UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549




FORM
10−Q




(Mark
One)




x
            QUARTERLY REPORT PURSUANT TO
      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934




For the
quarterly period ended: September 30, 2010




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




For the
transition period from ____________ to _____________




Commission
File Number:   001-34512




YUHE
INTERNATIONAL, INC.


(Exact
name of Registrant as Specified in its Charter)




Nevada
                
                33-0215298(State
      or other jurisdiction of
                  incorporation
      or organization)
                
                (I.R.S.
      Employer Identification.
No.)




301
Hailong Street


Hanting
District, Weifang, Shandong Province


The
People’s Republic of China


(Address
of principal executive offices)




86
536 736 3688


(Registrant’s
Telephone Number)





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 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 o




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 o
    No o




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




Large
accelerated filer o
  Accelerated filer o
   Non-accelerated filer   o


Smaller
reporting company x




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




Yes  
o
    No   x




The
number of shares outstanding of each of the issuer’s classes of common equity as
of November 12, 2010 is as follows:




Class
      of Securities
                
                Shares
      OutstandingCommon
      Stock, $0.001 par value
                
                20,249,563










TABLE
OF CONTENTS





PagePART
      I FINANCIAL INFORMATIONItem
      1.
                Financial
      Statements
                F-1Item
      2.
                Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                3Item
      3.
                Quantitative
      and Qualitative Disclosures About Market Risk
                16Item
      4.
                Controls
      and Procedures
                16PART
      II OTHER INFORMATIONItem
      1.
                Legal
      Proceedings
                17Item
      1A.
                Risk
      Factors
                17Item
      2.
                Unregistered
      Sales of Equity Securities and Use of Proceeds
                17Item
      3.
                Defaults
      Upon Senior Securities
                17Item
      4.
                Reserved
                17Item
      5.
                Other
      Information
                17Item
      6.
                Exhibits
                18Signatures
                
                19







2





PART
I


FINANCIAL
INFORMATION




ITEM
1. FINANCIAL STATEMENTS.




YUHE
INTERNATIONAL, INC.




CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS




FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2010




Index to
condensed consolidated financial statements




PageCondensed
      Consolidated Balance Sheets
              
              F-2Condensed
      Consolidated Statements of Income and Comprehensive Income -
      unaudited
              
              F-4Condensed
      Consolidated Statements of Cash Flows - unaudited
              
              F-5Notes
      to the Condensed Consolidated Financial Statements
              
              F-7







F-1




YUHE
INTERNATIONAL, INC.


CONDENSED
CONSOLIDATED BALANCE SHEETS


(Stated
in US Dollars)




September
      30,
                  
                  
                  December
      31,2010
                  
                  
                  2009(unaudited)ASSETSCurrent
      assets:Cash
      and cash equivalents
                  
                  $
                  27,359,186
                  
                  
                  $
                  14,047,147Accounts
      receivable, net of allowances of $18,947 and $18,868
                  
                  
                  923
                  
                  
                  
                  838Inventories
                  
                  
                  9,379,174
                  
                  
                  
                  6,560,783Advances
      to suppliers
                  
                  
                  395,790
                  
                  
                  
                  359,179Deferred
      tax assets
                  
                  
                  11,091
                  
                  
                  
                  17,766Total
      current assets
                  
                  
                  37,146,164
                  
                  
                  
                  20,985,713Plant
      and equipment, net
                  
                  
                  45,548,163
                  
                  
                  
                  29,556,712Deposits
      paid for acquisition of long term assets
                  
                  
                  4,955,473
                  
                  
                  
                  16,082,613Notes
      receivable, net and other receivable, net
                  
                  
                  68,726
                  
                  
                  
                  33,635Unlisted
      investments held for sale
                  
                  
                  -
                  
                  
                  
                  300,172Intangible
      assets, net
                  
                  
                  2,860,423
                  
                  
                  
                  2,851,411Investment
      in direct financing lease
                  
                  
                  414,932
                  
                  
                  
                  382,742Long
      term prepaid rent
                  
                  
                  11,618,593
                  
                  
                  
                  6,570,038Total
      assets
                  
                  $
                  102,612,474
                  
                  
                  $
                  76,763,036LIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrent
      liabilities:Short
      term borrowings
                  
                  $
                  298,592
                  
                  
                  $
                  -Accounts
      payable
                  
                  
                  10,847,542
                  
                  
                  
                  5,740,912Current
      portion of long term loans
                  
                  
                  2,060,286
                  
                  
                  
                  9,433,686Other
      payable
                  
                  
                  1,132,788
                  
                  
                  
                  1,343,901Accrued
      expenses and payroll related liabilities
                  
                  
                  3,303,062
                  
                  
                  
                  2,366,134Advances
      from customers
                  
                  
                  2,496,681
                  
                  
                  
                  678,366Other
      taxes payable
                  
                  
                  152,414
                  
                  
                  
                  150,764Loan
      from director
                  
                  
                  298,592
                  
                  
                  
                  292,517Other
      liabilities
                  
                  
                  146,938
                  
                  
                  
                  143,949Due
      to related companies
                  
                  
                  1,208
                  
                  
                  
                  1,208Total
      current liabilities
                  
                  
                  20,738,103
                  
                  
                  
                  20,151,437Non-current
      liabilitiesLong-term
      loans
                  
                  
                  8,659,172
                  
                  
                  
                  1,360,206Total
      liabilities
                  
                  
                  29,397,275
                  
                  
                  
                  21,511,643





F-2





YUHE INTERNATIONAL,
INC.


CONDENSED
CONSOLIDATED BALANCE SHEETS


(Continued)


(Stated in US
Dollars)





Stockholders'
      EquityPreferred
      stock, $.001 par value, 1,000,000 shares authorized,
                      no
      shares issued and outstanding
                    
                    
                    -
                    
                    
                    
                    -Common
      stock, $.001 par value, 500,000,000 shares authorized, 16,109,563
                      and
      15,722,180 equivalent shares issued and outstanding at September 30, 2010
                      and
      December 31, 2009, respectively
                    
                    
                    16,109
                    
                    
                    
                    15,722Additional
      paid-in capital
                    
                    
                    33,953,555
                    
                    
                    
                    30,672,849Retained
      earnings
                    
                    
                    36,586,637
                    
                    
                    
                    23,316,794Accumulated
      other comprehensive income
                    
                    
                    2,658,898
                    
                    
                    
                    1,246,028Total
      stockholders’ equity
                    
                    
                    73,215,199
                    
                    
                    
                    55,251,393Total
      liabilities and stockholders’ equity
                    
                    $
                    102,612,474
                    
                    
                    $
                    76,763,036The
      accompanying notes are an integral part of the unaudited condensed
      consolidated financial statements.





F-3





YUHE
INTERNATIONAL, INC.


CONDENSED
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(UNAUDITED)


(Stated
in US Dollars)







For
      The Three Months Ended
                  
                  
                  For
      The Nine Months EndedSeptember
      30
                  
                  
                  September
      302010
                  
                  
                  2009
                  
                  
                  2010
                  
                  
                  2009Net
      revenue
                  
                  $
                  21,443,626
                  
                  
                  $
                  13,208,230
                  
                  
                  $
                  45,679,174
                  
                  
                  $
                  33,956,993Cost
      of revenue
                  
                  
                  (12,787,081
                  )
                  
                  
                  (8,042,920
                  )
                  
                  
                  (28,999,187
                  )
                  
                  
                  (21,926,699
                  )Gross
      profit
                  
                  
                  8,656,545
                  
                  
                  
                  5,165,310
                  
                  
                  
                  16,679,987
                  
                  
                  
                  12,030,294Operating
      ExpensesSelling
                  
                  
                  (239,504
                  )
                  
                  
                  (113,776
                  )
                  
                  
                  (552,019
                  )
                  
                  
                  (315,372
                  )General
      and administrative expenses
                  
                  
                  (996,607
                  )
                  
                  
                  (784,402
                  )
                  
                  
                  (2,627,746
                  )
                  
                  
                  (2,163,639
                  )Total
      operating expenses
                  
                  
                  (1,236,111
                  )
                  
                  
                  (898,178
                  )
                  
                  
                  (3,179,765
                  )
                  
                  
                  (2,479,011
                  )Income
      from operations
                  
                  
                  7,420,434
                  
                  
                  
                  4,267,132
                  
                  
                  
                  13,500,222
                  
                  
                  
                  9,551,283Non-operating
      income (expenses)Interest
      income
                  
                  
                  86
                  
                  
                  
                  41
                  
                  
                  
                  225
                  
                  
                  
                  182Other
      income (expenses)
                  
                  
                  7,032
                  
                  
                  
                  (3,130
                  )
                  
                  
                  15,116
                  
                  
                  
                  1,531(Loss)
      gain on disposal of fixed assets
                  
                  
                  1,857
                  
                  
                  
                  (1,081
                  )
                  
                  
                  1,681
                  
                  
                  
                  26,697Investment
      income
                  
                  
                  42
                  
                  
                  
                  -
                  
                  
                  
                  15,657
                  
                  
                  
                  15,509Interest
      expenses
                  
                  
                  (141,000
                  )
                  
                  
                  (115,809
                  )
                  
                  
                  (256,137
                  )
                  
                  
                  (441,236
                  )Total
      other income (expenses)
                  
                  
                  (131,983
                  )
                  
                  
                  (119,979
                  )
                  
                  
                  (223,458
                  )
                  
                  
                  (397,317
                  )Net
      income before income taxes
                  
                  
                  7,288,451
                  
                  
                  
                  4,147,153
                  
                  
                  
                  13,276,764
                  
                  
                  
                  9,153,966Income
      tax expenses
                  
                  
                  (991
                  )
                  
                  
                  -
                  
                  
                  
                  (6,921
                  )
                  
                  
                  -Net
      income
                  
                  $
                  7,287,460
                  
                  
                  $
                  4,147,153
                  
                  
                  $
                  13,269,843
                  
                  
                  $
                  9,153,966Other
      comprehensive incomeForeign
      currency translation
                  
                  
                  1,148,461
                  
                  
                  
                  51,919
                  
                  
                  
                  1,412,870
                  
                  
                  
                  103,997Comprehensive
      income
                  
                  $
                  8,435,921
                  
                  
                  $
                  4,199,072
                  
                  
                  $
                  14,682,713
                  
                  
                  $
                  9,257,963Earnings
      per shareBasic
                  
                  $
                  0.46
                  
                  
                  $
                  0.26
                  
                  
                  $
                  0.84
                  
                  
                  $
                  0.58Diluted
                  
                  $
                  0.45
                  
                  
                  $
                  0.26
                  
                  
                  $
                  0.82
                  
                  
                  $
                  0.57Weighted
      average shares outstandingBasic
                  
                  
                  15,992,172
                  
                  
                  
                  15,722,180
                  
                  
                  
                  15,846,775
                  
                  
                  
                  15,722,180Diluted
                  
                  
                  16,199,491
                  
                  
                  
                  15,931,379
                  
                  
                  
                  16,094,677
                  
                  
                  
                  15,931,379




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




F-4




YUHE
INTERNATIONAL, INC.


