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**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**Washington, D.C. 20549

FORM 10-K/A(Amendment No.1)

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

OR

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

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

Commission File Number:000-23806

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

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

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

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

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

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

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

Yes [ 
 ]    No [X]

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

Yes [ 
 ]    No [X]

Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes [X]     No
[   ]

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Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files).

Yes [   ]    No [   ]

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

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

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

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

Yes [   ]   
No [X]

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

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

DOCUMENTS INCORPORATED BY REFERENCE:

None.

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EXPLANATORY NOTE

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

1) revise certain disclosure included in our consolidated
financial statements for the five months ended March 31, 2010;

2) revise the disclosure under the heading "Results of
Operations" to include a chart that presents the quantity and sales price
of goat milk powder we sold during each of the periods presented in this Amendment;

3) revise the disclosure under Item 9A(T). Controls and
Procedures  Changes in Internal Control Over Financial Reporting to disclose
the material costs associated with the remediation measures we have taken in
connection with our internal control over financial reporting; and

4) revise certain disclosure  under Item 1
Business, Item 1A Risk Factors, and Item 10 Directors, Executive Officers and
Corporate Governance.

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

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





i

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Certain Terms

In this report, unless indicated otherwise:

- 



"Exchange Act" refers to the Securities
  Exchange Act of 1934, as amended







"Securities Act" refers to the
  Securities Act of 1933, as amended;



"U.S. dollars," "dollars" and "$" refer
  to the legal currency of the United States;

"we," "us," "our company," "our" and "Yayi"
  refer to the combined business of Yayi International Inc. and/or its
  consolidated subsidiaries, as the case may be; and



Special Note Regarding Forward Looking Statements

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

-1-

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PART I

ITEM
1.            
 BUSINESS

Change in Fiscal Year

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

Overview

According to the China Quality Net maintained by China
Quality Inspection Association, we are the first and a leading producer and
distributor of premium goat milk formula products for infants, toddlers, young
children, and adults in China. We currently manufacture and distribute goat milk
powder products. In strict compliance with various national standards, we
developed our goat milk powder products with multiple formulations designed to
meet nutritional requirements and help promote an infant or toddlers healthy
growth at each developmental stage. Through several years of laboratory tests,
we developed the goat odor elimination technology based on know-how licensed
from a third party, which substantially eliminates the goat odor from our goat
milk powder products without adding any artificial flavors. 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 consumers. To ensure the product quality
and safety, we import all of these supplements from other countries, such as
Malaysia, the United States and Ireland.

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

History and Corporate Structure

We were originally incorporated 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. On April 15, 2007, our name was changed to
Ardmore Holding Corporation and in September 2008, following the reverse 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 to certain
investors, or the 2008 Investors, and (ii) acquired, through a reverse
subsidiary merger with Charleston Industrial Co. Limited, or Charleston.
Charleston owns 100% equity interest in Tianjin Yayi. As a result of this
reverse merger, we became the indirect owner of Tianjin Yayi. On November 24,
2009, we and the 2008 Investors entered into a Settlement Agreement pursuant to
which, each of the 2008 Investors converted its own entire principal amount of
and accrued interest on all of the notes it holds into an aggregate 1,296,275
shares of the Companys common stock at a conversion price of $1.08 per
share.

In August 2008, we acquired Fuping Milkgoat for approximately $620,000. Fuping Milkgoat purchases raw goat
milk and processes it into powder.

On June 18, 2009, we entered into a series A preferred stock
purchase agreement, or the Stock Purchase Agreement with Global Rock Stone
Industrial Ltd, a BVI company, or Global Rock, Charleston, Tianjin Yayi, the
individuals named thereto and an accredited investor, SAIF Partners III L.P., or
SAIF. Pursuant to the Stock Purchase Agreement, we issued and sold to SAIF
1,530,612 shares of the Companys Series A Preferred Stock, par value $0.001 per
share, or the Series A Preferred Stock, at a price per share of $9.80 for an
aggregate purchase price of $15.0 million. The Series A Preferred Stock is
convertible into the Companys common stock at an initial conversion price at
$0.98 per share, which conversion price is subject to stock split,
recapitalization and other anti-dilution protection, as well as adjustments
based on the Companys financial performance.

In connection with the above private placement transaction, on
June 16, 2009, we filed a Certificate of Designation of Series A Preferred Stock
with the Secretary of State of the State of Delaware, or the Certificate, which
became effective upon filing. Pursuant to the Certificate, there are
1,530,612 shares of Series A Preferred Stock authorized. The holders of the
Series A Preferred Stock are entitled to receive non-cumulative dividends, when,
as and if declared by the Board. The shares of Series A Preferred Stock may be
converted into the Companys common stock at the option of the holders of the
Series A Preferred Stock in whole or in part at any time at an initial
conversion price of $0.98, subject to future adjustments set forth in the
Certificate.

-2-

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All of our business operations are conducted through our indirectly,
wholly-owned Chinese subsidiaries. The following chart reflects our
organizational structure as of the date of this report.





Industry Growth Drivers

Chinas large population, growing disposable income and rapidly
changing consumer habits create a favorable market for premium dairy products.

The prospects for Chinas infant formula market look
particularly promising with on average 17 million newborns each year. The
country may be experiencing a small baby boom due to an exception to Chinas
one-child policy; parents who are both single children of their respective
families are allowed to have a second child. According to Euromonitor, the
infant formula market is expected to grow at a compound annual growth rate of
23.1% between 2008 and 2013. In general, the one-child policy makes Chinese
parents inclined to prioritize their childrens health over other consumption,
which supports the market for premium infant formula products.

The Case of Goat Milk

Chinas government has been promoting milk consumption since
the mid 1990s because of its beneficial nutritional properties. The Eleventh
Five-Year Plan (2006-2011) encourages every Chinese citizen to consume 0.5 kg of
dairy products per day. The favorable government policies coupled with the
prevalence of sensitivity towards cow milk products in China further support the
demand for goat milk. Independent studies demonstrate that goat milk has a beneficial protein
structure compared with cow milk, facilitating absorption of nutrients in goat
milk by the human digestive system, which may make goat milk a more suitable
alternative for Chinese consumers who have experienced problems with digesting
cow milk.

-3-

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Compared with cow milk, the molecules of lactose and fat
globules are smaller in goat milk, making goat milk more easily absorbed by
individuals who are sensitive to milk products. Moreover, lower acidity, the
concentration of medium-chain triglyceride fatty acids, and the absence of
r-casein, the main allergen found in cow milk, improve the digestibility of goat
milk, making it an appealing substitute for cow milk. We believe that we, with
our broad product portfolio and first mover position in goat milk production and
distribution, are well positioned to take advantage of this increased demand.

Post Melamine Scandal Era

In 2008, the reputation of Chinas dairy industry was severely
damaged as melamine, a toxic chemical used to manufacture plastics, was
discovered in products from 22 domestic dairy producers. In response, the
Chinese government issued the Regulation on the Supervision and Administration
of the Quality and Safety of Dairy Products, which encourages stricter national
standards for the quality and safety of dairy products, heightens sanitary
requirements, and imposes more responsibility on dairy processors to control the
sources of raw milk. In addition, a Food Safety Act has been implemented in June
2009 to revise problems related to the scandal. Dairy processors are strongly
encouraged to implement HACCP or GMP quality certification systems. Further
efforts to align the interests of different parties including farmers,
processors, dairies and consumers are underway.

Following the scandal, the Ministry of Agriculture stipulated
that only one milk processing plant be allowed on a ranch within the radius of
60 kilometers. New projects must reach processing capacity of 200 tons of raw
milk per day based on raw milk sources proprietary to or controlled by the dairy
processor, and raw milk must contribute to no less than 30% of total processing
capacity. The added capacity in expansion projects must reach at least 100 tons
of raw milk per day, and 75% of the existing processing capacity must be based
on raw milk sources proprietary to or controlled by the dairy processor.

With the growing awareness and lingering safety concerns
about cow milk, we are well positioned to take advantage of the unprecedented
opportunity to solidify our presence in the goat milk and premium infant formula
sectors. We place primary importance on quality. In order to ensure the quality
and safety of our raw materials, we have established our subsidiary, Weinan
Milkgoat, in the main area where Saanen dairy goats are raised because most of
our supply of raw goat milk comes from Saanen dairy goats. We have designated
staff monitoring the whole process of raw goat milk collection at each of our
collection stations in this area. The collected raw goat milk is directly
transported to our subsidiary for inspection in compliance with national
standards, including the detection of melamine. After the inspection, qualified
raw goat milk will be sprayed to be milk powder, packed and transported to
Tianjin Yayi for canning. Before the canning, our quality control staff conducts
a second inspection of the goat milk powder.

Compared with many cow milk powder producers with
decentralized raw cow milk sources, we believe its more efficient and
cost-effective for us to conduct quality control of our raw materials with a
centralized raw goat milk collection system. The melamine contamination incident
has resulted in significant negative publicity for the entire domestic cow milk
industry and consumers are seeking substitutes for cow milk due to such
lingering safety concerns. We have increased our spending on advertising in
which we emphasize the fact that our products are always qualified in previous
government inspections and melamine has never been detected in our products. We
also conduct promotional activities with supermarket chains and infant-maternity
stores in order to reach out our target market. We believe our advertizing and
promotional activities have allowed us to obtain preferential product placement
in retail points and to compete effectively against multinational and domestic
cow milk powder producers. In addition, we believe that due to our current
market position, brand recognition and customer loyalty, combined with our
strong distribution network, the impact on our business will not be material
when the safety concerns regarding contaminated cow milk products begin to wane
in the future.

Dairy Industry Access Conditions and Policies

In March 2008, the PRC National Development and Reform
Commission, or the NDRC, promulgated the Access Conditions for Dairy Products
Processing Industry, or the Access Conditions. The Access Conditions set forth
the conditions an entity must satisfy in order to engage, or continue to engage,
in the dairy products processing business, including technique and equipment,
product quality, energy and water consumption, sanitation and environmental
protection, as well as production safety. Any new or continuing dairy products
processing projects or enterprises will be required to meet all the conditions
and requirements set forth in the Access Conditions. For projects or enterprises
that already commenced operations before the promulgation of the Access
Conditions, improvements or rectification actions may need to be taken in order
to have such projects or enterprises meet the conditions within two years of the
effective date of the Access Conditions on April 1, 2010.

The Access Conditions also set forth some requirements relating
to the location, processing capacity and raw milk source for any new or
continuing dairy products processing project or enterprise. Any new or
continuing dairy products processing projects or enterprises that fail to meet
the requirements will not be able to procure land, license, permits, loan
facility and electricity necessary for the processing of dairy products, and
those projects or enterprises already in operation before the promulgation of
the Access Conditions will be deregistered and ordered to shut down if they fail
to meet the conditions within a two-year rectification period.

In May 2008, the NDRC issued the Dairy Industry Policies, or
the Policies. According to the PRC government, the Policies are the first set of
comprehensive government policies on the PRC dairy industry, covering a broad
range of matters such as industry planning, closure of inefficient
capacity, milk supply, quality control and product safety, environment
protection and promotion of milk consumption. Moreover, the Policies provide
conditions that new entrants to the dairy industry must meet in addition to the
conditions set forth in the Access Conditions.

-4-

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Our Competitive Strengths

- We believe that our success to date and potential for future
growth can be attributed to a combination of our strengths, including the
following:
- 
- 
- High-end
  Products.We have been a leading producer and distributor of goat milk
  formula products for infants, toddlers, young children, and adults in China.
  Our current formula product lines are targeted at the premium segment of the
  dairy market and health-conscious consumers. Given goat milks nutritional and
  molecular composition closer to human milk as well as the relative scarcity of
  goat milk since dairy goats have limited production capacity when compared to
  dairy cows, our goat milk products are positioned at the higher end of the
  dairy cost spectrum.
- 

Our Growth Strategy

As a leading goat milk producer and distributor in China, we
believe we are well positioned to capitalize on future industry growth in China.
We are dedicated to providing healthy and high quality products to our
consumers. We will implement the following strategic plans to take advantage of
industry opportunities and our competitive strengths:

- 

-5-

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- 
- 
- 

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

Our Goat Milk Powder Products

We currently manufacture and distribute goat milk powder
products. Our powder products are sold throughout most of China. We began
selling powder products in Tianjin and Beijing in 2001, in Southern China in
2004 and Northern China in 2006. Since the end of 2009, we have been working
with Trout & Partners to streamline our product portfolio and refine our brand
image in order to position and strengthen our "Milk Goat" brand as the premium
goat milk brand throughout China. We have restructured our original product
portfolio of dozens of products and specifications and refined our marketing
strategy. Our new product portfolio consists of ten formula products under the
"Milk Goat" brand with two package sizes of 600 and 365 grams with upgraded
formula. Our principal goat milk powder products may generally be categorized as
follows:

- powder products for infants
  aged from 0 - 6 months old, babies 6 - 12 months old;
- powder products for toddlers aged from
  1-3 years old, pre-schools from 3-7 years old; and
- powder products for different target groups:
  students, seniors, women, men, pre-and post-natal women and gift packaging.

In addition, we still sell our original goat milk powder
products. Our principal original goat milk powder product lines may generally be
categorized as follows:

- Powder products 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. Powders targeted to or formulated for pre-and
  post-natal women.
- Powder products for those interested in maintaining general health and well
  being, enhancing beauty, inducing restfulness and reducing eye fatigue.
- Sugar-free goat milk powder products for those who desire to regulate their
  sugar intake.
- Powder products for health conscious adults.

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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.

Raw Materials and Suppliers

We currently own ten dairy goat farms, which are located in
Shaanxi Province and operated by our subsidiary, Weinan Milkgoat. For the six
months ended September 30, 2010 and 2009, our subsidiary, Weinan Milkgoat
provided 3.6% and 0.3% of our raw goat milk, respectively. For the five months
ended March 31, 2010 and 2009, Weinan Milkgoat provided 0.2% and none of our raw
goat milk, respectively. Weinan Milkgoat provided 0.3% and none of our raw goat
milk, during the fiscal years ended October 31, 2009 and 2008, respectively.

Most of our supply of raw goat milk comes from Saanen dairy
goats raised on individual and collective goat farms in Weinan City in Chinas
Shaanxi Province. The Saanen is believed to be one of most popular goats
primarily because of their consistency in producing large quantities of milk in
conjunction with their capacity to tolerate environmental change. According to
Angie Pollock, originating from the Saane Valley of Switzerland, the Saaneen is
primarily kept for milk production and is known for being easy to care for,
having a docile temperament and good toleration of changes in their environment.
Shaanxi Province is one of major 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. According to Dairy Times, a newspaper published in China, the goat
milk products produced by companies located in Shaanxi Province constitute
approximately 70% of the total goat milk products in China. Through Weinan
Milkgoat, we entered into long-term supply arrangements with local governmental
and quasi-governmental authorities pursuant to which we purchase all the goat
milk produced by the small collective farms at a price negotiated from time to
time by us and the individual farms.

Pursuant to the raw goat milk supply agreements, our suppliers
are obligated to provide us with a certain volume of raw goat milk during the
terms of these agreements at a purchase price ranging between RMB 3.0 to RMB 3.5
per kilogram. Our suppliers also are required to deliver to us raw goat milk at
the contracted location between 6 am to 1 pm local time everyday. Upon mutual
written consent, the parties may amend or terminate the agreements. In addition,
each agreement includes a force majeure clause. If the supplier fails to perform
its obligations due to unforeseen events beyond its control, neither party will
be liable for any damages caused by the force majeure event. In addition, in
that case, either party may terminate the agreement. However, our suppliers are
required to notify us within 10 days after the occurrence of a force majeure
event and provide a certificate certifying this event issued by a relevant
authority within 15 days. For the five months ended March 31, 2010, we entered
into supply arrangement with 33 small-scale farms, which provided 282.5 tons of
raw goat milk to us.

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 ten percent of our goat milk requirements for the five months ended
March 31, 2010 and 2009, or the fiscal years ended October 31, 2009 and 2008,
respectively. 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 our powdered products include
desalting whey powder, lactose, plant fat powder, lactalbumin, whey protein
concentrate, soybean lecithin, various vitamin and mineral supplements and
packaging materials. 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 500 collection stations
(sixty-five of which are engaged with us through cooperation) 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 one spray tower in Fuping Milkgoat, which is used to make raw liquid
goat milk into raw goat milk powder.

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 liquid goat milk into raw goat milk
powder products. For the five months ended March 31, 2010, we processed an
aggregate of approximately 446.23 tons of raw goat milk powder, of which
approximately 69.6% through Fuping Milkgoat and Weinan Milkgoat, and
approximately 30.4% through external suppliers. In external raw goat milk powder
supplement, we provided 73.8% raw goat milk of their requirements. For the five
months ended March 31, 2009, we processed an aggregate of approximately 490.39
tons of raw goat milk powder, of which approximately 46.3% through Fuping
Milkgoat and Weinan Milkgoat, and approximately 53.7% through external
suppliers. In external raw goat milk powder supplement, we provided 35.5% raw
goat milk of their requirements. We believe that our relationships with our raw
goat milk powder suppliers are satisfactory and that alternative sources of
supply are available to us on no less favorable terms than are currently
available.

-7-

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Sales and Marketing

Currently, we have 604 experienced marketing personnel who are
responsible for market research, promotion and advertisement. We strengthen our
market presence by employing various types of marketing strategies. We
participate in annual trade shows such as National Baby and Young Children Fair
and National Sugar and Spirit Fair, offer seminars and lectures to local
communities regarding the health benefits of our goat milk products, television
advertisements at national and local levels, and other promotional activities.
These activities help to promote our reputation and brand name recognition in
the industry.

We use more than 200 distributors to sell our products. The
distributors are located in 23 provinces in China. We sell and distribute our
products through a network of approximately 3,800 retail points including
infant-maternity chain stores, supermarkets (including multinational chains) and
drug stores, as well as catalogue sales across China.

We use two 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.

We do not significantly depend on any single customer for the
sales of our products. We did not have any customer constituting greater than
10% of net sales for the five months ended March 31, 2010.

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 nutritional advantages of goat milk.
Those advantages include higher nutritional 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 Youhong Trade (Shanghai)
Co., Ltd and Guangzhou Kanghechang Biotechnology Co., Ltd, Shaanxi Guanshan
Dairy Co., Ltd and Xian Baiyue Yubao Dairy Co., Ltd. We believe that our
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 (Dairy Goat Co-operative (NZ)
Ltd. and other smaller New Zealand goat milk brands. We compete with our foreign
competitors 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. Based on market analysis conducted by our marketing department, we
believe in 2009 we held approximately 42.8% market share of goat milk products
sold in that year, making us the largest seller of the goat milk products in
China. Each of Xian Baiyue Yubao Dairy Co., Ltd., Youhong Trade (Shanghai) Co.,
Ltd and Guangzhou Kanghechang Biotechnology Co., Ltd claimed 6.5% market share
of 2009 as the second largest goat milk products seller in China.

Research and Development

Our research and development activities focus on upgrading and enhancing our
unique, traditional recipes for our products and improvement in packaging. We
currently have five employees dedicated to research and development.

For the five months ended March 31, 2010 and 2009, we
expended $40,898 and $57,558, respectively, with respect to research and
development activities. We are in the process of developing new goat milk based
products but do not anticipate that such products will have a material impact in
the near term on our results of operations.

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Intellectual Property

In 2002, we registered in China the trademark, Mei Ke Gao Te
(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
Mei Ke Gao Te 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. Each of such trademarks has a term of ten years and may be
renewed thereafter.

Our goat odor elimination technology which eliminates odor in
  our products is developed from the know-how that was exclusively licensed to
  us from Taiwan Richlink Enterprise Company Ltd., pursuant
  to an exclusive licensing agreement, dated April 10, 2001. The licensing agreement
  was amended on June 12, 2009 and  expires on April 10, 2011. Pursuant to
  the exclusive license agreement, as amended, we have the right to use the know-how
  for free after the expiration of this agreement.

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, or AQSIQ. AQSIQ determined
that our 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.

Our Employees

As of March 31, 2010, we employed 859 full-time employees. The
following table sets forth the number of our employees by function as of March
31, 2010.

|FUNCTION              |  | NUMBER OF EMPLOYEES
|--------------------- |  | -------------------
|Sales Department      |  | 604                
|Production Department |  | 157                
|Financial Department  |  | 23                 
|Administrative Office |  | 75                 
|TOTAL                 |  | 859                

Our employees are not represented by a labor organization or
covered by a collective bargaining agreement. We have not experienced any work
stoppages and we believe our relationship with our employees is
satisfactory.

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We are required by the PRC law to cover employees in China with
various types of social insurance. We believe that we are in material compliance
with the relevant PRC laws.

Insurance

We do not have any business liability, interruption or
litigation insurance coverage for our operations in China. Insurance companies
in China offer limited business insurance products. While business interruption
insurance is available to a limited extent in China, we have determined that the
risks of interruption, cost of such insurance and the difficulties associated
with acquiring such insurance on commercially reasonable terms make it
impractical for us to have such insurance. Therefore, we are subject to business
and product liability exposure. See Risk Factors  We do not carry any business
interruption insurance, third-party liability insurance for our production
facilities or insurance that covers the risk of loss of our products in
shipment.

ITEM 1A. RISK FACTORS

You should carefully consider the risks described below,
together with all of the other information included in this report. If any of
the following risks actually occurs, our business, financial condition or
results of operations could suffer. In that case, the trading price of our
common stock could decline. You should also refer to the other information about
us contained in this report, including our financial statements and related
notes.

RISKS RELATED TO OUR BUSINESS

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.

The global economic crisis could further impair the dairy
industry thereby limiting demand for our products and affecting the overall
availability and cost of external financing for our operations.

The continuation or intensification of the global economic
crisis and turmoil in the global financial markets may adversely impact our
business and our potential sources of capital financing. Our ability to access
the capital markets may be restricted at a time when we would like, or need, to
raise capital, which could have an impact on our flexibility to react to
changing economic and business conditions. In addition, these economic
conditions also impact levels of consumer spending, which have recently
deteriorated significantly and may remain depressed for the foreseeable future.
Consumer purchases of discretionary items, including our goat milk powder,
generally decline during recessionary periods and other periods where disposable
income is adversely affected. If demand for our products fluctuates as a result
of economic conditions or otherwise, our revenue and gross margin could be
harmed. Presently, it is unclear whether and to what extent the economic
stimulus measures and other actions taken or contemplated by the Chinese
government and other governments throughout the world will mitigate the effects
of the crisis on the dairy industry and other industries that affect our
business. Although these conditions have not presently impaired our ability to
access credit markets and finance our operations, the impact of the current
crisis on our ability to obtain capital financing in the future, and the cost
and terms of same, is unclear.

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.

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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 business and financial results depend on maintaining
a consistent and cost-effective supply of raw milk and other raw materials,
which come from limited geographic areas in China. Any interruption in our
supply of raw mail fruits could materially and adversely affect our results of
operations, financial condition and business prospects.

Raw goat milk is the primary raw material we use to produce our
products. We currently own ten dairy goat farms. However, most of our supply of
raw goat milk come from Saanen dairy goats raised on individual and collective
goat farms in Weinan City in Chinas Shaanxi Province. We have long-term supply
arrangements with local governmental and quasi-governmental authorities pursuant
to which we purchase all the milk produced by the small collective farms at a
price negotiated from time to time by us and the individual farms. 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;
- environmental factors, with the volume and quality of milk produced
  by dairy goats closely linked to the quality of the nourishment provided by
  the environment around them. A major outbreak of any illness or disease in
  goats could lead to a serious loss of consumer confidence in, and demand for,
  our goat milk products; 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 goats 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.

