2008 are as
follows:
 
 2009
                          
                          $
                          34,0892010
                          
                          
                          839,558$
                          873,647
  F-18
  YAYI
INTERNATIONAL INC. AND SUBSIDIARIES
 (formerly
Ardmore Holding Corporation)
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED OCTOBER 31, 2008 AND 2007
 
 12.  Long-Term
      Loans - Continued
 
 (a) The
convertible notes payable, net of debt discount consists of the following as of
October 31, 2008:
 
 Convertible
      notes payable
                    
                    $
                    1,300,000Less:
      Debt discount - Series A Warrants
                    
                    
                    (280,726
                    )Less:
      Debt discount - beneficial conversion feature
                    
                    
                    (304,800
                    )Accretion
      of debt discount - warrants and beneficial conversion
    feature
                    
                    
                    125,084Convertible
      notes payable, net
                    
                    $
                    839,558
 
 Accrued
interest as of October 31, 2008 and interest expense for the year ended October
31, 2008 was $42,179.
 
 13.  Income
and Other Tax Payables
 
 Income
and other tax payables consist of the following:
 
 2008
                  
                  
                  2007Income
      tax payable
                  
                  $
                  65,075
                  
                  
                  $
                  -Value
      added tax payable
                  
                  
                  1,157,293
                  
                  
                  
                  1,032,176Individual
      income withholding tax payable
                  
                  
                  -
                  
                  
                  
                  2,468Other
      tax payables
                  
                  
                  23,843
                  
                  
                  
                  8,510$
                  1,246,211
                  
                  
                  $
                  1,043,154
 
 14.  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 year ended October 31, 2008.  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 and Fuping Milkgoat are subject to PRC income
tax.  Income tax expense for the year ended October 31, 2008 was
$1,633,946.  There was no income tax expense for the year ended
October 31, 2007 because Tianjin Yayi was fully exempted from PRC enterprise
income tax during 2007 and Weinan Milkgoat incurred losses during
2007.
  F-19
  YAYI
INTERNATIONAL INC. AND SUBSIDIARIES
 (formerly
Ardmore Holding Corporation)
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED OCTOBER 31, 2008 AND 2007
 14.  Income
Tax - Continued
 
 As
approved by the relevant tax authority in the PRC, Tianjin Yayi was fully
exempted from PRC enterprise income tax for three years starting from 2004
through December 31, 2007. Effective January 1, 2008, the statutory PRC tax rate
is 25% (prior to January 1, 2008, the statutory PRC rate was
33%).  Therefore, the statutory PRC rate for the year ended October
31, 2008 was 26.3%.
 
 The
income tax provision consists of the following:
 
 2008
                      
                      
                      2007Current
                      
                      $
                      1,643,348
                      
                      
                      $
                      -Change
      in deferred tax asset
                      
                      
                      (1,728,502
                      )
                      
                      
                      (8,600
                      )Change
      in valuation allowance
                      
                      
                      1,719,100
                      
                      
                      
                      8,600$
                      1,633,946
                      
                      
                      $
                      -
 
 The
following is a reconciliation of the tax derived by applying the PRC Statutory
Rate of 26.3% to the earnings before income taxes, excluding merger costs, and
comparing that to the recorded income tax provisions:
 
 Years
      ended October 31,2008
                    
                    
                    2007Tax
      provision at PRC statutory rate
                    
                    
                    26.3
                    %
                    
                    
                    33.0
                    %Tax
      exemption
                    
                    
                    -5.0
                    %
                    
                    
                    -33.0
                    %Parent
      company's expenses not subject to PRC tax
                    
                    
                    2.3
                    %
                    
                    
                    0.0
                    %Effective
      tax rate
                    
                    
                    23.6
                    %
                    
                    
                    0.0
                    %
 
 The
components of the deferred tax assets  are as follows:
 
 2008
                    
                    
                    2007Deferred
      tax asset for NOL carryforwards - China
                    
                    $
                    55,700
                    
                    
                    $
                    8,600Deferred
      tax asset for NOL carryforwards - US
                    
                    
                    1,104,000
                    
                    
                    
                    -Warrant
      expense
                    
                    
                    568,000
                    
                    
                    
                    -Allowance
      for doubtful accounts receivable
                    
                    
                    9,402
                    
                    
                    
                    -$
                    1,737,102
                    
                    
                    $
                    8,600Valuation
      allowance
                    
                    
                    (1,727,700
                    )
                    
                    
                    (8,600
                    )$
                    9,402
                    
                    
                    $
                    -
  F-20
  YAYI
INTERNATIONAL INC. AND SUBSIDIARIES
 (formerly
Ardmore Holding Corporation)
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED OCTOBER 31, 2008 AND 2007
 14.  Income
Tax – Continued
 
 The
valuation allowance for deferred tax assets as of October 31, 2008 and 2007 was
$1,727,700 and $8,600. The change in the total valuation allowance for the years
ended October 31, 2008 and 2007 was an increase of $$1,719,100 and an increase
of $8,600.  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 October 31, 2008, the Company had net operating loss
carry forwards for United States Federal and State income tax purposes of
approximately $2,694,000 (the “NOL carry forwards-US”), which were available to
offset future US taxable income, if any, through 2028. At October 31, 2008, the
Company had net operating loss carry forwards, associated with its subsidiaries
Weinan Milkgoat and Fuping Milkgoat, for PRC income tax purposes of
approximately $223,000 (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 and Fuping
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.
 
