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: March 31, 2009





 ̈
  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:   333-83125





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  ̈





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
definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of
the Exchange Act. (Check one)


Large
accelerated filer  ̈ Accelerated
filer  ̈  Non-accelerated
filer   ̈


Smaller
reporting company x





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


Yes 
 ̈   No 
x





The
number of shares outstanding of each of the issuer’s classes of common equity,
as of March 31, 2009 is as follows:


Class of Securities
            
            Shares OutstandingCommon
      Stock, $0.001 par value
            
            15,722,180










TABLE
OF CONTENTS





PagePART
      I FINANCIAL INFORMATIONItem
      1.
                Condensed
      Financial Statements
                
                1Item
      2.
                Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                
                2Item
      3.
                Quantitative
      and Qualitative Disclosures About Market Risk
                
                13Item
      4.
                Controls
      and Procedures
                
                13PART
      II OTHER INFORMATIONItem
      1.
                Legal
      Proceedings
                
                14Item
      1A.
                Risk
      Factors
                
                14Item
      2.
                Unregistered
      Sales of Equity Securities and Use of Proceeds.
                
                14Item
      3.
                Defaults
      Upon Senior Securities
                
                14Item
      4.
                Submission
      of Matters to a Vote of Securities Holders
                
                15Item
      5.
                Other
      Information
                
                15Item
      6.
                Index
      to Exhibits
                
                15Signatures
                
                
                16Certifications











PART
I


FINANCIAL
INFORMATION




ITEM
1. CONDENSED FINANCIAL STATEMENTS.





1





YUHE
INTERNATIONAL, INC.





CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE THREE MONTHS ENDED MARCH 31, 2009 AND 2008





F-1





YUHE
INTERNATIONAL, INC.





CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE THREE MONTHS ENDED MARCH 31, 2009 AND 2008





Index to
condensed consolidated financial statements





PageCondensed
      Consolidated Balance Sheets - unaudited
                    
                    F-3Condensed
      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-6
      – F-23Pro
      Forma Consolidated Financial Statements - unaudited
                    
                    F-24–
      F26Weifang
      Yuhe Poultry Co., Ltd:Condensed
      Consolidated Financial Statements - unaudited -for the period from January
      1, 2008 to January 31, 2008
                    
                    F-27





F-2





YUHE
INTERNATIONAL, INC.





CONDENSED
CONSOLIDATED BALANCE SHEETS


(Stated
in US Dollars)


March
      31,
                  
                  
                  December
      31,2009
                  
                  
                  2008(unaudited)ASSETSCurrent
      assets:Cash
      and cash equivalents
                  
                  $
                  18,091,979
                  
                  
                  $
                  13,412,205Accounts
      receivable, net of allowances of $18,845 and $18,845
                  
                  
                  904
                  
                  
                  
                  902Inventories
                  
                  
                  7,076,604
                  
                  
                  
                  6,644,961Advances
      to suppliers
                  
                  
                  4,521,030
                  
                  
                  
                  4,472,509Total
      current assets
                  
                  
                  29,690,517
                  
                  
                  
                  24,530,577Plant
      and equipment, net
                  
                  
                  26,751,684
                  
                  
                  
                  27,112,276Deposits
      paid for acquisition of long term assets
                  
                  
                  2,219,243
                  
                  
                  
                  2,280,988Notes
      receivable, net and other receivable, net
                  
                  
                  103,228
                  
                  
                  
                  74,720Unlisted
      investments held for sale
                  
                  
                  299,804
                  
                  
                  
                  299,427Intangible
      assets, net
                  
                  
                  2,897,034
                  
                  
                  
                  2,909,752Due
      from related companies
                  
                  
                  3,669,798
                  
                  
                  
                  3,706,589Deferred
      expenses
                  
                  
                  596,287
                  
                  
                  
                  604,973Total
      assets
                  
                  $
                  66,227,595
                  
                  
                  $
                  61,519,302LIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrent
      liabilities:Accounts
      payable
                  
                  $
                  5,661,377
                  
                  
                  $
                  4,606,055Current
      portion of long term loans
                  
                  
                  292,158
                  
                  
                  
                  1,356,832Other
      payables
                  
                  
                  1,225,619
                  
                  
                  
                  937,535Accrued
      expenses and payroll related liabilities
                  
                  
                  2,000,062
                  
                  
                  
                  2,125,587Advances
      from customers
                  
                  
                  725,807
                  
                  
                  
                  673,528Loan
      from director
                  
                  
                  292,158
                  
                  
                  
                  291,792Other
      liabilities
                  
                  
                  286,107
                  
                  
                  
                  285,132Due
      to related companies
                  
                  
                  491,095
                  
                  
                  