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Our failure to renew or protect our exclusive rights to
use the knowhow provided by Taiwan Richlink Enterprise Company Ltd. may have a
negative effect on our results of operations.

Our goat odor elimination technology which eliminates odor in
out products is developed from the know-how that was exclusively licensed to us
from Taiwan Richlink pursuant to an exclusive licensing agreement, dated April
10, 2001. The licensing agreement was amended on June 12, 2009 and will expire
on April 10, 2011. Although we have the right to use the knowhow for free after
the expiration of this agreement, there can be no assurance that such rights
will be exclusive. Taiwan Richlink may license the knowhow to other Chinese goat
milk producers after the expiration of the agreement, which may increase our
competition because we may lose this competitive advantage and as a result may
have a negative impact on our operations. In addition, while we are not aware of
any disputes between Taiwan Richlink and us or any third party, in the event the
goat odor elimination technology is challenged or infringed, Taiwan Richlink may
determine not to protect its intellectual property rights that we license from
it and we may be unable defend such intellectual property rights on our own or
we may have to undertake costly litigation to defend the intellectual property
rights of Taiwan Richlink. Such litigation could result in substantial costs and
diversion of management resources, either of which could harm our business,
operating results and financial condition.

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 that have superior qualities or gain wider
market acceptance than ours.

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.

Our sales and reputation may be affected by product
liability claims, litigation, product recalls, or adverse publicity in relation
to our products.

The sale of products for human consumption involves an inherent
risk of injury to consumers. We face risks associated with product liability
claims, litigation, or product recalls, if our products cause injury, or become
adulterated or misbranded. Our products are subject to product tampering, and to
contamination risks, such as mold, bacteria, insects, and other pests, and
off-flavor contamination during the various stages of the procurement,
production, transportation and storage processes. If any of our products were to
be tampered with, or become tainted in any of these respects and we were unable
to detect this, our products could be subject to product liability claims or
product recalls. We cannot predict what impact such product liability claims or
resulting negative publicity would have on our business or on our brand image.
The successful assertion of product liability claims against us could result in
potentially significant monetary damages, diversion of management resources and
require us to make significant payments and incur substantial legal expenses. We
do not have product liability insurance and have not made provisions for potential product liability claims.
Therefore, we may not have adequate resources to satisfy a judgment if a
successful claim is brought against us. Even if a product liability claim is not
successfully pursued to judgment by a claimant, we may still incur substantial
legal expenses defending against such a claim. Finally, serious product quality
concerns could result in governmental action against us, which, among other
things, could result in the suspension of production or distribution of our
products, loss of certain licenses, or other governmental penalties. A
widespread product recall could result in significant loss due to the cost of
conducting a product recall including destruction of inventory and the loss of
sales resulting from the unavailability of the product for a period of time. In
addition, product liability claims and product recalls could have a material
adverse effect on the demand for our products and on our business goodwill and
reputation. Adverse publicity could result in a loss of consumer confidence in
our products.

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We compete in an industry that is brand-conscious, and
unless we are able to establish and maintain brand name recognition, our sales
may be negatively impacted.

Our business is substantially dependent upon awareness and
market acceptance of our products and brand by our targeted consumers. In
addition, our business depends on acceptance by our suppliers and consumers of
our brand. Although we believe that we have made progress towards establishing
market recognition for our brands Mei Ke Gao Te and Yi Mei Shi in the dairy
products industry in China, it is too early in the product life cycle of the
brand to determine whether our products and brand will achieve and maintain
satisfactory levels of acceptance by our customers.

Expansion of our business may put added pressure on our
management and operational infrastructure impeding our ability to meet any
potential increased demand for the products that we sell and possibly hurting
our future operating results.

Our business plan is to grow our operations significantly to
meet anticipated growth in demand for the products that we sell, and by the
introduction of new product offerings. Growth in our business may place a
significant strain on our personnel, management, financial systems and other
resources. The evolution of our business also presents numerous risks and
challenges, including:

- our ability to successfully and rapidly expand sales to potential new
  distributors in response to potentially increasing demand;
- the costs associated with such growth, which are difficult to quantify, but
  could be significant; and
- rapid technological change.

To accommodate any such growth and compete effectively, we may
need to obtain additional funding to improve information systems, procedures and
controls and expand, train, motivate and manage our employees, and such funding
may not be available in sufficient quantities, if at all. If we are not able to
manage these activities and implement these strategies successfully to expand to
meet any increased demand, our operating results could suffer.

Due to our rapid growth in recent years, our past results
may not be indicative of our future performance and evaluating our business and
prospects may be difficult.

Our business has grown and evolved rapidly in recent years as
  demonstrated by our growth in net income for the fiscal year ended October 31,
  2009 to $5.4 million, from $1.8 million for the prior fiscal year. We may not
  be able to achieve similar growth in future periods, and our historical operating
  results may not provide a meaningful basis for evaluating our business, financial
  performance and prospects. Moreover, our ability to achieve satisfactory production
  results at higher volumes is unproven. Therefore, you should not rely on our
  past results or our historical rate of growth as an indication of our future
  performance.

We depend heavily on key personnel, and turnover of key
employees and senior management could harm our business.

Our future business and results of operations depend in
significant part upon the continued contributions of our key technical and
senior management personnel, including Li Liu, our chief executive officer and
chairperson, and Fung Shek, our Vice President. If we lose any of these key
employees and are unable to find a qualified replacement in a timely manner, our
business will be negative impacted. In addition, if a key employee fails to
perform in his or her current position, or if we are not able to attract and
retain skilled employees as needed, our business could suffer. Significant
turnover in our senior management could significantly deplete the institutional
knowledge held by our existing senior management team. We depend on the skills
and abilities of these key employees in managing the reclamation, technical, and
marketing aspects of our business, any part of which could be harmed by turnover
in the future.

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Our inability to protect our intellectual property may
prevent us from successfully marketing our products and competing
effectively.

Failure to protect our intellectual property could harm our
brands and our reputation, and adversely affect our ability to compete
effectively. Further, enforcing or defending our intellectual property rights,
including our trademarks, patents, copyrights, know how and trade secrets, could
result in the expenditure of significant financial and managerial resources. We
produce, market and sell our products using trademarks of "Mei Ke Gao Te" and
"Yi Mei Shi." We regard our intellectual property, particularly our trademark,
know how and trade secrets to be of considerable value and importance to our
business and our success. We rely on a combination of patent, trademark, trade
secrecy laws, and contractual provisions to protect our intellectual property
rights. There can be no assurance that the steps taken by us to protect these
proprietary rights will be adequate or that third parties will not infringe or
misappropriate our patent, trademark, trade secrets or similar proprietary
rights. Implementation and enforcement of PRC intellectual property-related laws
have historically been deficient and ineffective, mainly due to lack of
procedural rules for discovery of evidence, low damage awards and low rates of
criminal penalties against intellectual property right infringements.
Accordingly, protection of intellectual property rights in China may not be as
effective as in the United States and other western countries. In addition,
there can be no assurance that other parties will not assert infringement claims
against us, and we may have to pursue litigation against other parties to assert
our rights. However, policing unauthorized use of proprietary technology is
difficult and expensive, and we may need to commence litigation to enforce or
defend our proprietary rights or to determine the enforceability, scope and
validity of our proprietary rights or those of others. Any such claim or
litigation could be costly and we may lack the resources required to defend
against such claims. The experience and capabilities of PRC courts in handling
intellectual property litigation vary, and outcomes are unpredictable. In
addition, any event that would jeopardize our proprietary rights or any claims
of infringement by third parties could have a material adverse affect on our
ability to market or sell our brands, and profitably exploit our products.

The disclosures in our reports and other filings with the
U.S. Securities and Exchange Commission and our other public pronouncements are
not subject to the scrutiny of any regulatory bodies in the PRC. Accordingly,
our public disclosure should be reviewed in light of the fact that no
governmental agency that is located in China where all of our operations and
business are located have conducted any due diligence on our operations or
reviewed or cleared any of our disclosure.

We are regulated by the SEC and our reports and other filings
with the SEC are subject to SEC review in accordance with the rules and
regulations promulgated by the SEC under the Securities Act and the Exchange
Act. Unlike public reporting companies whose operations are located primarily in
the United States, however, all of our operations are located in China. Since
all of our operations and business takes place in China, it may be more
difficult for the Staff of the SEC to overcome the geographic and cultural
obstacles that are present when reviewing our disclosure. These same obstacles
are not present for similar companies whose operations or business take place
entirely or primarily in the United States. Furthermore, our SEC reports and
other disclosure and public pronouncements are not subject to the review or
scrutiny of any PRC regulatory authority. For example, the disclosure in our SEC
reports and other filings are not subject to the review of the China Securities
Regulatory Commission, or CSRC, a PRC regulator that is tasked with oversight of
the capital markets in China. Accordingly, you should review our SEC reports,
filings and our other public pronouncements with the understanding that no local
regulator has done any due diligence on our company and with the understanding
that none of our SEC reports, other filings or any of our other public
pronouncements has been reviewed or otherwise been scrutinized by any local
regulator.

We do not carry any business interruption insurance,
third-party liability insurance for our production facilities or insurance that
covers the risk of loss of our products in shipment.

Operation of our facilities involves many risks, including
equipment failures, natural disasters, industrial accidents, power outages,
labor disturbances and other business interruptions. Furthermore, if any of our
products are faulty, then we may become subject to product liability claims or
we may have to engage in a product recall. We do not carry any business
interruption insurance, product recall or third-party liability insurance for
our production facilities or with respect to our products to cover claims
pertaining to personal injury or property or environmental damage arising from
defects in our products, product recalls, accidents on our property or damage
relating to our operations. As a result, we may be required to pay for financial
and other losses, damages and liabilities, including those caused by natural
disasters and other events beyond our control, out of our own funds, which could
have a material adverse effect on our business, financial condition and results
of operations.

We may be exposed to liabilities under the Foreign
Corrupt Practices Act, and any determination that we violated the Foreign
Corrupt Practices Act could have a material adverse effect on our business.

We are subject to the Foreign Corrupt Practice Act, or the
FCPA, and other laws that prohibit improper payments or offers of payments to
foreign governments and their officials and political parties by U.S. persons
and issuers as defined by the statute for the purpose of obtaining or retaining
business. We have operations, agreements with third parties and make sales in
China, which may experience corruption. Our activities in China create the risk
of unauthorized payments or offers of payments by one of the employees,
consultants, sales agents or distributors of our company, because these parties
are not always subject to our control. It is our policy to implement safeguards
to discourage these practices by our employees. We have adopted a general FCPA
policy in our amended Code of Ethics and have informed our personnel and
third-party sales agents and distributors regarding the requirements of the FCPA.
We plan to further develop and implement systems for formalizing contracting
processes, performing diligence on agents and improving our record-keeping and
auditing practices. We can make no assurance, however, that our employees or
other agents will not engage in such conduct for which we might be held
responsible. Violations of the FCPA may result in severe criminal or civil
sanctions, and we may be subject to other liabilities, which could negatively
affect our business, operating results and financial condition. In addition, the
government may seek to hold our Company liable for successor liability FCPA
violations committed by companies in which we invest or that we acquire.

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Our management has identified deficiencies in our
internal control over financial reporting, which if not properly remediated
could result in 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 internal control over financial reporting. 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.

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

- 



In order to correct the foregoing significant deficiencies, we have taken and
are taking the following remediation measures:

- 







Although we are in the process of implementing the above
initiatives aimed at addressing these deficiencies, there is no guarantee that
these initiatives will remediate the inadequacy completely. Failure to achieve
and maintain an effective 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.

We have not voluntarily implemented various corporate
governance measures, in the absence of which, shareholders may have  more limited
protections against related party transactions, conflicts of interest and
similar matters.

Since our common stock is not listed for trading on a
national securities exchange, we are not subject to certain of the corporate
governance requirements established by the national securities exchanges
pursuant to the Sarbanes-Oxley Act of 2002, or SOX. These include rules relating
to independent directors, and independent director nomination, audit and
compensation committees. While we are currently seeking independent directors
for our board of directors, we do not presently have such directors. As a
result, we have not established independent audit, compensation, or nominating
committees of our board of directors. In the absence of a majority of
independent directors, our officers and directors could establish policies and
enter into transactions without independent review and approval. In certain
circumstances, management may not have the same interests as the shareholders
and conflicts of interest may arise. Notwithstanding the exercise of their
fiduciary duties as directors and executive officers and any other duties that
they may have to us or our shareholders in general, these persons may have
interests different than yours which could adversely affect your investment.

There are limitations on the liability of our directors,
and we may have to indemnify our officers and directors in certain
instances.

Our certificate of incorporation contains a specific
provision that eliminates the personal liability of our directors for monetary
damages for breach of their fiduciary duties as directors to the extent provided
by Delaware law. Our bylaws provide that we will indemnify our officers and
directors and may indemnify our employees and other agents. The Company may also
have contractual indemnification obligations under its agreements with its
executive officers and directors. The foregoing indemnification obligations
could result in the Company incurring substantial expenditures to cover the cost
of settlement or damage awards against directors and officers, which the Company
may be unable to recoup. These provisions and resultant costs may also
discourage the Company from bringing a lawsuit against directors and officers
for breaches of their fiduciary duties and may similarly discourage the filing
of derivative litigation by the Companys stockholders against the Companys
directors and officers even though such actions, if successful, might otherwise
benefit the Company and its stockholders.

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RISKS RELATED TO DOING BUSINESS IN CHINA

Adverse changes in political and economic policies of the
PRC government could impede the overall economic growth of China, which could
reduce the demand for our products and damage our business.

We conduct substantially all of our operations and generate
most of our revenue in China. Accordingly, our business, financial condition,
results of operations and prospects are affected significantly by economic,
political and legal developments in China. The PRC economy differs from the
economies of most developed countries in many respects, including:

- a higher level of government involvement;
- a early stage of development of the market-oriented sector of the economy;
- a rapid growth rate;
- a higher level of control over foreign exchange; and
- the allocation of resources.

As the PRC economy has been transitioning from a planned
economy to a more market-oriented economy, the PRC government has implemented
various measures to encourage economic growth and guide the allocation of
resources. While these measures may benefit the overall PRC economy, they may
also have a negative effect on us.

Although the PRC government has in recent years implemented
measures emphasizing the utilization of market forces for economic reform, the
PRC government continues to exercise significant control over economic growth in
China through the allocation of resources, controlling the payment of foreign
currency-denominated obligations, setting monetary policy and imposing policies
that impact particular industries or companies in different ways.

Any adverse change in economic conditions or government
policies in China could have a material adverse effect on the overall economic
growth in China, which in turn could lead to a reduction in demand for our
services and consequently have a material adverse effect on our business and
prospects.

Uncertainties with respect to the PRC legal system could
limit the legal protections available to you and us.

We conduct substantially all of our business through our
operating subsidiaries in the PRC. Our operating subsidiaries are generally
subject to laws and regulations applicable to foreign investments in China and,
in particular, laws applicable to foreign-invested enterprises. The PRC legal
system is based on written statutes, and prior court decisions may be cited for
reference but have limited precedential value. Since 1979, a series of new PRC
laws and regulations have significantly enhanced the protections afforded to
various forms of foreign investments in China. However, since the PRC legal
system continues to evolve rapidly, the interpretations of many laws,
regulations and rules are not always uniform and enforcement of these laws,
regulations and rules involve uncertainties, which may limit legal protections
available to you and us. In addition, any litigation in China may be protracted
and result in substantial costs and diversion of resources and management
attention. In addition, all of our executive officers and all of our directors
are residents of China and not of the United States, and substantially all the
assets of these persons are located outside the United States. As a result, it
could be difficult for investors to affect service of process in the United
States or to enforce a judgment obtained in the United States against our
Chinese operations and subsidiaries.

If we are found to have failed to comply with applicable
laws, we may incur additional expenditures or be subject to significant fines
and penalties.

Our operations are subject to PRC laws and regulations
applicable to us. However, many PRC laws and regulations are uncertain in their
scope, and the implementation of such laws and regulations in different
localities could have significant differences. In certain instances, local
implementation rules and/or the actual implementation are not necessarily
consistent with the regulations at the national level. Although we strive to
comply with all the applicable PRC laws and regulations, we cannot assure you
that the relevant PRC government authorities will not later determine that we
have not been in compliance with certain laws or regulations. Our failure to
comply with applicable PRC laws and regulations could subject us to
administrative penalties and injunctive relief, as well as civil remedies,
including fines, injunctions and recalls of our products. It is possible that
changes to such laws or more rigorous enforcement of such laws or with respect
to our current or past practices could have a material adverse effect on our
business, operating results and financial condition.

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The PRC government exerts substantial influence over the
manner in which we must conduct our business activities.

The PRC government has exercised and continues to exercise
substantial control over virtually every sector of the Chinese economy through
regulation and state ownership. Our ability to operate in China may be harmed by
changes in its laws and regulations, including those relating to taxation,
import and export tariffs, environmental regulations, land use rights, property
and other matters. We believe that our operations in China are in material
compliance with all applicable legal and regulatory requirements. However, the
central or local governments of the jurisdictions in which we operate may impose
new, stricter regulations or interpretations of existing regulations that would
require additional expenditures and efforts on our part to ensure our compliance
with such regulations or interpretations.

Accordingly, government actions in the future, including any
decision not to continue to support recent economic reforms and to return to a
more centrally planned economy or regional or local variations in the
implementation of economic policies, could have a significant effect on economic
conditions in China or particular regions thereof and could require us to divest
ourselves of any interest we then hold in Chinese properties or joint
ventures.

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.

Because Shaanxi Coalfield Geology Bureau Hydrological
Team failed to obtain necessary approval from relevant government authority when
they leased an allocated land to Fuping Milkgoat, there is no guarantee that the
PRC government will not challenge the validity of the lease in the
future.

In 2004, when Shaanxi Coalfield Geology Bureau Hydrological
Team, or Shaanxi Coalfield, leased an allocated land to Fuping Milkgoat for its
business use, it did not obtain necessary approvals from relevant land
administrations of municipal or county governments or complete necessary
administrative procedures. On August 8, 2008, Tianjin Yayi acquired Fuping
Milkgoat. According to Provisional Rules on Administration of Allocated Land Use
Right of PRC, promulgated by State Land Administration on March 8, 1992, land
users who transfer, lease or mortgage allocated land use right must bear
state-owned land use certificate and legal documents of the premises and
attached structures and properties and apply in written form to land
administrations of local municipal or county people's governments. Land
administrations of municipal or county people's governments, through
negotiations, sign land use right transfer contract with the applicant. Land
users shall, within 60 days after the signing of land use right leasing
contracts, pay lease fees to local municipal or county people's governments and
have the land use right leasing registered at the land administrations of the
municipal or county people's governments. Both parties involved in transfer,
leasing or mortgaging of land use right shall, within 15 days after the
registration of a land use right lease, go to land administrations of municipal
or county people's governments to have the transfer, leasing or mortgaging of
land use right registered. Shaanxi Coalfield failed to comply with the above
requirement for not obtaining the government approval or completing the
necessary administrative procedures before they leased the allocated land to us.
Shaanxi Coalfield is in the process of applying for the approval from the PRC
regulatory authorities with respect to their lease of the allocated land to
Fuping Milkgoat. There is no guarantee that the PRC regulatory agency will not
challenge the validity of our lease in the future. If these leases are deemed
invalid by the PRC regulatory authorities, we will lose the land use right to
this allocated land. As a result, Fuping Milkgoats business of processing raw
goat milk could be affected negatively. We believe that our cost of raw milk
powder will increase by approximately RMB 332 (approximately $48.8) per ton as
we will need to have third-party processors to spray dry raw goat milk into milk
powder.

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Restrictions on currency exchange may limit our ability to receive and use
our sales revenue effectively.

All our sales revenue and expenses are denominated in RMB.
Under PRC law, the RMB is currently convertible under the "current account,"
which includes dividends and trade and service-related foreign exchange
transactions, but not under the "capital account," which includes foreign direct
investment and loans. Currently, our PRC operating subsidiaries may purchase
foreign currencies for settlement of current account transactions, including
payments of dividends to us, without the approval of the State Administration of
Foreign Exchange, or SAFE, by complying with certain procedural requirements.
However, the relevant PRC government authorities may limit or eliminate our
ability to purchase foreign currencies in the future. Since a significant amount
of our future revenue will be denominated in RMB, any existing and future
restrictions on currency exchange may limit our ability to utilize revenue
generated in RMB to fund our business activities outside China that are
denominated in foreign currencies.

Foreign exchange transactions by our PRC operating
subsidiaries under the capital account continue to be subject to significant
foreign exchange controls and require the approval of or need to register with
PRC government authorities, including SAFE. In particular, if our PRC operating
subsidiaries borrow foreign currency through loans from us or other foreign
lenders, these loans must be registered with SAFE, and if we finance the
subsidiaries by means of additional capital contributions, these capital
contributions must be approved by certain government authorities, including the
Ministry of Commerce, or MOFCOM, or their respective local counterparts. These
limitations could affect their ability to obtain foreign exchange through debt
or equity financing.

Fluctuations in exchange rates could adversely affect our business and the
value of our securities.

The value of our common stock will be indirectly affected by
the foreign exchange rate between U.S. dollars and RMB and between those
currencies and other currencies in which our sales may be denominated.
Appreciation or depreciation in the value of the RMB relative to the U.S. dollar
would affect our financial results reported in U.S. dollar terms without giving
effect to any underlying change in our business or results of operations.
Fluctuations in the exchange rate will also affect the relative value of any
dividend we issue in the future as well as earnings from, and the value of, any
U.S. dollar-denominated investments we make in the future.

Since July 2005, the RMB has no longer been pegged to the
U.S. dollar. Although the Peoples Bank of China regularly intervenes in the
foreign exchange market to prevent significant short-term fluctuations in the
exchange rate, the RMB may appreciate or depreciate significantly in value
against the U.S. dollar in the medium to long term. Moreover, it is possible
that in the future PRC authorities may lift restrictions on fluctuations in the
RMB exchange rate and lessen intervention in the foreign exchange market.

Very limited hedging transactions are available in China to
reduce our exposure to exchange rate fluctuations. To date, we have not entered
into any hedging transactions. While we may enter into hedging transactions in
the future, the availability and effectiveness of these transactions may be
limited, and we may not be able to hedge our exposure successfully at all. In
addition, our foreign currency exchange losses may be magnified by PRC exchange
control regulations that restrict our ability to convert RMB into foreign
currencies.

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Restrictions under PRC law on our PRC subsidiaries
ability to make dividends and other distributions could materially and adversely
affect our ability to grow, make investments or acquisitions that could benefit
our business, pay dividends to you, and otherwise fund and conduct our
businesses.

Substantially all of our revenues are earned by our PRC
subsidiaries. However, PRC regulations restrict the ability of our PRC
subsidiaries to make dividends and other payments to its offshore parent
company. PRC legal restrictions permit payments of dividend by our PRC
subsidiaries only out of their accumulated after-tax profits, if any, determined
in accordance with PRC accounting standards and regulations. Our PRC
subsidiaries are also required under PRC laws and regulations to allocate at
least 10% of our annual after-tax profits determined in accordance with PRC GAAP
to a statutory general reserve fund until the amounts in said fund reaches 50%
of our registered capital. Allocations to these statutory reserve funds can only
be used for specific purposes and are not transferable to us in the form of
loans, advances or cash dividends. Any limitations on the ability of our PRC
subsidiaries to transfer funds to us could materially and adversely limit our
ability to grow, make investments or acquisitions that could be beneficial to
our business, pay dividends and otherwise fund and conduct our business.