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)


(Stated
in US Dollars)





For
      The Nine Months EndedSept
      302010
                  
                  
                  2009Cash
      flows from operating activitiesNet
      income
                  
                  $
                  13,269,843
                  
                  
                  $
                  9,153,966Adjustments
      to reconcile net income to net cash used in operating
      activities:Stock
      based compensation
                  
                  
                  545,093
                  
                  
                  
                  545,127Depreciation
                  
                  
                  1,747,501
                  
                  
                  
                  1,556,610Amortization
                  
                  
                  49,332
                  
                  
                  
                  49,144Capitalized
      interest in construction in progress
                  
                  
                  (457,511
                  )
                  
                  
                  -Loss
      (gain) on disposal of fixed assets
                  
                  
                  (1,681
                  )
                  
                  
                  (26,697
                  )Changes
      in operating assets and liabilities:Accounts
      receivable
                  
                  
                  (66
                  )
                  
                  
                  (15
                  )Advances
      to suppliers
                  
                  
                  (112,179
                  )
                  
                  
                  (868,859
                  )Prepaid
      expenses
                  
                  
                  -
                  
                  
                  
                  (11,622
                  )Inventories
                  
                  
                  (2,635,593
                  )
                  
                  
                  676,030Deferred
      tax assets
                  
                  
                  6,921
                  
                  
                  
                  -Deferred
      expenses
                  
                  
                  -
                  
                  
                  
                  51,488Long
      term prepaid rent
                  
                  
                  169,775
                  
                  
                  
                  -Accounts
      payable
                  
                  
                  1,105,592
                  
                  
                  
                  586,255Other
      payable
                  
                  
                  (234,245
                  )
                  
                  
                  464,785Accrued
      expenses and payroll related liabilities
                  
                  
                  881,303
                  
                  
                  
                  72,155Advances
      from customers
                  
                  
                  1,772,915
                  
                  
                  
                  533,066Other
      taxes payable
                  
                  
                  (1,455
                  )
                  
                  
                  9,223Net
      cash provided by operating activities
                  
                  
                  16,105,545
                  
                  
                  
                  12,790,656Cash
      flows from investing activitiesDeposit
      paid and acquisition of property, plant and equipment
                  
                  
                  (3,574,343
                  )
                  
                  
                  (4,944,105
                  )Advance
      to notes receivable
                  
                  
                  (28,039
                  )
                  
                  
                  (25,282
                  )Proceeds
      from disposal of fixed assets
                  
                  
                  5,868
                  
                  
                  
                  27,778Advance
      to related companies
                  
                  
                  -
                  
                  
                  
                  944,874Repayment
      of related companies
                  
                  
                  -
                  
                  
                  
                  -Proceeds
      from unlisted investments
                  
                  
                  301,088
                  
                  
                  
                  -Investment
      in direct financing lease
                  
                  
                  (23,822
                  )
                  
                  
                  -Net
      cash used in investing activities
                  
                  
                  (3,319,248
                  )
                  
                  
                  (3,996,735
                  )Cash
      flows from financing activitiesProceeds
      from loan payable
                  
                  
                  293,410
                  
                  
                  
                  -Repayment
      of loan payable
                  
                  
                  (293,410
                  )
                  
                  
                  -Proceeds
      from related party payable
                  
                  
                  -
                  
                  
                  
                  360,094Repayment
      of related party payable
                  
                  
                  -
                  
                  
                  
                  (570,506
                  )Net
      cash flows (used in) provided by financing activities:
                  
                  
                  -
                  
                  
                  
                  (210,412
                  )








F-5




YUHE
INTERNATIONAL, INC.


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)


(Stated
in US Dollars)





Effect
      of foreign currency translation on cash and cash
    equivalents
                
                
                525,742
                
                
                
                40,836Net
      increase in cash
                
                
                13,312,039
                
                
                
                8,624,345Cash-
      beginning of period
                
                
                14,047,147
                
                
                
                13,412,205Cash-
      end of period
                
                $
                27,359,186
                
                
                $
                22,036,550Cash
      paid during the period for:Interest
      paid
                
                $
                636,590
                
                
                $
                1,011,194Income
      taxes paid
                
                $
                -
                
                
                $
                -Supplemental
      disclosureTransfer
      from construction in progress to fixed assets
                
                $
                2,681,233
                
                
                $
                1,831,131Transfer
      from advances to suppliers and deposit paid for acquisition of
                  long
      term assets to fixed assets
                
                $
                13,522,876
                
                
                $
                -Transfer
      from deposit paid for acquisition of long term assets to long
                  term
      prepaid rent
                
                $
                4,110,265
                
                
                $
                -Cashless
      exercise of 142,816 warrants
                
                $
                87
                
                
                $
                -Issue
      300,000 restricted shares for purchase of assets
                
                $
                2,736,000
                
                
                $
                -





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




F-6




NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





1.
            Basis
      of presentation





The
interim condensed consolidated financial statements included herein, presented
in accordance with United States generally accepted accounting principles and
stated in US dollars, have been prepared by the Company, pursuant to the rules
and regulations of the Securities and Exchange Commission. These statements
reflect all adjustments, consisting of normal recurring adjustments, which, in
the opinion of management, are necessary for fair presentation of the
information contained therein.  These interim condensed consolidated
financial statements should be read in conjunction with the financial statements
of the Company for the year ended December 31, 2009 and notes thereto included
in the Form 10-K of Yuhe International, Inc. filed on March 31,
2010.  The Company follows the same accounting policies in the
preparation of interim reports.




Results
of operations for the interim periods are not indicative of annual
results.




2.
            Organization
      and Basis of Preparation of Financial
Statements





Yuhe
International, Inc.




Yuhe
International, Inc., formerly known as First Growth Investors, Inc., “Yuhe” or
“the Company”, was originally organized under the laws of the State of Nevada on
September 9, 1997. Prior to its business combination with Bright Stand, the
Company was not engaged in any business activities and had no operations, income
producing assets or significant operating capital. The Company was at
development stage until its business combination with Bright Stand on March 12,
2008.




On March
12, 2008, the Company completed a reverse acquisition transaction with Bright
Stand International Limited, “Bright Stand”, and Kunio Yamamoto, a Japanese
person and the sole former shareholder of Bright Stand.




This
share exchange transaction resulted in Bright Stand’s former shareholder
obtaining a majority voting interest in the Company. Generally accepted
accounting principles of the United States require that the company whose
shareholders retain the majority interest in a combined business be treated as
the acquirer for accounting purposes, resulting in a reverse acquisition with
Bright Stand as the accounting acquirer and Yuhe International Inc. as the
acquired party. Accordingly, the share exchange transaction has been accounted
for as a recapitalization of the Company.




F-7




2.
            Organization
      and Basis of Preparation of Financial Statements –
    continued





Bright
Stand




On August
3, 2007, Bright Stand was incorporated with limited liability in the British
Virgin Islands. On January 31, 2008, Bright Stand completed the acquisition of
100% common stock of Weifang Yuhe Poultry Co., Ltd., “PRC Yuhe,” and 43.75% of
Weifang Taihong Feed Co., Ltd., “Taihong”. As a result, Bright Stand owned 100%
of PRC Yuhe and owned 43.75% direct interest of Taihong and 56.25% indirect
interest of Taihong through PRC Yuhe. PRC Yuhe and Taihong became the
wholly-owned subsidiaries of Bright Stand.




PRC
Yuhe




PRC Yuhe
was established in Weifang, Shandong province of the People’s Republic of China,
the “PRC”, as a limited liability company on March 8, 1996. PRC Yuhe is a
supplier of day-old chicken raised for meat production, or broilers, in the
People’s Republic of China.




Taihong




Taihong
was established in Weifang, Shandong province of the PRC, as a limited liability
company on May 26, 2003. Taihong is a feed stock company whose primary purpose
is to supply feed stock for PRC Yuhe’s breeder chicken.




The
Company’s operations are conducted through PRC Yuhe and Taihong. The Company and
its subsidiaries, hereinafter, collectively referred to as “the Group”, are
engaged in the business of chicken and feed production.




F-8




3.
            Summary
      of significant accounting policies





(a)
Principles of consolidation




The
condensed consolidated financial statements, prepared in accordance with
generally accepted accounting principles in the United States of America,
include the assets, liabilities, revenues, expenses and cash flows of the
Company and all its subsidiaries. This basis of accounting differs in certain
material respects from that used for the preparation of the books and records of
the Company’s principal subsidiaries, which are prepared in accordance with the
accounting principles and the relevant financial regulations applicable to
enterprises with limited liabilities established in the PRC, “PRC GAAP”, the
accounting standards used in the place of their domicile.  The accompanying
consolidated financial statements reflect necessary adjustments not recorded in
the books and records of the Company’s subsidiaries to present them in
conformity with generally accepted accounting principles in the United States of
America.




The
condensed consolidated financial statements of the Company include the accounts
of Yuhe International, Inc, Bright Stand International Limited, PRC Yuhe and
Taihong after the date of acquisitions. All significant intercompany accounts,
transactions and cash flows are eliminated on consolidation.




(b) Use
of estimates




The
preparation of the financial statements in conformity with generally accepted
accounting principles in the United States of America requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting periods.  Management makes these estimates using
the best information available at the time the estimates are made; however
actual results could differ materially from those estimates.





(c) Basic
and diluted earnings per share




The
Company reports basic earnings per share in accordance with the FASB accounting
standard. Basic earnings per share are computed using the weighted average
number of shares outstanding during the periods presented. The weighted average
number of shares of the Company represents the common stock outstanding during
the reporting periods.




F-9









3.
            Summary
      of significant accounting policies –
continued




Diluted
earnings per share are based on the assumption that all dilutive options were
converted or exercised. Dilution is computed by applying the treasury stock
method. Under this method, options are assumed to be exercised at the time of
issuance, and as if funds obtained thereby were used to purchase common stock at
the average market price during the year.




Fair
Value Measurements




The
Company defines fair value as the price that would be received from selling an
asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. When determining the fair value
measurements for assets and liabilities, which are required to be recorded at
fair value, the Company considers the principal or most advantageous market in
which the Company would transact and the market-based risk measurements or
assumptions that market participants would use in pricing the asset or
liability, such as inherent risk, transfer restrictions and credit risk. The
Company applies the following fair value hierarchy, which prioritizes the inputs
used to measure fair value into three levels and bases the categorization within
the hierarchy upon the lowest level of input that is available and significant
to the fair value measurement:





Level 1 –
Quoted prices in active markets for identical assets or
liabilities.





Level 2 –
Observable inputs other than quoted prices in active markets for identical
assets and liabilities, quoted prices for identical or similar assets or
liabilities in inactive markets, or other inputs that are observable or can be
corroborated by observable market data for substantially the full term of the
assets or liabilities.





Level 3 –
Inputs that are generally unobservable and typically reflect management’s
estimates of assumptions that market participants would use in pricing the asset
or liability.





The
carrying amounts of financial assets and liabilities, such as cash and cash
equivalents, trade accounts receivable, other receivables, accounts payable, and
other payables, approximate their fair values because of the short maturity of
these instruments and market rates of interest.




In
January 2010, the FASB issued guidance to amend the disclosure requirements
related to recurring and nonrecurring fair value measurements. The guidance
requires disclosure of transfers of assets and liabilities between Level 1 and
Level 2 of the fair value measurement hierarchy, including the reasons and the
timing of the transfers and information on purchases, sales, issuance, and
settlements on a gross basis in the reconciliation of the assets and liabilities
measured under Level 3 of the fair value measurement hierarchy. The guidance for
Level 3 reconciliation disclosures will be effective for annual and interim
periods beginning after December 15, 2010. The Company will adopt this guidance
beginning January 1, 2011. Adoption will not have a material impact on the
Company’s consolidated financial statements.




F-10






4.
            Inventories





Inventories
consist of the following:






September
      30
                    
                    
                    December 312010
                    
                    
                    2009Raw
      materials
                    
                    $
                    6,318,889
                    
                    
                    $
                    5,275,629Work
      in progress
                    
                    
                    3,060,285
                    
                    
                    
                    1,285,154Finished
      goods
                    
                    
                    -
                    
                    
                    
                    -$
                    9,379,174
                    
                    
                    $
                    6,560,783





F-11




5.
            Plant
      and equipment, net





Plant and
equipment consists of the following:




September
      30,
                  
                  
                  December 31,2010
                  
                  
                  2009At
      costBuildings
                  
                  $
                  37,020,028
                  
                  
                  $
                  19,071,808Machinery
                  
                  
                  7,586,429
                  
                  
                  
                  6,006,596Motor
      vehicles
                  
                  
                  129,326
                  
                  
                  
                  120,069Furniture
      and equipment
                  
                  
                  113,589
                  
                  
                  
                  102,15444,849,372
                  
                  
                  
                  25,300,627Less:
      accumulated depreciation
                  
                  
                  (5,553,206)
                  
                  
                  
                  (3,716,677)
                  )39,296,166
                  
                  
                  
                  21,583,950Construction
      in progress
                  
                  
                  6,251,997
                  
                  
                  
                  7,972,762$
                  45,548,163
                  
                  
                  $
                  29,556,712




During
the three months ended September 30, 2010, depreciation expenses amounted to
$623,967, of which $596,055 and $27,912 were recorded as cost of revenue and
general and administrative expenses, respectively. During the nine months ended
September 30, 2010, depreciation expenses amounted to $1,747,501, of which
$1,656,569 and $90,932 were recorded as cost of revenue and general and
administrative expenses, respectively.