                  210,633Total
      current liabilities
                  
                  
                  10,974,383
                  
                  
                  
                  10,487,094Non-current
      liabilitiesLong-term
      loans
                  
                  
                  10,488,489
                  
                  
                  
                  9,410,289Total
      liabilities
                  
                  
                  21,462,872
                  
                  
                  
                  19,897,383Commitments
      and contingencies (Note 19)Stockholders'
      EquityCommon
      stock at $.001 par value; authorized 500,000,000 shares authorized,
      15,722,178 equivalent shares issued and outstanding
                  
                  
                  15,722
                  
                  
                  
                  15,722Additional
      paid-in capital
                  
                  
                  30,123,728
                  
                  
                  
                  29,944,016Retained
      earnings
                  
                  
                  13,437,493
                  
                  
                  
                  10,522,673Accumulated
      other comprehensive income
                  
                  
                  1,187,780
                  
                  
                  
                  1,139,508Total
      stockholders’ equity
                  
                  
                  44,764,723
                  
                  
                  
                  41,621,919Total
      liabilities and stockholders’ equity
                  
                  $
                  66,227,595
                  
                  
                  $
                  61,519,302




See
accompanying notes to 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 EndedMarch
      312009
                
                
                2008Net
      revenue
                
                $
                10,914,390
                
                
                $
                1,103,551Cost
      of revenue
                
                
                (6,852,353
                )
                
                
                (874,707
                )Gross
      profit
                
                
                4,062,037
                
                
                
                228,844Operating
      ExpensesSelling
      expenses
                
                
                (92,940
                )
                
                
                (48,540
                )General
      and administrative expenses
                
                
                (743,990
                )
                
                
                (260,969
                )Total
      operating expenses
                
                
                (836,930
                )
                
                
                (309,509
                )Income
      (loss) from operations
                
                
                3,225,107
                
                
                
                (80,665
                )Non-operating
      income (expenses)Bad
      debts recovery
                
                
                -
                
                
                
                13,145Interest
      income
                
                
                96
                
                
                
                158Other
      income
                
                
                15,509
                
                
                
                5,900Interest
      expenses
                
                
                (325,427
                )
                
                
                (180,474
                )Other
      expenses
                
                
                (465
                )
                
                
                (30,545
                )Total
      other income (expenses)
                
                
                (310,287
                )
                
                
                (191,816
                )Net
      income (loss) before income taxes
                
                
                2,914,820
                
                
                
                (272,481
                )Income
      taxes
                
                
                -
                
                
                
                -Net
      income (loss)
                
                $
                2,914,820
                
                
                $
                (272,481
                )Other
      comprehensive incomeForeign
      currency translation
                
                
                48,272
                
                
                
                417,921Comprehensive
      income
                
                $
                2,963,092
                
                
                $
                145,440Earnings
      (Loss) per shareBasic
                
                $
                0.19
                
                
                $
                (0.03
                )Diluted
                
                $
                0.19
                
                
                $
                (0.03
                )Weighted
      average shares outstandingBasic
                
                
                15,722,178
                
                
                
                10,146,353Diluted
                
                
                15,722,178
                
                
                
                10,146,353




See
accompanying notes to unaudited condensed consolidated financial
statements





F-4





YUHE
INTERNATIONAL, INC.





CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS - (UNAUDITED)


(Stated
in US Dollars)


For
      The Three Months EndedMarch 312009
                
                
                2008Net
      cash provided by (used in) operating activities
                
                $
                4,386,943
                
                
                $
                (2,544,215
                )Cash
      flows from investing activitiesDeposit
      paid and acquisition of property, plant and equipment
                
                
                (41,133
                )
                
                
                (248,616
                )Advance
      to notes receivable
                
                
                (335
                )
                
                
                (11,036,697
                )Acquisition
      of subsidiaries
                
                
                -
                
                
                
                (10,567,946
                )Proceeds
      received from related parties receivables
                
                
                41,442
                
                
                
                -Advance
      to related companies
                
                
                -
                
                
                
                (208,458
                )Net
      cash used in investing activities
                
                
                (26
                )
                
                
                (22,061,717
                )Cash
      flows from financing activitiesProceeds
      from loan payable
                
                
                -
                
                
                
                778,870Proceeds
      from related party payable
                
                
                275,336
                
                
                
                1,285,168Capital
      contribution by shareholder
                
                
                -
                
                
                
                12,149,750Proceeds
      from common stock sale - net of offering costs
                
                
                -
                
                
                
                12,205,586Net
      cash flows provided by financing activities:
                
                
                275,336
                
                
                
                26,419,374Effect
      of foreign currency translation on cash
                
                
                17,521
                
                
                