Under the New EIT Law, we may be classified as a
resident enterprise of China. Such classification will likely result in
unfavorable tax consequences to our non-PRC stockholders and us.

China passed a new Enterprise Income Tax Law, or the New EIT
Law, and its implementing rules, both of which became effective on January 1,
2008. Under the New EIT Law, an enterprise established outside of China with de
facto management bodies within China is considered a resident enterprise,
meaning that it can be treated in a manner similar to a Chinese enterprise for
enterprise income tax purposes. The implementing rules of the New EIT Law define
de facto management as substantial and overall management and control over the
production and operations, personnel, accounting, and properties of the
enterprise. Because the New EIT Law and its implementing rules are new, no
official interpretation or application of this new resident enterprise
classification is available. Therefore, it is unclear how tax authorities will
determine tax residency based on the facts of each case.

If the PRC tax authorities determine that Yayi International
Inc. is a resident enterprise for PRC enterprise income tax purposes, a number
of unfavorable PRC tax consequences could follow. First, we may be subject to
the enterprise income tax at a rate of 25% on our worldwide taxable income as
well as PRC enterprise income tax reporting obligations. In our case, this would
mean that non-China source income would be subject to PRC enterprise income tax
at a rate of 25%. Second, although under the New EIT Law and its implementing
rules dividends paid to us from our PRC subsidiaries would qualify as
tax-exempt income, we cannot guarantee that such dividends will not be subject
to a 10% withholding tax, as the PRC foreign exchange control authorities, which
enforce the withholding tax, have not yet issued guidance with respect to the
processing of outbound remittances to entities that are treated as resident
enterprises for PRC enterprise income tax purposes. Finally, it is possible that
future guidance issued with respect to the new resident enterprise
classification could result in a situation in which a 10% withholding tax is
imposed on dividends we pay to our non-PRC stockholders and with respect to
gains derived by our non-PRC stockholders from transferring our shares. We are
actively monitoring the possibility of resident enterprise treatment for the
2008 tax year and are evaluating appropriate organizational changes to avoid
this treatment, to the extent possible.

If we were treated as a resident enterprise by PRC tax
authorities, we would be subject to taxation in both the U.S. and China, and our
PRC tax may not be creditable against our U.S. tax.

If the CSRC,
or another PRC regulatory agency determines that CSRC approval is required in
connection with the reverse acquisition of Charleston, the reverse acquisition
may be unwound, or we may become subject to penalties.

On August 8, 2006, six PRC regulatory agencies, including the
CSRC, promulgated the Provisions Regarding Mergers and Acquisitions of Domestic
Enterprises by Foreign Investors, or the M&A Rule, which became effective on September 8, 2006. The M&A Rule, among other things,
requires that an offshore company controlled by PRC companies or individuals
that have acquired a PRC domestic company for the purpose of listing the PRC
domestic companys equity interest on an overseas stock exchange must obtain the
approval of the CSRC prior to the listing and trading of such offshore companys
securities on an overseas stock exchange. On September 21, 2006, the CSRC,
pursuant to the M&A Rule, published on its official web site procedures
specifying documents and materials required to be submitted to it by offshore
companies seeking CSRC approval of their overseas listings.

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We do not believe that the M&A Rule concerning the CSRC
approval for acquisition of a PRC domestic company by an offshore company
controlled by PRC companies or individuals applies to our reverse acquisition of
Charleston because neither Yayi International Inc. nor Charleston is a Special
Purpose Vehicle or an offshore company controlled by PRC companies or
individuals as defined in the M&A Rule. If the CSRC or another PRC
governmental agency subsequently determines that we must obtain CSRC approval
prior to the completion of the reverse acquisition, the reverse acquisition may
be unwound and we may face regulatory actions or other sanctions from the CSRC
or other PRC regulatory agencies. These regulatory agencies may impose fines and
penalties on our operations in China and limit our operating privileges in
China, or take other actions that could have a material adverse effect on our
business, financial condition, results of operations, reputation and prospects,
as well as the trading price of our shares.

The M&A Rule establishes more complex procedures for
some acquisitions of Chinese companies by foreign investors, which could make it
more difficult for us to pursue growth through acquisitions in China.

The M&A Rule establishes additional procedures and
requirements that could make some acquisitions of Chinese companies by foreign
investors more time-consuming and complex, including requirements in some
instances that the PRC Ministry of Commerce be notified in advance of any
change-of-control transaction and in some situations, require approval of the
PRC Ministry of Commerce when a foreign investor takes control of a Chinese
domestic enterprise. In the future, we may grow our business in part by
acquiring complementary businesses, although we do not have any plans to do so
at this time. The M&A Rule also requires PRC Ministry of Commerce anti-trust
review of any change-of-control transactions involving certain types of foreign
acquirers. Complying with the requirements of the M&A Rule to complete such
transactions could be time-consuming, and any required approval processes,
including obtaining approval from the PRC Ministry of Commerce, may delay or
inhibit our ability to complete such transactions, which could affect our
ability to expand our business or maintain our market share.

You may have difficulty enforcing judgments against
us.

We are a Delaware holding company and most of our assets are
located outside of the United States. Most of our current operations are
conducted in the PRC. In addition, most of our directors and officers are
nationals and residents of countries other than the United States. A substantial
portion of the assets of these persons is located outside the United States. As
a result, it may be difficult for you to effect service of process within the
United States upon these persons. It may also be difficult for you to enforce in
U.S. courts judgments on the civil liability provisions of the U.S. federal
securities laws against us and our officers and directors, most of whom are not
residents in the United States and the substantial majority of whose assets are
located outside of the United States. In addition, there is uncertainty as to
whether the courts of the PRC would recognize or enforce judgments of U.S.
courts. Courts in China may recognize and enforce foreign judgments in
accordance with the requirements of the PRC Civil Procedures Law based on
treaties between China and the country where the judgment is made or on
reciprocity between jurisdictions. China does not have any treaties or other
arrangements that provide for the reciprocal recognition and enforcement of
foreign judgments with the United States. In addition, according to the PRC
Civil Procedures Law, courts in the PRC will not enforce a foreign judgment
against us or our directors and officers if they decide that the judgment
violates basic principles of PRC law or national sovereignty, security or the
public interest. So it is uncertain whether a PRC court would enforce a judgment
rendered by a court in the United States.

RISKS RELATED TO THE MARKET FOR OUR STOCK GENERALLY

The market price of our common stock is volatile, leading
to the possibility of its value being depressed at a time when you may want to
sell your holdings.

The market price of our common stock is volatile, and this
volatility may continue. Numerous factors, many of which are beyond our control,
may cause the market price of our common stock to fluctuate significantly. In
addition to market and industry factors, the price and trading volume for our
common stock may be highly volatile for specific business reasons. Factors such
as variations in our revenues, earnings and cash flow, announcements of new
investments, cooperation arrangements or acquisitions, and fluctuations in
market prices for our products could cause the market price for our shares to
change substantially.

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Securities class action litigation is often instituted against
companies following periods of volatility in their stock price. This type of
litigation could result in substantial costs to us and divert our managements
attention and resources.

Moreover, the trading market for our common stock will be
influenced by research or reports that industry or securities analysts publish
about us or our business. If one or more analysts who cover us downgrade our
common stock, the market price for our common stock would likely decline. If one
or more of these analysts cease coverage of us or fail to publish reports on us
regularly, we could lose visibility in the financial markets, which, in turn,
could cause the market price for our common stock or trading volume to decline.

Furthermore, securities markets may from time to time
experience significant price and volume fluctuations for reasons unrelated to
operating performance of particular companies. These market fluctuations may
adversely affect the price of our common stock and other interests in our
company at a time when you want to sell your interest in us.

We may be subject to penny stock regulations and
restrictions and you may have difficulty selling shares of our common
stock.

The SEC has adopted regulations which generally define
so-called penny stocks to be an equity security that has a market price less
than $5.00 per share or an exercise price of less than $5.00 per share, subject
to certain exemptions. If our common stock becomes a penny stock, we may
become subject to Rule 15g-9 under the Exchange Act, or the Penny Stock Rule.
This rule imposes additional sales practice requirements on broker-dealers that
sell such securities to persons other than established customers and accredited
investors (generally, individuals with a net worth in excess of $1,000,000 or
annual incomes exceeding $200,000, or $300,000 together with their spouses). For
transactions covered by Rule 15g-9, a broker-dealer must make a special
suitability determination for the purchaser and have received the purchasers
written consent to the transaction prior to sale. As a result, this rule may
affect the ability of broker-dealers to sell our securities and may affect the
ability of purchasers to sell any of our securities in the secondary market.

For any transaction involving a penny stock, unless exempt, the
rules require delivery, prior to any transaction in penny stock, of a disclosure
schedule prepared by the SEC relating to the penny stock market. Disclosure is
also required to be made about sales commissions payable to both the
broker-dealer and the registered representative and current quotations for the
securities. Finally, monthly statements are required to be sent disclosing
recent price information for the penny stock held in the account and information
on the limited market in penny stock.

There can be no assurance that our common stock will qualify
for exemption from the Penny Stock Rule. In any event, even if our common stock
were exempt from the Penny Stock Rule, we would remain subject to Section
15(b)(6) of the Exchange Act, which gives the SEC the authority to restrict any
person from participating in a distribution of penny stock, if the SEC finds
that such a restriction would be in the public interest.

Our common stock is quoted on the OTC Bulletin Board
which may have an unfavorable impact on our stock price and liquidity.

Our common stock is quoted on the OTC Bulletin Board. The OTC
Bulletin Board is a significantly more limited market than the New York Stock
Exchange or NASDAQ system. The quotation of our shares on the OTC Bulletin Board may result in a less liquid market available for existing
and potential stockholders to trade shares of our common stock, could depress
the trading price of our common stock and could have a long-term adverse impact
on our ability to raise capital in the future.

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Certain provisions of our Articles of Incorporation may
make it more difficult for a third party to effect a change-of-control.

Our Certificate of Incorporation authorizes our board of
directors to issue up to 10,000,000 shares of preferred stock. The preferred
stock may be issued in one or more series, the terms of which may be determined
at the time of issuance by the board of directors without further action by the
stockholders. These terms may include preferences as to dividends and
liquidation, conversion rights, redemption rights and sinking fund provisions.
The issuance of any preferred stock could diminish the rights of holders of our
common stock, and therefore could reduce the value of such common stock. In
addition, specific rights granted to future holders of preferred stock could be
used to restrict our ability to merge with, or sell assets to, a third party.
The ability of our board of directors to issue preferred stock could make it
more difficult, delay, discourage, prevent or make it more costly to acquire or
effect a change-in-control, which in turn could prevent our stockholders from
recognizing a gain in the event that a favorable offer is extended and could
materially and negatively affect the market price of our common stock. In
connection with our private placement transaction in June 2009, we filed the
Certificate  with the Secretary of
State of the State of Delaware on June 16, 2009, pursuant to which we issued
1,530,612 shares of Series A Preferred Stock to SAIF.

The conversion of preferred stock or exercise of warrants
we issued in our previous private placements may result in dilution to the
holders of our common stock and cause the price of our common stock to decline.

Dilution of the per share value of our common stock could
result from the conversion of our outstanding Series A Preferred Stock issued to
SAIF and the exercise of outstanding warrants that we issued in connection with
our previous private placement transactions. As of June 26, 2010, there were
1,530,612 shares of our Series A Preferred Stock outstanding, which may be
converted into our common stock at the option of the holders of the Series A
Preferred Stock in whole or in part at any time at an initial conversion price
of $0.98. In addition, as of June 26, 2010, there were outstanding warrants to
purchase 3,096,389 shares of our common stock. When the conversion price of the
Series A Preferred Stock or the exercise price of the warrants is less than the
trading price of our common stock, the conversion of Series A Preferred Stock or
the exercise of the warrants would have a dilutive effect on our shareholders.
The possibility of the issuance of shares of our common stock upon the
conversion of Series A Preferred Stock or exercise of the warrants could cause
the trading price of our common stock to decline as well.

We may not have sufficient funds to redeem our
outstanding Series A Preferred Stock upon the request of the holders and we may
have difficulties to raise the funds necessary to settle redemption of the
Series A Preferred Stock, which could negatively affect our financial condition
and results of operations.

We filed the Certificate with the Secretary of State of the State of Delaware on June 16, 2009, in which we authorized 1,530,612 shares of
Series A Preferred Stock. According to the Certificate, at any
time and from time to time after June 30, 2012, the holders of the Series A
Preferred Stock have the right to request the Company to redeem all of the then
outstanding shares of Series A Preferred Stock in cash, if any of the following
qualified events has not occurred: (i) the Companys shares of common stock are
listed on the New York Stock Exchange or the NASDAQ Global Market, and (ii) the
closing market price of such listing securities represents a price of no less
than $4.25 per share of common stock, subject to adjustment, in any consecutive
30-trading-day period. It will cost an amount equals to the sum of (x) the
purchase price plus an annualized internal rate of return of 25% for the period
from the issuance date of the Series A Preferred Stock to the redemption date
and (y) an amount equal to all declared but unpaid dividends for each
outstanding share of Series A Preferred Stock, proportionally adjusted for
recapitalizations to redeem a share of Series A Preferred Stock. We cannot
assure you that we would have sufficient financial resources, or would be able
to arrange financing, to redeem all of the shares of the Series A Preferred
Stock upon the request of the holders. According to the Certificate, to the extent our available cash flow is insufficient to fund all
redemption requests, those funds will be used to redeem the maximum possible
number of such shares ratably among the holders. The shares not redeemed
shall remain outstanding and at any time thereafter when additional funds of the
Company are available for the redemption, such funds will immediately be used to
redeem the balance of the shares. Our obligations to redeem the balance of the
shares may limit our ability to borrow money or sell stock to fund and as a
result, may require a substantial portion of our cash flow from operations to be
used for the redemption of these shares, thereby reducing the availability of
our cash flow to fund working capital, capital expenditures, acquisitions and
other general corporate purposes. One or a combination of these factors could
adversely affect our financial condition and results of operations.

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We do not plan to pay any dividends in the foreseeable
future.

We have not paid a dividend in the past and it is unlikely that
we will declare or pay a dividend in the foreseeable future. The declaration,
amount and date of distribution of any dividends in the future will be decided
by the Board of Directors from time-to-time, based upon, and subject to, the
Companys earnings, financial requirements and other conditions prevailing at
the time.

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PART II

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

Change in Fiscal Year

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

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

Overview

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

Recent Development

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

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

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

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

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

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

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

Taxation

United States

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

British Virgin Islands

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

PRC

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

-25-

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

Results of Operations

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

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

|                                                    |   | Five
      months ended March 31 |   |   |             |  |   |            |  
|--------------------------------------------------- | - | -------------------------------- | - | - | ----------- |  | - | ---------- | -
|                                                    |   | 2010                             |   |   | 2009        |  |   |            |  
|                                                    |   | (audited)                        |   |   | (unaudited) |  |   | change     |  
|                                                    |   |                                  |   |   |             |  |   |            |  
|Net Sales                                           | $ | 6,966,183                        |   | $ | 9,283,420   |  | $ | (2,317,236 | )
|Cost of goods sold                                  |   | 2,369,642                        |   |   | 2,892,709   |  |   | (523,067   | )
|Gross profit                                        |   | 4,596,541                        |   |   | 6,390,711   |  |   | (1,794,169 | )
|Operating expenses:                                 |   |                                  |   |   |             |  |   |            |  
|Sales and marketing expenses                        |   | 3,908,572                        |   |   | 1,973,212   |  |   | 1,935,360  |  
|General and administrative expenses                 |   | 1,318,077                        |   |   | 685,843     |  |   | 632,234    |  
|Income from continuing operations                   |   | (630,109                         | ) |   | 3,731,656   |  |   | (4,361,764 | )
|Other income, net                                   |   | 380,789                          |   |   | 686,878     |  |   | (306,089   | )
|Income tax expense                                  |   | (68,846                          | ) |   | 869,614     |  |   | (938,460   | )
|Net income from discontinued operations, net of tax |   |                                  |   |   |             |  |   |            |  
|Foreign currency translation adjustment             |   | (6,024                           | ) |   | 44,791      |  |   | (52,711    | )
|Net income attributable to Yayi International Inc.  |   | (936,028                         | ) |   | 2,130,373   |  |   | (3,064,503 | )

Net Sales. Net sales for the five months ended March 31,
2010 were approximately $7.0 million, a decrease of 25.0% from the five months
ended March 31, 2009. This decrease was primarily due to the restructuring of
our product portfolio. From the end of 2009, we worked together with Trout &
Partners to streamline our product portfolio and refine our brand image in order
to position and strengthen our "Milk Goat" brand as the premium goat milk brand
throughout China. Thereafter, we have restructured our original product
portfolio of dozens of products and specifications and refined our marketing
strategy during the three months ended October 31, 2009. As a result, we
gradually reduced the production of original products from the end of 2009 in
anticipation of the introduction of our new products in January 2010. Our new
product portfolio consists of only ten formula products under the "Milk Goat"
brand with only one product specification of 600 grams. We suspended our sales
efforts in supermarkets during these few months as we transitioned from our
original product portfolio to the new one with new packaging, stock-keeping
units (SKUs), and new (higher) pricing. Our new product portfolio has only been
launched in the market since January 2010.

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

|Product Name                        |   | Five
    months ended March |  |   | Five months ended March | 
|----------------------------------- | - | --------------------------- |  | - | ----------------------- | 
|                                    |   | 31, 2010                    |  |   | 31, 2009                | 
|                                    |   |                             |  |   |                         | 
|Goat Milk Powder
    Quantity (ton) |   | 351                         |  |   | 510                     | 
|Unit price                          | $ | 19,872                      |  | $ | 18,171                  | 

-26-

---

Cost of goods sold. Cost of goods sold for the five
months ended March 31, 2010 was approximately $2.4 millions, a decrease of 18.1%
from the five months ended March 31, 2009, primarily due to the decrease in our
net sales. However, the unit cost increased by 16.1% from $ 5,743.8 per ton to $
6,665.9 per ton, primarily attributable to giveaways distributed to purchasers
of our new products. To a lesser extent, increased prices of main raw materials
also contributed to the increase in our unit cost.

Gross Profit. Gross profit for the five months ended
March 31, 2010 was approximately $4.6 million, a decrease of 28.1% from the five
months ended March 31, 2009. Our gross margin for the five months ended March
31, 2010 decreased to 66% compared to 68.8% for the five months ended March 31,
2009. This decrease was primarily attributable to promotional products
distributed to purchasers of our new products. However, the gross margin of our
new product portfolio is higher than original product portfolio which partially
offset the decrease caused by giveaways and promotional products.

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

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

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

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

Income Tax. Our income tax in the five months ended
March 31, 2010 decreased by 107.9%, from an expense of approximately $0.9
million in the five months ended March 31, 2009 to a benefit of approximately
$0.1 million in the five months ended March 31, 2010. The decrease was primarily
attributable to losses experienced in the five months ended March 31, 2010.

Net Income(loss).As a result of the foregoing, net
income attributable to Yayi International Inc. decreased by 143.8% in the five
months ended March 31, 2010 as compared to the five months ended March 31,
2009.

-27-

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

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

|                                                    |   | Years
      ended March 31 (Unaudited) |  |   |            |   |   |            |  
|--------------------------------------------------- | - | -------------------------------------- |  | - | ---------- | - | - | ---------- | -
|                                                    |   | 2010                                   |  |   | 2009       |   |   | change     |  
|                                                    |   |                                        |  |   |            |   |   |            |  
|Net Sales                                           | $ | 22,243,723                             |  | $ | 24,697,548 |   | $ | (2,453,824 | )
|Cost of goods sold                                  |   | 7,267,807                              |  |   | 8,274,455  |   |   | (1,006,648 | )
|Gross profit                                        |   | 14,975,916                             |  |   | 16,423,092 |   |   | (1,447,176 | )
|Operating expenses:                                 |   |                                        |  |   |            |   |   |            |  
|Sales and marketing expenses                        |   | 7,689,499                              |  |   | 5,399,221  |   |   | 2,290,278  |  
|General and administrative expenses                 |   | 2,726,964                              |  |   | 1,753,174  |   |   | 973,790    |  
|Income from continuing operations                   |   | 4,559,451                              |  |   | 9,270,696  |   |   | (4,711,245 | )
|Other income, net                                   |   | 1,219,092                              |  |   | 4,959,780  |   |   | (3,740,688 | )
|Income tax expense                                  |   | 1,173,318                              |  |   | 2,225,028  |   |   | (1,051,710 | )
|Net income from discontinued operations, net of tax |   |                                        |  |   |            |   |   |            |  
|Foreign currency translation adjustment             |   | 28,704                                 |  |   | (101,337   | ) |   | 130,041    |  
|Net income attributable to Yayi International Inc.  |   | 2,138,337                              |  |   | 2,187,225  |   |   | (48,888    | )

Net Sales.Net sales for the year ended March 31, 2010
were approximately $22.2 million, a decrease of 9.9% from the prior year. As
described above, we gradually reduced the production of original products from
the end of 2009 in anticipation of the introduction of our new products in
January 2010. We suspended our sales efforts in supermarkets when we
transitioned from our original product portfolio to the new one with new
packaging, stock-keeping units (SKUs), and new (higher) pricing. Our new product
portfolio has only been launched in the market since January 2010. As a result,
our net sales reduced for the year ended March 31, 2010 as compared with the
prior year.

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

|Product Name                        |   | Twelvemonths ended March |  |   | Twelve months ended March | 
|----------------------------------- | - | ------------------------ |  | - | ------------------------- | 
|                                    |   | 31, 2010                 |  |   | 31, 2009                  | 
|                                    |   |                          |  |   |                           | 
|Goat Milk Powder
    Quantity (ton) |   | 1,131                    |  |   | 1,239                     | 
|Unit price                          | $ | 19,675                   |  | $ | 19,221                    | 

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

Gross Profit.Gross profit for the year ended March 31
2010 was approximately $15.0 million, a decrease of 8.8% from prior year. This
decrease was primarily attributable to our lower net sales, partially offset by
the decrease in our cost of goods sold primarily as a result of our acquisition
of Fuping Milkgoat in August, 2008. Such vertical integration of our operations
allowed us to benefit from a higher profit margin for our products.

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

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

-28-

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

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

Income Tax.Income tax for the year ended March 31, 2010
decreased by approximately 47.3% from prior year. The decrease is primarily
attributable to the decrease in sales and taxable income for the year ended
March 31, 2010.

Net Income(loss). As a result of the foregoing, net
income attributable to Yayi International Inc. decreased by 2.2% for the year
ended March 31, 2010 as compared to prior year.