 15.  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 $536,367is
reflected as cancellation of common stock.
  F-21
  YAYI
INTERNATIONAL INC. AND SUBSIDIARIES
 (formerly
Ardmore Holding Corporation)
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED OCTOBER 31, 2008 AND 2007
 
 15.  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.  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.  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%.
  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. However, under such agreement, the
Company was not required to accrue any penalty with respect to such
failure.  Penalties will begin to accrue when specific conditions in
the registration rights agreement occur.
  F-22
  YAYI
INTERNATIONAL INC. AND SUBSIDIARIES
 (formerly
Ardmore Holding Corporation)
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED OCTOBER 31, 2008 AND 2007
  15.  Merger
and Offering – Continued
 
 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 asan expense.  The
debt issuance costs are amortized by the interest method over the term of the
convertible notes.
 
 For the
year ended October 31, 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 $157,304.
 
 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 these 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.
 
 The
following table summarizes all of the Company’s warrant transactions for the
year ended October 31, 2008.
 Shares issued
                    
                    
                    Fair ValueWarrants issued in
      respect of the merger:Series
      A Warrants
                    
                    
                    601,900
                    
                    
                    $
                    280,726Series
      B Warrants
                    
                    
                    2,148,148
                    
                    
                    
                    1,144,743Series
      C Warrants
                    
                    
                    185,185
                    
                    
                    
                    86,367Series
      D Warrants
                    
                    
                    144,448
                    
                    
                    
                    67,3683,079,681
                    
                    
                    $
                    1,579,204Warrants
      issued in exchange for extension of maturity date of loan from Allied
      Merit:Series
      E Warrants (Note 10)
                    
                    
                    250,000
                    
                    
                    
                    233,5473,329,681
                    
                    
                    $
                    1,812,751
 
 Exercise PriceOption
                    
                    
                    Vested
                    
                    
                    per CommonShares
                    
                    
                    Shares
                    
                    
                    Stock RangeBalance,
      October 31, 2007
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Granted
      or vested during the year ended October 31, 2008
                    
                    
                    3,329,681
                    
                    
                    
                    3,329,681
                    
                    
                    
                    $1.08-$1.35Expired
      during the year ended October 31, 2008
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Balance,
      October 31, 2008
                    
                    
                    3,329,681
                    
                    
                    
                    3,329,681
                    
                    
                    
                    $1.08-$1.35
  F-23
  YAYI
INTERNATIONAL INC. AND SUBSIDIARIES
 (formerly
Ardmore Holding Corporation)
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED OCTOBER 31, 2008 AND 2007
 15.  Merger
and Offering – Continued
 
 The
following table summarizes the weighted average remaining contractual life and
exercise price of the Company’s outstanding warrants.
  Warrants
      OutstandingNumber Outstanding
                      
                      Weighted Average
                      
                      
                      Weighted AverageRange of
                      
                      Currently Exercisable
                      
                      Remaining
                      
                      
                      Exercise Price of WarrantsExercise Prices
                      
                      at October 31, 2008
                      
                      Contractual Life (Years)
                      
                      
                      Currently Exercisable$1.08-$1.35
                      
                      3,329,681
                      
                      2.6
                      
                      $
                      1.16
  16.  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
October 31, 2008, the Company was obligated under operating leases requiring
minimum rentals as follows:
 Fiscal
      year2009
                            
                            $
                            79,1102010
                            
                            
                            81,5522011
                            
                            
                            82,0402012
                            
                            
                            82,040Thereafter
                            
                            
                            303,988$
                            628,730
 
 For the
years ended October 31, 2008 and 2007, rent expense amounted to $221,989 and
$116,478 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 $ 4,342,260 (equivalent to RMB29,640,000).  Tianjin
Mengyang is responsible for renovation of the building.  As of October
31, 2008, the Company had advanced a total of $4,185,505 (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, Tianjin city government temporarily discontinued all
existing construction projects,  therefore, the estimated completion
date of project has been postponed to May 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.
  F-24
  YAYI
INTERNATIONAL INC. AND SUBSIDIARIES
 (formerly
Ardmore Holding Corporation)
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED OCTOBER 31, 2008 AND 2007
  16.  Commitments
and Contingencies - Continued
 
 The
Company also advanced $342,810 (equivalent to RMB2,340,000) to Tianjin Mengyang
for interior renovation of the building.  The remaining $342,810 is to
be paid upon inspection of the completed renovation project.  If this
advance is not repaid upon completion of the project, the balance accrues
interest at the PRC prime interbank rate of 6.03% per annum for a 3 month
loan.
 
 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 $1,290,398 (RMB8,808,180) for 21 years from September 1, 2008 to
August 31, 2029. A half-year deposit of $645,199 (RMB4,404,090) 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
Tianjian Mengyang that cancelled the factory and warehouse leasing agreement
which was 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 $13,257,518 (RMB90,495,000).  The rental deposit of $645,199
(RMB4,404,909), paid with respect to the factory and warehouse leasing agreement
signed on January 15, 2007, was used to partially offset the total
consideration. A monthly payment of $1,465,000 (RMB10,000,000) is due at the end
of each month from September 1, 2008 to December 31, 2008.  As of
October 31, 2008, the Company has paid $2,930,000 (RMB20,000,000).  On
January 20, 2009, the Company signed a supplemental agreement with Tianjian
Mengyang to postpone the construction completion date to December 31,
2009.  Subsequent to fiscal year 2008 to the date of this supplemental
agreement, the Company has paid an additional $2,930,000 (RMB20,000,000). A
monthly payment of $439,500 (RMB3,000,000) is due at the end of each month from
January 2009 to November 2009, totaling $4,834,500
(RMB33,000,000).  The remaining balance of $1,917,698 (RMB13,090,091)
is due on December 31, 2009.  Interest of 0.1% per month will be
charged for late payment.  According to the supplemental agreement, if
the Company could not raise capital by April 30, 2009 according to its plan,
Tianjian Mengyang agrees to postpone the remaining payments to March 31,
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:
 Fiscal
      year
                    