                124,985Net
      increase in cash
                
                
                4,679,774
                
                
                
                1,938,427Cash-
      beginning of period
                
                
                13,412,205
                
                
                
                1,050,168Cash-
      end of period
                
                $
                18,091,979
                
                
                $
                2,988,595Cash
      paid during the period for:Interest
      paid
                
                $
                357,632
                
                
                $
                181,474Income
      taxes paid
                
                $
                -
                
                
                $
                -Non-cash
      investing activities:Transfer
      of construction in progress to fixed assets
                
                $
                1,831,131
                
                
                $
                -




See
accompanying notes to unaudited condensed consolidated financial
statements




F-5


YUHE
INTERNATIONAL, INC.
 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, without audit, pursuant
to the rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although the
Company believes that the disclosures are adequate to make the information
presented not misleading. 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. It is
suggested that these interim condensed consolidated financial statements be read
in conjunction with the financial statements of the Company for the year ended
December 31, 2008 and notes thereto included in the Form 10K of Yuhe
International, Inc. (Formerly known as First Growth Investors, Inc.) filed on
March 31, 2009. 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 Nature of Business





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. The Company was not presently engaged in any business
activities and had no operations, income producing assets or significant
operating capital. At December 31, 2007, the Company was at development stage
until its business combination with Bright Stand on March 12, 2008.




F-6


YUHE
INTERNATIONAL, INC.
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





2.
            Organization
      and Nature of Business - continued




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 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. The equity section of the accompanying
financial statements has been restated to reflect the recapitalization of the
Company due to the reverse acquisition as of the first day of the first period
presented. The assets and liabilities acquired that, for accounting purposes,
were deemed to have been acquired by Bright Stand were not
significant.





Bright
Stand International Limited, “Bright Stand”





On August
3, 2007, Bright Stand International Limited, “Bright Stand” was incorporated
with limited liability in the British Virgin Islands. On January 31, 2008,
Bright Stand International Limited completed the acquisition (note 4) of 100%
common stock of Weifang Yuhe Poultry Co., Limited “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.





Weifang
Yuhe Poultry Co., Ltd., “PRC Yuhe”





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




F-7


YUHE
INTERNATIONAL, INC.
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 2.
              Organization
      and Nature of Business - continued


Weifang
Taihong Feed Co., Ltd., “Taihong”





Weifang
Taihong Feed Co., Ltd. was established in Weifang, Shandong of the People’s
Republic of China, the “PRC”, as a limited company on May 26, 2003. Taihong is a
feed stock company whose primary purpose is to supply feed stock for PRC Yuhe’s
breeder chickens.





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





3.
            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
condensed 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, Weifang Yuhe
Poultry Co., Ltd and Weifang Taihong Feed Co., Ltd. after the date of
acquisitions. All significant intercompany accounts, transactions and cash flows
are eliminated on consolidation.





The
accompanying financial statements are presented in United States dollars. The
functional currency of the Company is the Renminbi (RMB).  The
financial statements are translated into United States dollars from RMB 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.





The RMB
is not freely convertible into foreign currency and all foreign exchange
transactions must take place through authorized institutions.  No
representation is made that the RMB amounts could have been, or could be,
converted into US$ at the rates used in translation.




F-8


YUHE
INTERNATIONAL, INC.
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS




4.
              Basic
      and diluted earnings per
share





The
Company reports basic earnings per share in accordance with SFAS No. 128,
“Earnings Per Share”. 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.





Diluted
earning per share is 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.





Basic and
diluted earnings per share are the same as there was no dilutive effect of the
warrants and stock options for the three months ended March 31, 2009 and
2008.





5.
            Recent
      accounting pronouncements





No
new accounting pronouncements, applicable to the Company, have been
issued.





6.
            Acquisition
      of subsidiaries





On
January 31, 2008, Bright Stand acquired 100% common stock of Weifang
Yuhe Poultry Co., Limited for $11,306,522, (RMB 81,450,000) and 43.75% of
Weifang Taihong Feed Co., Ltd for $312,530, (RMB 2,244,000) and total
amount was $11,619,052.





The
following table presents the unaudited results of operations of the Company as
if the Yuhe acquisitions had been consummated as of January 1, 2008 and the
results are shown for the three months ended March 31, 2008 includes certain pro
forma adjustments, including depreciation and amortization on the assets
acquired, and other adjustments.