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

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

|                                                         |   | Fiscal
      Years ended October 31 (Audited) |  |   |            |   |   |            |  
|-------------------------------------------------------- | - | --------------------------------------------- |  | - | ---------- | - | - | ---------- | -
|                                                         |   | 2009                                          |  |   | 2008       |   |   | change     |  
|                                                         |   |                                               |  |   |            |   |   |            |  
|Net Sales                                                | $ | 24,845,685                                    |  | $ | 21,791,268 |   | $ | 3,054,417  |  
|Cost of goods sold                                       |   | 8,025,009                                     |  |   | 7,600,454  |   |   | 424,555    |  
|Gross profit                                             |   | 16,820,676                                    |  |   | 14,190,814 |   |   | 2,629,862  |  
|Operating expenses:                                      |   |                                               |  |   |            |   |   |            |  
|Sales and marketing expenses                             |   | 5,760,446                                     |  |   | 5,201,779  |   |   | 558,666    |  
|General and administrative expenses                      |   | 1,972,190                                     |  |   | 1,107,333  |   |   | 864,857    |  
|Income from continuing operations                        |   | 9,088,040                                     |  |   | 7,881,702  |   |   | 1,206,338  |  
|Other income (expense), net                              |   | 1,491,027                                     |  |   | (4,422,539 | ) |   | (2,931,512 | )
|Income tax expense                                       |   | 2,201,032                                     |  |   | 1,633,946  |   |   | 567,086    |  
|Net income from discontinued operations, net of tax      |   |                                               |  |   |            |   |   |            |  
|Net income attributable to Yayi International
      Inc. |   | 5,395,981                                     |  |   | 1,825,217  |   |   | 3,570,764  |  

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

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

|Product Name                        |   | Fiscal year ended October |  |   | Fiscal year ended October | 
|----------------------------------- | - | ------------------------- |  | - | ------------------------- | 
|                                    |   | 31, 2009                  |  |   | 31, 2008                  | 
|                                    |   |                           |  |   |                           | 
|Goat Milk Powder
    Quantity (ton) |   | 1,259                     |  |   | 1,023                     | 
|Unit price                          | $ | 19,683                    |  | $ | 20,078                    | 

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

-29-

---

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

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

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

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

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

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

LIQUIDITY AND CAPITAL RESOURCES

As of March 31, 2010, we had cash and cash equivalents of approximately $4.7
million and working capital of approximately $3.8 million.

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

-30-

---

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

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

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

Five Months Ended
      
      Years EndedMarch
        31,
      
      October
        31,2010
      2009
      
      2009
      2008(Audited)
      (Unaudited)
      
      (Audited)
      (Audited)Net cash provided by (used in) operating
        activities
      $(3,896,858)
      $3,285,901
      
      6,534,843
      3,816,554Net cash  used in investing activities
      (1,980,422)
      (4,192,349)
      
      (12,400,482)
      (5,658,527)Net cash provided by financing activities
      235,867
      1,648,847
      
      15,360,090
      2,387,373Net increase (decrease) in cash and cash equivalent
      (5,640,536)
      740,289
      
      9,476,935
      634,961


Operating Activities:

Net cash used in operating activities was approximately $3.9
million for the five months ended March 31, 2010, as compared to net cash
provided by operating activities of approximately $3.3 million for the five
months ended March 31, 2009. Net cash used in operating activities for the five
months ended March 31, 2010 was mainly due to net loss of 0.9 million, non-cash
items not affecting transition period cash flows of $0.3 million and a $3.2
million increase in working capital. The changes in working capital for the five
months ended March 31, 2010 were primarily related to a $0.9 million increase in
prepaid expenses due to the increase in slotting fees for new product portfolio,
a $0.6 million increase in advance due to prepayment for raw goat milk powder
and other materials, a $0.5 million increase in accounts receivable due to our
extended credit term for new products promotion, a $0.6 million decrease in
accounts payable due to the shorten payment term of main materials.

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

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Investing Activities:

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

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

Financing Activities:

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

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

Critical Accounting Policies

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

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

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

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

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

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

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

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

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

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

The Company treats one-time slotting fees paid to retails
shops who are direct customers of the Companys distributors as a reduction in
gross sales. The Company pays the fees upon signing of contract with the
distributors and records them as prepayment. These fees are amortized over a
twelve months period for retail shops. The amortized amount is taken as a
reduction against revenue.

Slotting fees of $151,619 and $0 were recorded as a reduction
of sales revenue for the five months ended March 31, 2010 and 2009.

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Effects of Inflation

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

Off Balance Sheet Arrangements

We do not have any off balance sheet arrangements that have or
are reasonably likely to have a current or future effect on our financial
condition, changes in financial condition, revenues or expenses, results of
operations, liquidity or capital expenditures or capital resources that is
material to an investor in our securities.

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Recent Accounting Pronouncements

Accounting Standards Codification

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

Fair Value Measurement

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

Decreases in Ownership of a Subsidiary  a Scope
Clarification

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

Distributions to Shareholders with Components of Stock and
Cash

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

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Measuring Liabilities at Fair Value

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

Convertible Debt Instruments

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

Business Combination

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

Recently Issued Accounting Pronouncements Not Yet Adopted

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

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

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Embedded credit derivative

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

Share-based payment awards

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

The milestone method of revenue recognition

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

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

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ITEM
8.              FINANCIAL
STATEMENTS AND SUPPLEMENTARY FINANCIAL DATA

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

ITEM 9A(T).        
CONTROLS AND PROCEDURES.

(a) Evaluation of Disclosure Controls and
Procedures.

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

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

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

|1) | pertain to the maintenance of records that in reasonable
      detail accurately and fairly reflect the transactions and dispositions of
      our assets;                                                                                                                                                       
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                  
|2) | provide reasonable assurance that transactions are
      recorded as necessary to permit preparation of financial statements in
      accordance with U.S. GAAP, and that our receipts and expenditures are
      being made only in accordance with the authorization of our management and
      directors; and
|   |                                                                                                                                                                                                                                                                                                                  
|3) | provide reasonable assurance regarding prevention or
      timely detection of unauthorized acquisition, use or disposition of our
      assets that could have a material effect on the financial
    statements.                                                                                               

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

|1) | Our internal audit function is significantly deficient
        due to insufficient qualified resources and appropriate system to perform
        such function. Therefore, our ability to prevent and control lapses and
        errors in our accounting function could not be rendered effectively.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                      
|2) | Our current accounting staff is relatively inexperienced
        with respect to U.S. GAAP and needs substantial training to meet the higher
        demands of being a U.S. public company.                                                                                                         

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

|1) | We have engaged a third party professional consultant, as
      announced on November 17, 2009, to assist us in assessing, improving and
      monitoring our internal control over financial reporting. We have been
      actively working with the external consultant to assess our data
      collection, financial reporting, and control procedures and to strengthen
      our internal controls over financial reporting.                                                                                                                                                                                                           
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|2) | We are committed to develop a comprehensive and
      risk-based internal audit function within the Company. Due to the scarcity
      of qualified candidates with extensive experience in U.S. GAAP reporting
      and accounting in the region, we have engaged an external professional
      consultancy firm to assist the management in developing the internal audit
      system. At the same time, we have employed experienced staff with respect
      to U.S. GAAP-based reporting. We have enhanced our efforts to hire
      sufficient internal audit resources with assistance from recruiters and
      through referrals.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|3) | Ms. Veronica Jing Chen was appointed as our new Chief
      Financial Officer, effective February 24, 2010, who is a seasoned
      executive with more than 20 years of experience in accounting, financial
      management, and general management of several U.S.-listed Chinese
      companies.                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|4) | Ms. Ping An was appointed as our senior finance manager,
      effective April 19, 2010, who has more than five years experience in a
      Big Four Accounting firm - Deloitte & Touch Tianjin.                                                                                                                                                                                                                                                                                                                                                                                                                                           

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

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

Our management does not believe that these significant
deficiencies in our internal control over financial reporting had a material
effect on our financial condition or results of operations or caused our
financial statements for the five months ended March 31, 2010 to contain a
material misstatement.

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

(c) Changes in internal control over financial
reporting

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

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

PART III

ITEM
10.            DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

The following sets forth information about our directors and
executive officers as of the date of this report:

|NAME               | AGE | POSITION                      
|------------------ | --- | ------------------------------
|Li Liu             | 51  | Chairperson, CEO and President
|Fung Shek          | 54  | Director and Vice President   
|Cili Yan           | 51  | Director                      
|Veronica Jing Chen | 44  | Chief Financial Officer       
|Kenneth Jue Lee    | 42  | Director                      
|Gang Sheng         | 36  | Director                      

Li Liu. Ms. Liu has been our Chairwoman, CEO and
President since the completion of the reverse acquisition of Charleston on June
6, 2008. Ms. Liu has also served as Chairwoman and General Manager of Tianjin
Yayi since 1994. Ms. Liu has extensive experience in operational management and
business development. Ms. Liu graduated with a medical degree from Tianjin
Medical University in 1983 and received her Executive MBA from Tshinghua
University, China in September 2006.

Fung Shek. Mr. Shek became our director and Vice
President on June 6, 2008. Mr. 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. He was formerly a Director
of Sales at P&G Taiwan. Mr. Shek graduated from University of Massachusetts
Boston

Cili Yan. Ms. Yan became our director on June 6, 2008.
She is a committee member of the Tianjin Subcommission of the Chinese
Revolutionary Nationalist. Ms. Yan has been teaching at Tianjin Huanhu Secondary
School since 1999. She graduated from Tianjin Normal Specialized Postsecondary
College.

Veronica Jing Chen. Ms. Chen became our Chief Financial
Officer on February 24, 2010. Prior to joining us, Ms. Chen held Chief Financial
Officer positions at several NASDAQ listed Chinese companies, including China
Natural Gas, Inc., a company primarily involved in the distribution of
compressed natural gas in China, from May 2009 to January 2010, China Valves
Technology, Inc., a company engaged in the business of developing, manufacturing
and selling high-quality metal valves, from October 2008 to February 2009 and
Origin Agritech, Limited, a technology-focused crop seed company in China from
December 2007 to September 2008. Before that, she served as Senior Director of
Finance at iKang Healthcare, Inc., a leading healthcare management service
provider in China from December 2006 to November 2007, Director of Finance at
eLong, a Beijing-based online travel service provider from August 2001 to
November 2006, and Finance Manager of the North China Region for Eli Lilly
Asias China Representative Office, a global pharmaceutical company from
September 2000 to July 2001. Ms. Chen currently holds memberships with CPA
Australia and The National Institute of Accountants (MNIA) of Australia. She
received a degree of Doctor of Business Administration from Victoria University,
Neuchatel, Switzerland and an MBA degree from City University of Seattle,
Washington.

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---

Kenneth Jue Lee. Mr. Lee became our director on June 16,
2009. Mr. Lee is a Principal at SAIF Partners, which is one of the largest and
most successful growth venture capital funds focused on China. He has about 15
years of experience across private equity investment, corporate finance, and
business development in China. Before becoming a member of the SAIF team in
2007, Mr. Lee had served as the CFO of Topsec Holdings, a leading domestic
network security company in China, from 2006 to 2007. From 2004 to 2005, he
worked as a Principal at RimAsia Capital Partners, an independent, pan-Asia
private equity firm established in 2004 with a deeply connected local presence
across Asia. Prior to RimAsia Capital Partners, Mr. Lee was with Delta
Associates  the exclusive advisor to Asia Equity Infrastructure Fund, CNK
Telecom, H&Q Asia Pacific, and Salomon Brothers in New York. Mr. Lee is a
graduate of Amherst College with a Bachelor of Arts degree in Philosophy.

Gang Sheng.Mr. Sheng became our director on June
16, 2009. Mr. Sheng is a Vice President at SAIF Partners. Prior to joining SAIF
Partners in 2007, Mr. Sheng was a director in investment banking with Latitude
Capital Group in Hong Kong and Beijing from 2004 to 2007 where he executed
cross-border mergers & acquisitions, private placement transactions for
Chinese companies. From 2003 to 2004, Mr. Sheng worked as a Senior Investment
Manager of China Digital TV Holdings Co., Ltd. (NYSE:STV), a leading provider of
conditional access systems to Chinas expanding digital television market. Mr.
Sheng holds a Bachelors degree in Economics from Renmin University of China and
a MBA degree from Peking University.

In connection with the private placement transaction
consummated on June 18, 2009, we, Global Rock, Ms. Liu, Mr. Shek and SAIF
entered into a voting agreement, or the Voting Agreement, pursuant to which,
among other things, the parties agreed to vote, or cause to be voted, all shares
owned by them, to ensure that (i) the size of our Board of Directors will be set
and remain at five directors, which size can only be changed with first
obtaining the approval of the holders of at least two-thirds of the then
outstanding shares of Series A Preferred Stock voting separately as a single
class and (ii) two representatives designated by the holders of a majority of
the outstanding shares of Series A Preferred Stock will be elected to our Board
of Directors. No director elected pursuant to the Voting Agreement may be
removed without the vote or written consent of the stockholders entitled to
designate such director pursuant to the Voting Agreement. In the event of the
resignation, death or disqualification of a director, the stockholders entitled
to designate such director shall promptly nominate a new director and the
parties to the Voting Agreement shall promptly vote his, her or its shares of
capital stock of the Company to elect such nominee to the Board of Directors.

The obligation of the parties to the Voting Agreement to
vote, or cause to be voted, all shares owned by them to ensure that two
representatives designated by the holders of a majority of the outstanding
shares of Series A Preferred Stock will be elected as our directors exists until
the Voting Agreement is terminated by the parties. Other than a mutual
termination, there is no specific termination date in the agreement and the
voting arrangement is otherwise perpetual. Such obligation is binding upon the
successors in interest, heirs and assigns to any of the shares owned by the
parties. On June 16, 2009, pursuant to the Voting Agreement, two representatives
of SAIF, Mr. Lee and Mr. Sheng were elected as directors to our Board of
Directors.

Except as noted above, there is no other arrangement or
understanding between any of our executive officers or directors and any other
person pursuant to which such executive officer or director was or is to be
selected as an officer or a director.

Directors are elected until their successors are duly elected and qualified.

Director Qualifications

Below is a summary of the qualifications, attributes, skills
and experience of each of our directors that led us to the conclusion that such
director should serve as a director of our Company, in light of our business and
structure.

Ms. Li Liu

- Leadership and Management experience  founder of Tianjin Yayi and has
  been Tianjin Yayis Chairwoman since 1994 and the Companys Chairwoman since
  2008
- Education background  Executive MBA from Tsinghua University expected

Mr. Fung Shek

- Leadership and Management experience  has served as a Deputy General
  Manager of Tianjin Yayi since 2000 and the Companys director and Vice
  President since 2008
- Education background  graduated from University of Massachusetts Boston

Ms. Cili Yan

- Leadership and Management experience  has been the Companys director
  since 2008

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Mr. Kenneth Jue Lee

- Leadership and Management experience  a Principal at SAIF Partners and
  served as the CFO of Topsec Holdings, a leading domestic network security
  company in China, from 2006 to 2007
- Education background - Bachelors degree in Philosophy from Amherst
  College

Mr. Sheng Gang

- Leadership and Management experience  a Vice President at SAIF Partners
  and severed as a Director in investment banking with Latitude Capital Group in
  Hong Kong and Beijing from 2004 to 2007
- Education background - Bachelors degree in Economics from Renmin
  University of China and MBA degree from Peking University.

Significant Employees

In addition to the foregoing named officers and directors, the
  following employees are also key to our business and operations:

|NAME           |  | AGE |  | POSITION           
|-------------- |  | --- |  | -------------------
|Bao Zhou       |  | 35  |  | Marketing Director 
|Changzhou Wang |  | 45  |  | Production Director

Bao Zhou. Mr. Zhou has served as our Marketing Director
since May 11, 2010. Mr. Zhou is a seasoned executive with over 15 years of
experience in sales and marketing planning and execution, in addition to a solid
background in the dairy industry. From February 2008 to May 2010, Mr. Zhou was
Director of Sales Operations and Director of Strategic Planning at Xiamen
Huierkang Food Co., Ltd., a food and beverage supplier based in Southeast China
that is best known for its PET glucose beverage, rice pudding and peanut milk.
Before that, from April 2001 to September 2009, he successively served as Sales
Director at Milopo Nutrition (Shanghai) Corporation Ltd., General Manager, Milk
Powder Division at American Dairy, Inc. (NYSE: ADY), and National Sales Support
Manager at Mead Johnson Guangzhou Co., Ltd. Mr. Zhou has also had different
sales and marketing responsibilities at well-known multinational consumer
product companies such as Wrigley, Henkel, Pillsbury and Nestle in China. Mr.
Zhou obtained a Bachelors degree of Business English from Beijing Construction
University and an Executive MBA degree from Renmin University of China.

Changzhou Wang. Mr. Wang has served as our Production
  Director since September 2009. Mr. Wang is a seasoned executive with over 20
  years of experience in production management and operation. From September,
  2003 to August, 2009, Mr. Wang was a Factory Director and Project Supervisor
  at Synutra International, Inc. (NASDAQ: SYUT), a leading infant formula milk
  powder company in China. Before that, from 1990 to September, 2003, he successively
  served as Production Manager at Hong Kong Baoanli Dairy International Group
  Co., Ltd. and Production Section Chief and Vice Chief Engineer at Jinxinglongdan
  Dairy Group. Mr. Wang obtained a Bachelors degree of Mechanical Engineering
  Harbin Polytechnic University.

Board Composition and Committees

The board of directors is currently composed of five members,
Ms. Li Liu, Mr. Fung Shek, Ms. Cili Yan, Mr. Kenneth Jue Lee and Mr. Gang Sheng.
All Board action requires the approval of a majority of the directors in
attendance at a meeting at which a quorum is present.

We currently do not have standing audit, nominating or
compensation committees. Our board of directors handles the functions that would
otherwise be handled by each of the committees. We intend, however, to establish
an audit committee, a nominating committee and a compensation committee of the
board of directors as soon as practicable. We envision that the audit committee
will be primarily responsible for reviewing the services performed by our
independent auditors, evaluating our accounting policies and our system of
internal controls. The nominating committee would be primarily responsible for
nominating directors and setting policies and procedures for the nomination of
directors. The nominating committee would also be responsible for overseeing the
creation and implementation of our corporate governance policies and
procedures. The compensation committee will be primarily responsible for
reviewing and approving our compensation and benefit policies, including
compensation of executive officers.

-43-

---

Our board of directors has not made a determination as to
whether any member of our board is an audit committee financial expert. Upon the
establishment of an audit committee, the board will determine whether any of the
directors qualify as an audit committee financial expert.

Family Relationships

Other than the relationship between Fung Shek and Li Liu as
husband and wife, there is no family relationship among any of our officers or
directors.

Involvement in Certain Legal Proceedings

None of our directors or executive officers has, during the
past ten years:

- been convicted in a criminal proceeding or been subject to a pending
  criminal proceeding (excluding traffic violations and other minor offences);
- had any bankruptcy petition filed by or against the business or property
  of the person, or of any partnership, corporation or business association of
  which he was a general partner or executive officer, either at the time of the
  bankruptcy filing or within two years prior to that time;
- been subject to any order, judgment, or decree, not subsequently reversed,
  suspended or vacated, of any court of competent jurisdiction or federal or
  state authority, permanently or temporarily enjoining, barring, suspending or
  otherwise limiting, his involvement in any type of business, securities,
  futures, commodities, investment, banking, savings and loan, or insurance
  activities, or to be associated with persons engaged in any such activity;
- been found by a court of competent jurisdiction in a civil action or by
  the Securities and Exchange Commission or the Commodity Futures Trading
  Commission to have violated a federal or state securities or commodities law,
  and the judgment has not been reversed, suspended, or vacated;
- been the subject of, or a party to, any federal or state judicial or
  administrative order, judgment, decree, or finding, not subsequently reversed,
  suspended or vacated (not including any settlement of a civil proceeding among
  private litigants), relating to an alleged violation of any federal or state
  securities or commodities law or regulation, any law or regulation respecting
  financial institutions or insurance companies including, but not limited to, a
  temporary or permanent injunction, order of disgorgement or restitution, civil
  money penalty or temporary or permanent cease-and-desist order, or removal or
  prohibition order, or any law or regulation prohibiting mail or wire fraud or
  fraud in connection with any business entity; or
- been the subject of, or a party to, any sanction or order, not
  subsequently reversed, suspended or vacated, of any self-regulatory
  organization (as defined in Section 3(a)(26) of the Exchange Act, any
  registered entity (as defined in Section 1(a)(29) of the Commodity Exchange
  Act), or any equivalent exchange, association, entity or organization that has
  disciplinary authority over its members or persons associated with a member.

Section 16(A) Beneficial Ownership Reporting Compliance

Under U.S. securities laws, directors, certain executive
officers and persons holding more than 10% of our common stock must report their
initial ownership of the common stock, and any changes in that ownership, to the
SEC. The SEC has designated specific due dates for these reports. Based solely
on our review of copies of such reports filed with the SEC by and written
representations of our sole director and executive offers, we believe that our
directors and executive offers filed the required reports pursuant to Section
16(a) of the Securities on time during the five months ended March 31, 2010.



-44-

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Code of Ethics

Our board of directors has adopted a code of ethics and
business conduct that applies to members of our board of directors, officers and
other employees. The code of ethics addresses, among other things, ethical
conduct, conflicts of interest, compliance with laws, regulations and policies,
including disclosure requirements under the federal securities laws,
confidentiality, trading on inside information, and reporting of violations of
the code. A copy of the code of ethics and business conduct has been filed as
Exhibit 14 to our Annual Report on Form 10-KSB filed on March 31, 2008. We are
in the process of building up the Company website. Once our website is
available, we will make the code of ethics available on the website. Thereafter,
any amendments or waivers to the code of ethics will be posted on our website
within four business days of such amendment or waiver. Until such time, however,
any amendments or waivers to our code of ethics will be filed with the SEC in a
Current Report on Form 8-K.





-45-

---

PART IV

ITEM
15.            EXHIBITS,
FINANCIAL STATEMENTS SCHEDULES.