During
the three months ended September 30, 2009, depreciation expenses amounted to
$529,145, among which $480,122 and $49,023 were recorded as cost of revenue and
general and administrative expenses, respectively. During the nine months ended
September 30, 2009, depreciation expenses amounted to $1,556,610, among which
$1,404,526 and $152,084 were recorded as cost of revenue and general and
administrative expenses, respectively.




F-12




5.
            Plant
      and equipment, net-continued





Capitalized
interest included in construction in progress totaled $87,288 and $123,021 for
the three months ended September 30, 2010 and 2009, respectively.





Capitalized
interest included in construction in progress totaled $457,511 and $425,079 for
the nine months ended September 30, 2010 and 2009, respectively.





As of
September 30, 2010 and December 31, 2009, buildings and machinery of the Company
with net book value of $305,279 and $556,178, respectively, were pledged as
collateral under certain loan arrangements.







6.
            Deposits
      paid for acquisition of long term
assets





Deposits
paid consist of the following:




September
      30,
                              
                              
                              December
      31,2010
                              
                              
                              2009Deposit
      paid for purchase of buildings
                              
                              $
                              -
                              
                              
                              $
                              12,139,473Deposits
      paid for construction in progress
                              
                              
                              1,249,518
                              
                              
                              
                              218,336Deposits
      paid for purchase of equipment
                              
                              
                              3,705,955
                              
                              
                              
                              3,724,804Total
      Deposits paid for acquisition of long term assets
                              
                              $
                              4,955,473
                              
                              
                              $
                              16,082,613






F-13






7.
            Intangible
      assets, net




Intangible
assets consist of the following:




September
      30,
                  
                  
                  December 31,2010
                  
                  
                  2009Land
      use rights, at cost
                  
                  $
                  3,038,924
                  
                  
                  $
                  2,977,098Less:
      accumulated amortization
                  
                  
                  (178,501)
                  
                  
                  
                  (125,687)$
                  2,860,423
                  
                  
                  $
                  2,851,411




As of
September 30, 2010 and December 31, 2009, land use rights of the Company with
net book value of $2,860,423 and $2,851,411, respectively, were pledged as
collateral under certain loan arrangements.




During
the three months ended September 30, 2010 and 2009, amortization expenses
included in the cost of revenue were $16,400 and $16,385,
respectively.




During
the nine months ended September 30, 2010 and 2009, amortization expenses
included in the cost of revenue were $49,200 and $49,144,
respectively.





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




YearRemainder
      of 2010
                          
                          $
                          16,7342011
                          
                          
                          66,9382012
                          
                          
                          66,9382013
                          
                          
                          66,9382014
                          
                          
                          66,938thereafter
                          
                          
                          2,575,937$
                          2,860,423




F-14




8.
            Due
      to related companies








September
      30,
                  
                  
                  December 31,2010
                  
                  
                  2009Others
                  
                  $
                  1,208
                  
                  
                  $
                  1,208




The
amount due to related company is unsecured, interest free, has no fixed
repayment date and is used for working capital purposes.




9.
            Loan
      from director





Loan from
director totaled $298,592 (approximately Rmb 2,000,000) and $292,517 at
September 30, 2010 and December 31, 2009, respectively, representing bank loan
principal borrowed by a director on behalf of the Company.  The loan
is due on November 26, 2011 and bears interest at 8.19% per annum.




10.
                          Other
      payable   September
      30,
                                  
                                  
                                  December 31,2010
                                  
                                  
                                  2009Interest
      payable
                                  
                                  $
                                  70,630
                                  
                                  
                                  $
                                  69,193Deposits
      received
                                  
                                  
                                  103,171
                                  
                                  
                                  
                                  471,344Others
                                  
                                  
                                  958,987
                                  
                                  
                                  
                                  803,364$
                                  1,132,788
                                  
                                  
                                  $
                                  1,343,901




Deposit
received represent deposits collected from customers as security for
non-payment.




Others
represent apartment rental reimbursement to staff and insurance
payable.




F-15




11.
            Short-term
      loans





The
short-term loans are denominated in Chinese Renminbi and are presented in US
dollars as follows:




September
      30,
                  
                  
                  December 31,2010
                  
                  
                  2009Loans
      from Hanting rural credit cooperative association, interest rate
                    at
      7.434% per annum, the loan is due on Jul 13, 2011
                  
                  $
                  298,592
                  
                  
                  $
                  -$
                  298,592
                  
                  
                  $
                  -





12.
            Long-term
      loans





The
long-term loans are denominated in Chinese Renminbi and are presented in US
dollars as follows:




September
      30,
                  
                  
                  December 31,2010
                  
                  
                  2009Loans
      from Nansun Rural Credit, interest rate at 7.56% per annum,
                    the
      various loans are due on Dec 10, 2011, Jan 26, 2013 and Mar 16,
      2013
                  
                  $
                  8,659,172
                  
                  
                  $
                  8,775,521Loan
      from Shuangyang Rural Credit, interest rate at 9.83% per annum,
                    due
      on Oct 13, 2010
                  
                  
                  970,424
                  
                  
                  
                  950,682Loan
      from Hanting Kaiyuan Rural Credit Cooperative, interest rate at
                    7.56%
      per annum, due on January 7, 2011
                  
                  
                  1,089,862
                  
                  
                  
                  1,067,68910,719,458
                  
                  
                  
                  10,793,892Less:
      current portion of long-term loans
                  
                  
                  (2,060,286)
                  
                  
                  
                  (9,433,686)$
                  8,659,172
                  
                  
                  $
                  1,360,206




F-16




12.
            Long-term
      loans-continued





Future
maturities of long-term loans as at the relevant period indicated are as
follows:




September
      30,2011
                  
                  $
                  2,060,2862012
                  
                  
                  298,5922013
                  
                  
                  8,360,580$
                  10,719,458




13.
            Accrued
      expenses and payroll related
liabilities




September
      30,
                  
                  
                  December 31,2010
                  
                  
                  2009Salary
                  
                  $
                  1,782,267
                  
                  
                  $
                  1,254,780Employee
      benefits
                  
                  
                  165,978
                  
                  
                  
                  102,385Others
                  
                  
                  -
                  
                  
                  
                  224,185Accrued
      expenses
                  
                  
                  1,354,817
                  
                  
                  
                  784,784$
                  3,303,062
                  
                  
                  $
                  2,366,134




Payroll
related liabilities represent accrued payroll and welfare benefits to
employees.




F-17




14.
            Income
      tax





The
Company was incorporated in Nevada and is subject to U.S. income tax at the
statutory tax rate of 34%.  No provision for income taxes have been
made for the U.S. entity as it has a taxable loss for the three and nine months
ended September 30, 2010 and 2009, respectively. The Company has
accumulated net operating loss carry forward of $1,675,498 as of September 30,
2010. A full valuation allowance of $569,669 has been provided against the
deferred tax asset as of September 30, 2010.




Bright
Stand was incorporated in the British Virgin Islands and is not subject to
income taxes under the current laws of the British Virgin Islands.




PRC Yuhe
is operating in the PRC in accordance with the relevant tax laws and regulations
of the PRC, and the general corporation income tax rate is 25%. However, as PRC
Yuhe is an agricultural company, in accordance with the relevant regulations
regarding tax exemption, it is exempt from corporate income tax as long as it is
registered as an agricultural entity.




Taihong
is operating in the PRC in accordance with the relevant tax laws and regulations
of the PRC, and the corporate income tax rate for Taihong is 25%.




The
Company uses the asset and liability method, where deferred tax assets and
liabilities are determined based on the expected future tax consequences of
temporary differences between the carrying amounts of assets and liabilities for
financial and income tax reporting purposes. Taihong has a net operating loss
carry forward and temporary difference, which resulted in deferred tax assets of
$5,912 and $5,180, respectively, as of September 30, 2010.





F-18




14.
            Income
      tax – continued





The
provision for income taxes consists of the following:





For
      the Three Months Ended
                  
                  
                  For
      the Nine Months EndedSeptember
      30,
                  
                  
                  September
      30,2010
                  
                  
                  2009
                  
                  
                  2010
                  
                  
                  2009PRC
      (current)
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -Deferred
      taxDecrease
      (increase) in deferred tax
                    asset
                  
                  
                  991
                  
                  
                  
                  (6,221
                  )
                  
                  
                  6,921
                  
                  
                  
                  (5,986
                  )Change
      in valuation allowance
                  
                  
                  -
                  
                  
                  
                  6,221
                  
                  
                  
                  -
                  
                  
                  
                  5,986Income
      Tax Expenses
                  
                  $
                  991
                  
                  
                  $
                  -
                  
                  
                  $
                  6,921
                  
                  
                  $
                  -







F-19







14.
            Income
      tax - continued




Actual
income tax expenses reported in the consolidated statements of income and
comprehensive income differ from the amounts computed by applying the PRC
statutory income tax rate of 25% to income before income taxes for the three and
nine months ended September 30, 2010 and 2009, respectively, for the following
reasons:




For the Three Months Ended
                    
                    
                    For the Nine Months EndedSeptember
      30,
                    
                    
                    September
      30,2010
                    
                    
                    2009
                    
                    
                    2010
                    
                    
                    2009Income
      before income taxes
                    
                    $
                    7,288,451
                    
                    
                    $
                    4,147,153
                    
                    
                    $
                    13,276,764
                    
                    
                    $
                    9,153,966Computed  ”expected”
      income tax expense at 25%
                    
                    
                    1,822,113
                    
                    
                    
                    1,036,788
                    
                    
                    
                    3,319,191
                    
                    
                    
                    2,288,491Tax
      effect on permanent differences
                    
                    
                    (682
                    )
                    
                    
                    (37,025
                    )
                    
                    
                    (43,696
                    )
                    
                    
                    (83,950
                    )Parent
      company losses for which no benefit has been recognized
                    
                    
                    151,625
                    
                    
                    
                    121,590
                    
                    
                    
                    365,298
                    
                    
                    
                    298,726Effect
      of tax holiday
                    
                    
                    (1,972,065)
                    
                    
                    
                    (1,121,353)
                    
                    
                    
                    (3,633,872)
                    
                    
                    
                    (2,503,267)Income
      Tax Expenses
                    
                    $
                    991
                    
                    
                    $
                    -
                    
                    
                    $
                    6,921
                    
                    
                    $
                    -





F-20




14.
            Income
      tax - continued




The tax
effects of temporary differences and carry forwards that give rise to
significant portions of deferred tax assets as of September 30, 2010 and
December 31, 2009, were as follows:




September
      30,
                  
                  
                  December 31,2010
                  
                  
                  2009Deferred
      tax assetsNet
      operating loss carry forwards
                  
                  $
                  5,912
                  
                  
                  $
                  12,691Bad
      debt allowance
                  
                  
                  5,180
                  
                  
                  
                  5,07511,092
                  
                  
                  
                  17,766Valuation
      Allowance
                  
                  
                  -
                  
                  
                  
                  -Total
      deferred tax assets
                  
                  $
                  11,092
                  
                  
                  $
                  17,766





On
January 1, 2008, the Company adopted FASB ASC 740.10, which prescribes a
more-likely-than-not threshold for financial statement recognition and
measurement of a tax position taken in the tax return. This interpretation also
provides guidance on de-recognition of income tax assets and liabilities,
classification of current and deferred income tax assets and liabilities,
accounting for interest and penalties associated with tax positions, accounting
for income taxes in interim periods and income tax disclosures.




Through
September 30, 2010, the management considered that the Company had no uncertain
tax positions which affected its consolidated financial position and results of
operations or cash flow, and will continue to evaluate for the uncertain
position in future. There are no estimated interest costs and penalties provided
in the Company’s financial statements for the three and nine months ended
September 30, 2010 and 2009.




Cumulative
undistributed earnings of foreign subsidiaries, for which no U.S. income or
foreign withholding taxes have been recorded, approximated $31 million at
September 30, 2010.  As the company intends to indefinitely reinvest
all such earnings, no provision has been made for income taxes that may become
payable upon distribution of such earnings as allowed under ASC 740.30,
“Accounting for Income Taxes-Other considerations or special
areas”.