                    Tons2009
                    
                    
                    2,2052010
                    
                    
                    2,2052011
                    
                    
                    2,1562012
                    
                    
                    1,788Thereafter
                    
                    
                    6759,029
 
 The price
for the goat milk and goat placenta is determined by the market. As of October
31, 2008, the market price for the goat milk and goat placenta is $432 per ton
(equivalent to RMB2,950 per ton).
  F-25
  YAYI
INTERNATIONAL INC. AND SUBSIDIARIES
 (formerly
Ardmore Holding Corporation)
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED OCTOBER 31, 2008 AND 2007
 16.
Commitments and Contingencies – Continued
 
 Process
contracts
 
 On
December 30, 2006 the Company entered into a process contract with a third
party.  The third party provided production facility, office,
dormitory, equipment and personnel to process liquid milk.  The
minimum monthly fee is $17,580 (RMB120,000) which was based on a minimum annual
production commitment of 800 metric tons at $263 (RMB 1,800) per metric
ton.  This contract expires on December 29, 2008 and is automatically
renewed for one year at end of term since the Company anticipates it will have
its own production capacity by the end of fiscal 2009.   As of
October 31, 2008, the Company was obligated under this contract for a minimum
fees of approximately $210,120 (RMB1,200,000) for the fiscal year ending October
31, 2009, and $35,000 (RMB240,000) for the fiscal year ending October 31,
2010.
 
 On April
1, 2007, the Company entered into a process contract with a third
party.  The third party will provide production facility, equipment
and personnel to process liquid milk.  The monthly fee is
approximately $15,000 (RMB103,000) and the contract expires on December 31,
2009.  As of October 31, 2008, the Company was obligated under this
contract for a minimum fee of approximately $181,000(RMB1,236,000) for the
fiscal year ending October 31, 2009 and $30,000(RMB206,000) for the fiscal year
ending October 31, 2010.
 
 Land
Use Rights Agreement
 
 On July
25, 2008, the Company entered into an agreement with the Government of the Lin
Wei 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 $19,045,000 (RMB130,000,000), which includes fixed assets
investment of approximately $11,720,000 (RMB80,000,000) and working capital of
approximately $7,325,000 (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 $996,200
(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. In
accordance with the supplemental agreement, the Company paid $146,500
(RMB1,000,000) in August 2008 for part of the consideration of the land use
rights and is reflected as advances to suppliers on the balance
sheet.   The remaining balance of $849,700 will be paid prior to
the start of construction.
 
 17.
Concentrations, Risks, and Uncertainties
 
 The
Company did not have any customer constituting greater than 10% of net sales for
the year ended October 31, 2008.
 
 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:
 
 2008
                    
                    
                    2007Lintong
      Hongxing Dairy Co., Ltd.
                    
                    
                    13
                    %
                    
                    
                    10
                    %Pacific
      Dairy Co., Ltd
                    
                    
                    *
                    
                    
                    
                    10
                    %
  *
Constitute less than 10% of the Company's purchasing volume.
  As at
October 31, 2008, amount due to Lintong Hongxing Dairy Co., Ltd included in
accounts payable was approximately $50,171.
 Included
in advances (Note 8) is $38,163 of advance paid to this
supplier.
  F-26
  YAYI
INTERNATIONAL INC. AND SUBSIDIARIES
 (formerly
Ardmore Holding Corporation)
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED OCTOBER 31, 2008 AND 2007
 18.  Operating
Risk
 
 Interest
rate risk
 
 The
interest rates and terms of repayment of bank and other borrowings are disclosed
in Note 11 and Note 13.  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.
 
 19.
Earnings Per Share
 
 Basic
earnings per share is 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:
 
 Year
      ended
                                  October
      31,2008
                                
                                
                                2007Net
      income available for common shareholders - basic
                                
                                
                                1,825,217
                                
                                
                                
                                4,327,873Less:
      write-off of total debt discount on convertible debt since unamortized
      debt discount is written-off upon conversion
                                
                                
                                (
      585,526
                                )
                                
                                
                                -Less:
      write-off of total deferred financing costs on convertible debt since
      unamortized financing costs are written-off upon
conversion
                                
                                
                                (
      150,827
                                )
                                
                                
                                -Add:
      Interest expense on convertible note
                                
                                
                                199,475
                                
                                
                                
                                -Net
      income available for common shareholders - diluted
                                
                                
                                1,288,339
                                
                                
                                
                                4,327,873Weighted
      average outstanding shares of common stock
                                
                                
                                23,402,329
                                
                                
                                
                                22,325,000Dilutive
      effect of warrants
                                
                                
                                553,923
                                
                                
                                
                                -Dilutive
      effect of convertible notes
                                
                                
                                484,779
                                
                                
                                
                                -Diluted
      weighted average outstanding shares
                                
                                
                                24,441,031
                                
                                
                                
                                22,325,000Earnings
      per share:Basic
                                
                                $
                                0.08
                                
                                
                                $
                                0.19Diluted
                                
                                $
                                0.05
                                
                                
                                $
                                0.19
  F-27
  YAYI
INTERNATIONAL INC. AND SUBSIDIARIES
 (formerly
Ardmore Holding Corporation)
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED OCTOBER 31, 2008 AND 2007
 20.
Restatement of previously issued October 31, 2007 financial
statements
 
 The
Company has restated the consolidated balance sheet, consolidated statement of
income and comprehensive income, consolidated statement of equity and
consolidated statement of cash flows for the year ended October 31, 2007 to
reflect the accrual for estimated sales return.  The accumulated
deficit balance as of October 31, 2006 has been restated and increased by
$64,415 to reflect the cumulative effect of the error.
 