F-9




YUHE
INTERNATIONAL, INC.
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





6.
            Acquisition
      of subsidiaries - continued





For the three
                    months ended
                    March 31,2008(Pro forma)Revenues
                  
                  $
                  2,594,880Net
      income (loss)
                  
                  $
                  (130,947
                  )Earnings
      (loss) per shareBasic
                  
                  $
                  (0.01
                  )Diluted
                  
                  $
                  (0.01
                  )Weighted
      average shares outstandingBasic
                  
                  
                  10,146,353Diluted
                  
                  
                  10,146,353





7.
            Inventories





Inventories
consist of the following:





March 31
                  
                  
                  December 312009
                  
                  
                  2008(unaudited)Raw
      materials
                  
                  $
                  5,599,714
                  
                  
                  $
                  5,281,429Work
      in progress
                  
                  
                  1,414,267
                  
                  
                  
                  1,272,217Finished
      goods
                  
                  
                  62,623
                  
                  
                  
                  91,315$
                  7,076,604
                  
                  
                  $
                  6,644,961





8.
            Unlisted
      investments





Unlisted
investments at March 31, 2009 represent the 3% investments in Hanting Rural
Credit Cooperative, “Hanting” recorded at cost.  For the three months
period ended March 31, 2009, the Company recorded $15,509 and $0 as income from
unlisted investment for dividends received from Hanting.  Management
of the Company has reviewed the investment in Hanting for impairment and
determined there is no indication that the carrying amount of Hanting may not be
recoverable.




F-10


YUHE
INTERNATIONAL, INC.
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS




9.
            Plant
      and equipment, net





Plant and
equipment consists of the following:





March 31,
                  
                  
                  December 31,2009
                  
                  
                  2008(unaudited)At
      costBuildings
                  
                  $
                  16,218,259
                  
                  
                  $
                  14,951,197Machinery
                  
                  
                  5,758,782
                  
                  
                  
                  5,064,593Motor
      vehicles
                  
                  
                  119,937
                  
                  
                  
                  119,786Furniture
      and equipment
                  
                  
                  83,240
                  
                  
                  
                  82,81522,180,218
                  
                  
                  
                  20,218,391Less:
      accumulated depreciation
                  
                  
                  (2,172,215
                  )
                  
                  
                  (1,678,071
                  )20,008,003
                  
                  
                  
                  18,540,320Construction
      in progress
                  
                  
                  6,743,681
                  
                  
                  
                  8,571,956$
                  26,751,684
                  
                  
                  $
                  27,112,276





During
the three months ended March 31, 2009, depreciation expenses amounted to
$500,545 among which $444,333 and $56,212 were recorded as cost of sales and
administrative expense, respectively.





During
the three months ended March 31, 2008, depreciation expenses amounted to
$244,464 among which $169,311 and $75,153 were recorded as cost of sales and
administrative expense, respectively.





Capitalized
interest expense included in construction in progress totaled $0 and $437,221
for the three months ended March 31, 2009 and for the year ended December 31,
2008, respectively.





As of
March 31, 2009, buildings and machinery of the Company with net book value of
$14,145,897 were pledged as collateral under certain loan
arrangements.




F-11


YUHE
INTERNATIONAL, INC.
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


10.
            Intangible
      assets, net





Intangible
assets consist of the following:





March 31,
                  
                  
                  December 31,2009
                  
                  
                  2008(unaudited)Land
      use rights, at cost
                  
                  $
                  2,973,445
                  
                  
                  $
                  2,969,714Less:
      accumulated amortization
                  
                  
                  (76,411
                  )
                  
                  
                  (59,962
                  )$
                  2,897,034
                  
                  
                  $
                  2,909,752





As of
March 31, 2009, land use rights of the Group were pledged as collateral under
certain loan arrangements.





During
the three months ended March 31, 2009 and 2008, amortization expenses included
in the cost of sales were $16,371 and $10,414 respectively.




The
estimated aggregate amortization expenses for the land use right for the five
succeeding years are as follows:
 
 YearRemainder
      of 2009
                    
                    $
                    49,1132010
                    
                    
                    65,4842011
                    
                    
                    65,4842012
                    
                    
                    65,4842013
                    
                    
                    65,484thereafter
                    
                    $
                    2,585,9852,897,034


11.
            Due
      to related companies





March 31,
                  
                  
                  December 31,2009
                  
                  
                  2008(unaudited)Weifang
      Hexing Breeding Co., Ltd. "Weifang Hexing" - Gao Zhentao, a director of
      the Company is also a director of Weifang Hexing
                  
                  $
                  480,521
                  
                  
                  $
                  185,885Others
                  
                  
                  10,574
                  
                  
                  
                  24,748$
                  491,095
                  
                  
                  $
                  210,633





The amounts due to related companies
are unsecured, interest free and have no fixed repayment date.  These
loans are used for working capital purposes.