F-21





15
            Fair
      value of financial instruments





The fair
value of a financial instrument is the amount at which the instrument could be
exchanged in a current transaction between willing parties. The carrying amounts
of financial assets and liabilities, such as cash and cash equivalents, trade
accounts receivable, other receivables, accounts payable, and other payables,
approximate their fair values because of the short maturity of these instruments
and market rates of interest.




The fair
value of a financial instrument is the amount at which the instrument could be
exchanged in a current transaction between willing parties. The carrying amounts
of financial assets and liabilities, such as cash and cash equivalents, trade
accounts receivable, other receivables, accounts payable, and other payables,
approximate their fair values because of the short maturity of these instruments
and market rates of interest.






16.
            Common
      stock and warrants





(a)  Common
Stock




Total
common stock issued and outstanding of the Company as at September 30, 2010 and
December 31, 2009 was 16,109,563 and 15,722,180 shares,
respectively.




On August
6, 2010, the Company issued 300,000 restricted common shares to Mr. Jiang
Zhaolin, the controlling shareholder of Haicheng Songsen, as consideration for
providing PRC Yuhe with certain services related to completion and closing of
the transaction of acquiring five breeder farms.




(b)  Warrants




On March
18, 2010, the Company issued 87,383 of common shares to WLT Brothers Capital,
Inc as a result of its cashless exercise of 142,816 warrants.  There
are no warrants outstanding as at September 30, 2010.




F-22








17.
            Stock
      options





As at
September 30, 2010, the total number of stock options outstanding was 383,151
shares.  The Company recognizes compensation expense, net of estimated
forfeitures, over the requisite service period, which is the period during which
the grantee is required to provide services in exchange for the
award.  The Company has elected to recognize compensation cost for
awards with only a service condition that has a graded vesting schedule on a
straight-line basis over the requisite service period for the entire
award.




The
Company uses the Black-Scholes option pricing model to calculate the grant-date
fair value of an award, with the following assumptions: no dividend yield,
expected volatility of 109.40%, and a risk-free interest rate of 3.00%. In
determining volatility of the Company’s options, the Company used the average
volatility of the Company’s stock. Fair value per the Black-Scholes model is
$2,186,499. In accordance with FASB ASC 718, the Company has recorded
stock-based compensation expense during the three and nine months ended
September 30, 2010, of $181,706 and $545,093, respectively, in connection with
the issuance of this option. Stock-based compensation expense during the three
and nine months ended September 30, 2009 totaled $181,706 and $545,127,
respectively.




The
weighted average grant date fair value of options granted was $5.71 per
share.  The weighted average exercise price of these options was
$3.708 per share.  The total number of stock options outstanding as at
September 30, 2010 and December 31, 2009 was 383,151 shares.





Following
is a summary of the status of options outstanding at September 30,
2010:




Options outstanding
                  
                  
                  Options exercisableExercise
                    price
                  
                  Number
                    outstanding
                  
                  Weighted
                    average
                    remaining
                    contractual life
                    (years)
                  
                  
                  Weighted
                    Average
                    
                    Exercise
                    price
                  
                  
                  Number
                    exercisable
                  
                  
                  Weighted
                    average
                    remaining
                    contractual life
                    (years)
                  
                  
                  Weighted
                    Average
                    
                    Exercise price$
                  3.708
                  
                  383,151
                  
                  
                  2.70
                  
                  
                  $
                  3.708
                  
                  
                  
                  293,877
                  
                  
                  
                  2.70
                  
                  
                  $
                  3.708




F-23





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 are 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.  The following table sets forth the computation of basic
and diluted net income per share:





For
      The Three Months Ended
                    
                    
                    For
      The Nine Months EndedSeptember
      30,
                    
                    
                    September
      30,2010
                    
                    
                    2009
                    
                    
                    2010
                    
                    
                    2009Net
      income attributable to the common stockholders
                    
                    $
                    7,287,460
                    
                    
                    $
                    4,147,153
                    
                    
                    $
                    13,269,843
                    
                    
                    $
                    9,153,966Weighted
      average outstanding shares of common stock
                    
                    
                    15,992,172
                    
                    
                    
                    15,722,180
                    
                    
                    
                    15,846,775
                    
                    
                    
                    15,722,180Dilutive
      effect of options, warrants, and
                      contingently
      issuable shares
                    
                    
                    207,319
                    
                    
                    
                    209,199
                    
                    
                    
                    247,902
                    
                    
                    
                    209,199Common
      stock and common stock equivalents
                    
                    
                    16,199,491
                    
                    
                    
                    15,931,379
                    
                    
                    
                    16,094,677
                    
                    
                    
                    15,931,379Earnings
      per share:Basic
                    
                    $
                    0.46
                    
                    
                    $
                    0.26
                    
                    
                    $
                    0.84
                    
                    
                    $
                    0.58Diluted
                    
                    $
                    0.45
                    
                    
                    $
                    0.26
                    
                    
                    $
                    0.82
                    
                    
                    $
                    0.57





F-24




19.
            Significant
      concentrations and risk





(a)  Customer
Concentrations




The
Company has the following concentrations of business with each customer
constituting greater than 10% of the Company’s gross sales:




For
      The Three Months Ended
                
                For
      The Nine Months EndedSeptember
      30,
                
                September
      30,2010
                2009
                
                2010
                2009Wei
      Yunchao
                10.60%
                11.21%
                
                11.73%
                10.60%Wang
      Jianbo
                *
                *
                
                11.13%
                *




*
Constitutes less than 10% of the Company’s gross sales.




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 each supplier
constituting greater than 10% of the Company’s purchase:




For
      The Three Months Ended
                
                For
      The Nine Months EndedSeptember
      30,
                
                September
      30,2010
                2009
                
                2010
                2009Jiang
      Zhaolin
                17.71%
                *
                
                11.52%
                *Wang
      Jianbo
                *
                16.58%
                
                10.27%
                10.86%Gao
      Ping
                *
                16.70%
                
                *
                *





*
Constitutes less than 10% of the Company’s purchase.




19.
            Significant
      concentrations and risk – continued





(b)  Credit
Risk




Financial
instruments that potentially subject the Company to significant concentration of
credit risk consist primarily of cash and cash equivalents.  As of
September 30, 2010, substantially all of the Company’s cash and cash equivalents
were held by major financial institutions located in the PRC, which management
believes are of high credit quality.




(c)  Company’s
operations are in China




All of
the Company’s products are produced 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 transfer of funds; domestic and
international customs and tariffs; changing taxation policies; foreign
exchange restrictions; and political conditions and governmental
regulations.




F-25





20.
            Business
      and geographical segments





The
Company’s operations are classified into two principal reportable segments that
provide different products or services.  PRC Yuhe is engaged in the
business of breeding chicken while Taihong is engaged in the business of feed
production, in which most of the products were used internally.  Separate
management of each segment is required because each business unit is subject to
different production and technology strategies.




Reportable
Segments





For The Three Months Ended
      September 30, 2010
                
                
                For The Three Months Ended
      September 30, 2009
                
                
                For The Three Months
                  Ended
      September 30,Production
                  of chicks
                
                
                Production
                  of feed
                
                
                Corporate
                
                
                Production
                  of chicks
                
                
                Production
                  of feed
                
                
                Corporate
                
                
                Total2010
                
                
                2009External
      revenue
                
                $
                21,412,702
                
                
                $
                30,924
                
                
                $
                -
                
                
                $
                13,138,790
                
                
                $
                69,440
                
                
                $
                -
                
                
                $
                21,443,626
                
                
                $
                13,208,230Intersegment
      revenue
                
                $
                -
                
                
                $
                2,536,866
                
                
                $
                -
                
                
                $
                -
                
                
                $
                2,591,096
                
                
                $
                -
                
                
                $
                2,536,866
                
                
                $
                2,591,096Interest
      income
                
                $
                86
                
                
                $
                -
                
                
                $
                -
                
                
                $
                40
                
                
                $
                1
                
                
                $
                -
                
                
                $
                86
                
                
                $
                41Interest
      expense
                
                $
                -
                
                
                $
                (141,000)
                
                
                $
                -
                
                
                $
                -
                
                
                $
                (115,809)
                
                
                $
                -
                
                
                $
                (141,000)
                
                
                $
                (115,809)Depreciation
      and amortization
                
                $
                (615,473)
                
                
                $
                (25,026)
                
                
                $
                -
                
                
                $
                (513,319)
                
                
                $
                (32,211)
                
                
                $
                -
                
                
                $
                (640,499)
                
                
                $
                (545,530)Net
      profit/(loss) after tax
                
                $
                7,888,251
                
                
                $
                5,703
                
                
                $
                (606,494)
                
                
                $
                4,485,409
                
                
                $
                148,103
                
                
                $
                (486,359)
                
                
                $
                7,287,460
                
                
                $
                4,147,153Expenditures
      for long-lived assets
                
                $
                3,135,461
                
                
                $
                -
                
                
                $
                -
                
                
                $
                -
                
                
                $
                -
                
                
                $
                -
                
                
                $
                3,135,461
                
                
                $
                -




Note:
Intersegment revenue of $2,536,866 was eliminated in consolidation.





F-26




20.
            Business
      and geographical segments -
continued




For The Nine
      Months Ended September 30, 2010
                
                
                For The Nine Months Ended
      September 30, 2009
                
                
                For The Nine Months
                  Ended
      September 30,Production
                  of chicks
                
                
                Production
                  of feed
                
                
                Corporate
                
                
                Production
                  of chicks
                
                
                Production
                  of feed
                
                
                Corporate
                
                
                Total2010
                
                
                2009External
      revenue
                
                $
                45,534,308
                
                
                $
                144,866
                
                
                $
                -
                
                
                $
                33,740,804
                
                
                $
                216,189
                
                
                $
                -
                
                
                $
                45,679,174
                
                
                $
                33,956,993Intersegment
      revenue
                
                $
                -
                
                
                $
                6,324,085
                
                
                $
                -
                
                
                $
                -
                
                
                $
                7,181,507
                
                
                $
                -
                
                
                $
                6,324,085
                
                
                $
                7,181,507Interest
      income
                
                $
                225
                
                
                $
                -
                
                
                $
                -
                
                
                $
                174
                
                
                $
                8
                
                
                $
                -
                
                
                $
                225
                
                
                $
                182Interest
      expense
                
                $
                -
                
                
                $
                (256,137)
                
                
                $
                -
                
                
                $
                (115,400)
                
                
                $
                (325,836)
                
                
                $
                -
                
                
                $
                (256,137)
                
                
                $
                (441,236)Depreciation
      and amortization
                
                $
                (1,712,199)
                
                
                $
                (84,633)
                
                
                $
                -
                
                
                $
                (1,509,106)
                
                
                $
                (96,648)
                
                
                $
                -
                
                
                $
                (1,796,832)
                
                
                $
                (1,605,754)Net
      profit/(loss) after tax
                
                $
                14,535,486
                
                
                $
                195,546
                
                
                $
                (1,461,189)
                
                
                $
                10,013,067
                
                
                $
                335,797
                
                
                $
                (1,194,898)
                
                
                $
                13,269,843
                
                
                $
                9,153,966Expenditures
      for long-lived assets
                
                $
                3,574,343
                
                
                $
                -
                
                
                $
                -
                
                
                $
                4,804,393
                
                
                $
                69,490
                
                
                $
                -
                
                
                $
                3,574,343
                
                
                $
                4,873,883





Note:
Intersegment revenue of $6,324,085 was eliminated in consolidation.





The
Company’s operations are located in the PRC. All revenue is from customers in
the PRC.  All of the company’s assets are located in the PRC.
Accordingly, no analysis of the Company’s sales and assets by geographical
market is presented.




F-27




21.
            Commitments
      and contingencies





Operating
Leases - In the normal course of business, the Company leases the land for hen
houses under operating lease agreements. The Company rents land, primarily for
the feeding of the chicken. The operating lease agreements generally contain
renewal options that may be exercised at the Company’s discretion after the
completion of the base rental terms. The Company was obligated under operating
leases requiring minimum rentals as follows:




Remainder
      as of  September 30, 20102010
                  
                  $
                  17,9162011
                  
                  
                  71,6622012
                  
                  
                  71,6622013
                  
                  
                  71,6622014
                  
                  
                  71,662Thereafter
                  
                  
                  1,285,541Total
      minimum lease payments
                  
                  $
                  1,590,105




During
the three months ended September 30, 2010 and 2009, rental expenses were $59,015
and $28,618, respectively.