 The
following is a summary of the restatement in the consolidated balance sheet and
consolidated statement of income and comprehensive income as of and for the year
ended October 31, 2007.
 
 Accrued Sales Return
                    
                    
                    Accumulated Other
                      Comprehensive (Loss)
                    
                    
                    Retained (Deficit)As
      previously reported as of October 31, 2007
                    
                    $
                    -
                    
                    
                    $
                    (83,373
                    )
                    
                    $
                    (500,074
                    )Cumulative
      effect of restatement related to accrued sales return (Note
      20)
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (64,415
                    )Record
      accrued sales return as of October 31, 2007
                    
                    
                    160,856
                    
                    
                    
                    (6,024
                    )
                    
                    
                    (90,417
                    )Restated
      October 31, 2007 balances
                    
                    $
                    160,856
                    
                    
                    $
                    (89,397
                    )
                    
                    $
                    (654,906
                    )
 
 Net Sales
                    
                    
                    Cost of Goods Sold
                    
                    
                    Net Income
                    
                    
                    Foreign Currency
                      Translation
                      Adjustment
                    
                    
                    Comprehensive
                      IncomeAs
      previously reported for the year ended October 31, 2007
                    
                    $
                    14,409,778
                    
                    
                    $
                    5,044,419
                    
                    
                    $
                    4,418,290
                    
                    
                    $
                    50,859
                    
                    
                    $
                    4,469,149Restated
      for estimated sales return for the year ended October 31,
    2007
                    
                    
                    (126,048
                    )
                    
                    
                    (35,631
                    )
                    
                    
                    (90,417
                    )
                    
                    
                    (6,024
                    )
                    
                    
                    (96,441
                    )Restated
      for the year ended October 31, 2007
                    
                    $
                    14,283,730
                    
                    
                    $
                    5,008,788
                    
                    
                    $
                    4,327,873
                    
                    
                    $
                    44,835
                    
                    
                    $
                    4,372,708
 
 Basic & Diluted EPSAs
      previously reported for the year ended October 31, 2007
                    
                    $
                    0.20Restated
      for estimated sales return for the year ended October 31,
    2007
                    
                    
                    0.01Restated
      for the year ended October 31, 2007
                    
                    $
                    0.19
 
 21.
Subsequent Event
 
 On
November 13, 2008, the Company entered into a loan agreement with Industrial
& Commercial Bank of China, Ltd. for $586,000 (RMB4,000,000).  The
annual interest rate is 7.992% per annum and is due 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.
 
 On
November 28, 2008, the Company entered into a loan agreement with Shanghai
Pudong Development Bank for $1,465,000 (RMB10,000,000).  The annual
interest rate is 7.254% per annum and is due on November 28, 2009.The loan isguaranteed by the Tianjin Haitai Investment Guarantee Co., Ltd. with a
guarantee fee of 1.5% of the original loan amount.
 
 On
December 26, 2008, the Company entered into a loan agreement with Tianjin Haitai
Investment Guarantee Co., Ltd. for $732,500 (RMB5,000,000).  The
annual interest rate is 5.83% per annum and is due on March 26, 2009. The
Company has to pay a guarantee fee of 1.5% of the original loan amount toTianjin Haitai
Investment Guarantee Co., Ltd.
  F-28




Item 9.  Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.





On June 30, 2008, BDO Seidman, LLP was
notified by our Board of Directors that, effective June 30, 2008, BDO Seidman,
LLP was dismissed as our independent registered public accounting firm following
our acquisition of Charleston Industrial.





BDO Seidman, LLP’s reports on our
financial statements as of and for the years ended December 31, 2007 and 2006
noted that our financial statements were prepared assuming that we will continue
as a going concern. BDO Seidman, LLP stated that, as discussed in Note 10 to the
respective financial statements, we suffered recurring losses from operations
and had a net capital deficiency that raise substantial doubt about our ability
to continue as a going concern and noted that the consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty. BDO Seidman, LLP’s reports did not contain an adverse opinion
or a disclaimer of opinion, nor were they qualified or modified in any other
way.





During the years ended December 31,
2007 and 2006 and the subsequent interim period through June 30, 2008, there
were no disagreements with BDO Seidman, LLP on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which disagreement, if not resolved to the satisfaction of BDO
Seidman, LLP, would have caused it to make a reference thereto in its reports on
our financial statements for such periods. In addition, there were no
“reportable events” as that term is described in Item 304(a)(1)(v) of Regulation
S-K.





As of June 30, 2008, we engaged Morison
Cogen LLP as our new independent registered public accountants. During our two
most recent fiscal years, and the subsequent interim periods through June 30,
2008 (the date of engagement of Morison Cogen LLP), we did not consult Morison
Cogen LLP regarding either: (i) the application of accounting principles to a
specific completed or contemplated transaction, or the type of audit opinion
that might be rendered on our financial statements; or (ii) any matter that was
the subject of a disagreement as defined in Item 304(a)(1)(iv) of Regulation
S-K.