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

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

| | Report of Independent
      Registered Public Accounting Firm   
| | ----------------------------------------------------------------
| |                                                                 
| | Consolidated Balance
      Sheets                               
| |                                                                 
| | Consolidated Statements
      of Income and Comprehensive Income
| |                                                                 
| | Consolidated Statements
      of Stockholders Equity           
| |                                                                 
| | Consolidated
      Statements of Cash Flows                     
| |                                                                 
| | Notes to Consolidated
      Financial Statements                

|(2) | Financial Statement Schedules: All Schedules are omitted
      because the information called for is not applicable, is not required, or
      because the financial information is set forth in the financial statements
      or notes thereto.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                  
|(3) | Exhibits                                                                                                                                                                                                                                         

Exhibits (including those incorporated by reference)

|Exhibit No. |  | Description                                                                                                                                                                                                                                                          
|----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|            |  |                                                                                                                                                                                                                                                                      
|2.1         |  | Agreement and Plan of Merger by and among Ardmore,
      Ardmore Acquisition Corp, Tryant LLC and Charleston Industrial Ltd.
      [incorporated by reference to Exhibit 2.1 to the Companys Current Report
      on Form 8-K filed on June 12, 2008].              
|            |  |                                                                                                                                                                                                                                                                      
|3.1         |  | Amended and Restated Certificate of Incorporation
      [incorporated by reference to Exhibit 3.1 to the Companys Quarterly
      Report on Form 10-Q filed on September 22, 2008].                                                                                 
|            |  |                                                                                                                                                                                                                                                                      
|3.2         |  | Bylaws of the Company adopted on February 21, 2008
      [incorporated by reference to Exhibit 99.2 to the Companys Current Report
      on Form 8-K/A-2 filed on April 10, 2008].                                                                                  
|            |  |                                                                                                                                                                                                                                                                      
|3.3         |  | Certificate of Designation of Series A Preferred Stock,
      as filed with the Secretary of State of the State of Delaware, June 16,
      2009 [incorporated by reference to Exhibit 3.1 to the Companys Current
      Report on Form 8-K filed on June 19, 2009].
|            |  |                                                                                                                                                                                                                                                                      
|4.1         |  | Form of 8% Convertible Promissory Note [incorporated by
      reference to Exhibit 4.1 to the Companys Current Report on Form 8-K filed
      on June 12, 2008].                                                                                                    
|            |  |                                                                                                                                                                                                                                                                      
|4.2         |  | Form of Series A Warrant [incorporated by reference to
      Exhibit 4.2 to the Companys Current Report on Form 8-K filed on June 12,
      2008].                                                                                                                  
|            |  |                                                                                                                                                                                                                                                                      
|4.3         |  | Form of Series B Warrant [incorporated by reference to
      Exhibit 4.3 to the Companys Current Report on Form 8-K filed on June 12,
      2008].                                                                                                                  
|            |  |                                                                                                                                                                                                                                                                      
|4.4         |  | Form of Series C Warrant [incorporated by reference to
      Exhibit 4.4 to the Companys Current Report on Form 8-K filed on June 12,
      2008].                                                                                                                  

-46-

---

|4.5   | Form of Series D Warrant [incorporated by reference to
      Exhibit 4.5 to the Companys Quarterly Report on Form 10-Q filed on
      September 22, 2008].                                                                                                                                                                           
|----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      |                                                                                                                                                                                                                                                                                                                                       
|4.6   | Form of Series E Warrant [incorporated by reference to
      Exhibit 4.6 to the Companys Quarterly Report on Form 10-Q filed on
      September 22, 2008].                                                                                                                                                                           
|      |                                                                                                                                                                                                                                                                                                                                       
|4.7   | Investor and Registration Rights Agreement, by and among
      Yayi International Inc., Global Rock Stone Industrial Ltd, Li Liu, Fung
      Shek and SAIF Partners III L.P., dated June 18, 2009 [incorporated by
      reference to Exhibit 4.1 to the Companys Current Report on Form 8-K filed
      on June 19, 2009].          
|      |                                                                                                                                                                                                                                                                                                                                       
|10.1  | Form of Amended and Restated Securities Purchase
      Agreement dated as of May 12, 2008, by and among Ardmore and the investors
      signatories thereto [incorporated by reference to Exhibit 10.1 to the
      Companys Current Report on Form 8-K filed on June 12, 2008].                                                     
|      |                                                                                                                                                                                                                                                                                                                                       
|10.2  | Form of Registration Rights Agreement dated as of May 12,
      2008 [incorporated by reference to Exhibit 10.2 to the Companys Current
      Report on Form 8-K filed on June 12, 2008].                                                                                                                                            
|      |                                                                                                                                                                                                                                                                                                                                       
|10.3  | Lease Contract of Premises between Tianjin Milk Goat
      Dairy Co., Ltd. and Tianjin Yayi Industrial Co., Ltd. (Translation)
      [incorporated by reference to Exhibit 10.3 to the Companys Current Report
      on Form 8-K filed on June 12, 2008].                                                                            
|      |                                                                                                                                                                                                                                                                                                                                       
|10.4  | Building Property Transfer Agreement between Tianjin Milk
      Goat Dairy Co., Ltd. and Tianjin Yayi Industrial Co, Ltd. (Translation)
      [incorporated by reference to Exhibit 10.4 to the Companys Current Report
      on Form 8-K filed on June 12, 2008].                                                                   
|      |                                                                                                                                                                                                                                                                                                                                       
|10.5  | Project Construction Contract between Tainjin Yayi
      Industrial Co., Ltd. and the Peoples Government of Linwei District,
      Weinan City [incorporated by reference to Exhibit 10.5 to the Companys
      Quarterly Report on Form 10-Q filed on September 22, 2008].                                                         
|      |                                                                                                                                                                                                                                                                                                                                       
|10.6  | Supplementary Agreement to the Project Construction
      Contract dated July 25, 2008 between Tianjin Yayi Industrial Co., Ltd. and
      the Peoples Government of Linwei District, Weinan City [incorporated by
      reference to Exhibit 10.6 to the Companys Quarterly Report on Form 10-Q
      filed on September 22, 2008].
|      |                                                                                                                                                                                                                                                                                                                                       
|10.7  | Plant Transfer Contract dated September 26, 2008 between
      Tianjin Yayi and Tianjin Mengyang Biotechnology Co., Ltd. [incorporated by
      reference to Exhibit 10.7 to the Companys Annual Report on Form 10-K
      filed on February 13, 2009].                                                                              
|      |                                                                                                                                                                                                                                                                                                                                       
|10.8  | Supplementary Agreement dated October 12, 2008 between
      Tianjin Yayi and Tianjin Mengyang Biotechnology Co., Ltd. to the House
      Property Transfer Contract dated January 15, 2007 [incorporated by
      reference to Exhibit 10.8 to the Companys Annual Report on Form 10-K
      filed on February 13, 2009].           
|      |                                                                                                                                                                                                                                                                                                                                       
|10.9  | Supplementary Agreement dated January 20, 2009 between
      Tianjin Yayi and Tianjin Mengyang Biotechnology Co., Ltd. to the Plant
      Transfer Contract dated September 26, 2008 [incorporated by reference to
      Exhibit 10.9 to the Companys Annual Report on Form 10-K filed on February
      13, 2009].                  
|      |                                                                                                                                                                                                                                                                                                                                       
|10.10 | Short Term Loan Agreement for RMB 10 million with
      Shanghai Pudong Development Bank SPDB [incorporated by reference to
      Exhibit 10.10 to the Companys Quarterly Report on Form 10-Q filed on
      March 23, 2009].                                                                                                      
|      |                                                                                                                                                                                                                                                                                                                                       
|10.11 | Entrusted Loan Contract by and among SPDB, Tianjin Yayi
      Industrial Co., Ltd. and Tianjin Haitai Investment Guarantee Co., Ltd.
      [incorporated by reference to Exhibit 10.11 to the
  Companys                                                                                                                             

-47-

---

|      | Quarterly Report on Form 10-Q filed on March 23,
    2009]                                                                                                                                                                                                                                                                                                                                        
|----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      |                                                                                                                                                                                                                                                                                                                                                                                                   
|10.12 | Loan Contract between Tianjin Yayi Industrial Co., Ltd.
      and Tianjin Rural Cooperative Bank. [incorporated by reference to Exhibit
      10.12 to the Companys Quarterly Report on Form 10-Q filed on March 23,
      2009]                                                                                                                                                                 
|      |                                                                                                                                                                                                                                                                                                                                                                                                   
|10.13 | Loan Contract for Operating Fund between Tianjin Yayi
      Industrial Co., Ltd. and Industrial & Commercial Bank of China.
      [incorporated by reference to Exhibit 10.13 to the Companys Quarterly
      Report on Form 10-Q filed on March 23, 2009]                                                                                                                                       
|      |                                                                                                                                                                                                                                                                                                                                                                                                   
|10.14 | Short Term Loan Agreement for RMB 10 million with
      Shanghai Pudong Development Bank [incorporated by reference to Exhibit
      10.10 to the Companys Current Report on Form 8-K filed on April 8,
      2009].                                                                                                                                                                             
|      |                                                                                                                                                                                                                                                                                                                                                                                                   
|10.15 | Series A Preferred Stock Purchase Agreement, by and among
      Yayi International Inc., Global Rock Stone Industrial Ltd, Charleston
      Industrial Ltd, Tianjin Yayi Industrial Co., Ltd., Li Liu, Fung Shek and
      SAIF Partners III L.P., dated June 18, 2009 [incorporated by reference to
      Exhibit 10.1 to the Companys Current Report on Form 8-K filed on June 19,
      2009].
|      |                                                                                                                                                                                                                                                                                                                                                                                                   
|10.16 | Voting Agreement, by and among Yayi International Inc.,
      Global Rock Stone Industrial Ltd, Li Liu, Fung Shek and SAIF Partners III
      L.P., dated June 18, 2009 [incorporated by reference to Exhibit 10.2 to
      the Companys Current Report on Form 8-K filed on June 19,
2009].                                                                                                     
|      |                                                                                                                                                                                                                                                                                                                                                                                                   
|10.17 | Management Rights Agreement, by and between Yayi
      International Inc. and SAIF Partners III L.P., dated June 18, 2009
      [incorporated by reference to Exhibit 10.3 to the Companys Current Report
      on Form 8-K filed on June 19, 2009].                                                                                                                                             
|      |                                                                                                                                                                                                                                                                                                                                                                                                   
|10.18 | Form of Indemnification Agreement [incorporated by
      reference to Exhibit 10.4 to the Companys Current Report on Form 8-K
      filed on June 19, 2009].                                                                                                                                                                                                                                     
|      |                                                                                                                                                                                                                                                                                                                                                                                                   
|10.19 | Termination and Release Agreement, by and among the
      Company, Global Rock and Allied Merit, dated July 8, 2009 [incorporated by
      reference to Exhibit 10.1 to the Companys Current Report on Form 8-K
      filed on July 14, 2009].                                                                                                                                                   
|      |                                                                                                                                                                                                                                                                                                                                                                                                   
|10.20 | English Summary of Loan Agreement, by and between Tianjin
      Yayi and Rural Corporative Bank of Tianjin, dated May 22, 2009
      [incorporated by reference to Exhibit 10.1 to the Companys Quarterly
      Report on Form 10-Q filed on September 14, 2009].                                                                                                                                
|      |                                                                                                                                                                                                                                                                                                                                                                                                   
|10.21 | English Summary of Comprehensive Credit Agreement, by and
      between Tianjin Yayi and Rural Corporative Bank of Tianjin, dated July 3,
      2009 [incorporated by reference to Exhibit 10.2 to the Companys Quarterly
      Report on Form 10-Q filed on September 14, 2009].                                                                                                                
|      |                                                                                                                                                                                                                                                                                                                                                                                                   
|10.22 | English Translation of Zhuangli Construction Agreement,
      by and between Weinan Milkgoat and Zhuangli Construction Team, dated June
      10, 2009 [incorporated by reference to Exhibit 10.3 to the Companys
      Quarterly Report on Form 10-Q filed on September 14, 2009].                                                                                                              
|      |                                                                                                                                                                                                                                                                                                                                                                                                   
|10.23 | English Translation of Qinzheng Construction Agreement,
      by and between Weinan Milkgoat and Fuping County Qinzheng Construction
      Engineering Corporation, dated July 2, 2009 [incorporated by reference to
      Exhibit 10.4 to the Companys Quarterly Report on Form 10-Q filed on
      September 14, 2009].                                                                        
|      |                                                                                                                                                                                                                                                                                                                                                                                                   
|10.24 | Project Installation Agreement, by and between Shaanxi
      Milkgoat and Heilongjiang Tianhong, dated October 28, 2009 [incorporated
      by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K
      filed on November 3, 2009].                                                                                                                                            
|      |                                                                                                                                                                                                                                                                                                                                                                                                   
|10.25 | Form of Settlement Agreement, by and among the Company
      and the Investors, dated November 24, 2009 [incorporated by
        reference to Exhibit 10.1 to the Companys Current Report on Form
        8-Kfiled on December 1, 2009].                                                                                                                                                         

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|      |                                                                                                                                                                                                                                                                                
|----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.26 | English Translation of Employment
        Agreement, dated February 24, 2010, by and between Tianjin Yayi Industrial
        Co. Ltd. and Veronica Chen [incorporated by reference to Exhibit 10.1
        to the Companys Current Report on Form 8-K filed on March 2, 2010].
|      |                                                                                                                                                                                                                                                                                
|10.27 | Loan Agreement, by and between
        the Company and SAIF Partners III L.P., dated April 30, 2010 [incorporated
        by reference to Exhibit 10.1 to the Companys Current Report on Form
        8-K filed on May 6, 2010].                                              
|      |                                                                                                                                                                                                                                                                                
|10.28 | Yayi International Inc.
        2010 Employee Stock Option and Stock Award Plan [incorporated by reference
        to Exhibit 10.1 to the Companys Current Report on Form 8-K filed
        on May 31, 2010].                                                                 
|      |                                                                                                                                                                                                                                                                                
|10.29 | Form of Yayi International
        Inc. 2010 Employee Stock Option and Stock Award Plan Award Agreement [incorporated
        by reference to Exhibit 10.2 to the Companys Current Report on Form
        8-K filed on May 31, 2010].                                         
|      |                                                                                                                                                                                                                                                                                
|10.30 | English Translation of Employment
        Agreement, dated June 1, 2010, by and between Tianjin Yayi Industrial
        Co. Ltd. and Li Liu [incorporated by reference to Exhibit 10.3 to the
        Companys Current Report on Form 8-K filed on May 31, 2010].             
|      |                                                                                                                                                                                                                                                                                
|10.31 | English Translation of Licensing
        Agreement, dated April 10, 2001, by and among Tianjin Yayi and Taiwan
        Richlink.***                                                                                                                                            
|      |                                                                                                                                                                                                                                                                                
|10.32 | English Translation of Supplemental Agreement,
    dated June 12, 2009, by and among Tianjin Yayi, Taiwan Richlink Enterprise
    Company Ltd. and Li Liu.***                                                                                                                  
|      |                                                                                                                                                                                                                                                                                
|10.33 | English Translation of Supplemental
        Agreement, dated June 12, 2009, by and between Tianjin Yayi and Tianjin
        Mengyang.***                                                                                                                                       
|      |                                                                                                                                                                                                                                                                                
|10.34 | English Translation of Form
        of Loan Agreement, dated June 3, 2010, by and between Tianjin Yayi Industrial
        Co. Ltd. and Tianjin Rural Cooperative Bank, Kexin Branch.***                                                                                        
|      |                                                                                                                                                                                                                                                                                
|14    | Code of Ethics and Business
        Conduct for Officers, Directors and Employees of the Company [incorporated
        by reference to Exhibit 14 to the Companys Annual Report on Form
        10-KSB filed on March 31, 2008]                                               
|      |                                                                                                                                                                                                                                                                                
|21    | Subsidiaries
        of the Company***                                                                                                                                                                                                                                         
|      |                                                                                                                                                                                                                                                                                
|23.1  | Consent of Morison Cogen LLP, Independent Registered Public Accounting
    Firm.*                                                                                                                                                                                              
|      |                                                                                                                                                                                                                                                                                
|31.1  | Certification
        of Principal Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley
        Act of 2002.*                                                                                                                                                 
|      |                                                                                                                                                                                                                                                                                
|31.2  | Certification
        of Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley
        Act of 2002.*                                                                                                                                                 
|      |                                                                                                                                                                                                                                                                                
|32.1  | Certifications
        of Principal Executive Officer furnished pursuant to 18 U.S.C. Section
        1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*                                                                                             
|      |                                                                                                                                                                                                                                                                                
|32.2  | Certifications
        of Principal Financial Officer furnished pursuant to 18 U.S.C. Section
        1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
        2002.*                                                                                     

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



-49-

---

SIGNATURES

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

| | YAYI INTERNATIONAL INC.
| | -----------------------
| |                        
| | By:                    
| |                        
| |                        
| |                        
| |                        
| |                        
| |                        
| |                        
| |                        
| |                        
| |                        
| |                        
| |                        

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

Each
person whose signature appears below hereby authorizes Li Liu as
attorneys-in-fact to sign on his or her behalf, individually, and in each
capacity stated below, and to file all amendments and/or supplements to this
transition report on Form 10-K.

|Signature                  |  | Capacity                                     | Date            
|-------------------------- |  | -------------------------------------------- | ----------------
|                           |  |                                              |                 
|/s/ Li Liu                 |  | President and Chief Executive Officer        | January 28, 2011
|Li Liu                     |  | (Principal Executive Officer)                |                 
|                           |  |                                              |                 
|/s/ Veronica Jing
    Chen |  | Chief Financial Officer (Principal Financial | January 28, 2011
|Veronica Jing Chen         |  | Officer and Principal Accounting Officer)    |                 
|                           |  |                                              |                 
|*                          |  | Vice President and Director                  |                 
|Fung Shek                  |  |                                              |                 
|                           |  |                                              |                 
|*                          |  | Director                                     |                 
|Cili Yan                   |  |                                              |                 
|                           |  |                                              |                 
|*                          |  | Director                                     |                 
|Kenneth Jue Lee            |  |                                              |                 
|                           |  |                                              |                 
|*                          |  | Director                                     |                 
|Gang Sheng                 |  |                                              |                 
|                           |  |                                              |                 
|*By: /s/ Li Liu            |  |                                              |                 
|Li Liu, Attorney-in-Fact   |  |                                              | January 28, 2011

-50-

---

EXHIBITS

|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                 
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|            |  |                                                                                                                                                                                                                                                                                                                             
|2.1         |  | Agreement and Plan of Merger by and among Ardmore,
      Ardmore Acquisition Corp, Tryant LLC and Charleston Industrial Ltd.
      [incorporated by reference to Exhibit 2.1 to the Companys Current Report
      on Form 8-K filed on June 12, 2008].                                                                     
|            |  |                                                                                                                                                                                                                                                                                                                             
|3.1         |  | Amended and Restated Certificate of Incorporation
      [incorporated by reference to Exhibit 3.1 to the Companys Quarterly
      Report on Form 10-Q filed on September 22, 2008].                                                                                                                                        
|            |  |                                                                                                                                                                                                                                                                                                                             
|3.2         |  | Bylaws of the Company adopted on February 21, 2008
      [incorporated by reference to Exhibit 99.2 to the Companys Current Report
      on Form 8-K/A-2 filed on April 10, 2008].                                                                                                                                         
|            |  |                                                                                                                                                                                                                                                                                                                             
|3.3         |  | Certificate of Designation of Series A Preferred Stock,
      as filed with the Secretary of State of the State of Delaware, June 16,
      2009 [incorporated by reference to Exhibit 3.1 to the Companys Current
      Report on Form 8-K filed on June 19, 2009].                                                       
|            |  |                                                                                                                                                                                                                                                                                                                             
|4.1         |  | Form of 8% Convertible Promissory Note [incorporated by
      reference to Exhibit 4.1 to the Companys Current Report on Form 8-K filed
      on June 12, 2008].                                                                                                                                                           
|            |  |                                                                                                                                                                                                                                                                                                                             
|4.2         |  | Form of Series A Warrant [incorporated by reference to
      Exhibit 4.2 to the Companys Current Report on Form 8-K filed on June 12,
      2008].                                                                                                                                                                         
|            |  |                                                                                                                                                                                                                                                                                                                             
|4.3         |  | Form of Series B Warrant [incorporated by reference to
      Exhibit 4.3 to the Companys Current Report on Form 8-K filed on June 12,
      2008].                                                                                                                                                                         
|            |  |                                                                                                                                                                                                                                                                                                                             
|4.4         |  | Form of Series C Warrant [incorporated by reference to
      Exhibit 4.4 to the Companys Current Report on Form 8-K filed on June 12,
      2008].                                                                                                                                                                         
|            |  |                                                                                                                                                                                                                                                                                                                             
|4.5         |  | Form of Series D Warrant [incorporated by reference to
      Exhibit 4.5 to the Companys Quarterly Report on Form 10-Q filed on
      September 22, 2008].                                                                                                                                                                 
|            |  |                                                                                                                                                                                                                                                                                                                             
|4.6         |  | Form of Series E Warrant [incorporated by reference to
      Exhibit 4.6 to the Companys Quarterly Report on Form 10-Q filed on
      September 22, 2008].                                                                                                                                                                 
|            |  |                                                                                                                                                                                                                                                                                                                             
|4.7         |  | Investor and Registration Rights Agreement, by and among
      Yayi International Inc., Global Rock Stone Industrial Ltd, Li Liu, Fung
      Shek and SAIF Partners III L.P., dated June 18, 2009 [incorporated by
      reference to Exhibit 4.1 to the Companys Current Report on Form 8-K filed
      on June 19, 2009].
|            |  |                                                                                                                                                                                                                                                                                                                             
|10.1        |  | Form of Amended and Restated Securities Purchase
      Agreement dated as of May 12, 2008, by and among Ardmore and the investors
      signatories thereto [incorporated by reference to Exhibit 10.1 to the
      Companys Current Report on Form 8-K filed on June 12, 2008].                                           
|            |  |                                                                                                                                                                                                                                                                                                                             
|10.2        |  | Form of Registration Rights Agreement dated as of May 12,
      2008 [incorporated by reference to Exhibit 10.2 to the Companys Current
      Report on Form 8-K filed on June 12, 2008].                                                                                                                                  
|            |  |                                                                                                                                                                                                                                                                                                                             
|10.3        |  | Lease Contract of Premises between Tianjin Milk Goat
      Dairy Co., Ltd. and Tianjin Yayi Industrial Co., Ltd. (Translation)
      [incorporated by reference to Exhibit 10.3 to the Companys Current Report
      on Form 8-K filed on June 12, 2008].                                                                  
|            |  |                                                                                                                                                                                                                                                                                                                             
|10.4        |  | Building Property Transfer Agreement between Tianjin Milk
      Goat Dairy Co., Ltd. and Tianjin Yayi Industrial Co, Ltd. (Translation)
      [incorporated by reference to Exhibit 10.4 to the Companys                                                                                                                   

-51-

---

|      | Current Report on Form 8-K filed on June 12,
  2008].                                                                                                                                                                                                                                                                                                                                             
|----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      |                                                                                                                                                                                                                                                                                                                                                                                                   
|10.5  | Project Construction Contract between Tainjin Yayi
      Industrial Co., Ltd. and the Peoples Government of Linwei District,
      Weinan City [incorporated by reference to Exhibit 10.5 to the Companys
      Quarterly Report on Form 10-Q filed on September 22, 2008].                                                                                                                     
|      |                                                                                                                                                                                                                                                                                                                                                                                                   
|10.6  | Supplementary Agreement to the Project Construction
      Contract dated July 25, 2008 between Tianjin Yayi Industrial Co., Ltd. and
      the Peoples Government of Linwei District, Weinan City [incorporated by
      reference to Exhibit 10.6 to the Companys Quarterly Report on Form 10-Q
      filed on September 22, 2008].                                                            
|      |                                                                                                                                                                                                                                                                                                                                                                                                   
|10.7  | Plant Transfer Contract dated September 26, 2008 between
      Tianjin Yayi and Tianjin Mengyang Biotechnology Co., Ltd. [incorporated by
      reference to Exhibit 10.7 to the Companys Annual Report on Form 10-K
      filed on February 13, 2009].                                                                                                                                          
|      |                                                                                                                                                                                                                                                                                                                                                                                                   
|10.8  | Supplementary Agreement dated October 12, 2008 between
      Tianjin Yayi and Tianjin Mengyang Biotechnology Co., Ltd. to the House
      Property Transfer Contract dated January 15, 2007 [incorporated by
      reference to Exhibit 10.8 to the Companys Annual Report on Form 10-K
      filed on February 13, 2009].                                                                       
|      |                                                                                                                                                                                                                                                                                                                                                                                                   
|10.9  | Supplementary Agreement dated January 20, 2009 between
      Tianjin Yayi and Tianjin Mengyang Biotechnology Co., Ltd. to the Plant
      Transfer Contract dated September 26, 2008 [incorporated by reference to
      Exhibit 10.9 to the Companys Annual Report on Form 10-K filed on February
      13, 2009].                                                                              
|      |                                                                                                                                                                                                                                                                                                                                                                                                   
|10.10 | Short Term Loan Agreement for RMB 10 million with
      Shanghai Pudong Development Bank SPDB [incorporated by reference to
      Exhibit 10.10 to the Companys Quarterly Report on Form 10-Q filed on
      March 23, 2009].                                                                                                                                                                  
|      |                                                                                                                                                                                                                                                                                                                                                                                                   
|10.11 | Entrusted Loan Contract by and among SPDB, Tianjin Yayi
      Industrial Co., Ltd. and Tianjin Haitai Investment Guarantee Co., Ltd.
      [incorporated by reference to Exhibit 10.11 to the Companys Quarterly
      Report on Form 10-Q filed on March 23, 2009]                                                                                                                              
|      |                                                                                                                                                                                                                                                                                                                                                                                                   
|10.12 | Loan Contract between Tianjin Yayi Industrial Co., Ltd.
      and Tianjin Rural Cooperative Bank. [incorporated by reference to Exhibit
      10.12 to the Companys Quarterly Report on Form 10-Q filed on March 23,
      2009]                                                                                                                                                                 
|      |                                                                                                                                                                                                                                                                                                                                                                                                   
|10.13 | Loan Contract for Operating Fund between Tianjin Yayi
      Industrial Co., Ltd. and Industrial & Commercial Bank of China.
      [incorporated by reference to Exhibit 10.13 to the Companys Quarterly
      Report on Form 10-Q filed on March 23, 2009]                                                                                                                                       
|      |                                                                                                                                                                                                                                                                                                                                                                                                   
|10.14 | Short Term Loan Agreement for RMB 10 million with
      Shanghai Pudong Development Bank [incorporated by reference to Exhibit
      10.10 to the Companys Current Report on Form 8-K filed on April 8,
      2009].                                                                                                                                                                             
|      |                                                                                                                                                                                                                                                                                                                                                                                                   
|10.15 | Series A Preferred Stock Purchase Agreement, by and among
      Yayi International Inc., Global Rock Stone Industrial Ltd, Charleston
      Industrial Ltd, Tianjin Yayi Industrial Co., Ltd., Li Liu, Fung Shek and
      SAIF Partners III L.P., dated June 18, 2009 [incorporated by reference to
      Exhibit 10.1 to the Companys Current Report on Form 8-K filed on June 19,
      2009].
|      |                                                                                                                                                                                                                                                                                                                                                                                                   
|10.16 | Voting Agreement, by and among Yayi International Inc.,
      Global Rock Stone Industrial Ltd, Li Liu, Fung Shek and SAIF Partners III
      L.P., dated June 18, 2009 [incorporated by reference to Exhibit 10.2 to
      the Companys Current Report on Form 8-K filed on June 19,
2009].                                                                                                     
|      |                                                                                                                                                                                                                                                                                                                                                                                                   
|10.17 | Management Rights Agreement, by and between Yayi
      International Inc. and SAIF Partners III L.P., dated June 18, 2009
      [incorporated by reference to Exhibit 10.3 to the Companys
  Current                                                                                                                                                                                             