During
the nine months ended September 30, 2010 and 2009, rental expenses were $166,028
and $85,836, respectively.





F-28




21.
            Commitments
      and contingencies - continued




The
Company entered into various breeder farm acquisition and construction
contracts; the following is a summary of the commitments as of September 30,
2010:




Total
                            Consideration
                          
                          
                          Total Amount
                            Paid as of
                            September
      30, 2010
                          
                          
                          Remaining
                            Balance as of
                            September
      30, 2010
                          
                          Expected Date
                            of Payment
                          Starting Date
                            of Project
                          Date /
                            Expected
                            Date of
                            Completion
                          
                          NotesAcquisition
      of 13
                            Breeder
      Farms
                          
                          $
                          15,507,383
                          
                          
                          $
                          12,391,574
                          
                          
                          $
                          3,115,809
                          
                          End
      of
                            December
      2010
                          Acquired
      on
                            December
                            24,
      2009
                          End
      of
                            December
      2010
                          
                          Expected
      to spend $2.49m for renovationAcquisition
      of 5
                            Breeder
      Farms
                          
                          
                          3,172,921
                          
                          
                          
                          2,426,440
                          
                          
                          
                          746,481
                          
                          End
      of
                            July
      2010
                          July
      14,2010
                          End
      of
                            December
      2010
                          
                          
                          -Equipment
      foundation, installation and construction for Hatchery
      No. 3
                          
                          
                          593,750
                          
                          
                          
                          160,000
                          
                          
                          
                          433,750
                          
                          Within
                            three
      months
                            upon
      completion
                          July
      15,2010
                          October
      31, 2010
                          
                          
                          -Total
                          
                          $
                          19,274,054
                          
                          
                          $
                          14,978,014
                          
                          
                          $
                          4,296,040








F-29





21.
            Commitments
      and contingencies - continued




Equipment foundation,installation and construction for
Hatchery No.3




On July
15, 2010, PRC Yuhe entered into a construction agreement with a contractor to
build the infrastructure and equipment installation project for its hatchery
farm No. 3 for a total consideration of $593,750, approximately equivalent to
RMB3.98 million. Construction has started and the Company has paid $160,000,
approximately equivalent to RMB1.07 million. The residual scheduled payment is
$433,750, approximately equivalent to RMB 2.9 million, and is scheduled to be
paid three months after completion of construction.




Acquisition of 13 Breeder
Farms




On
December 24, 2009, PRC Yuhe entered into an agreement to purchase thirteen
breeder farms at a total consideration of $15,507,383, approximately equivalent
to RMB 103,870,000.  As of September 30, 2010, PRC Yuhe has paid
80% of the total consideration, or $12,391,574, approximately equivalent to
RMB 83,000,000. The remaining balance of $3,115,809, approximately
equivalent to RMB 20,870,000, is expected to be paid by the end of December
2010. The farms cover a total area of 37 hectares (560 mu), for which PRC Yuhe
acquired all the ground buildings as well as the land use rights for 36 years.
The purchase price also includes in-house breeding facilities which supply feed,
water and air to the parent breeders.





Purchase
of Land Use Right and Construction of Breeding Farm




On
December 26, 2009, PRC Yuhe entered into an agreement to purchase land use right
and buildings on this land for a total consideration of $2,937,000,
approximately equivalent to RMB 20,000,000. The land use right is for 50
years.  As of September 30, 2010, full payment had already been made.
PRC Yuhe plans to build a breeding farm on this piece of land, and construction
contract had not been entered into as of September 30, 2010.




Acquisition
of 5 Breeder Farms




On July
14, 2010, PRC Yuhe entered into an asset purchase agreement, or the “Purchase
Agreement”, with Liaoning Haicheng Songsen Stock Farming and Feed Co., Ltd., or
“Haicheng Songsen”, and Mr. Jiang Zhaolin, the controlling shareholder of
Haicheng Songsen, collectively, the “Seller”. Neither Haicheng Songsen nor Mr.
Jiang Zhaolin is affiliated with the Company.




Pursuant
to the Purchase Agreement, the Seller agreed to sell to PRC Yuhe certain assets
of Haicheng Songsen, including five breeder farms with a total area of
approximately 52 acres and total building coverage of approximately 680,000
square feet in Haicheng, Liaoning Province, China, for a purchase price of
$3,172,921, equivalent to RMB 21,252,540, or the “Transaction”.  As of
September 30, 2010, PRC Yuhe paid $2,426,440, approximately equivalent to
RMB 16,252,540. The remaining balance of $746,481, equivalent to
approximately RMB 5,000,000, is expected to be paid by the end of August
2011. Concurrent with the Transaction, the Company issued 300,000
restricted shares of its common stock to Mr. Jiang Zhaolin pursuant to a
service agreement (the “Service Agreement”) between PRC Yuhe and Mr. Jiang
Zhaolin. Pursuant to the Service Agreement, Mr. Jiang Zhaolin agreed to provide
PRC Yuhe with certain services related to completion and closing of the
Transaction in consideration for certain number of restricted shares of common
stock of the Company calculated at a price of $10.00 per share with total
consideration equal to approximately RMB 20 million.  On the
issuance date, the 300,000 restricted shares was effectively issued based on the
closing sale price of $9.12 on that day.




F-30




22.
            Equipment
      Leasing and Rental Arrangement





On
November 11, 2008, PRC Yuhe entered into equipment leasing agreement and
property rental agreement, collectively, the “Agreements”, with Shandong
Nongbiao Purina Feed Co., Ltd., “Shandong Nongbiao Purina”.Shandong Nongbiao
Purina will construct a feed production facility on a property leased from PRC
Yuhe and become the exclusive feed supplier for PRC Yuhe. Pursuant to the terms
and conditions of the Agreements, Shandong Nongbiao Purina will lease certain
equipment for feed production from, and install them at the premises owned by
PRC Yuhe. The lease term for both the equipment leasing agreement and property
rental agreement is 10 years. After completion of the feed production facility,
the lease term commenced in July 2009 when the production
began.  Shandong Nongbiao Purina shall pay to PRC Yuhe an annual
rental payment for the leased land, premises and facilities of $223,944,
approximately equivalent to RMB 1,500,000. The rent payable by Shandong
Nongbiao Purina under the rental agreement will be offset against the prepaid
equipment rental costs of $1,492,961, approximately equivalent to
RMB 10,000,000.  As at September 30, 2010, Shandong Nongbiao
Purina advanced $738,547, approximately equivalent to RMB 4,946,860, to PRC
Yuhe as rental payment and was recorded as advances from customers.




In
connection with the execution of the Agreements, Shandong Yuhe Food Group Co.,
Ltd., “Yuhe Group”, a PRC company based in Shandong Province, would be the
guarantor of PRC Yuhe for $658,000, approximately equivalent to
RMB 4,500,000, for the first five years and for $439,000, approximately
equivalent to RMB 3,000,000, for the next five years. No guarantee fee is
required according to the above Agreements.





The
leasing arrangement with Purina is accounted for as operating lease with the
exception of the lease of equipment.  The equipment leased to Purina
are accounted for as direct financing lease because the equipment has an
economic useful life of 10 years and the term of the equipment lease is for 10
years.




The
following lists the components of the investment in direct financing as of
September 30, 2010 and December 31, 2009, respectively:




September
      30,
                    
                    
                    December 31,2010
                    
                    
                    2009Minimum
      lease payments receivable
                    
                    $
                    556,219
                    
                    
                    $
                    544,903Less:
      Unearned income
                    
                    
                    (141,287
                    )
                    
                    
                    (162,161
                    )Investment
      in direct financing lease
                    
                    $
                    414,932
                    
                    
                    $
                    382,742







F-31




22.
            Equipment
      Leasing and Rental Arrangement –
continued





As of
September 30, 2010, future minimum lease payments to be received for each of the
five succeeding fiscal years are as follows: $0 in 2010 to 2013 and $26,143 in
2014.  There were no minimum lease payments to be received in 2010 to
2013 because Purina has advanced $562,830 for equipment rental as of September
30, 2010.




There are
no contingent rentals included in income for the three and nine months ended
September 30, 2010 and 2009.





23.
            Subsequent
      Event





On
October 11, 2010, Mr. Kunio Yamamoto (the "Transferor"), the beneficial owner of
7,654,817 shares of common stock of Yuhe International, Inc. (the "Company"),
entered into an agreement (the "Agreement") for a transfer of 7,222,290 shares
of the Company's common stock (the "Transfer Shares") to Mr. Gao Zhentao (the
"Transferee"), the chief executive officer of the Company, pursuant to a
general, verbal and informal understanding between the Transferor and the
Transferee at the time of execution of a share transfer agreement between Bright
Stand International Co., Ltd. and all the then existing shareholders of Weifang
Yuhe Poultry Co. Ltd. on October 18, 2007. Based on that understanding, all
or part of the shares of the Company's common stock issued to the Transferor
would be transferred to the Transferee in consideration of the Transferee's
commitment to management of the Company's business operations and future
achievement of the financial targets as set forth in a Make Good Agreement dated
March 12, 2008. Consequently, on October 11, 2010, the Transferor agreed to
transfer the Transfer Shares, representing approximately 44.8% of the issued and
outstanding common stock of the Company at that time, to the Transferee in a
private transaction intended to be exempt from registration under the Securities
Act of 1933, as amended. On the same day, the Transferor also transferred an
aggregate of 432,527 shares of the Company's common stock to six individuals who
had issued personal loans to the Transferor in December 2007 as well as to
designees of these lenders, pursuant to the exercise by these lenders of
warrants for the Company's common stock. The Transferor issued the warrants to
these lenders at the time of such loans in December 2007 in consideration of
their providing personal loans to the Transferor. The transfers were completed
on October 13, 2010.





On
November 2, 2010, the Company completed a public offering of 4,140,000 shares of
common stock at a price of $7.00 per share, including the exercise of the
over-allotment option by the underwriters. After the public offering, the
Company received aggregate net proceeds of approximately $27.5 million, and paid
approximately $1.4 million to the underwriters as underwriting discounts and
commissions. The Company intends to use the net proceeds from this offering for
future acquisitions, capital expenditures and general corporate and working
capital purposes.  The public offering was made pursuant to a shelf
registration statement on Form S-3 (File No. 333-167246), which was filed with
the Securities and Exchange Commission on June 2, 2010, as amended, and became
effective June 23, 2010. Under the shelf registration statement, the Company
may, from time to time, sell up to $40,000,000 of its common stock.


F-32




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





Special
Note Regarding Forward Looking Statements





This
Quarterly Report on Form 10-Q, including the following “Management’s Discussion
and Analysis of Financial Condition and Results of Operations,” contains
forward-looking statements that are based on the beliefs of the Company’s
management and involve risks and uncertainties, as well as assumptions that, if
they ever materialize or prove incorrect, could cause the results of the Company
to differ materially from those expressed or implied by such forward-looking
statements. The words “believe,” “expect,” “anticipate,” “project,” “targets,”
“optimistic,” “intend,” “aim,” “will” 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; any statements of belief or intention;
any of the factors mentioned in the “Risk Factors” section of the Company’s S-1
or amendment thereof or annual report on Form 10-K; and any statements of
assumptions underlying any of the foregoing. Except as otherwise
indicated by the context, references in this report to the “Company,” “Yuhe
International,” “we,” “us,” or “our,” are references to the combined business of
Yuhe International, Inc. and its subsidiaries.





Overview




The
Company is in the middle of the broiler chicken supply chain. The Company
purchases parent breeding stocks from primary breeder farms, raises them for
hatching eggs and sells live day-old broilers to the market. The Company’s
business segment has the highest margin along the supply chain. The Company
produces high-quality day-old broilers supported by its know-how in the areas of
feed ingredient composition, immunizations system and breeding techniques,
gained through over a decade of experience.




Unless
otherwise noted, all dollar figures provided herein are translated into United
States Dollars from Renminbi at year-end exchange rates as to assets and
liabilities and average exchange rates as to revenues and expenses. Capital
accounts are translated at their historical exchange rates when the capital
transactions occurred.