Item 9A(T). Controls and Procedures





Evaluation
of Disclosure Controls and Procedures





Based on management’s evaluation (with
the participation of our chief executive officer and chief financial officer),
as of the end of the period covered by this report, our chief executive officer
and chief financial officer have concluded that, except as noted below, our
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
under the Exchange Act ), are effective to provide reasonable assurance that
information required to be disclosed by us in reports that we file or submit
under the Exchange Act is recorded, processed, summarized, and reported within
the time periods specified in SEC rules and forms, and is accumulated and
communicated to management, including our chief executive officer and chief
financial officer, as appropriate to allow timely decisions regarding required
disclosure.  Notwithstanding the foregoing, our executive officers
noted that information with respect to material agreements or amendments thereto
was not disseminated in a manner that would allow an evaluation, on a timely
basis, as to whether a Current Report on Form 8-K was required to be filed with
respect thereto. Accordingly, our chief executive officer and chief financial
officer intend to obtain additional guidance and/or training with respect to the
circumstances and events which require the filing of a Current Report on Form
8-K.




- 30
-




Change
in Internal Control over Financial Reporting





There has been no change in our
internal control over financial reporting (as defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act) that occurred during our fourth fiscal quarter
that has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.





Management
Report on Internal Control over Financial Reporting





Management is responsible for
establishing and maintaining adequate internal control over financial reporting
(as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements in accordance with U.S. generally accepted
accounting principles (“GAAP”).





Management assessed our internal
control over financial reporting as of October 31, 2008. 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”).





In connection with management's
assessment of our internal control over financial reporting as required under
Section 404 of the Sarbanes-Oxley Act of 2002, we identified the following
material weakness in our internal control over financial reporting as of October
31, 2008:





1.  There is a strong
reliance on the external auditors to review and adjust the annual and quarterly
financial statements, to monitor new accounting principles, and to ensure
compliance with GAAP and SEC disclosure requirements.





Because of the material weakness noted
above, management has concluded that we did not maintain effective internal
control over financial reporting as of October 31, 2008, based on Internal
Control - Integrated Framework issued by COSO.  However, although our
controls are not effective, this material weakness did not result in any
material misstatements or omissions in our consolidated financial
statements.




- 31
-




Management had retained a third party,
unrelated to its independent registered public accountant, to assist its
executive officers, and in particular its chief financial officer, in the
preparation of our consolidated financial statements in accordance with
GAAP.  Such third party has extensive experience in assisting
China-based issuers in preparing financial statements in accordance with
GAAP.  Though this third party had been retained prior to the audit of
our consolidated financial statements, to remediate this weakness we intend to
involve such third party at an earlier stage in the financial statement
preparation process which we believe will minimize the need for our independent
registered public accountants to suggest adjustments to our consolidated
financial statements.





Auditor
Attestation





This Annual Report does not include an
attestation report of our registered public accounting firm regarding internal
control over financial reporting.  Management's report was not subject
to attestation by our registered public accounting firm pursuant to temporary
rules of the SEC that permit us to provide only management's report in this
Annual Report.





Item 9B.  Other Information





During our fourth quarter of fiscal
2008 and the first quarter of fiscal 2009, we amended and/or terminated
agreements with Tianjin Mengyang and the Weinan City
Government.  These matters are more fully described in “Item 2.
Properties” and note 16 to our consolidated financial statements.




PART
III





Item 10.  Directors and Executive
Officers





The following persons became executive
officers and/or directors in June 2008 and hold the positions set forth opposite
their respective names.  All of our directors hold office until the
next annual meeting of stockholders and their successors are duly elected and
qualified. Executive officers serve at the pleasure of the board of
directors.





Name
              
              Age
              
              Position with Public
  CompanyLi
      Liu
              
              50
              
              Chairman
      of the Board and Chief Executive OfficerFeng
      Shek
              
              53
              
              Director
      and Vice PresidentCili
      Yan
              
              50
              
              DirectorTong
      Li
              
              42
              
              Chief
      Financial OfficerZhiquan
      Zhang
              
              41
              
              Secretary





Li Liuhas, since 1994,
served as  Chairman of the Board and General Manager of Tianjin
Yayi.  As General Manager, she has served as chief executive
responsible for all of Tianjin Yayi’s operations. She graduated with a medical
degree from Tianjin Medical University in 1983 and in September 2006 received a
masters degree in business administration from Tshinghua University,
China.  Feng Shek is her husband.




- 32
-




Feng Shek has served
as  a Deputy General Manager of Tianjin Yayi since
2000.   As Deputy General Manager, he is responsible for Tianjin
Yayi’s sales network and market development.    Li Liu is
his wife.


Cili Yanhas served as Tianjin
Yayi’s Vice General Manager since 1999.  In this position, she has
been responsible for Tianjin Yayi’s facility in Weinan City.





Tong Lihas served as our
Chief Financial Officer since May, 2008.  From August, 2006 through
April, 2008, she was employed as a certified public accountant at Jin Ping Xie
Tong Public Accountants.  From July, 2004 to June, 2005, she served as
Financial Manager at CGE-BC Water Investment Co., Ltd., which is engaged in the
business of investment in water supply and sewage treatment facilities where she
was responsible for financial management.  From January, 2003 to June,
2004, she served as the Assistant to the Financial Director at D. Tian W. Group,
a company engaged in the logistics business where she was responsible for
investment and financial matters.





Zhiquan Zhanghas served as
Assistant General Manager of Tianjin Yayi since, 2006.  In such
position, he has been responsible for assisting the chief executive
officer.  From March, 2003 to February, 2006, he served as Financial
Manager of Tianjin Deer Technology Developing Co., Ltd., a company engaged in
the business of manufacturing auto parts, where he was responsible for financial
management.