-52-

---

|      | Report on Form 8-K filed on June 19, 2009].                                                                                                                                                                                                                                                                               
|----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      |                                                                                                                                                                                                                                                                                                                           
|10.18 | Form of Indemnification Agreement [incorporated by
      reference to Exhibit 10.4 to the Companys Current Report on Form 8-K
      filed on June 19, 2009].                                                                                                                                                             
|      |                                                                                                                                                                                                                                                                                                                           
|10.19 | Termination and Release Agreement, by and among the
      Company, Global Rock and Allied Merit, dated July 8, 2009 [incorporated by
      reference to Exhibit 10.1 to the Companys Current Report on Form 8-K
      filed on July 14, 2009].                                                                           
|      |                                                                                                                                                                                                                                                                                                                           
|10.20 | English Summary of Loan Agreement, by and between Tianjin
      Yayi and Rural Corporative Bank of Tianjin, dated May 22, 2009
      [incorporated by reference to Exhibit 10.1 to the Companys Quarterly
      Report on Form 10-Q filed on September 14, 2009].                                                        
|      |                                                                                                                                                                                                                                                                                                                           
|10.21 | English Summary of Comprehensive Credit Agreement, by and
      between Tianjin Yayi and Rural Corporative Bank of Tianjin, dated July 3,
      2009 [incorporated by reference to Exhibit 10.2 to the Companys Quarterly
      Report on Form 10-Q filed on September 14, 2009].                                        
|      |                                                                                                                                                                                                                                                                                                                           
|10.22 | English Translation of Zhuangli Construction Agreement,
      by and between Weinan Milkgoat and Zhuangli Construction Team, dated June
      10, 2009 [incorporated by reference to Exhibit 10.3 to the Companys
      Quarterly Report on Form 10-Q filed on September 14, 2009].                                      
|      |                                                                                                                                                                                                                                                                                                                           
|10.23 | English Translation of Qinzheng Construction Agreement,
      by and between Weinan Milkgoat and Fuping County Qinzheng Construction
      Engineering Corporation, dated July 2, 2009 [incorporated by reference to
      Exhibit 10.4 to the Companys Quarterly Report on Form 10-Q filed on
      September 14, 2009].
|      |                                                                                                                                                                                                                                                                                                                           
|10.24 | Project Installation Agreement, by and between Shaanxi
      Milkgoat and Heilongjiang Tianhong, dated October 28, 2009 [incorporated
      by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K
      filed on November 3, 2009].                                                                    
|      |                                                                                                                                                                                                                                                                                                                           
|10.25 | Form of Settlement Agreement, by and among the Company
      and the Investors, dated November 24, 2009 [incorporated by reference to
      Exhibit 10.1 to the Companys Current Report on Form 8-K filed on December
      1, 2009].                                                                                    
|      |                                                                                                                                                                                                                                                                                                                           
|10.26 | English Translation of Employment Agreement, dated
      February 24, 2010, by and between Tianjin Yayi Industrial Co. Ltd. and
      Veronica Chen [incorporated by reference to Exhibit 10.1 to the Companys
      Current Report on Form 8-K filed on March 2, 2010].                                                 
|      |                                                                                                                                                                                                                                                                                                                           
|10.27 | Loan Agreement, by and between the Company and SAIF
      Partners III L.P., dated April 30, 2010 [incorporated by reference to
      Exhibit 10.1 to the Companys Current Report on Form 8-K filed on May 6,
      2010].                                                                                               
|      |                                                                                                                                                                                                                                                                                                                           
|10.28 | Yayi International Inc. 2010 Employee Stock Option and
      Stock Award Plan [incorporated by reference to Exhibit 10.1 to the
      Companys Current Report on Form 8-K filed on May 31, 2010].                                                                                                                        
|      |                                                                                                                                                                                                                                                                                                                           
|10.29 | Form of Yayi International Inc. 2010 Employee Stock
      Option and Stock Award Plan Award Agreement [incorporated by reference to
      Exhibit 10.2 to the Companys Current Report on Form 8-K filed on May 31,
      2010].                                                                                          
|      |                                                                                                                                                                                                                                                                                                                           
|10.30 | English Translation of Employment Agreement, dated June
      1, 2010, by and between Tianjin Yayi Industrial Co. Ltd. and Li Liu
      [incorporated by reference to Exhibit 10.3 to the Companys Current Report
      on Form 8-K filed on May 31, 2010].                                                              
|      |                                                                                                                                                                                                                                                                                                                           
|10.31 | English Translation of Licensing Agreement, dated April
      10, 2001, by and among Tianjin Yayi and Taiwan
Richlink.***                                                                                                                                                                                                 

-53-

---

|10.32 | English Translation of Supplemental
        Agreement, dated June 12, 2009, by and among Tianjin Yayi, Taiwan Richlink
        Enterprise Company Ltd. and Li Liu.***                                                           
|----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      |                                                                                                                                                                                                                                 
|10.33 | English Translation of Supplemental
        Agreement, dated June 12, 2009, by and between Tianjin Yayi and Tianjin
        Mengyang.***                                                                                        
|      |                                                                                                                                                                                                                                 
|10.34 | English Translation of Form
        of Loan Agreement, dated June 3, 2010, by and between Tianjin Yayi Industrial
        Co. Ltd. and Tianjin Rural Cooperative Bank, Kexin Branch.***                                         
|      |                                                                                                                                                                                                                                 
|14    | Code of Ethics and Business
        Conduct for Officers, Directors and Employees of the Company [incorporated
        by reference to Exhibit 14 to the Companys Annual Report on Form
        10-KSB filed on March 31, 2008]
|      |                                                                                                                                                                                                                                 
|21    | Subsidiaries
        of the Company***                                                                                                                                                                                          
|      |                                                                                                                                                                                                                                 
|23.1  | Consent of Morison Cogen LLP, Independent Registered Public Accounting
    Firm.*                                                                                                                                               
|      |                                                                                                                                                                                                                                 
|31.1  | Certification of Principal Executive Officer filed pursuant to Section 302
    of the Sarbanes-Oxley Act of 2002.*                                                                                                              
|      |                                                                                                                                                                                                                                 
|31.2  | Certification
        of Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley
        Act of 2002.*                                                                                                  
|      |                                                                                                                                                                                                                                 
|32.1  | Certifications
        of Principal Executive Officer furnished pursuant to 18 U.S.C. Section
        1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
        2002.*                                      
|      |                                                                                                                                                                                                                                 
|32.2  | Certifications
        of Principal Financial Officer furnished pursuant to 18 U.S.C. Section
        1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
        2002.*                                      

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

-54-

---

YAYI INTERNATIONAL INC. AND SUBSIDIARIES

FOR THE FIVE MONTHS ENDED MARCH 31, 2010 AND 2009

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

|                                                                            | Page
|--------------------------------------------------------------------------- | ----
|Report of Independent Registered Public
      Accounting Firm               | F-2 
|Consolidated Balance Sheets                                                 | F-3 
|Consolidated Statements of Operations
      and Comprehensive Income (Loss) | F-5 
|Consolidated Statements of Stockholders Equity                             | F-7 
|Consolidated Statements of Cash
      Flows                                 | F-10
|Notes to Consolidated Financial Statements                                  | F-14

F-1

---

YAYI INTERNATIONAL INC. AND SUBSIDIARIES

Report of Independent Registered Public Accounting Firm

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

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

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

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

/s/Morison Cogen LLP

Bala Cynwyd, Pennsylvania June 29, 2010

F-2

---

YAYI INTERNATIONAL INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

|                                                                              |   | March 31   |  |   | October 31 |  |   | October 31 | 
|----------------------------------------------------------------------------- | - | ---------- |  | - | ---------- |  | - | ---------- | 
|                                                                              |   | 2010       |  |   | 2009       |  |   | 2008       | 
|                                                                              |   | (audited)  |  |   | (audited)  |  |   | (audited)  | 
|ASSETS                                                                        |   |            |  |   |            |  |   |            | 
|Current assets:                                                               |   |            |  |   |            |  |   |            | 
|                                                                              |   |            |  |   |            |  |   |            | 
|Cash and cash equivalents                                                     | $ | 4,727,677  |  | $ | 10,368,213 |  | $ | 891,278    | 
|Restricted cash                                                               |   | 28,314     |  |   | -          |  |   | -          | 
|Accounts receivables, net of allowances
      of $53,771, $46,259 and $41,050 |   | 3,530,937  |  |   | 3,037,667  |  |   | 2,603,078  | 
|Other receivable, net of
      allowances of $22,833, $9,146 and $29,207      |   | 598,170    |  |   | 751,775    |  |   | 122,732    | 
|Inventories, net of allowances of $0, $40,770
    and $0                      |   | 2,561,265  |  |   | 2,506,310  |  |   | 3,329,776  | 
|Prepaid expenses                                                              |   | 1,002,494  |  |   | 83,912     |  |   | 39,702     | 
|Land use rights, current portion                                              |   | 18,847     |  |   | -          |  |   | -          | 
|                                                                              |   |            |  |   |            |  |   |            | 
|Advances                                                                      |   | 1,560,743  |  |   | 1,105,089  |  |   | 229,185    | 
|Deferred tax asset                                                            |   | -          |  |   | -          |  |   | -          | 
|Deferred financing cost                                                       |   | -          |  |   | 18,686     |  |   | 184,846    | 
|                                                                              |   |            |  |   |            |  |   |            | 
|Total current assets                                                          |   | 14,028,447 |  |   | 17,871,652 |  |   | 7,400,597  | 
|                                                                              |   |            |  |   |            |  |   |            | 
|Property, plant and equipment, net                                            |   | 3,734,552  |  |   | 3,698,981  |  |   | 2,580,385  | 
|Construction in progress, net                                                 |   | 2,770,578  |  |   | 2,095,904  |  |   | -          | 
|Livestock                                                                     |   | 659,584    |  |   | 107,441    |  |   | -          | 
|Goodwill                                                                      |   | 278,372    |  |   | 278,291    |  |   | 278,787    | 
|Deferred financing cost                                                       |   | -          |  |   | -          |  |   | 18,686     | 
|Advance                                                                       |   | 17,816,135 |  |   | 17,796,873 |  |   | 9,250,886  | 
|Deferred tax asset                                                            |   | 252,646    |  |   | -          |  |   | 9,402      | 
|Other assets                                                                  |   | -          |  |   | -          |  |   | 5,627      | 
|Land use rights                                                               |   | 923,525    |  |   | -          |  |   | -          | 
|                                                                              |   |            |  |   |            |  |   |            | 
|                                                                              |   |            |  |   |            |  |   |            | 
|Total assets                                                                  | $ | 40,463,839 |  | $ | 41,849,142 |  | $ | 19,544,370 | 
|                                                                              |   |            |  |   |            |  |   |            | 
|LIABILITIES AND STOCKHOLDERS EQUITY                                          |   |            |  |   |            |  |   |            | 
|Current liabilities:                                                          |   |            |  |   |            |  |   |            | 
|Short term loans                                                              | $ | 6,704,406  |  | $ | 6,468,497  |  | $ | 5,274,996  | 
|Accounts payable                                                              |   | 662,120    |  |   | 1,268,253  |  |   | 1,466,745  | 
|Other payable and accrued
      expenses                                      |   | 1,257,185  |  |   | 1,387,105  |  |   | 212,922    | 
|Dividend payable                                                              |   | -          |  |   | -          |  |   | 4,468,250  | 
|Advance from customers                                                        |   | 141,136    |  |   | 56,350     |  |   | 3,589      | 
|                                                                              |   |            |  |   |            |  |   |            | 
|Income and other tax payable                                                  |   | 1,338,194  |  |   | 1,568,916  |  |   | 1,246,211  | 
|Accrued sales return                                                          |   | 45,503     |  |   | 166,476    |  |   | 243,774    | 
|Deferred tax liability                                                        |   | -          |  |   | 2,424      |  |   | -          | 
|Long term loans - current
      portion                                       |   | 40,823     |  |   | 1,227,459  |  |   | 34,089     | 
|                                                                              |   |            |  |   |            |  |   |            | 
|Total current liabilities                                                     |   | 10,189,367 |  |   | 12,145,480 |  |   | 12,950,576 | 

F-3

---



|Long-term liabilities:                                                                                                                                                                                                                                                                         |   |            |  |   |            |  |   |            | 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ---------- |  | - | ---------- |  | - | ---------- | 
|Due to related parties                                                                                                                                                                                                                                                                         |   | 5,312,801  |  |   | 5,311,472  |  |   | 977,950    | 
|Long-term loans                                                                                                                                                                                                                                                                                |   | 17,009     |  |   | -          |  |   | 839,558    | 
|                                                                                                                                                                                                                                                                                               |   |            |  |   |            |  |   |            | 
|Total liabilities                                                                                                                                                                                                                                                                              | $ | 15,519,177 |  | $ | 17,456,952 |  | $ | 14,768,084 | 
|                                                                                                                                                                                                                                                                                               |   |            |  |   |            |  |   |            | 
|Commitments and contingencies (Note 15)                                                                                                                                                                                                                                                        |   | -          |  |   | -          |  |   | -          | 
|                                                                                                                                                                                                                                                                                               |   |            |  |   |            |  |   |            | 
|PREFERRED STOCK, par value $0.001,
      10,000,000 shares authorized, Series A 10% non-cumulative redeemable
      convertible preferred stock, redemption $9.80 per share plus 25%
      interest from date of issuance to date of redemption, 1,530,612 shares
      issued and outstanding |   | 14,264,871 |  |   | 14,264,871 |  |   | -          | 
|                                                                                                                                                                                                                                                                                               |   |            |  |   |            |  |   |            | 
|STOCKHOLDERS' EQUITY                                                                                                                                                                                                                                                                           |   |            |  |   |            |  |   |            | 
|                                                                                                                                                                                                                                                                                               |   |            |  |   |            |  |   |            | 
|Common stock, par value $0.001, 100,000,000
      shares authorized, 26,387,728 and 25,000,000 shares issued and
      outstanding, respectively                                                                                                                                               |   | 26,387     |  |   | 25,000     |  |   | 25,000     | 
|Additional paid in capital                                                                                                                                                                                                                                                                     |   | 4,721,337  |  |   | 3,234,224  |  |   | 3,228,244  | 
|Statutory surplus reserve fund                                                                                                                                                                                                                                                                 |   | 1,142,397  |  |   | 1,142,397  |  |   | 502,438    | 
|Retained earning                                                                                                                                                                                                                                                                               |   | 4,481,843  |  |   | 5,423,895  |  |   | 667,873    | 
|Accumulated other comprehensive income                                                                                                                                                                                                                                                         |   | 307,827    |  |   | 301,803    |  |   | 352,731    | 
|                                                                                                                                                                                                                                                                                               |   |            |  |   |            |  |   |            | 
|                                                                                                                                                                                                                                                                                               |   |            |  |   |            |  |   |            | 
|Total stockholders equity                                                                                                                                                                                                                                                                     |   | 10,679,791 |  |   | 10,127,319 |  |   | 4,776,286  | 
|                                                                                                                                                                                                                                                                                               |   |            |  |   |            |  |   |            | 
|                                                                                                                                                                                                                                                                                               |   |            |  |   |            |  |   |            | 
|Total liabilities and stockholders' equity                                                                                                                                                                                                                                                     | $ | 40,463,839 |  | $ | 41,849,142 |  | $ | 19,544,370 | 

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

F-4

---

YAYI INTERNATIONAL INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
INCOME (LOSS)

|                                                           |   | Five months ended |   |   | Years ended |  
|---------------------------------------------------------- | - | ----------------- | - | - | ----------- | -
|                                                           |   | March 31,         |   |   | October 31, |  
|                                                           |   |                   |   |   |             |  
|                                                           |   | 2010              |   |   | 2009        |  
|                                                           |   | (audited)         |   |   | (unaudited) |  
|Net Sales                                                  | $ | 6,966,183         |   | $ | 9,283,420   |  
|                                                           |   |                   |   |   |             |  
|Cost of goods sold                                         |   | (2,369,642        | ) |   | (2,892,709  | )
|                                                           |   |                   |   |   |             |  
|Gross profit                                               |   | 4,596,541         |   |   | 6,390,711   |  
|                                                           |   |                   |   |   |             |  
|Operating expenses:                                        |   |                   |   |   |             |  
|Sales and marketing expenses                               |   | (3,908,573        | ) |   | (1,973,212  | )
|General and administrative expenses                        |   | (1,318,077        | ) |   | (685,843    | )
|                                                           |   |                   |   |   |             |  
|Total operating expenses                                   |   | (5,226,650        | ) |   | (2,659,055  | )
|                                                           |   |                   |   |   |             |  
|                                                           |   |                   |   |   |             |  
|(Loss) income from continuing operations                   |   | (630,109          | ) |   | 3,731,656   |  
|                                                           |   |                   |   |   |             |  
|Other income (expenses):                                   |   |                   |   |   |             |  
|Merger costs                                               |   | -                 |   |   | -           |  
|                                                           |   |                   |   |   |             |  
|                                                           |   |                   |   |   |             |  
|Interest income                                            |   | 8,250             |   |   | 2,902       |  
|Other income                                               |   | -                 |   |   | -           |  
|Interest expenses                                          |   | (221,549          | ) |   | (359,014    | )
|Amortization of deferred debt issuance cost                |   | (91,227           | ) |   | (333,160    | )
|Accretion of debt discount and deferred financing cost     |   | -                 |   |   | -           |  
|Liquidated damages                                         |   | -                 |   |   | -           |  
|Warrant modification expense                               |   | (88,500           | ) |   | -           |  
|Other income, net                                          |   | 12,237            |   |   | 2,394       |  
|                                                           |   |                   |   |   |             |  
|(Loss) income before income tax                            |   | (1,010,898        | ) |   | 3,044,778   |  
|                                                           |   |                   |   |   |             |  
|Income tax benefit (expense)                               |   | 68,846            |   |   | (869,614    | )
|                                                           |   |                   |   |   |             |  
|(Loss) income from continuing operations,
      net of tax |   | (942,052          | ) |   | 2,175,164   |  
|                                                           |   |                   |   |   |             |  
|                                                           |   |                   |   |   |             |  
|Other comprehensive income                                 |   |                   |   |   |             |  
|Foreign currency translation adjustment                    |   | 6,024             |   |   | (44,791     | )
|                                                           |   |                   |   |   |             |  
|Net comprehensive (loss) income                            | $ | (936,028          | ) | $ | 2,130,373   |  

F-5

---



|Earnings per share of common stock                        |  |            |   |  |            |  |  |            |  |  |            | 
|--------------------------------------------------------- |  | ---------- | - |  | ---------- |  |  | ---------- |  |  | ---------- | 
|- Basic                                                   |  | (0.04      | ) |  | 0.09       |  |  | 0.22       |  |  | 0.08       | 
|- Diluted                                                 |  | (0.04      | ) |  | 0.09       |  |  | 0.22       |  |  | 0.05       | 
|                                                          |  |            |   |  |            |  |  |            |  |  |            | 
|Weighted average shares of common stock
      outstanding |  |            |   |  |            |  |  |            |  |  |            | 
|- Basic                                                   |  | 26,017,835 |   |  | 25,000,000 |  |  | 25,000,000 |  |  | 23,402,329 | 
|- Diluted                                                 |  | 26,017,835 |   |  | 25,000,000 |  |  | 25,000,000 |  |  | 24,441,031 | 

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

F-6

---

YAYI INTERNATIONAL INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

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


F-7

---

YAYI INTERNATIONAL INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

Common stock
    
    
    
    
    
    Statutory
    
    
    
    
    
    Accumulated
    
    
    TotalAdditional
    
    
    Surplus
    
    
    Retained
    
    
    Other
    
    
    Stockholderspaid in
    
    
    Reserve
    
    
    Earnings /
    
    
    Comprehensive
    
    
    EquityNumber of shares
    
    
    Amount
    
    
    capital
    
    
    Fund
    
    
    (Deficit)
    
    
    Income (Loss)
    
    
    (Deficit)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
    
    $
    4,776,286Capital contribution from shareholder
    
    -
    
    
    -
    
    
    5,980
    
    
    -
    
    
    -
    
    
    -
    
    
    5,980Net income for the year ended October 31, 2009
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    5,395,981
    
    
    -
    
    
    5,395,981Transfer to statutory surplus reserve
      fund
    
    -
    
    
    -
    
    
    -
    
    
    639,959
    
    
    (639,959
    )
    
    -
    
    
    -Foreign currency translation
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (50,928
    )
    
    (50,928
    )Balance at October 31, 2009
    
    25,000,000
    
    
    25,000
    
    
    3,234,224
    
    
    1,142,397
    
    
    5,423,895
    
    
    301,803
    
    
    10,127,319Conversion of convertible notes and
      accued interest into 1,296,274 shares of common stock
    
    1,296,274
    
    
    1,296
    
    
    1,398,704
    
    
    -
    
    
    -
    
    
    -
    
    
    1,400,000Warrant modification expense
    
    -
    
    
    -
    
    
    88,500
    
    
    -
    
    
    -
    
    
    -
    
    
    88,500


F-8

---

YAYI INTERNATIONAL INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

Common stockAccumulatedStatutory
    
    
    Retained
    
    
    Other
    
    
    TotalAdditional
    
    
    Surplus
    
    
    Earnings
    
    
    Comprehensive
    
    
    Stockholderspaid in
    
    
    Reserve
    
    
    /
    
    
    Income
    
    
    EquityNumber of shares
    
    
    Amount
    
    
    capital
    
    
    Fund
    
    
    (Deficit)
    