F-12


YUHE
INTERNATIONAL, INC.
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


12.
            Due
      from related companies





March 31,
                  
                  
                  December 31,2009
                  
                  
                  2008(unaudited)Hexing
      Green Agriculture Co., Ltd., "Hexing Green", - Mr. Gao Zhentao, a director
      of the Company is also a director of Hexing Green
                  
                  $
                  75,849
                  
                  
                  $
                  75,754Shandong
      Yuhe Food Co., Ltd, "Yuhe Group"- Mr. Gao Zhentao, a director of the
      Company is also a director of Yuhe Group
                  
                  
                  3,543,603
                  
                  
                  
                  3,580,553Shandong
      Yuhe New Agriculture of Sciences, "Shandong Yuhe"- Mr. Gao Zhentao, a
      director of the Company is also a director of Shandong
Yuhe
                  
                  
                  50,320
                  
                  
                  
                  50,257Weifang
      Jiaweike Food Co., Ltd, "Weifang Jiaweike" - Mr. Gao Zhentao, a director
      of the Company is also a director of Weifang Jiaweike
                  
                  
                  26
                  
                  
                  
                  25$
                  3,669,798
                  
                  
                  $
                  3,706,589





The
amounts due from related companies are unsecured, interest free and have no
fixed repayment date.




F-13


YUHE
INTERNATIONAL, INC.
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


13.
            Long-term
      loans





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





March 31,
                  
                  
                  December 31,2009
                  
                  
                  2008(unaudited)Loans
      from Nansun Rural Credit, interest rate at7.56% to 13.82% per annum,
      $292,158 due on December 9, 2009, remaining balance due on March 10, May
      17, May 28 and Nov 29, 2010
                  
                  $
                  8,764,754
                  
                  
                  
                  8,753,757Loan
      from Shuangyang Rural Credit, interest rate at 9.83% per annum, due on
      October 13, 2010
                  
                  
                  949,515
                  
                  
                  
                  948,324Loan
      from Hanting Kaiyuan Rural Credit Cooperative, interest rate at 7.56% per
      annum, due on January 7, 2011
                  
                  
                  1,066,378
                  
                  
                  
                  -Loan
      from Hanting Kaiyuan Rural Credit Cooperative, interest rate at 11.09% per
      annum, due from November 28, 2008 to January 10, 2009
                  
                  
                  -
                  
                  
                  
                  1,065,04010,780,647
                  
                  
                  
                  10,767,121Less:
      current portion of long-term loans
                  
                  
                  (292,158
                  )
                  
                  
                  (1,356,832
                  )$
                  10,488,489
                  
                  
                  
                  9,410,289





Future
maturities of long-term loans as at March 31, 2009 are as follows:





March 31,20092009
                      
                      $
                      292,1582010
                      
                      
                      9,422,1112011
                      
                      
                      1,066,378$
                      10,780,647




F-14


YUHE
INTERNATIONAL, INC.
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


14.
            Income
      tax





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





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





On
January 1, 2008, the Company adopted FIN 48, 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.





Until
March 31, 2009, the directors 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 year ended March 31,
2009.





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 resulted in deferred tax asset of $2,445 as of March 31,
2009.  Taihong has been experiencing net loss before income taxes,
management does not expect Taihong to generate net income before taxes in the
future as its business is to supply feed to PRC Yuhe.  As such, a full
valuation allowance of $2,445 is recorded against the deferred tax
asset.





F-15




YUHE
INTERNATIONAL, INC.
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS




14.
            Income
      tax - continued





The
provision for income taxes consists of the following:





For
      The Three Months EndedMarch
      31,2009
                  
                  
                  2008(unaudited)
                  
                  
                  (unaudited)Current
      tax-
      PRC
                  
                  
                  -
                  
                  
                  
                  --
      Change in deferred tax asset
                  
                  
                  2,445
                  
                  
                  
                  60,204-
      Change in valuation allowance
                  
                  
                  (2,445
                  )
                  
                  
                  (60,204
                  )-
                  
                  
                  
                  -





All of
the Company’s income (loss) before income taxes is from PRC sources. 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% for the fiscal year of 2009 and 2008
respectively to income (loss) before income taxes for the three months ended
March 31, 2009 and 2008 for the following reasons:





For The Three Months EndedMarch 31,2009
                  
                  
                  2008(unaudited)
                  
                  
                  (unaudited)Income
      (loss) before income taxes
                  
                  $
                  2,914,820
                  
                  
                  $
                  (272,481
                  )Computed  “expected”
      income tax expense at 25%
                  
                  
                  728,705
                  
                  
                  
                  68,120Tax
      effect on net taxable temporary differences
                  
                  
                  2,445
                  
                  
                  
                  -Effect
      of cumulative tax losses
                  
                  
                  92,445
                  
                  
                  
                  -Effect
      of tax holiday
                  
                  
                  (823,595
                  )
                  
                  
                  (68,120
                  )$
                  -
                  
                  
                  $
                  -





F-16




YUHE
INTERNATIONAL, INC.
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





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.