Unless
otherwise noted, all historical financial information prior to March 12, 2008
refers to PRC Yuhe, which includes the accounts of Taihong.





The
Company’s Business Operations




The
Company’s business is part of the commercial broiler supply chain.





Day-old
broilers are one-day-old broilers that are sold to broiler raisers. Day-old
broilers sold by the Company’s wholly-owned subsidiary, PRC Yuhe, are its
primary source of revenue.




3




The
Company purchases parent breeding chicken from grandparent breeder farms and
raises them to maturity. Once these parent breeding chicken have matured, they
produce hatching eggs that the Company incubates and then sells the resulting
day-old broiler chicks to its customers.





Under
normal circumstances, female parent breeder chicken become productive from the
26th week, and are no
longer commercially productive after the 66th week. Typically a breeder is
capable of producing approximately 167 eggs which will be hatched to 137
broilers over its production lifetime and the breeders are maintained by the
Company for a period of 420 days. The Company sources its parent breeder chicken
from licensed suppliers located in Beijing, and Shandong and Jiangsu provinces
and these suppliers are required to have a vaccination certificate and a breeder
production certificate for the sale of the breeders. The Company’s hatching eggs
typically must be incubated for a period of 21 days. At least 28 weeks usually
pass from the Company’s receipt of a day-old parent breeder to its sale of the
first day-old broilers.





The
Company operates in two elements of the broiler supply chain: day-old broiler
production and feed production. These activities are operated under two separate
subsidiaries, PRC Yuhe and Taihong, respectively.





The
following is a discussion of the Company’s results of operations for the three
months ended September 30, 2010 compared to the three months ended September 30,
2009.





4





Three
Months Ended September 30, 2010 Compared to Three Months Ended September 30,
2009




For
      the three months ended
                                                                September
      30, 2010
                                                              
                                                              
                                                              For
      the three months ended
                                                                September
      30, 2009
                                                              
                                                              
                                                              Increase/decreaseAmounts
                                                              
                                                              
                                                              %
      of net revenue
                                                              
                                                              
                                                              Amounts
                                                              
                                                              
                                                              %
      of net revenue
                                                              
                                                              
                                                              Amounts
                                                              
                                                              
                                                              %(amounts
      in U.S. dollars, except percentages)Sales
      revenue
                                                              
                                                              $
                                                              21,443,626
                                                              
                                                              
                                                              
                                                              100.00
                                                              %
                                                              
                                                              $
                                                              13,208,230
                                                              
                                                              
                                                              
                                                              100.00
                                                              %
                                                              
                                                              $
                                                              8,235,396
                                                              
                                                              
                                                              
                                                              62.35
                                                              %Cost
      of revenue
                                                              
                                                              
                                                              12,787,081
                                                              
                                                              
                                                              
                                                              59.63
                                                              %
                                                              
                                                              
                                                              8,042,920
                                                              
                                                              
                                                              
                                                              60.89
                                                              %
                                                              
                                                              
                                                              4,744,162
                                                              
                                                              
                                                              
                                                              58.99
                                                              %Gross
      profit
                                                              
                                                              
                                                              8,656,545
                                                              
                                                              
                                                              
                                                              40.37
                                                              %
                                                              
                                                              
                                                              5,165,310
                                                              
                                                              
                                                              
                                                              39.11
                                                              %
                                                              
                                                              
                                                              3,491,234
                                                              
                                                              
                                                              
                                                              67.59
                                                              %Selling
      expenses
                                                              
                                                              
                                                              239,504
                                                              
                                                              
                                                              
                                                              1.12
                                                              %
                                                              
                                                              
                                                              113,776
                                                              
                                                              
                                                              
                                                              0.86
                                                              %
                                                              
                                                              
                                                              125,728
                                                              
                                                              
                                                              
                                                              110.50
                                                              %General
      and administrative expenses
                                                              
                                                              
                                                              996,607
                                                              
                                                              
                                                              
                                                              4.65
                                                              %
                                                              
                                                              
                                                              784,402
                                                              
                                                              
                                                              
                                                              5.94
                                                              %
                                                              
                                                              
                                                              212,205
                                                              
                                                              
                                                              
                                                              27.05
                                                              %Operating
      income
                                                              
                                                              
                                                              7,420,434
                                                              
                                                              
                                                              
                                                              34.60
                                                              %
                                                              
                                                              
                                                              4,267,132
                                                              
                                                              
                                                              
                                                              32.31
                                                              %
                                                              
                                                              
                                                              3,153,302
                                                              
                                                              
                                                              
                                                              73.90
                                                              %Interest
      income
                                                              
                                                              
                                                              86
                                                              
                                                              
                                                              
                                                              0.00
                                                              %
                                                              
                                                              
                                                              41
                                                              
                                                              
                                                              
                                                              0.00
                                                              %
                                                              
                                                              
                                                              45
                                                              
                                                              
                                                              
                                                              109.00
                                                              %Other
      (expense) income
                                                              
                                                              
                                                              7,032
                                                              
                                                              
                                                              
                                                              0.03
                                                              %
                                                              
                                                              
                                                              (3,130
                                                              )
                                                              
                                                              
                                                              -0.02
                                                              %
                                                              
                                                              
                                                              10,162
                                                              
                                                              
                                                              
                                                              324.66
                                                              %Gain(loss)
      on disposal of fixed assets
                                                              
                                                              
                                                              1,857
                                                              
                                                              
                                                              
                                                              0.01
                                                              %
                                                              
                                                              
                                                              (1,081
                                                              )
                                                              
                                                              
                                                              -0.01
                                                              %
                                                              
                                                              
                                                              2,938
                                                              
                                                              
                                                              
                                                              271.74
                                                              %Investment
      income
                                                              
                                                              
                                                              42
                                                              
                                                              
                                                              
                                                              0.00
                                                              %Interest
      expenses
                                                              
                                                              
                                                              141,000
                                                              
                                                              
                                                              
                                                              0.66
                                                              %
                                                              
                                                              
                                                              115,809
                                                              
                                                              
                                                              
                                                              0.88
                                                              %
                                                              
                                                              
                                                              25,191
                                                              
                                                              
                                                              
                                                              -21.75
                                                              %Income
      tax expenses
                                                              
                                                              
                                                              991
                                                              
                                                              
                                                              
                                                              0.00
                                                              %
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              991
                                                              
                                                              
                                                              
                                                              -Net
      income
                                                              
                                                              $
                                                              7,287,460
                                                              
                                                              
                                                              
                                                              33.98
                                                              %
                                                              
                                                              $
                                                              4,147,153
                                                              
                                                              
                                                              
                                                              31.40
                                                              %
                                                              
                                                              $
                                                              3,140,307
                                                              
                                                              
                                                              
                                                              75.72
                                                              %




5




The
Company has consolidated the results of PRC Yuhe and Taihong into its
Consolidated Financial Statements from January 1, 2010 to September 30, 2010 and
January 1, 2009 to September 30, 2009.





Net revenue. Sales
revenue amounted to $21.44 million for the three months ended September 30,
2010, increased by $8.23 million, or 62%, from $13.21 million for the three
months ended September 30, 2009. The revenue increase was driven by the increase
in sales volume of the Company’s day-old broilers by 10.27 million birds,
or 34%, from 30.07 million birds in the three months ended September 30, 2009 to
40.34 million birds in the same period in 2010. The increase in sales
volume of the broilers was a result of capacity expansion in the first three
quarters of fiscal year 2010, as well as the increase in average unit selling
price of broilers by RMB 0.43, or 15%, from RMB 2.85 per bird for the
three months ended September 30, 2009 to RMB 3.28 per bird for the three
months ended on September 30, 2010. The increase in the average unit
selling price was due to the increase in the corn price, which subsequently
drove up the day-old broiler price. The revenue increase of $1.28 million in
retired parent breeders and by-productsalso
contributed to the growth of sales revenue.


For the
breakdown of the total revenue, $19.48 million, or 90.84% of total sales, came
from day-old broilers sales; $1.64 million, or 7.64% of the total sales, came
from the sales of retired parent broilers, which contributed a gross income of
$0.45 million for the three months ended September 30, 2010; $0.14 million, or
0.67% of total sales, came from sales of non-fecundated eggs; $0.15 million, or
0.71% of total sales, came from chicken dung and other business; and $30,925, or
0.14% of total sales, came from external feed sales of Taihong.





Cost of revenues. The
Company’s cost of revenues increased by $4.74 million, or 59%, to $12.78 million
for the three months ended September 30, 2010 from $8.04 million for the three
months ended September 30, 2009. The increase in the cost of revenues was mainly
driven by the increase in the sales volume of day-old broilers, and by
an increase in unit cost of the broilers.  The average unit cost
of day-old broilers increased by 13% from RMB 1.74 for the three months
ended September 30, 2009 to RMB 1.97 for the three months ended
September 30, 2010. The average unit cost increase in day-old broilers is
attributed to the increased feed cost driven by higher corn prices, as well as
the increased cost of external eggs at RMB 1.38 per egg for this quarter
compared to RMB 1.12 per egg for the same quarter in 2009. As a percentage
of net revenues, the cost of revenues decreased by 1.26%, from 60.89% for the
three months ended September 30, 2009 to 59.63% for the three months ended
September 30, 2010.





Gross profit. The Company’s
gross profit increased by $3.49 million, or 68%, to $8.66 million for the
three months ended September 30, 2010 from $5.17 million for the three months
ended September 30, 2009. Gross margin as a percentage of net revenues was
40.37% for the three months ended September 30, 2010, as compared to 39.11% for
the three months ended September 30, 2009. The increase was mainly because
of the reasons discussed above.





General and administrative
expenses. The general and administrative expenses increased by $0.21
million, or 27.05%, to $0.99 million for the three months ended September 30,
2010 from $0.78 million for the three months ended September 30, 2009. The
increase in general and administrative expenses was mainly due to the increased
legal and compliance expenses related to our compliance responsibility as a
public company and increased directors and officers liability insurance,
including the increase of $0.13 million in our S-3 filing expenses, and increase
of $0.04 million in the additional SOX compliance advisory fees.




6





The
general and administrative expenses comprised mainly of public company related
expenses of $0.61 million, (including
stock based compensation of $183,706 representing 61% of the total general and
administrative expenses; human resources and related expenses of $0.15 million,
representing 15% of the total general and administrative expenses;
transportation costs of $0.05 million, representing 5% of the total general and
administrative expenses; facilities and utility expenses of $0.08 million,
representing 8% of the total general and administrative expense; travel and
administrative expenses of $0.06 million, representing 6% of the total general
and administrative expenses.





Selling Expenses. The
Company’s selling expenses increased by $0.13 million, or 111%, to $0.24 million
for the three months ended September 30, 2010 from $0.11 million for the same
period in 2009. Selling expenses comprised mainly of packaging and
transportation expenses of $195,082, representing 81% of the total selling
expenses; human resources and related expenses of $15,239, representing 6% of
the total selling expenses; and travel, office expenses and advertising expenses
of $20,158, representing 8% of the total selling expense. The increase in
selling expenses was primarily due to the increase in packaging and
transportation expenses as a result of the increased sales volume. The increase
in packaging cost was due to higher unit cost of the packaging boxes, which rose
RMB 0.39 per box, or 13%, to RMB 3.33 per box, compared to RMB 2.94 per box in
the same quarter of 2009. In addition, the portion of packaging boxes provided
by the Company increased by 47% from 50% in the same quarter of last year to 74%
for the three months ended September 30, 2010.  As a percentage of net
revenue, selling expenses increased by 0.26%, from 0.86% for the three months
ended September 30, 2009, to 1.12% for the three months ended September 30,
2010.





Interest expenses. Interest
expenses increased by $25,191 to $141,000 for the three months ended September
30, 2010 from $115,809 for the same period in 2009. The increase in interest
expenses was attributed to the fact that more financing interests were
capitalized in construction in progress in the third quarter of fiscal 2009 than
in the same period of 2010. Capitalized interest for the three months ended
September 30, 2010 and 2009 was $87,288 and $123,021, respectively. If the
interest was not capitalized, interest expenses on bank loans would have been
$228,288 and $238,830 for the three months ended September 30, 2010 and 2009,
respectively. This year -over -year decrease was mainly due to the interest rate
decrease in the third quarter of 2010.