    
    (Loss)
    
    
    (Deficit)Cashless exercise of 110,000 Series D
      warrants into 78,432 shares of common stock
    
    78,432
    
    
    78
    
    
    (78
    )
    
    -
    
    
    -
    
    
    -
    
    
    -Cashless exercise of 17,363 Series A warrants into
      13,022 shares of common stock
    
    13,022
    
    
    13
    
    
    (13
    )
    
    -
    
    
    -
    
    
    -
    
    
    -Net income for the five months ended
      March 31,2010
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    (942,052
    )
    
    -
    
    
    (942,052
    )Foreign currency translation
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    6,024
    
    
    6,024Balance at March 31, 2010
    
    26,387,728
    
    
    $ 26,387
    
    
    $ 4,721,337
    
    
    $ 1,142,397
    
    
    $ 4,481,843
    
    
    $ 307,827
    
    
    $ 10,679,791


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

F-9

---

YAYI INTERNATIONAL INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                                                        |   | Five Months Ended |   |   | Years Ended |  
|--------------------------------------------------------------------------------------- | - | ----------------- | - | - | ----------- | -
|                                                                                        |   | March 31,         |   |   | October 31, |  
|                                                                                        |   | 2010              |   |   | 2009        |  
|                                                                                        |   | (audited)         |   |   | (unaudited) |  
|Cash flow from operating activities                                                     |   |                   |   |   |             |  
|                                                                                        |   |                   |   |   |             |  
|                                                                                        |   |                   |   |   |             |  
|Net (loss) income                                                                       | $ | (942,052          | ) | $ | 2,175,164   |  
|Adjustments to reconcile net income to net
      cash provided by operating activities: |   |                   |   |   |             |  
|Net foreign currency transaction loss                                                   |   | 337               |   |   | -           |  
|Depreciation of property, plant and
      equipment                                     |   | 195,151           |   |   | 143,189     |  
|Depreciation of livestock                                                               |   | 11,600            |   |   | 1,449       |  
|Amortization of deferred financing cost                                                 |   | 18,686            |   |   | -           |  
|Disposal of property, plant and equipment                                               |   | 6,144             |   |   | -           |  
|Allowance of bad debts-                                                                 |   |                   |   |   |             |  
|Accounts receivable                                                                     |   | 7,498             |   |   | -           |  
|Allowance of bad debts-Other receivable                                                 |   | 13,684            |   |   | -           |  
|Sales return allowance                                                                  |   | (121,025          | ) |   | 107,544     |  
|Warrant modification expense                                                            |   | 88,500            |   |   | -           |  
|Merger costs from issuance of warrants and common stock                                 |   |                   |   |   |             |  
|Accretion of debt discount                                                              |   | 72,541            |   |   | -           |  
|                                                                                        |   |                   |   |   |             |  
|(Increase) decrease in operating assets,
      net of effect of acquisition:            |   |                   |   |   |             |  
|Restricted cash                                                                         |   | (28,314           | ) |   | -           |  
|Accounts receivables                                                                    |   | (499,891          | ) |   | (632,746    | )
|Other receivables                                                                       |   | 110,629           |   |   | (319,671    | )
|Inventories                                                                             |   | (54,224           | ) |   | 554,803     |  
|Prepaid expenses                                                                        |   | (918,577          | ) |   | (3,394      | )
|Advances                                                                                |   | (875,434          | ) |   | 374,074     |  
|Other assets                                                                            |   |                   |   |   |             |  
|Deferred tax asset and current assets                                                   |   | (255,075          | ) |   | 176,258     |  

F-10

---



|Increase (decrease) in operating liability,
      net of effect of acquisition: |  |            |   |  |            |   |  |             |   |  |            |  
|------------------------------------------------------------------------------- |  | ---------- | - |  | ---------- | - |  | ----------- | - |  | ---------- | -
|Accounts payable                                                                |  | (606,517   | ) |  | (288,104   | ) |  | (194,617    | ) |  | (1,300,891 | )
|Bills payable                                                                   |  |            |   |  |            |   |  | -           |   |  | (688,713   | )
|Advance from customers                                                          |  | 84,769     |   |  | (3,576     | ) |  | 52,713      |   |  | (129,222   | )
|Income and other tax payable                                                    |  | (231,178   | ) |  | 230,797    |   |  | 324,290     |   |  | 54,829     |  
|Other payable and accrued expenses                                              |  | 25,889     |   |  | 770,114    |   |  | 1,080,475   |   |  | (258,167   | )
|Net cash (used in) provided by operating
      activities                       |  | (3,896,858 | ) |  | 3,285,901  |   |  | 6,534,843   |   |  | 3,816,554  |  
|Cash flows from investing activities                                            |  |            |   |  |            |   |  |             |   |  |            |  
|Purchase of equipment                                                           |  | (235,785   | ) |  | (180,776   | ) |  | (1,465,876  | ) |  | (183,019   | )
|Advance for construction of office building                                     |  |            |   |  |            |   |  | -           |   |  | (1,966,551 | )
|Advance for construction of factory and
      warehouse                         |  | -          |   |  | (3,795,704 | ) |  | (6,462,478  | ) |  | (2,928,200 | )
|Advance for acquisition of land use rights                                      |  | -          |   |  | (145,989   | ) |  | (145,940    | ) |  | -          |  
|Advance for purchase of equipment                                               |  | (208,980   | ) |  | -          |   |  | (2,091,053  | ) |  | -          |  
|Construction in progress                                                        |  | (175,828   | ) |  | 5,607      |   |  | (2,120,196  | ) |  | -          |  
|Cash acquired from Ardmore                                                      |  |            |   |  |            |   |  | -           |   |  | 23         |  
|Cash acquired in subsidiary                                                     |  |            |   |  |            |   |  | -           |   |  | 40,504     |  
|Purchase and breeding of livestock                                              |  | (563,723   | ) |  | (75,487    | ) |  | (114,939    | ) |  | -          |  
|Purchase of subsidiary                                                          |  |            |   |  |            |   |  | -           |   |  | (621,284   | )
|Acquisition of land use right                                                   |  | (796,106   | ) |  | -          |   |  | -           |   |  | -          |  
|Net cash used in investing activities                                           |  | (1,980,422 | ) |  | (4,192,349 | ) |  | (12,400,482 | ) |  | (5,658,527 | )
|Cash flows from financing activities                                            |  |            |   |  |            |   |  |             |   |  |            |  
|Proceeds from short term loans                                                  |  | 2,925,705  |   |  | 2,232,020  |   |  | 6,681,198   |   |  | 5,440,619  |  
|Repayment of short term loans                                                   |  | (2,691,648 | ) |  | (729,943   | ) |  | (5,433,460  | ) |  | (3,619,991 | )
|Proceeds from long term loans                                                   |  | 61,235     |   |  | 167,579    |   |  | -           |   |  | -          |  
|Repayment of long term loans                                                    |  | (3,402     | ) |  | (14,473    | ) |  | (33,999     | ) |  | (33,141    | )
|Repayment to minority stockholders                                              |  |            |   |  |            |   |  | -           |   |  | (1,257     | )
|Repayment of convertible debt and accrued
      interest                        |  | (56,000    | ) |  | -          |   |  |             |   |  |            |  
|Net proceeds from private placement                                             |  |            |   |  |            |   |  | -           |   |  | 1,001,993  |  

F-11

---



|Net proceeds from issuance of Series A
      preferred stock                     |   |            |   |   |           |   |   | 14,264,871 |   |   | -         |  
|-------------------------------------------------------------------------------- | - | ---------- | - | - | --------- | - | - | ---------- | - | - | --------- | -
|Dividend paid to previous stockholders of Tianjin Yayi                           |   |            |   |   |           |   |   | (2,550,504 | ) |   | -         |  
|Capital contribution from shareholders                                           |   |            |   |   | -         |   |   | 5,979      |   |   | -         |  
|Due (from) to related parties                                                    |   | (23        | ) |   | (6,336    | ) |   | 2,426,005  |   |   | (400,850  | )
|Net cash provided by financing activities                                        |   | 235,867    |   |   | 1,648,847 |   |   | 15,360,090 |   |   | 2,387,373 |  
|Effect of exchange rate changes in cash                                          |   | 878        |   |   | (2,110    | ) |   | (17,516    | ) |   | 89,561    |  
|Net (decrease) increase in cash and cash
      equivalents                       |   | (5,640,536 | ) |   | 740,289   |   |   | 9,476,935  |   |   | 634,961   |  
|                                                                                 |   |            |   |   |           |   |   |            |   |   |           |  
|                                                                                 |   |            |   |   |           |   |   |            |   |   |           |  
|Cash and cash equivalents, beginning of period                                   |   | 10,368,213 |   |   | 891,278   |   |   | 891,278    |   |   | 256,317   |  
|                                                                                 |   |            |   |   |           |   |   |            |   |   |           |  
|Cash and cash equivalents, end of period                                         | $ | 4,727,677  |   | $ | 1,631,567 |   | $ | 10,368,213 |   | $ | 891,278   |  
|                                                                                 |   |            |   |   |           |   |   |            |   |   |           |  
|                                                                                 |   |            |   |   |           |   |   |            |   |   |           |  
|Supplemental disclosure of cash flow
      information                           |   |            |   |   |           |   |   |            |   |   |           |  
|Cash paid during the period                                                      |   |            |   |   |           |   |   |            |   |   |           |  
|                                                                                 |   |            |   |   |           |   |   |            |   |   |           |  
|                                                                                 |   |            |   |   |           |   |   |            |   |   |           |  
|                                                                                 |   |            |   |   |           |   |   |            |   |   |           |  
|Interest paid                                                                    | $ | 242,458    |   | $ | 316,883   |   | $ | 604,633    |   | $ | 310,926   |  
|                                                                                 |   |            |   |   |           |   |   |            |   |   |           |  
|                                                                                 |   |            |   |   |           |   |   |            |   |   |           |  
|                                                                                 |   |            |   |   |           |   |   |            |   |   |           |  
|Income tax paid                                                                  | $ | 372,528    |   | $ | 421,461   |   | $ | 2,050,646  |   | $ | 1,586,394 |  
|                                                                                 |   |            |   |   |           |   |   |            |   |   |           |  
|Supplemental disclosure of non-cash financing and investing
      activities;    | $ | -          |   | $ | -         |   | $ | -          |   | $ | -         |  
|Repayment of short-term loan from Tianjin
      Mengyang offset against advances | $ | -          |   | $ | -         |   | $ | 877,508    |   | $ | -         |  
|Dividend payable                                                                 | $ | -          |   | $ | -         |   | $ | -          |   | $ | 4,235,052 |  
|Settlement of dividend payable                                                   | $ | -          |   | $ | -         |   | $ | 1,916,669  |   | $ | -         |  
|                                                                                 |   |            |   |   |           |   |   |            |   |   |           |  
|Rental deposit applied as advance to
      construction of factory and warehouse | $ | -          |   | $ | -         |   | $ | -          |   | $ | 644,790   |  
|                                                                                 |   |            |   |   |           |   |   |            |   |   |           |  
|                                                                                 |   |            |   |   |           |   |   |            |   |   |           |  
|Note payable to Tryant for cancellation of common stock                          | $ | -          |   | $ | -         |   | $ | -          |   | $ | 250,000   |  
|                                                                                 |   |            |   |   |           |   |   |            |   |   |           |  
|Issuance of Series C warrants for cancellation of common
      stock             | $ | -          |   | $ | -         |   | $ | -          |   | $ | 86,367    |  
|                                                                                 |   |            |   |   |           |   |   |            |   |   |           |  
|                                                                                 |   |            |   |   |           |   |   |            |   |   |           |  
|Issuance of Series A warrants with
      convertible notes                       | $ | -          |   | $ | -         |   | $ | -          |   | $ | 280,726   |  
|                                                                                 |   |            |   |   |           |   |   |            |   |   |           |  
|                                                                                 |   |            |   |   |           |   |   |            |   |   | 3,344,743 |  

F-12

---



|Issuance of common stock and Series B
      warrants for finder's fee                                           | $ | -         |  | $ | - |  | $ | - |  | $ | -       | 
|--------------------------------------------------------------------------------------------------------------- | - | --------- |  | - | - |  | - | - |  | - | ------- | 
|                                                                                                                |   |           |  |   |   |  |   |   |  |   |         | 
|                                                                                                                |   |           |  |   |   |  |   |   |  |   |         | 
|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 | 
|                                                                                                                |   |           |  |   |   |  |   |   |  |   |         | 
|Non-cash exercise of 127,363 warrants into common stock                                                         | $ | 91        |  | $ | - |  | $ | - |  | $ | -       | 
|                                                                                                                |   |           |  |   |   |  |   |   |  |   |         | 
|                                                                                                                |   |           |  |   |   |  |   |   |  |   |         | 
|Conversion of convertible note plus accrued
      interest into common stock                                    | $ | 1,400,000 |  | $ | - |  | $ | - |  | $ | -       | 
|                                                                                                                |   |           |  |   |   |  |   |   |  |   |         | 
|Transfer from advances to land use rights                                                                       | $ | 146,285   |  | $ | - |  | $ | - |  | $ | -       | 
|Transfer from advances to
    construction in progress                                                          | $ | 269,124   |  | $ | - |  | $ | - |  | $ | -       | 

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

F-13

---

YAYI INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE
FIVE MONTHS ENDED MARCH 31, 2010 AND 2009

1. Organization and Nature of Business

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

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

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

Charleston Industrial Limited

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

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

F-14

---

YAYI INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE FIVE
MONTHS ENDED MARCH 31, 2010 AND 2009

1. Organization and Nature of Business - Continued Tianjin
Yayi Industrial Co., Limited

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

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

Weinan Milkgoat Production Co., Limited

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

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

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

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

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

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

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

F-15

---

Shaanxi Milkgoat Dairy Co., Ltd

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

Change in Fiscal Year End

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

F-16

---

YAYI INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE
FIVE MONTHS ENDED MARCH 31, 2010 AND 2009

2. Summary of Significant Accounting Policies

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

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

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

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

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

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

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

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

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

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

F-17

---

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

F-18

---

YAYI INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE
FIVE MONTHS ENDED MARCH 31, 2010 AND 2009

2. Summary of Significant Accounting Policies - Continued

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

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

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

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

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

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

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

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

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

F-19

---

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

F-20

---

YAYI INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE
FIVE MONTHS ENDED MARCH 31, 2010 AND 2009

2. Summary of Significant Accounting Policies -
Continued

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

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

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

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

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

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

F-21

---

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

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

F-22

---

YAYI INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE
FIVE MONTHS ENDED MARCH 31, 2010 AND 2009

2. Summary of Significant Accounting Policies - Continued

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

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

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

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

The Company treats one-time slotting fees paid to retails shops
who are direct customers of the Companys distributors as a reduction in gross
sales. The Company pays the fees upon signing of contract with the distributors
and records them as prepayment. These fees are amortized over a twelve months
period. The amortized amount is taken as a reduction against revenue.

Slotting fees of $151,619 and $0 were recorded as a reduction
of sales revenue for the five months ended March 31, 2010 and 2009. During the
year ended October 31, 2009 and 2008, there were no slotting fees incurred.

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

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

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

F-23

---

YAYI INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS FOR THE FIVE MONTHS ENDED MARCH 31, 2010 AND 2009

2. Summary of Significant Accounting Policies - Continued

Recently Adopted Accounting Pronouncements

Subsequent Events

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

Fair Value Measurement

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

Decreases in Ownership of a Subsidiary  a Scope
Clarification

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

F-24

---

YAYI INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE
FIVE MONTHS ENDED MARCH 31, 2010 AND 2009

2. Summary of Significant Accounting Policies - Continued

Distributions to Shareholders with Components of Stock
and Cash

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

Measuring Liabilities at Fair Value

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

Convertible Debt Instruments

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

Useful Life of Intangible Asset

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

F-25

---

YAYI INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE
FIVE MONTHS ENDED MARCH 31, 2010 AND 2009

2. Summary of Significant Accounting Policies - Continued

Business Combination

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

Recently Issued Accounting Pronouncements Not Yet Adopted

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

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

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

F-26

---

YAYI INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR
THE FIVE MONTHS ENDED MARCH 31, 2010 AND 2009

3. Other Receivables

|                              |   | March 31, |   |   | October 31, |   |   | October 31, |  
|----------------------------- | - | --------- | - | - | ----------- | - | - | ----------- | -
|                              |   | 2010      |   |   | 2009        |   |   | 2008        |  
|                              |   |           |   |   |             |   |   |             |  
|Advance to staff              | $ | 28,542    |   | $ | 79,097      |   | $ | 42,196      |  
|Due from a unrelated party    |   | 585,130   |   |   | -           |   |   | 37,940      |  
|Prepayment                    |   | -         |   |   | 660,970     |   |   | 71,803      |  
|Sundry                        |   | 7,331     |   |   | 20,854      |   |   | -           |  
|                              |   |           |   |   |             |   |   |             |  
|                              |   | 621,003   |   |   | 760,921     |   |   | 151,939     |  
|Less: allowance for bad debts |   | (22,833   | ) |   | (9,146      | ) |   | (29,207     | )
|                              | $ | 598,170   |   | $ | 751,775     |   | $ | 122,732     |  

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

4. Inventories

Inventories consist of:

|                |   | March 31, |  |   | October 31, |   |   | October 31, | 
|--------------- | - | --------- |  | - | ----------- | - | - | ----------- | 
|                |   | 2010      |  |   | 2009        |   |   | 2008        | 
|                |   |           |  |   |             |   |   |             | 
|Raw materials   | $ | 1,678,207 |  | $ | 1,795,275   |   | $ | 1,852,213   | 
|Packaging       |   | 289,188   |  |   | 370,920     |   |   | 446,031     | 
|Finished goods  |   | 593,870   |  |   | 381,885     |   |   | 1,031,532   | 
|                |   | 2,561,265 |  |   | 2,548,080   |   |   | 3,329,776   | 
|Less: allowance |   | -         |  |   | (41,770     | ) |   | -           | 
|                | $ | 2,561,265 |  | $ | 2,506,310 $ |   | $ | 3,329,776   | 

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

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

F-27

---

YAYI INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE
FIVE MONTHS ENDED MARCH 31, 2010 AND 2009

5. Advances

Advances consist of:

|                                                                        |   | March 31,  |  |   | October 31, |  |   | October 31, | 
|----------------------------------------------------------------------- | - | ---------- |  | - | ----------- |  | - | ----------- | 
|                                                                        |   | 2010       |  |   | 2009        |  |   | 2008        | 
|Advances to Tianjin Mengyang Biological
      Development Co., Ltd      |   |            |  |   |             |  |   |             | 
|("Tianjin Menyang"), formerly Tianjin Milkgoat Dairy Co.,
      Ltd.    |   |            |  |   |             |  |   |             | 
|- purchase of office building
      (Note 15)                           | $ | 4,179,284  |  | $ | 4,178,061   |  | $ | 4,185,505   | 
|- purchase of factory and warehouse (Note 15)                           |   | 11,042,041 |  |   | 11,038,812  |  |   | 3,575,186   | 
|- advances for renovation of
      office building (Note 15)            |   | 342,300    |  |   | 342,200     |  |   | 342,810     | 
|-short term loan                                                        |   | -          |  |   | -           |  |   | 1,001,185   | 
|Advanced payment to other suppliers                                     |   | 1,165,620  |  |   | 739,587     |  |   | 229,185     | 
|Advanced payment for construction in progress (Note 15)                 |   | 331,696    |  |   | 350,975     |  |   | -           | 
|                                                                        |   |            |  |   |             |  |   |             | 
|Advanced payment for purchasing machinery and equipment
      (Note 15) |   | 1,920,814  |  |   | 1,740,586   |  |   | -           | 
|Advance
    to branch manager                                           |   | 395,123    |  |   | 365,502     |  |   | -           | 
|Advanced payment for acquisition of land
      use rights               |   | -          |  |   | 146,239     |  |   | 146,200     | 
|                                                                        | $ | 19,376,878 |  | $ | 18,901,962  |  | $ | 9,480,071   | 
|                                                                        |   |            |  |   |             |  |   |             | 
|Less: Long-term portion - purchase of factory and warehouse             |   | 17,816,135 |  |   | 17,796,873  |  |   | 9,250,886   | 
|                                                                        |   |            |  |   |             |  |   |             | 
|                                                                        | $ | 1,560,743  |  | $ | 1,105,089   |  | $ | 229,185     | 

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

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

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

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

F-28

---

YAYI INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE
FIVE MONTHS ENDED MARCH 31, 2010 AND 2009

6. Property, Plant and Equipment

Property, plant and equipment consist of the following:

|                                                |   | March 31,  |   |   | October 31, |   |   | October 31, |  
|----------------------------------------------- | - | ---------- | - | - | ----------- | - | - | ----------- | -
|                                                |   | 2010       |   |   | 2009        |   |   | 2008        |  
|At cost:                                        |   |            |   |   |             |   |   |             |  
|Leasehold improvement                           | $ | 68,924     |   | $ | 68,903      |   | $ | 69,026      |  
|                                                |   |            |   |   |             |   |   | 378,346     |  
|Plant and buildings                             |   | 1,708,463  |   |   | 1,702,435   |   |   |             |  
|                                                |   |            |   |   |             |   |   | 2,303,599   |  
|Machinery                                       |   | 2,525,876  |   |   | 2,439,042   |   |   |             |  
|Furniture, fixtures and equipment               |   | 202,581    |   |   | 192,243     |   |   | 184,829     |  
|Motor vehicles                                  |   | 324,936    |   |   | 197,175     |   |   | 197,526     |  
|                                                |   |            |   |   |             |   |   |             |  
|                                                |   | 4,830,780  |   |   | 4,599,798   |   |   | 3,133,326   |  
|                                                |   |            |   |   |             |   |   |             |  
|Less: accumulated depreciation and amortization |   | (1,096,228 | ) |   | (900,817    | ) |   | (552,941    | )
|                                                |   |            |   |   |             |   |   |             |  
|                                                | $ | 3,734,552  |   | $ | 3,698,981   |   | $ | 2,580,385   |  

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

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

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

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

F-29

---

YAYI INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE
FIVE MONTHS ENDED MARCH 31, 2010 AND 2009

7. Prepaid expenses

Prepaid expenses consist of:

|              |   | March 31, |  |   | October 31, |  |   | October 31, | 
|------------- | - | --------- |  | - | ----------- |  | - | ----------- | 
|              |   | 2010      |  |   | 2009        |  |   | 2008        | 
|Slotting fees | $ | 880,971   |  | $ | -           |  | $ | -           | 
|Others        |   | 121,523   |  |   | 83,912      |  |   | 39,702      | 
|              | $ | 1,002,494 |  | $ | 83,912      |  | $ | 39,702      | 

The prepaid expenses as of March 31, 2010 consist of one-time
slotting fees paid to retails shops who are direct customers of the Companys
distributors. During the five months ended March 31, 2010, amortized amount of
$151,619 was recorded as a reduction of sales revenue. During the year ended
October 31, 2009 and 2008, there were no slotting fees incurred.