16.
            Stock
      options





On June
13, 2008, the Company granted to the Chief Financial Officer (CFO) of the
Company an option to purchase 150,000 shares of the Company’s common stock at an
exercise price of $3.708 per share for the 3 year’s employment. The options
shall vest with respect to 33.3% of the total number of shares purchasable upon
exercise thereof one year after the grant date and 33.3% on the second and third
anniversary of the grant date, Mr. Hu will be fully vested in the option by that
date and shall cease to vest if the executive cease to be Chief Financial
Officer of the Company for any reason.





On the
same date, the Company granted to three independent directors of the Company an
option to purchase 77,717 shares of the Company’s common stock at an exercise
price of $3.708 per share for the 3 year’s employment. The options shall vest
with respect to 33.3% of the total number of shares purchasable upon exercise
thereof one year after the grant date and 33.3% on the second and third
anniversary of the grant date, the directors will be fully vested in the option
by that date and shall cease to vest if the three independent directors cease to
be independent directors of the Company for any reason.





The
options granted to the CFO and the three independent directors will expire on
the fifth anniversary of the grant date and cease to vest if they cease to be
the CFO or independent directors of the company for any reason.





As at
March 31, 2009, 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.





F-17




YUHE
INTERNATIONAL, INC.
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





16.
            Stock
      options– continued





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 SFAS No. 123R, the Company has recorded
stock-based compensation expense during the three months ended March 31, 2009 of
$179,712 in connection with the issuance of this option.





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
March 31, 2009 and December 31, 2008 was 383,151 shares.





17.
            Earnings
      per share





Basic
earnings per share is computed on the basis of the weighted average number of
shares of common stock outstanding during the period.  Diluted earnings per
share is computed on the basis of the weighted average number of shares of
common stock plus the effect of dilutive potential common shares outstanding
during the period.  The following table sets forth the computation of basic
and diluted net income per share:





For
      The Three Months EndedMarch
      31,2009
                          
                          
                          2008(unaudited)
                          
                          
                          (unaudited)Net
      income attributable to the common stockholders
                          
                          $
                          2,914,820
                          
                          
                          $
                          (272,481
                          )Weighted
      average outstanding shares of common stock
                          
                          
                          15,722,178
                          
                          
                          
                          10,146,353Dilutive
      effect of options, warrants, and contingently issuable
    shares
                          
                          
                          -
                          
                          
                          
                          -Common
      stock and common stock equivalents
                          
                          
                          15,722,178
                          
                          
                          
                          10,146,353Earnings
      per share:Basic
                          
                          $
                          0.19
                          
                          
                          $
                          (0.03
                          )Diluted
                          
                          $
                          0.19
                          
                          
                          $
                          (0.03
                          )




F-18


YUHE
INTERNATIONAL, INC.
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


18.
            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 chick 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.





F-19




YUHE
INTERNATIONAL, INC.
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


18.
            Business
      and geographical segments -
continued





Reportable
Segments





For the three months ended March
                      31, 2009
                    
                    
                    For the three months ended March
                      31, 2008
                    
                    
                    For the three months
                      ended March 31Production
                      of
                      chicks
                    
                    
                    Production
                      offeeds
                    
                    
                    Corporate
                    
                    
                    Production
                      of chicks
                    
                    
                    Production
                      of feeds
                    
                    
                    Corporate
                    
                    
                    Total2009
                    
                    
                    2008External
      revenue
                    
                    $
                    10,827,844
                    
                    
                    $
                    86,546
                    
                    
                    $
                    -
                    
                    
                    $
                    1,028,997
                    
                    
                    $
                    74,554
                    
                    
                    $
                    -
                    
                    
                    $
                    10,914,390
                    
                    
                    $
                    1,103,551Intersegment
      revenue
                    
                    
                    -
                    
                    
                    
                    2,405,913
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    1,296,335
                    
                    
                    
                    -
                    
                    
                    
                    2,405,913
                    
                    
                    
                    1,296,335Interest
      income
                    
                    
                    89
                    
                    
                    
                    7
                    
                    
                    
                    -
                    
                    
                    
                    157
                    
                    
                    
                    1
                    
                    
                    
                    -
                    
                    
                    
                    96
                    
                    
                    
                    158Interest
      expense
                    
                    
                    (115,401
                    )
                    
                    
                    (210,026
                    )
                    
                    
                    -
                    
                    
                    