We do not have any independent
directors on our board of directors.





Significant Employees





The Company has no employees who are
not executive officers, but who are expected to make a significant contributions
to the Company’s business.





Family
Relationships.





Other than the relationship between
Feng Shek and Li Liu as husband and wife, there are no other familial
relationships (whether by blood, marriage or adoption) among any one or more of
our officers and directors.





Involvement in Certain Legal
Proceedings.





None of our executive
officers  or director has, during the last five years: (i) been
convicted in or is currently subject to a pending a criminal proceeding; (ii)
been a party to a civil proceeding of a judicial or administrative body of
competent jurisdiction and as a result of such proceeding was or is subject to a
judgment, decree or final order enjoining future violations of, or prohibiting
or mandating activities subject to any federal or state securities or banking
laws including, without limitation, in any way limiting involvement in any
business activity,  or finding any violation with respect to such law,
nor (iii) has any bankruptcy petition been filed by or against the business of
which such person was an executive officer or a general partner, whether at the
time of the bankruptcy of for the two years prior thereto.




- 33
-




Compliance with Section 16(a) of the
Exchange Act





To our knowledge, based solely on a
review of such materials as are required by the Securities and Exchange
Commission, none of our officers, directors or beneficial holders of more than
10% of our issued and outstanding shares of common stock failed to timely file
with the Securities and Exchange Commission any form or report required to be so
filed pursuant to Section 16(a) of the Securities Exchange Act of 1934, during
the fiscal year ended October 31, 2008 other than Global Rock Stone Industrial
Ltd. which is late in filing its form 3.





Code of Ethics





A written code of ethics that applies
to, among others, our principal executive officer, principal financial officer
or controller, or persons performing similar functions was adopted prior to the
reverse subsidiary merger.




Board Committees





Our Board of Directors does not have an
audit committee, nominating committee or compensation committee, nor have we
adopted charters relative to such committees. We do not have an “audit committee
financial expert” because, among other things, following the change in June 2008
in the composition of our board of directors, we have a relatively new board of
directors which board has not yet determined whether such an expert would be of
assistance to the functioning of the board.




Item 11.  Executive Compensation





The following table sets forth the cash
compensation earned by our principal executive officer and any other executive
officer receiving in excess of $100,000 per annum for services rendered during,
except as otherwise provided,  the twelve months ended October 31,
2008 and 2007 and 2006.




SUMMARY COMPENSATION TABLE





Name
      and
                          Principal Position
                        
                        Year
                        
                        
                        Salary
                          ($)
                        
                        
                        Bonus
                          ($)
                        
                        
                        Stock
      Awards
                          ($)
                        
                        
                        Option
                          Awards
                          ($)
                        
                        
                        Non-Equity
                          Incentive
      Plan
                          Compensation
      ($)
                        
                        
                        Nonqualified
      Deferred Compensation
      Earnings
                          ($)
                        
                        
                        All
      Other
                          Compensation
                          ($)
                        
                        
                        Total
                          ($)Li
      Liu
                          Chief
      Executive Officer (1)
                        
                        
                        2008
                          2007
                        
                        
                        
                        21,238
                          6,380
                        
                        
                        
                        -
                          -
                        
                        
                        
                        -
                          -
                        
                        
                        
                        -
                          -
                        
                        
                        
                        -
                          -
                        
                        
                        
                        -
                          -
                        
                        
                        
                        -
                          -
                        
                        
                        
                        -
                          -Jeff
      D. Jenson
                          Chief
      Executive Officer (3)
                        
                        
                        2008
                          2007
                        
                        
                        
                        0
                          0
                        
                        
                        
                        -
                          -
                        
                        
                        
                        -
                          -
                        
                        
                        
                        -
                          -
                        
                        
                        
                        -
                          -
                        
                        
                        
                        -
                          -
                        
                        
                        
                        -
                          -
                        
                        
                        
                        -
                          -




- 34
-




1.Assumed this
position on June 6, 2008.  Her reported compensation is for the twelve
months ended October 31, 2008 and 2007 and includes her compensation for periods
prior to the reverse subsidiary merger which was completed in June 2008.For at least
the two years prior to the completion of the reverse merger, she was the
principal executive officer of Tianjin Yayi.  See “Item
13.  Certain Relationships and Related Transactions” and notes 1 and
11 for information regarding the dividend  to which she is entitled
and her loans to us.


2.  Assumed this position in March 2006 and
left such position in June 2008.  His reported compensation is for the
years ended December 31.  See “Item 13.  Certain
Relationships and Related Transactions” and note 15 to our consolidated
financial statements for information regarding transactions between us and
Tryant, LLC, an entity with which Mr. Jenson was affiliated.




Outstanding
Equity Awards at Fiscal Year-End





We had no outstanding equity awards as
of the fiscal year ended October 31, 2008.




Compensation
of Directors





Directors are not compensated for
serving in such capacity.




Employment
Contracts and Termination of Employment and Change-in-Control
Arrangements





We do not have any employment
contracts, compensatory plans or arrangements, including payments to be received
from us, with respect to any of our directors or executive officers which would
in any way result in payments to any such person because of his or her
resignation, retirement or other termination of employment with us, any change
in control involving us, or a change in the person’s responsibilities following
a change in control involving us.  All of our executive officers are
employed on an “at will” basis and can be terminated at any time without reason,
subject to applicable law.  The current annual base salary of Li Liu,
our principal executive officer is $35,160 and the current annual base salary of
Tong Li, our principal financial officer, is $27,249.  None of our
executive officers receives compensation from us in excess of $100,000 per
year.  See “Item 13. Certain Relationships and Related Transactions”
and note 11 of our consolidated financial statements for information regarding
transactions between us and Li Liu, our chief executive officer.