8. Land use rights

Land use rights consist of:

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

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

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

F-30

---

YAYI INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE
FIVE MONTHS ENDED MARCH 31, 2010 AND 2009

9. Short Term Loans

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

|                                                      |                                               |                                                                                        |                 | March 31, | October 31, | October 31,
|----------------------------------------------------- | --------------------------------------------- | -------------------------------------------------------------------------------------- | --------------- | --------- | ----------- | -----------
|                                                      |                                               |                                                                                        |                 | 2010      | 2009        | 2008       
|                                                      |                                               | Collateral /                                                                           | Interest Rate   |           |             |            
|Lender                                                | Loan
      Period                             | Guarantee                                                                              | per
      annum |           |             |            
|                                                      |                                               |                                                                                        |                 |           |             |            
|Industrial & Commercial Bank of China                 | November 26, 2007 to
      November 12, 2008  | -                                                                                      | 8.0%            | -         | -           | 586,000    
|Rural Cooperative Bank of Tianjin                     | December 29, 2007 to December 27, 2008        | -                                                                                      | 9.0%            | -         | -           | 937,600    
|Tianjin Yinna Gonggong Hangdao Shujun Company Limited | September 24, 2008 to
      December 24, 2008 | -                                                                                      | -               | -         | -           | 439,501    
|Tianjin City Commercial Bank                          | July
      25, 2008 to July 24, 2009          | Guaranteed by the Tianjin Haitai Investment Guarantee Co., Ltd.                        | 9.7%            | -         | -           | 2,197,500  
|Allied Merit International Investment, Inc. (Note 14) | April 12, 2008 to July 31,
      2009         | Secured against 2,000,000 shares owned by Global Rock Stone Industrial Ltd.            | 8.0%            | -         | -           | 1,000,000  
|Industrial & Commercial Bank of China                 | November 14, 2008 to November 11, 2009        | Guaranteed by the Medium and Small- Size Enterprise Credit Guarantee Center of Tianjin | 8.0%            | -         | 584,958     | -          

F-31

---



|Rural
      Cooperative Bank of Tianjin     | January 20, 2009 to January 19, 2010                                                                   | Guaranteed by the Tianjin Haitai Investment Guarantee Co., Ltd. | 6.4% | -         | 643,454   | -      
|------------------------------------------- | ------------------------------------------------------------------------------------------------------ | --------------------------------------------------------------- | ---- | --------- | --------- | -------
|Allied Merit International Investment, Inc. | November 5, 2007 to the completion of first round of
      fund raising after the reverse
      merger | -                                                               | -    | 121,705   | 121,705   | 114,395
|Shanghai Pudong Development Bank            | November 28, 2008 to November 28, 2009, it has been renewed and extended to December 14, 2010          | Guaranteed by the Tianjin Haitai Investment Guarantee Co., Ltd. | 7.3% | -         | 1,462,394 |        
|Rural Cooperative Bank of Tianjin           | May 22, 2009 to May 21, 2010                                                                           | Guaranteed by the Tianjin Haitai Investment Guarantee Co., Ltd. | 6.4% | 1,462,822 | 1,462,394 | -      
|Rural
      Cooperative Bank of Tianjin     | July
      3, 2009 to May 21, 2010                                                                     | Guaranteed by the Tianjin Haitai Investment Guarantee Co., Ltd. | 6.4% | 2,194,234 | 2,193,592 | -      
|Shanghai Pudong Development Bank            | December 14, 2009 to December 14, 2010                                                                 | Guaranteed by the Tianjin Haitai Investment Guarantee Co., Ltd. | 6.4% | 292,565   | -         | -      
|Shanghai Pudong Development Bank            | December 14, 2009 to December 14, 2010                                                                 | Guaranteed by the Tianjin Haitai Investment Guarantee Co., Ltd. | 6.4% | 1,170,258 | -         | -      

F-32

---



|China Development Bank Co., Ltd. | December 25, 2009 to December 24, 2010 | Guaranteed by the Tianjin Haitai Investment Guarantee Co., Ltd. | 5.8% | 1,462,822 | -         | -        
|-------------------------------- | -------------------------------------- | --------------------------------------------------------------- | ---- | --------- | --------- | ---------
|                                 |                                        |                                                                 |      | 6,704,406 | 6,468,497 | 5,274,996

F-33

---

YAYI INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE
FIVE MONTHS ENDED MARCH 31, 2010 AND 2009

9. Short Term Loans - Continued

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

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

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

On November 5, 2007, Charleston entered into a loan agreement
with Allied Merit International Investment, Inc. (Allied Merit) for $114,395.
The loan represents various professional expenses related to the merger paid by
Allied Merit on behalf of Charleston, including the $50,000 paid to Tryant in
January 2008 as discussed in Note 14. The loan incurs interest at 8% per annum
and is due upon the first round of funds raised subsequent to the $1,300,000
fund raised upon listing on the U.S Over the Counter (OTC) market. Pursuant to
the agreement, Allied Merit agreed to convert accrued interest into the
Companys common stock conversion rate of $2.00 per share. As of March 31, 2010,
there was no conversion of accrued interest into the Companys common stock.
Pursuant to an agreement dated June 15, 2009, signed between Charleston and
Allied Merit, Allied Merit agreed to waive the previously accrued interest on
the loan. During the year ended October 31, 2009, Allied Merit lent an
additional $78,877 to Charleston. As of March 31, 2010, the total amount owed to
Allied Merit is $121,705.

F-34

---

YAYI INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE
FIVE MONTHS ENDED MARCH 31, 2010 AND 2009

9. Short Term Loans - Continued

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

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

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

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

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

10. Due to Related Parties

|                                                                           |   | March 31, |  |   | October 31, |  |   | October 31, | 
|-------------------------------------------------------------------------- | - | --------- |  | - | ----------- |  | - | ----------- | 
|                                                                           |   | 2010      |  |   | 2009        |  |   | 2008        | 
|                                                                           |   |           |  |   |             |  |   |             | 
|                                                                           |   |           |  |   |             |  |   |             | 
|Li Liu, a
      director of the Company, officer and principal shareholder | $ | 3,394,534 |  | $ | 3,393,542   |  | $ | 977,950     | 
|Other shareholders                                                         |   | 1,918,267 |  |   | 1,917,930   |  |   | -           | 
|                                                                           |   |           |  |   |             |  |   |             | 
|                                                                           | $ | 5,312,801 |  | $ | 5,311,472   |  | $ | 977,950     | 

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

F-35

---

YAYI INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE
FIVE MONTHS ENDED MARCH 31, 2010 AND 2009

11. Long-Term Loans

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

|                                                                                                                                                                                                                                                |   | March 31, |   |   | October 31, |   |   | October 31, |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | --------- | - | - | ----------- | - | - | ----------- | -
|                                                                                                                                                                                                                                                |   | 2010      |   |   | 2009        |   |   | 2008        |  
|                                                                                                                                                                                                                                                |   |           |   |   |             |   |   |             |  
|Installment loan
      GMAC-SAIC Automotive Finance Company Limited, interest at 7.33% per annum,
      monthly principal and interest payment of $322 from July 15, 2005 to June
      17, 2009                                                | $ | -         |   | $ | -           |   |   | 2,295       |  
|Installment loan from
      Daimler-Chrysler Automotive Finance Ltd, interest at 7.83% per annum,
      monthly principal and interest payment of $2,484 from September 30, 2007
      to September 30, 2009                                    | $ | -         |   | $ | -           |   |   | 31,794      |  
|Convertible
      notes in principal amounts of $1,300,000, less debt discount of $365,886,
      interest at 8% per annum, due December 2009. These notes were either paid
      off or converted into common stock in December 2009 (Note 14) | $ | -         |   | $ | 1,227,459   |   |   | 839,558     |  
|Installment loan from
      Daimler-Chrysler Automotive Finance Ltd, interest free, monthly principal
      and interest payment of $3,402 from February 5, 2010 to August 5, 2011                                                              |   | 57,832    |   |   | -           |   |   | -           |  
|                                                                                                                                                                                                                                                |   | 57,832    |   |   | 1,227,459   |   |   | 873,647     |  
|Less: current portion                                                                                                                                                                                                                           |   | (40,823   | ) |   | (1,227,459  | ) |   | (34,089     | )
|Long-term loans,
      net of current portion                                                                                                                                                                                                   | $ | 17,009    |   | $ | -           |   | $ | 839,558     |  

F-36

---

YAYI INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE
FIVE MONTHS ENDED MARCH 31, 2010 AND 2009

11. Long-Term Loans - Continued

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

|                                                                              |   | March 31, |  |   | October 31, |   |   | October 31, |  
|----------------------------------------------------------------------------- | - | --------- |  | - | ----------- | - | - | ----------- | -
|                                                                              |   | 2010      |  |   | 2009        |   |   | 2008        |  
|                                                                              |   |           |  |   |             |   |   |             |  
|Convertible notes payable                                                     | $ | -         |  | $ | 1,300,000   |   | $ | 1,300,000   |  
|Less: Debt discount - Series A Warrants                                       |   | -         |  |   | (280,726    | ) |   | (280,726    | )
|Less: Debt discount - beneficial conversion
      feature                     |   | -         |  |   | (304,800    | ) |   | (304,800    | )
|Accretion of debt discount - warrants and beneficial
      conversion feature |   | -         |  |   | 512,985     |   |   | 125,084     |  
|Convertible notes payable, net                                                | $ | -         |  | $ | 1,227,459   |   | $ | 839,558     |  

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

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

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

12. Income and Other Tax Payables

Income and other tax payables consist of the following:

|                                          |   | March 31, |  |   | October 31, |  |   | October 31, | 
|----------------------------------------- | - | --------- |  | - | ----------- |  | - | ----------- | 
|                                          |   | 2010      |  |   | 2009        |  |   | 2008        | 
|                                          |   |           |  |   |             |  |   |             | 
|Income tax payable                        | $ | 17,585    |  | $ | 207,510     |  | $ | 65,075      | 
|Value added tax payable                   |   | 1,295,321 |  |   | 1,320,149   |  |   | 1,157,293   | 
|Individual income withholding tax payable |   | 316       |  |   | 680         |  |   | -           | 
|Other tax payables                        |   | 24,972    |  |   | 40,577      |  |   | 23,843      | 
|                                          | $ | 1,338,194 |  | $ | 1,568,916   |  | $ | 1,246,211   | 

F-37

---

YAYI INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE
FIVE MONTHS ENDED MARCH 31, 2010 AND 2009

13. Income Tax

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

United States

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

BVI

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

PRC

Tianjin Yayi, Weinan Milkgoat, Fuping Milkgoat and Shaanxi
Milkgoat are subject to PRC income tax. Income tax (benefit) expense for the
five months ended March 31, 2010 and 2009 were ($68,846) and $869,614,
respectively. Income tax expense for the year ended October 31, 2009 and 2008
were $2,201,032 and $1,633,946, respectively.

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

The income tax provision consists of the following:

|                              |   | Five
      months ended March 31, |   |   | Year
      ended March 31, |  
|----------------------------- | - | --------------------------------- | - | - | -------------------------- | -
|                              |   | 2010                              |   |   | 2009                       |  
|                              |   |                                   |   |   |                            |  
|Current                       | $ | (155,700                          | ) | $ | 1,090,628                  |  
|Deferred - current            |   | (252,646                          | ) |   | (17,514                    | )
|Deferred -
      non-current  |   | -                                 |   |   | -                          |  
|Change in valuation allowance |   | 339,500                           |   |   | (203,500                   | )
|                              | $ | (68,846                           | ) | $ | 869,614                    |  

F-38

---

YAYI INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE
FIVE MONTHS ENDED MARCH 31, 2010 AND 2009

13. Income Tax - Continued

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

|                                                       |  | Five months ended |   |  | Year
      ended  | 
|------------------------------------------------------ |  | ----------------- | - |  | ----------------- | 
|                                                       |  | March 31          |   |  | October
      31, | 
|                                                       |  | 2010              |   |  | 2009              | 
|                                                       |  |                   |   |  |                   | 
|Tax provision
      (benefit) at PRC statutory rate    |  | (25.0%            | ) |  | 25.0%             | 
|Tax exemption                                          |  | -                 |   |  | -                 | 
|Permanent
      differences                            |  | -                 |   |  | 0.1%              | 
|Unrecognized tax benefit of
      current year losses  |  | 1.0%              |   |  | -                 | 
|Parent company's
      expenses not subject to PRC tax |  | 17.0%             |   |  | 3.5%              | 
|                                                       |  |                   |   |  |                   | 
|Effective tax rate                                     |  | (7%               | ) |  | 28.6%             | 

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

|                                                                           |  | March 31,  |   |  | October 31, |   |  | October 31 |  
|-------------------------------------------------------------------------- |  | ---------- | - |  | ----------- | - |  | ---------- | -
|                                                                           |  | 2010       |   |  | 2009        |   |  | 2008       |  
|                                                                           |  |            |   |  |             |   |  |            |  
|Deferred tax asset for NOL carryforwards -
      China                     |  | 173,000    |   |  | 99,700      |   |  | 55,700     |  
|                                                                           |  |            |   |  |             |   |  |            |  
|Deferred tax asset for NOL carryforwards - US                              |  | 1,618,300  |   |  | 1,374,000   |   |  | 1,104,000  |  
|                                                                           |  |            |   |  |             |   |  |            |  
|Warrant expense                                                            |  | 743,200    |   |  | 721,300     |   |  | 568,000    |  
|                                                                           |  |            |   |  |             |   |  |            |  
|Temporary difference from advertisement                                    |  | 232,236    |   |  | -           |   |  | -          |  
|                                                                           |  |            |   |  |             |   |  |            |  
|Temporary difference from intercompany
      sales profit                  |  | 1,259      |   |  | 1,258       |   |  | -          |  
|                                                                           |  |            |   |  |             |   |  |            |  
|Temporary difference from allowance for doubtful accounts
      receivable |  | 19,151     |   |  | -           |   |  | 9,402      |  
|                                                                           |  | 2,787,146  |   |  | 2,196,258   |   |  | 1,737,102  |  
|                                                                           |  | -          |   |  |             |   |  |            |  
|Valuation allowance                                                        |  | (2,534,500 | ) |  | (2,195,000  | ) |  | (1,727,700 | )
|                                                                           |  |            |   |  |             |   |  |            |  
|Total deferred tax assets                                                  |  | 252,646    |   |  | 1,258       |   |  | 9,402      |  
|                                                                           |  |            |   |  |             |   |  |            |  
|Allowance for doubtful accounts receivable                                 |  | -          |   |  | 3,682       |   |  | -          |  
|Total deferred tax liability                                               |  | -          |   |  | 3,682       |   |  | -          |  
|                                                                           |  |            |   |  |             |   |  |            |  
|Net deferred tax assets (liability)                                        |  | 252,646    |   |  | (2,424      | ) |  | 9,402      |  

F-39

---

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

|                                    |   |           |  |   |             |   |  |             | 
|----------------------------------- | - | --------- |  | - | ----------- | - |  | ----------- | 
|                                    |   | March 31, |  |   | October 31, |   |  | October 31, | 
|                                    |   | 2010      |  |   | 2009        |   |  | 2008        | 
|Current assets                      | $ | 252,646   |  | $ | -           |   |  |             | 
|Current liability                   |   | -         |  |   | (2,424      | ) |  |             | 
|Noncurrent assets                   |   | -         |  |   | -           |   |  | 9,402       | 
|Net deferred tax assets (liability) | $ | 252,646   |  | $ | (2,424      | ) |  | 9,402       | 

F-40

---

YAYI INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE
FIVE MONTHS ENDED MARCH 31, 2010 AND 2009

13. Income Tax  Continued

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

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

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

14. Merger and Offering

Series B Warrants

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

Cancellation of shares and Issuance of Series C
Warrants

F-41

---

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

F-42

---

YAYI INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE
FIVE MONTHS ENDED MARCH 31, 2010 AND 2009

14. Merger and Offering  Continued

Convertible Promissory Note and Issuance of Series A
Warrants

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

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

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

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

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

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

F-43

---

YAYI INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE
FIVE MONTHS ENDED MARCH 31, 2010 AND 2009

14. Merger and Offering  Continued

Settlement of Registration Rights Agreement

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

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

Series D Warrants and Placement Agent Fee

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

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

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

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

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

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

F-44

---

YAYI INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE
FIVE MONTHS ENDED MARCH 31, 2010 AND 2009

14. Merger and Offering  Continued

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

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



|                                                           |  |           |   |  |           |   |  | Exercise Price | 
|---------------------------------------------------------- |  | --------- | - |  | --------- | - |  | -------------- | 
|                                                           |  | Option    |   |  | Vested    |   |  | per Common     | 
|                                                           |  | Shares    |   |  | Shares    |   |  | Stock Range    | 
|                                                           |  |           |   |  |           |   |  |                | 
|Balance, October 31, 2007                                  |  | -         |   |  | -         |   |  | -              | 
|Granted or vested during the year ended October 31, 2008   |  | 3,329,681 |   |  | 3,329,681 |   |  | $1.08 - $1.15  | 
|Balance October 31, 2008                                   |  | 3,329,681 |   |  | 3,329,681 |   |  | $1.08 - $1.15  | 
|Granted or vested during the year ended October 31, 2009   |  | -         |   |  | -         |   |  | -              | 
|Balance, October 31, 2009                                  |  | 3,329,681 |   |  | 3,329,681 |   |  | $1.08-$1.35    | 
|Granted or vested during the 5 months ended March 31, 2010 |  | -         |   |  | -         |   |  | -              | 
|Exercised during the 5 months ended March
      31, 2010   |  | (127,363  | ) |  | (127,363  | ) |  | $0.98          | 
|Expired during the 5 months ended March 31, 2010           |  | -         |   |  | -         |   |  | -              | 
|Balance, March 31, 2010                                    |  | 3,202,318 |   |  | 3,202,318 |   |  | $0.98-$1.35    | 

F-45

---

YAYI INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE
FIVE MONTHS ENDED MARCH 31, 2010 AND 2009

14. Merger and Offering  Continued

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

|Warrants Outstanding
|--------------------
|                    
|                    
|Range of            
|Exercise Prices     
|                    
|$0.98-1.35          



F-46

---



YAYI INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE
FIVE MONTHS ENDED MARCH 31, 2010 AND 2009

15. Commitments and Contingencies

Operating Leases

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

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

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

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

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

Purchase of Office Building

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

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

F-47

---

YAYI INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE
FIVE MONTHS ENDED MARCH 31, 2010 AND 2009

15. Commitments and Contingencies  Continued

Purchase of Factory & Warehouse

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

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

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

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

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

Purchase of Machinery & Equipment

During the year ended March 31, 2010, the Company signed two
contracts for purchasing machinery and equipment to expand its goat milk powder
production lines and liquid goat milk production line, with the total amount of

$3,415,544 (RMB23,349,000). $1,858,121 (RMB12,702,300) has been paid as of March
31, 2010. The remaining balance of $1,557,423 (RMB10,646,700) will be paid
progressively. The machinery and equipment is expected to be delivered and
inspected by August 2010 and final payment of 5% is to be paid within 6 months
after approval of final inspection of equipment received.

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

F-48

---

YAYI INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE
FIVE MONTHS ENDED MARCH 31, 2010 AND 2009

15. Commitments and Contingencies  Continued

Construction in progress of goat farm facilities

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

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

Purchase of Raw Material

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

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

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

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

Purchase of Goat Milk Powder

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

F-49

---

YAYI INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE
FIVE MONTHS ENDED MARCH 31, 2010 AND 2009

15. Commitments and Contingencies  Continued

Land Use Rights Agreement

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

Installation of central system pipelines

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

F-50

---

YAYI INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE
FIVE MONTHS ENDED MARCH 31, 2010 AND 2009

16.Concentrations, Risks, and Uncertainties

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

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

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

|                                                                     | Five months ended
|-------------------------------------------------------------------- | -----------------
|                                                                     | March 31,        
|                                                                     | 2010             
|                                                                     |                  
|Lintong Hongxing Dairy Co., Ltd.                                     | *                
|CPMC Holding (Tianjin) Limited                                       | 15.4%            
|Pacific Dairy Ingredients (Shanghai) Co.,
      Ltd.                 | *                
|                                                                     |                  
|* Constitute less than 10% of the Company's
      purchasing volume. |                  

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

17. Operating Risk

Interest rate risk

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

Foreign currency risk

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

Companys operations are substantially in foreign countries

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

F-51

---

18. Earnings Per Share

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

YAYI INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE
FIVE MONTHS ENDED MARCH 31, 2010 AND 2009

|                                                                                                                                                    |   |                         |   |   |                   |  
|--------------------------------------------------------------------------------------------------------------------------------------------------- | - | ----------------------- | - | - | ----------------- | -
|                                                                                                                                                    |   | Five
      months ended |   |   | Years ended       |  
|                                                                                                                                                    |   | March
      31,         |   |   | October
      31, |  
|                                                                                                                                                    |   | 2010                    |   |   | 2009              |  
|                                                                                                                                                    |   |                         |   |   |                   |  
|Net (loss)
      income available for common shareholders - basic                                                                                   | $ | (942,052                | ) | $ | 2,175,164         |  
|Less: write-off of total debt
      discount on convertible debt since unamortized debt discount is
      written-off upon conversion               |   | -                       |   |   | (167,578          | )
|Less: write-off
      of total deferred financing costs on convertible debt since unamortized
      financing costs are written-off upon conversion |   | -                       |   |   | (43,167           | )
|Add: Interest expense on
      convertible note                                                                                                     |   | -                       |   |   | 43,025            |  
|Net (loss)
      income available for common shareholders - diluted                                                                                 | $ | (942,052                | ) | $ | 2,007,444         |  
|Weighted average outstanding
      shares of common stock                                                                                           |   | 26,017,835              |   |   | 25,000,000        |  

|Dilutive effect
      of warrants                 |  | -          |   |  | -          |  |  |            |  |  | 553,923    | 
|------------------------------------------------- |  | ---------- | - |  | ---------- |  |  | ---------- |  |  | ---------- | 
|Dilutive effect of convertible
      notes        |  | -          |   |  | -          |  |  |            |  |  | 484,779    | 
|Diluted weighted
      average outstanding shares |  | 26,017,835 |   |  | 25,000,000 |  |  | 25,000,000 |  |  | 24,441,031 | 
|                                                  |  |            |   |  |            |  |  |            |  |  |            | 
|Earnings per
      share:                         |  |            |   |  |            |  |  |            |  |  |            | 
|Basic                                             |  | (0.04      | ) |  | 0.09       |  |  | 0.22       |  |  | 0.08       | 
|                                                  |  |            |   |  |            |  |  |            |  |  |            | 
|Diluted                                           |  | (0.04      | ) |  | 0.09       |  |  | 0.22       |  |  | 0.05       | 

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

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

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

F-52

---

YAYI INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE
FIVE MONTHS ENDED MARCH 31, 2010 AND 2009

19. Series A Redeemable Preferred Stock

Series A Redeemable Convertible Preferred
Stock

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

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

Dividends and Liquidation Rights

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

Voting Rights

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

F-53

---

YAYI INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE
FIVE MONTHS ENDED MARCH 31, 2010 AND 2009

19. Series A Redeemable Preferred Stock - Continued

Redemption

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

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

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

20. Dividend Payable

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

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

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

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

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YAYI INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE
FIVE MONTHS ENDED MARCH 31, 2010 AND 2009

21. Subsequent Event

Entry into a material definitive agreement

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

Adoption of Employee Stock Ownership Plan

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

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

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

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

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

F-55

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Employment Agreement with CEO

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

Entry into 4 loan agreements

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

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

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