                    (77,640
                    )
                    
                    
                    (102,834
                    )
                    
                    
                    -
                    
                    
                    
                    (325,427
                    )
                    
                    
                    (180,474
                    )Depreciation
      and amortization
                    
                    
                    (484,725
                    )
                    
                    
                    (32,192
                    )
                    
                    
                    -
                    
                    
                    
                    (234,408
                    )
                    
                    
                    (20,470
                    )
                    
                    
                    -
                    
                    
                    
                    (516,917
                    )
                    
                    
                    (254,878
                    )Net
      profit/(loss) after tax
                    
                    
                    3,294,380
                    
                    
                    
                    (9,782
                    )
                    
                    
                    (369,778
                    )
                    
                    
                    (241,973
                    )
                    
                    
                    (28,801
                    )
                    
                    
                    (1,707
                    )
                    
                    
                    2,914,820
                    
                    
                    
                    (272,481
                    )Expenditures
      for long-lived assets
                    
                    
                    482,916
                    
                    
                    
                    60,463
                    
                    
                    
                    -
                    
                    
                    
                    248,081
                    
                    
                    
                    535
                    
                    
                    
                    -
                    
                    
                    
                    543,379
                    
                    
                    
                    248,616





Note:
Intersegment revenue of $2,405,913 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-20





YUHE
INTERNATIONAL, INC.


NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





19.
            Commitments
      and contingencies





Operating
Leases - In the normal course of business, the Company leases the land for hen
house under operating lease agreements. The Company rents land, primarily for
the feeding of the chickens. 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
      of Year ending December 31,2009
                  
                  $
                  67,5112010
                  
                  
                  90,0142011
                  
                  
                  90,0142012
                  
                  
                  90,0142013
                  
                  
                  90,014Thereafter
                  
                  
                  1,488,252Total
      minimum lease payments
                  
                  
                  1,915,819





During
the three months ended March 31, 2009 and 2008, rental expenses were $28,595 and
$21,705 respectively.





Construction
of Breeding Farm No. 1


On August
15, 2008, PRC Yuhe completed construction work and facilities to set up the
southern farm of breeding farm No 1.  On August 30, 2008, PRC Yuhe
purchased 100,000 sets of parent breeders and began to feed.  By the end of
December 2008, PRC Yuhe has spent RMB 29 million, approximately equivalent to
$4.5 million, to build breeding farm No 1.  The breeding farm can be split
into the southern and the northern regions.  PRC Yuhe looks forward to
completing the northern farm construction work and facilities to set up by July
in 2009; and beginning to breed parent broilers in the northern region by the
end of 2009.  The residual scheduled payment is RMB 6 million, equivalent
to $0.9 million, for the building and facilities; and RMB 4.9 million,
approximately equivalent to $0.75 million, in machinery.  The capacity of
the northern factory is 140,000 sets of parent broilers





Construction
of Breeding Farm No. 2, 3, 5, 6, and 7


On
December 6, 2008, PRC Yuhe entered into a construction agreement with a
contractor to build and renovate five of its breeding farms for a total
consideration of RMB2.6 million, approximately equivalent to $379,000. The
construction is estimated to be completed at June 2009.




F-21





YUHE
INTERNATIONAL, INC.


NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





19.
            Commitments
      and contingencies - continued





Construction
of Steel Structural Surface for Hatchery No. 3


On
December 10, 2008, PRC Yuhe entered into a construction agreement with a
contractor to build the steel structure for its hatchery farm No. 3 for a total
consideration of RMB3.9 million, approximately equivalent to $564,000. The
construction is estimated to be completed at June 2009.





20.
            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 will commence on the date that the production
begins.  Shandong Nongbiao Purina shall pay to PRC Yuhe an annual
rental payment for the leased land, premises and facilities of RMB 1,500,000,
approximately equivalent to $219,000. The rent payable by Shandong Nongbiao
Purina under the rental agreement will be offset against the prepaid equipment
rental costs of RMB10,000,000, approximately equivalent to
$1,459,000.  As at March 31, 2009, Shandong Nongbiao Purina advanced
USD249,795 (RMB1,710,000) 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 RMB 4,500,000, approximately equivalent to $657,000,
for the first five years and for RMB 3,000,000, approximately equivalent to
$438,000, for the next five years. No guarantee fee is required according to the
above Agreements.




F-22





YUHE
INTERNATIONAL, INC.


NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





21.
            Make
      Good Escrow Agreements





According
to the Consolidated Statements of Income and Comprehensive Income of the Company
in its Form 10-K for the fiscal year ended December 31, 2008 filed by the
Company with the Securities and Exchange Commission on March 31, 2009, the
Company’s After Tax Net Income for the fiscal year ended December 31, 2008 was
reported as $10,524,885, which has exceeded the 2008 Guaranteed After Tax Net
Income, as agreed in the Make Good Escrow Agreements described
below.