Net profit. Net profit
increased by $3.14 million, or 76%, to $7.29 million for the three months ended
September 30, 2010 from $4.15 million for the three months ended September 30,
2009, as a result of the factors described above.





7





Nine
Months Ended September 30, 2010 Compared to Nine Months Ended September 30,
2009




For
      the three months ended
                                                                  September
      30, 2010
                                                                
                                                                
                                                                For
      the three months ended
                                                                  September
      30, 2009
                                                                
                                                                
                                                                Increase/decreaseAmounts
                                                                
                                                                
                                                                %
      of net revenue
                                                                
                                                                
                                                                Amounts
                                                                
                                                                
                                                                %
      of net revenue
                                                                
                                                                
                                                                Amounts
                                                                
                                                                
                                                                %(amounts
      in U.S. dollars, except percentages)Sales
      revenue
                                                                
                                                                $
                                                                45,679,174
                                                                
                                                                
                                                                
                                                                100.00
                                                                %
                                                                
                                                                $
                                                                33,956,993
                                                                
                                                                
                                                                
                                                                100.00
                                                                %
                                                                
                                                                $
                                                                11,722,181
                                                                
                                                                
                                                                
                                                                34.52
                                                                %Costs
      of revenue
                                                                
                                                                
                                                                28,999,187
                                                                
                                                                
                                                                
                                                                63.48
                                                                %
                                                                
                                                                
                                                                21,926,699
                                                                
                                                                
                                                                
                                                                64.57
                                                                %
                                                                
                                                                
                                                                7,072,488
                                                                
                                                                
                                                                
                                                                32.26
                                                                %Gross
      profit
                                                                
                                                                
                                                                16,679,987
                                                                
                                                                
                                                                
                                                                36.52
                                                                %
                                                                
                                                                
                                                                12,030,294
                                                                
                                                                
                                                                
                                                                35.43
                                                                %
                                                                
                                                                
                                                                4,649,693
                                                                
                                                                
                                                                
                                                                38.65
                                                                %Selling
      expenses
                                                                
                                                                
                                                                552,019
                                                                
                                                                
                                                                
                                                                1.21
                                                                %
                                                                
                                                                
                                                                315,372
                                                                
                                                                
                                                                
                                                                0.93
                                                                %
                                                                
                                                                
                                                                236,647
                                                                
                                                                
                                                                
                                                                75.04
                                                                %General
      and administrative expenses
                                                                
                                                                
                                                                2,627,746
                                                                
                                                                
                                                                
                                                                5.75
                                                                %
                                                                
                                                                
                                                                2,163,639
                                                                
                                                                
                                                                
                                                                6.37
                                                                %
                                                                
                                                                
                                                                464,107
                                                                
                                                                
                                                                
                                                                21.45
                                                                %Operating
      income
                                                                
                                                                
                                                                13,500,222
                                                                
                                                                
                                                                
                                                                29.55
                                                                %
                                                                
                                                                
                                                                9,551,283
                                                                
                                                                
                                                                
                                                                28.13
                                                                %
                                                                
                                                                
                                                                3,948,939
                                                                
                                                                
                                                                
                                                                41.34
                                                                %Interest
      income
                                                                
                                                                
                                                                225
                                                                
                                                                
                                                                
                                                                0.00
                                                                %
                                                                
                                                                
                                                                182
                                                                
                                                                
                                                                
                                                                0.00
                                                                %
                                                                
                                                                
                                                                43
                                                                
                                                                
                                                                
                                                                23.63
                                                                %Other
      income (expense)
                                                                
                                                                
                                                                15,116
                                                                
                                                                
                                                                
                                                                0.03
                                                                %
                                                                
                                                                
                                                                1,531
                                                                
                                                                
                                                                
                                                                0.00
                                                                %
                                                                
                                                                
                                                                13,585
                                                                
                                                                
                                                                
                                                                887.33
                                                                %Gain(loss)
      on disposal of fixed assets
                                                                
                                                                
                                                                1,681
                                                                
                                                                
                                                                
                                                                0.00
                                                                %
                                                                
                                                                
                                                                26,697
                                                                
                                                                
                                                                
                                                                0.08
                                                                %
                                                                
                                                                
                                                                (25,016
                                                                )
                                                                
                                                                
                                                                -93.70
                                                                %Investment
      income
                                                                
                                                                
                                                                15,657
                                                                
                                                                
                                                                
                                                                0.03
                                                                %
                                                                
                                                                
                                                                15,509
                                                                
                                                                
                                                                
                                                                0.05
                                                                %
                                                                
                                                                
                                                                148
                                                                
                                                                
                                                                
                                                                0.95
                                                                %Interest
      expenses
                                                                
                                                                
                                                                256,137
                                                                
                                                                
                                                                
                                                                0.56
                                                                %
                                                                
                                                                
                                                                441,236
                                                                
                                                                
                                                                
                                                                1.30
                                                                %
                                                                
                                                                
                                                                (185,099
                                                                )
                                                                
                                                                
                                                                -41.95
                                                                %Income
      tax expenses
                                                                
                                                                
                                                                6,921
                                                                
                                                                
                                                                
                                                                0.02
                                                                %
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                
                                                                6,921
                                                                
                                                                
                                                                
                                                                -Net
      income
                                                                
                                                                $
                                                                13,269,843
                                                                
                                                                
                                                                
                                                                29.05
                                                                %
                                                                
                                                                $
                                                                9,153,966
                                                                
                                                                
                                                                
                                                                26.96
                                                                %
                                                                
                                                                $
                                                                4,115,877
                                                                
                                                                
                                                                
                                                                44.96
                                                                %





8




The
Company has consolidated the results of PRC Yuhe and Taihong into its
Consolidated Financial Statements from January 1, 2010 to September 30, 2010 and
January 1, 2009 to September 30, 2009.




Net revenue. Sales revenue
amounted to $45.68 million for the nine months ended September 30, 2010,
increased by $11.72 million, or 35%, from $33.96 million for the nine months
ended September 30, 2009. The revenue increase was driven by the increase in
sales volume of the Company’s day-old broilers by 21.6 million birds, or 27%,
from 78.9 million birds in 2009 to 100.5 million birds in 2010, for the
nine-month period ended on September 30. In addition, the increase of unit
selling price contributed to the growth of net revenue. The average selling
price of day-old broilers increased by 5% from RMB 2.74 per bird for
the nine months ended September 30, 2009 to RMB 2.88 per bird for the nine
months ended September 30, 2010. The increased unit selling price reflected
the cost pass-through to customers of higher cost of corn and other raw
materials.




For the
breakdown of the total revenue, $42.45 million, or 92.92% of the total sales,
came from day -old broilers sales; $2.42 million, or 5.29% of the total sales,
came from the sale of the retired parent breeders, which contributed a gross
income of $775,445 for the nine-month period; $0.33 million, or 0.73% of the
total sales, came from sales of non-fecundated eggs; $0.34 million, or 0.74% of
the total sales, came from chicken dung and other business; and $0.14 million,
or 0.32% of the total sales, came from external feed sales of
Taihong.





Cost of revenues. The
Company’s cost of revenues increased by $7.1 million, or 32.3%, to $29 million
for the nine months ended September 30, 2010 from $21.9 million for the nine
months ended September 30, 2009. The increase in the cost of revenues was mainly
driven by the increase in sales volume of day-old broilers and the increased
average unit cost per bird. The average unit cost per bird increased by RMB
0.10, or 6%, from RMB 1.77 per bird in 2009 to RMB 1.87 per bird in 2010 for the
nine months ended September 30. The increase in the average unit cost per bird
was driven by the higher cost of corn and other raw materials in the nine months
ended September 30, 2010. For the nine months ended September 30, 2010, cost of
corn increased to RMB 2 per kilogram from RMB 1.66 per kilogram in the same
period of 2009, and the unit cost per external egg increased to RMB 1.2 for the
nine months ended September 30, 2010 from RMB 1.1 for the same period of 2009.
The percentage of cost of revenues in the net revenues decreased by 1.09%, from
64.57% for the nine months ended September 30, 2009, to 63.48% for the nine
months ended September 30, 2010.





Gross profit. The Company’s
gross profit increased by $4.7 million, or 38.7%, to $16.7 million for the nine
months ended September 30, 2010, from $12 million for the nine months ended
September 30, 2009.  Gross profit as a percentage of net revenues was
36.52% for the nine months ended September 30, 2010, as compared to 35.43% for
the nine months ended September 30, 2009.




General and administrative
expenses. The general and administrative expenses increased by $0.47
million, or 21%, to $2.63 million for the nine months ended September 30, 2010,
from $2.16 million for the nine months ended September 30, 2009. The increase in
general and administrative expenses was mainly due to the increase of certain
public company related expenses by $0.27 million for the nine months ended
September 30, 2010. The general and administrative expenses comprised mainly of
public company related expenses of $1.46 million, representing 56% of the total
general and administrative expenses,; human resources
and related expenses of $0.39 million, representing 15% of the total general and
administrative expenses,; transportation
costs of $0.10 million, representing 4% of the total general and administrative
expenses; facilities and utility expenses of $0.24 million, representing 9% of
the total general and administrative expense,; auditing and
advisory expenses of $0.16 million, representing 6% of the total general and
administrative expense, and travel and administrative expenses of $0.11 million,
representing 4% of the total general and administrative expenses.




9




Selling Expenses. The
Company’s selling expenses increased by $236,647, or 75%, to $552,019 for the
nine months ended September 30, 2010 from $315,372 for the same period of 2009.
Selling expenses comprised mainly of packaging and transportation expenses of
$432,990, representing 78% of the total selling expenses; human resources and
related expenses of $43,936, representing 8% of the total selling expenses; and
travel and office expenses of $53,923, representing 10% of the total selling
expense. The increase in selling expenses was primarily due to the increase in
sales volume and the increase in packaging cost. The increase in packaging cost
was due to higher unit cost of the packaging boxes that rose by RMB 0.16, or 5%,
to RMB 3.29 per box in the nine months ended September 30, 2010, compared to RMB
3.13 per box in the same period of 2009. In addition, the portion of packaging
boxes provided by the Company increased to 66% in the nine months ended
September 30, 2010 from 49% in the same period in 2009, up 35% in volume. As a
percentage of net revenues, selling expenses increased by 0.28%, to 1.21% for
the nine months ended September 30, 2010 from 0.93% for the same period of
2009.





Interest expenses. Interest
expenses decreased by $185,099, or 42%, to $256,137 for the nine months ended
September 30, 2010 from $441,236 for the nine months ended September 30, 2009.
Excluding capitalized interest, interest expenses on bank loans would have been
$713,648 for the nine months ended September 30, 2010 and $866,315 for the nine
months ended September 30, 2009. This decrease in interest expenses of $152,667
was due to the lower interest rate of 7.56% for the nine months ended September
30, 2010, compared with the varying interest rates between 8.64% and 13.82% for
the same period of 2009.





Net profit. Net profit
increased by $4.12 million, or 45%, to $13.27 million for the nine months ended
September 30, 2010 from $9.15 million for the nine months ended September 30,
2009, as a result of the factors described above.





Liquidity
and Capital Resources





The
Company expects that its strong working capital of $16.41 million and positive
cash flow of $16.11 million generated from operating activities as of September
30, 2010 will meet its working capital requirements sufficiently for the next 12
months from the date of this report. In the first quarter of fiscal year 2010,
the Company renewed seven bank loans for a total amount of $8.36 million, with
the expected expiry dates in the calendar year of 2013.




The
Company has entered into a fixed annual interest rate agreement on these bank
loans at a reduced rate of 7.56%, compared to the previous variable interest
rates ranging from 8.64% and 13.82% .




On May
17, 2010, the Company paid off a bank loan by the amount of
$298,592(RMB 2,000,000). On July 14, 2010, the Company borrowed a short
term loan in the amount of $298,592 (RMB 2,000,000) at a rate of
7.43%. The outstanding bank loan balance was approximately $11.02 million
as of September 30, 2010. Under the renewed terms of the bank loans, the
Company’s average bank loan interest rate will be reduced from 10.8% to 7.8%.
The Company expects to reduce interest expense prior to any capitalized interest
from approximately $1.2 million per annum, or approximately RMB 8.2 million, to
$0.85 million per annum, or approximately RMB 5.8 million.