Equity Incentive
Plans.





We do not currently have any equity
incentive plans in place, but we may determine to adopt such a plan applicable
to members of our board of directors, employees or others in the
future.




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Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters





The following table sets forth certain
information, as of the closing of the merger, with respect to the beneficial
ownership of our common stock by each: (i) holder of more than five percent (5%)
of the outstanding shares of our common stock; (ii) our officers and directors;
and (iii) all our officers and directors as a group.  There were
25,000,000 shares of our common stock outstanding at the close of business on
October 31, 2008.  Unless otherwise indicated, the address of each
person and entity identified below is: 9 XingGuang Road, ZhongBei Industrial
Park, Xi Qing District, Tianjin 300384, China.





Name and Address
                      
                      Shares
                        Beneficially
                        Owned
                      
                      
                      Percentage OwnedLi
      Liu
                      
                      
                      15,024,725
                      (1)
                      
                      
                      60.1Feng
      Shek
                      
                      
                      15,024,725
                      (1)
                      
                      
                      60.1Cili
      Yan
                      
                      
                      1,000,160
                      
                      
                      
                      4.0Tong
      Li
                      
                      
                      0
                      
                      
                      _Zhiguan
      Zhang
                      
                      
                      0
                      
                      
                      _All
      executive officers and directors as a group (five persons)
                      
                      
                      16,024,885
                      
                      
                      
                      64.1
                      %Global
      Rock Stone Industrial Ltd. (2)
                      
                      
                      15,024,725
                      
                      
                      
                      60.1
                      %





(1)
Represents shares registered in the name of Global Rock Stone Industrial
Ltd.  Li Liu and Feng Shek are deemed by virtue of their ownership
interests in Global Rock to have beneficial ownership of the shares reported as
owned by Global Rock.


(2)
Global Rock has agreed to pledge two million of such shares as collateral
security for a loan from Allied Merit.




Item 13. Certain
Relationships and Related Transactions





We have borrowed money from time to
time from Li Liu, our chief executive officer. Such borrowings do not bear
interest, are unsecured and have no stated maturity date.  At October
31, 2008 and 2007, we owed her $977,500  and $ 1,247,110,
respectively,  in connection with these borrowings.





In April 2008, we borrowed
approximately $1,000,000 from Allied Merit.  After giving effect to
applicable extensions, $200,000 is due on or before each of April 30 and May 31,
2009 and $300,000 is due on each of June 30 and July 31,
2009.   Prior to the merger, we had issued 2,000,000 shares of
our common stock and Series B warrants to acquire 2,128,128 to Grand Orient and
its designees. Certain affiliates of Allied Merit may be affiliates of Grand
Orient.  See also note 10 to our consolidated financial statements for
information about the $114,000 loan made by Allied Merit to
Charleston.




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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 acquisition,
all stockholders of Tianjin Yayi will receive a dividend from the acquirer in
the amount of approximately $4.5 million (RMB 30,500,000) for all of the shares
of Tianjin Yayi. Li Liu, Feng Shek and Cili Yan, executive officers and/or
directors of our company were stockholders of Tianjin Yayi and are entitled to
their proportionate share  of such dividend.





In December 2007, Li Liu transferred
her 0.5% of the interest in Weinan Milk to us for consideration of less than
$6,500. At the time of such transfer we owned 99.5% of Weinan
Milk.  See “Weinan Milkgoat Production Co. Limited” in note 1 of our
consolidated financial statements.





In connection with the reverse
subsidiary merger completed in June 2008, we 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 indemnify us for one
year for breaches of representations, warranties and covenants in the merger
agreement.  In exchange, we (i) paid Tryant an aggregate of $200,000
(excluding $50,000 that had been previously paid), (ii) issued Tryant a note in
principal amount of $250,000 which matured and was repaid in August 2008, and
(iii) issued Tryant and its designees our Series C Warrants, exercisable on a
cashless basis to acquire, through June 2011, an aggregate of 185,185 shares of
our common stock at an exercise price of $1.35 per share.  Prior to
the reverse subsidiary merger completed in June 2008, Tryant was the holder of a
majority of our outstanding shares of common stock, and Jeff Jenson, our former
chief executive officer, was affiliated with Tryant.  See note 15 of
our consolidated financial statements.




Item 14.  Principal Accountant Fees and
Services





The following table sets forth fees
billed to us by our auditors for the fiscal years presented and for (i) services
rendered for the audit of our annual financial statements and the
review of our quarterly financial statements (“Audit Fees”),  (ii)
services by our auditor that are reasonably related to
the  performance of the audit or review of our
financial statements and that are not reported as Audit Fees (“Audit
Related Fees”),  (iii) services  rendered in connection with
tax compliance,  tax advice and tax planning (“Tax
Fees”),  and (iv) all other fees for services rendered (“All Other
Fees”):




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-




Fiscal Years EndedOctober 31, 20081
                      
                      
                      December 31, 20072(i)   
      Audit Fees
                      
                      $
                      125,000
                      
                      
                      $
                      29,000(ii)  
      Audit Related Fees
                      
                      _(iii) 
      Tax Fees
                      
                      _(iv) 
      All Other Fees
                      
                      _Total
                      
                      $
                      125,000
                      
                      
                      $
                      29,000





1Reflects
fees billed and contemplated to be billed for services rendered in connection
with the quarterly and annual reports filed for the fiscal year ended October
31, 2008.  Of such sum, approximately $13,000 was paid by Tryant, LLC,
to BDO Seidman.