10





General





As of
September 30, 2010, the Company had cash and cash equivalents of approximately
$27.36 million. The following table provides detailed information about the
Company’s net cash flow for the nine months ended September 30,
2010.




Nine
      months endedSeptember
      30, 2010Net
      cash provided by operating activities
                
                $
                16,105,545Net
      cash used in investing activities
                
                
                (3,319,248)Net
      cash used in financing activities
                
                
                -Effect
      of foreign currency translation on cash
                
                
                525,742Net
      cash inflow
                
                
                13,312,039Cash
      at beginning of period
                
                
                14,047,147Cash
      at end of period
                
                $
                27,359,186





Operating Activities. Net
cash provided by operating activities was $16.11 million for the nine months
ended September 30, 2010. Net cash provided by operating activities was
primarily attributable from the net income of $13.27 million, an increase of
$1.11 million of accounts payables, an increase of $1.77 million of
advances from customers, a decrease of $0.17 million of long term prepaid
rent, an increase of $0.88 million of accrued expenses and payroll related
liabilities and non cash adjustment for depreciation and amortization of $1.80
million, non cash compensation of $0.55 million, primarily deducted by an
increase of $2.64 million of inventories, an increase of $0.11 million of
advance to suppliers, a decrease of $0.23 million of other payables, and
capitalized interest in construction in progress of $0.46
million.





11





Investing Activities. Net cash used in
investing activities for the nine months ended September 30, 2010 was $3.32
million. It comprised of capital expenditure of $3.57 million related to the
construction of breeder farms and equipment purchase, advance to notes
receivables of $0.03 million, increased investment of $0.02 million in direct
financing lease and proceeds from unlisted investments of $0.30 million for
the nine months ended September 30, 2010. The following is a summary of the
$3.57 million cash spent on capital expenditure:




Nine
      Months endedSeptember
      30, 2010Deposits
      paid for construction of breeding farm
                
                $
                366,635Deposits
      paid for purchase of property, plant and equipment
                
                
                3,118,750Purchase
      of equipment
                
                
                88,958Total
      deposit paid and acquisition of property, plant and
    equipment
                
                $
                3,574,343





Financing Activities. Net
cash used in financing activities for the nine months ended September 30, 2010
was $0. Net cash used in financing activities was attributed to the repayment of
loans payables of $293,410 and  proceeds from loan payable of
$293,410.





Loan
Facilities





As
at September 30, 2010, maturities of the Company’s bank loans are as
follows:




As of 
      September 30,1
      year
                    
                    
                    2,358,8782
      years
                    
                    
                    298,5923
      years
                    
                    
                    8,360,580$
                    11,018,050





12





All
amounts, other than percentages, are in U.S. dollars





Type
                                                      Contracting Party
                                                      Valid period
                                                      Duration
                                                      
                                                      AmountBank loan
                                                      Hanting Kaiyuan
                                                        Rural Credit Cooperative
                                                      January 8, 2009-Jan 7, 2011
                                                      24 months
                                                      
                                                      $
                                                      1,089,861Bank loan
                                                      Nansun Rural Credit
                                                      Mar 19, 2010-Mar
      16, 2013
                                                      36 months
                                                      
                                                      
                                                      4,926,771Bank loan
                                                      Nansun Rural Credit
                                                      Dec 11, 2009-
      Dec 10 2011
                                                      24 months
                                                      
                                                      
                                                      298,592Bank loan
                                                      Nansun Rural Credit
                                                      Jan 29, 2010-Jan
      26, 2013
                                                      36 months
                                                      
                                                      
                                                      3,433,810Bank loan
                                                      Shuangyang Rural Credit
                                                      Oct 13,2008 -Oct 13, 2010
                                                      24
      months
                                                      
                                                      
                                                      970,424Bank loan
                                                      Hanting
      rural credit cooperative association
                                                      Jul
      14, 2010-Jul 13, 2011
                                                      12
      months
                                                      
                                                      
                                                      298,592Total
                                                      
                                                      
                                                      
                                                      
                                                      $
                                                      11,018,050





The
Company has ten loan facilities from three institutional lenders. The following
are the material terms of such bank loans:





Loan
from Hanting Kaiyuan Rural Credit Cooperative:


On
January 8, 2009, PRC Yuhe renewed the loan agreement with Hanting Kaiyuan Rural
Credit Cooperative. Pursuant to the loan agreement, Hanting Kaiyuan Rural Credit
Cooperative loaned PRC Yuhe $1,089,861 at an interest rate of 7.56% per annum.
PRC Yuhe is obligated under such loan agreement to pay interest monthly and
repay the loan on its maturity date of January 7, 2011. The loan is secured by
the plant and equipment of PRC Yuhe with a net book value of $305,279 as of
September 30, 2010.





Loans
from Nansun Rural Credit:


PRC Yuhe
renewed four loan agreements with Nansun Rural Credit on March 19,
2010.  The interest rate of the renewed loan agreements is 7.56% per
annum, reduced from the original interest rate of 13.82% due to government
policy support. The total amount of these four bank loans is
$4,926,771.


Three
other loans with an aggregate outstanding balance of $3,433,810 from Nansun
Rural Credit have an interest rate reduced from 8.64% to 7.56% due to the
interest rate adjustment by the PRC government.




The other
bank loan from Nansun Rural Credit with an outstanding balance of $298,592 was
entered into in December 2009 with an interest rate of 7.56% per
annum.




13





All loans
are secured by the land use right and building of PRC Yuhe and Taihong with a
net book value of $2,535,636 as of September 30, 2010.





Loan from
Shuangyang Rural Credit:


Taihong
renewed the loan agreements with Shuangyang Rural Credit on October 13 2008,
amounting to $970,424. The interest rate on the loans is 9.83% per annum.
Taihong is obligated under such loan agreements to pay interest monthly and
repay the loans on their maturity date of October 13, 2010. The loans are
secured by the land use right with a net book value of $324,787 as of
September 30, 2010.





Due to
related companies:


As of
September 30, 2010, the Company has $1,208 due to Halter Financial Investments
LP.  The amounts due to this related company are unsecured, interest
free and have no fixed repayment date.  These loans are used for
working capital purposes.





Obligations
Under Material Contracts




Below is
a table setting forth the Company’s material contractual obligations as of
September 30, 2010:




Payment due by periodContractual Obligations
                                          
                                          Total
                                          
                                          
                                          Less than 1
                                            year
                                          
                                          
                                          1-3 years
                                          
                                          
                                          3-5 years
                                          
                                          
                                          More than
                                            5 yearsLong-Term
      Debt Obligations
                                          
                                          $
                                          11,018,050
                                          
                                          
                                          $
                                          2,358,878
                                          
                                          
                                          $
                                          8,659,172
                                          
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          -Due
      to Related Companies
                                          
                                          
                                          1,208
                                          
                                          
                                          
                                          1,208
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -Operating
      Lease Obligations
                                          
                                          
                                          1,590,105
                                          
                                          
                                          
                                          71,662
                                          
                                          
                                          
                                          143,324
                                          
                                          
                                          
                                          143,324
                                          
                                          
                                          
                                          1,231,795Capital
      Lease Obligations
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -Purchase
      Obligations
                                          
                                          
                                          4,805,646
                                          
                                          
                                          $
                                          4,805,646
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -Other
      Long-Term Liabilities Reflected on the Registrant’s Balance Sheet under
      GAAP
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -Total
                                          
                                          $
                                          17,415,009
                                          
                                          
                                          $
                                          7,237,394
                                          
                                          
                                          $
                                          8,802,496
                                          
                                          
                                          $
                                          143,324
                                          
                                          
                                          $
                                          1,231,795




14





Recent
Development




On
October 11, 2010, Mr. Kunio Yamamoto (the "Transferor"), the beneficial owner of
7,654,817 shares of common stock of Yuhe International, Inc. (the "Company"),
entered into an agreement (the "Agreement") for a transfer of 7,222,290 shares
of the Company's common stock (the "Transfer Shares") to Mr. Gao Zhentao (the
"Transferee"), the chief executive officer of the Company, pursuant to a
general, verbal and informal understanding between the Transferor and the
Transferee at the time of execution of a share transfer agreement between Bright
Stand International Co., Ltd. and all the then existing shareholders of Weifang
Yuhe Poultry Co. Ltd. on October 18, 2007. Based on that understanding, all or
part of the shares of the Company's common stock issued to the Transferor would
be transferred to the Transferee in consideration of the Transferee's commitment
to management of the Company's business operations and future achievement of the
financial targets as set forth in a Make Good Agreement dated March 12, 2008.
Consequently, on October 11, 2010, the Transferor agreed to transfer the
Transfer Shares, representing approximately 44.8% of the issued and outstanding
common stock of the Company at that time, to the Transferee in a private
transaction intended to be exempt from registration under the Securities Act of
1933, as amended. On the same day, the Transferor also transferred an aggregate
of 432,527 shares of the Company's common stock to six individuals who had
issued personal loans to the Transferor in December 2007 as well as to designees
of these lenders, pursuant to the exercise by these lenders of warrants for the
Company's common stock. The Transferor issued the warrants to these lenders at
the time of such loans in December 2007 in consideration of their providing
personal loans to the Transferor. The transfers were completed on October 13,
2010.





On
November 2, 2010, the Company completed a public offering of 4,140,000 shares of
common stock at a price of $7.00 per share, including the exercise of
over-allotment option by the underwriters. After the public offering, the
Company received aggregate net proceeds of approximately $27.5 million, and paid
approximately $1.4 million to the underwriters as underwriting discounts and
commissions. The Company intends to use the net proceeds from this offering for
future acquisitions, capital expenditures and general corporate and working
capital purposes.   The public offering was made pursuant to a
shelf registration statement on Form S-3 (File No. 333-167246), which was filed
with the Securities and Exchange Commission on June 2, 2010, as amended, and
became effective June 23, 2010. Under the shelf registration statement, the
Company may, from time to time, sell up to $40,000,000 of its common
stock.





15








ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK




Not
applicable.




ITEM
4. CONTROLS AND PROCEDURES




(a)
            Evaluation
      of disclosure controls and
procedures.





The
Company’s management, under the supervision and with the participation of its
chief executive officer and chief financial officer, Messrs. Gao Zhentao and Hu
Gang, respectively, evaluated the effectiveness of the Company’s disclosure
controls and procedures as of September 30, 2010, the end of the period covered
by this Report. 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 Form 10-Q, 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.  Based on that
evaluation, Messrs. Gao and Hu concluded that the Company’s disclosure controls
and procedures were effective as of September 30, 2010.





(b)
            Changes
      in internal control over financial
reporting.





There
were no changes in our internal control over financial reporting during the
three months ended September 30, 2010 that materially affected or were
reasonably likely to materially affect, our internal controls over financial
reporting.





16




PART
II




OTHER
INFORMATION




ITEM
1. LEGAL PROCEEDINGS




From time
to time, the Company becomes involved in various lawsuits and legal proceedings
that arise in the ordinary course of business. While the ultimate outcome of
these lawsuits and legal proceedings cannot be determined at this time, it is
the opinion of management that the resolution of these actions will not have a
material adverse effect on the Company’s financial condition, results of
operations or cash flows.




ITEM
1A. RISK FACTORS




Not
applicable.




ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS




None.




ITEM
3. DEFAULTS UPON SENIOR SECURITIES




None.




ITEM
4. RESERVED




ITEM
5. OTHER INFORMATION





None.




17




ITEM
6. EXHIBITS





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
            Certification
      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
            Certification
      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







18




SIGNATURES




Pursuant
to the requirements of the Securities Exchange Act, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.




DATED:
November 15, 2010




YUHE
INTERNATIONAL, INC.




By:
                /s/
      Gao ZhentaoGao
      ZhentaoChief
      Executive Officer(On
      behalf of the Registrant and as Principal Executive
    Officer)By:
                /s/
      Hu GangHu
      GangChief
      Financial Officer(On
      behalf of the Registrant and as Principal Financial
    Officer)





19




EXHIBIT
INDEX




ExhibitNumber
            
            Description31.1
            
            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
            
            Certification
      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
            
            Certification
      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