2   Such
amounts represent sums billed by BDO Seidman, formerly our principal independent
registered public accounting firm.  Tryant, LLC paid the
auditors.





Approximately 63% of the hours expended
by our principal accountant to audit our consolidated financial statements for
fiscal 2008 is attributable to work performed by persons other than our
principal accountants full time permanent employees.





We do not have an audit committee
currently serving and as a result our board of directors performs the duties of
an audit committee to the extent required by law. Our board of directors will
evaluate and approve in advance, the scope and cost of the engagement of an
auditor before the auditor renders audit and non-audit services. We do not rely
on pre-approval policies and procedures.





PART
IV





Item 15.  Exhibits and Financial Statement
Schedules





Exhibit
      No.
              
              Description
      of Exhibit2.1
              
              Agreement
      and Plan of Merger by and among Ardmore, Ardmore Acquisition Corp, Tryant
      LLC and Charleston Industrial Ltd. (1)3.1
              
              Amended
      and Restated Certificate of Incorporation (3)3.2
              
              Amended
      and Restated Bylaws (2)




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-




4.1
              
              Form
      of 8% Convertible Promissory Note (1)4.2
              
              Form
      of Series A Warrant (1)4.3
              
              Form
      of Series B Warrant (1)4.4
              
              Form
      of Series C Warrant (1)4.5
              
              Form
      of Series D Warrant (3)4.6
              
              Form
      of Series E Warrant (3)10.1
              
              Form
      of Amended and Restated Securities Purchase Agreement dated as of May 12,
      2008 and entered into by and among Ardmore and the investors signatories
      thereto, as amended (1)10.2
              
              Form
      of Registration Rights Agreement dated as of May 12, 2008
    (1)10.3
              
              Lease
      Contract of Premises between Tianjin Milk Goat Dairy Co., Ltd. and Tianjin
      Yayi Industrial Co., Ltd. (Translation) (1)10.4
              
              Building
      Property Transfer Agreement between Tianjin Milk Goat Dairy Co., Ltd. and
      Tianjin Yayi Industrial Co, Ltd. (Translation) (1)10.5
              
              Project
      Construction Contract between Tainjin Yayi Industrial Co., Ltd. and the
      People’s Government of Linwei District, Weinan City (Translation of
      Exhibit 99.5) (3)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 (Translation of Exhibit 99.6) (3)10.7
              
              Plant
      Transfer Contract dated September 26, 2008 between Tianjin Yayi and
      Tianjin Mengyang Biotechnology Co., Ltd. (Translation of Exhibit
      99.7)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.  (Translation of Exhibit
  99.8)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. (Translation of Exhibit 99.9)14.1
              
              Code
      of Ethics (4)21.1
              
              Subsidiaries
      of the Registrant.31.1
              
              Certification
      of principal executive officer pursuant to Section
    13a-14(a).




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-




31.2
              
              Certification
      of principal financial and accounting officer pursuant to Section
      13a-14(a).32.1
              
              Certification
      of principal executive officer and principal financial and accounting
      officer pursuant to Section 1350, as adopted pursuant to Rule 13a-14(b) of
      the Exchange Act and 18 USC Section 906 of the Sarbanes-Oxley Act of
      2002.99.5
              
              Project
      Construction Contract between Tainjin Yayi Industrial Co., Ltd. and the
      People’s Government of Linwei District, Weinan City (pdf of original-not
      translation) (3)99.6
              
              Supplementary
      Agreement to the Project Construction Contract between Tainjin Yayi
      Industrial Co., Ltd. and the People’s Government of Linwei District,
      Weinan City (PDF of original - not translation) (3)99.7
              
              Plant
      Transfer Contract dated September 26, 2008 between Tianjin Yayi and
      Tianjin Mengyang Biotechnology Co., Ltd. (Chinese language
      version)99.8
              
              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.  (Chinese language version)99.9
              
              Supplementary
      Agreement dated January 20, 2009 between Tianjin Yayi and Tianjin Mengyang
      Biotechnology Co., Ltd., to the Plant Transfer Contract dated September
      26, 2008. (Chinese language
version)





(1)
            Incorporated
      by reference to the corresponding exhibit filed with our Current Report on
      Form 8-K  filed with the SEC on June 12,
  2008.





(2)
            Incorporated
      by reference to exhibit 99.3 (referred to as the “New Bylaws”)filed on ourCurrent  Report
      on Form 8-K/A-2 with the SEC on April 10,
2008.





(3)
            Incorporated
      by reference to the corresponding exhibit filed with our Quarterly Report
      on Form 10-Q for the period ended July 31, 2008 filed with the SEC on
      September 22, 2008.





(4)
            Incorporated
      by reference to exhibit 14 filed with our Annual Report on Form 10-K for
      the year ended December 31,
2007.


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-


SIGNATURES





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





Dated:
      February 13, 2009Yayi
      International Inc.By:
                /s/Li LiuLi
      Lui, Chief Executive
Officer





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 registrant and in the
capacities and on the dates indicated.





Name
                      
                      Title
                      
                      Date/s/ Li Liu
                      
                      Chairman
      of the Board and Chief
                      
                      February
      13, 2009Li
      Liu
                      
                      Executive
      Officer/s/ Feng Shek
                      
                      Director
                      
                      February
      13, 2009Feng
      Shek/s/ Cili Yan
                      
                      Director
                      
                      February
      13, 2009Cili
      Yan/s/ Tong Li
                      
                      Chief
      Financial Officer
                      
                      February
      13, 2009Tong
      Li