The
Company entered into a Make Good Escrow Agreement, dated March 12, 2008,
with Mr. Kunio Yamamoto, the “Make Good Pledgor”, Tri-State Title &
Escrow, LLC, Roth Capital Partners LLC, “Roth Capital” and each of the investors
in the private offering of securities of the Company.  The Company is
working with Roth Capital in connection with the release of 1,679,992 shares of
common stock, the 2008 Make Good Shares, to Mr. Kunio Yamamoto, the Make Good
Pledgor.





The
Company entered into a separate Make Good Escrow Agreement, dated March 12,
2008, with Mr. Kunio Yamamoto, the “Make Good Pledgor”, Interwest Transfer
Company, Inc., the “Escrow Agent”, and HFG International Limited, “HFG”. 
HFG has executed a Form of Release to release 235,196 shares of the Company’s
common stock to Mr. Kunio Yamamoto, the Make Good Pledgor.  On or about
April 27, 2009, 235,196 shares of the Company’s common stock were released by
HFG to Mr. Kunio Yamamoto.




F-23




YUHE
INTERNATIONAL, INC.




UNAUDITED
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS




F-24





YUHE
INTERNATIONAL, INC.





UNAUDITED
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS





Basis
of Presentation





On March
12, 2008, Yuhe International, Inc. entered into a Share Exchange Agreement with
Bright Stand International Limited and its stockholders, pursuant to which Yuhe
International, Inc. acquired all of the issued and outstanding capital stock of
Bright Stand International Limited in exchange for a total of 8,626,236 shares
of our common stock, constituting 56% shares of Yuhe International, Inc. issued
and outstanding common stock at the time of the merger agreement, $0.001 par
value per share.





Yuhe
International, Inc. completed the acquisition of Bright Stand International
Limited pursuant to the Merger Agreement, in March 2008. The acquisition was
accounted for as a reverse merger effected by a share exchange, wherein Bright
Stand International Limited is considered the acquirer for accounting and
financial reporting purposes.





The
unaudited pro forma consolidated statement of operations reflects the results of
operations of the company had the merger occurred on January 1, 2008. The pro
forma consolidated statements of operations were prepared as if the transactions
were consummated on January 1, 2008. These pro forma consolidated statements of
operations have been prepared for comparative purposes only and do not purport
to be indicative of the results of operations which actually would have resulted
had the transaction occurred on the date indicated and are not necessarily
indicative of the results that may be expected in the future.





Due to
the fact that there was no any trading and shareholding relationship between
Yuhe International, Inc. with Bright Stand International Limited before the
share exchange, in the opinion of management, no pro forma adjustment directly
attributable to the share exchange contemplated by the Agreement is to be made
to the unaudited pro forma consolidated statements of operations of Yuhe
International, Inc.




F-25




YUHE
INTERNATIONAL, INC.


UNAUDITED
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS


FOR THE
THREE MONTHS ENDED MARCH 31, 2008





For
      the three
                  months
      ended
                  March
      31, 2008Net
      revenues
                
                $
                2,594,880Cost
      of revenue
                
                
                (2,212,145
                )Gross
      profit
                
                
                382,735Operating
      expensesSelling
                
                
                (77,537
                )General
      and administrative expenses
                
                
                (383,664
                )Total
      operating expenses
                
                
                (461,201
                )Income
      from operations
                
                
                (78,466
                )Non-operating
      income (expense)Bad
      debts recovery (expense)
                
                
                233,038Interest
      income
                
                
                163Other
      income
                
                
                11,504Interest
      expenses
                
                
                (266,641
                )Other
      expenses
                
                
                (30,545
                )Total
      other income (expenses)
                
                
                (52,481
                )Net
      Income before income tax
                
                
                (130,947
                )Income
      Tax
                
                
                -Net
      income
                
                
                (130,947
                )Earnings
      per shareBasic
                
                $
                (0.01
                )Diluted
                
                $
                -Weighted
      average shares outstandingBasic
                
                
                10,146,353Diluted
                
                
                -





F-26





WEIFANG
YUHE POULTRY CO., LTD


CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS





FOR
THE PERIOD FROM JANUARY 1, 2008 TO JANUARY 31, 2008


(Stated
in US dollars)





F-27





WEIFANG
YUHE POULTRY CO., LTD





PageCondensed
      Consolidated Balance Sheet – unaudited
                  
                  F-29
      to F-30Condensed
      Consolidated Statements of Operations and Comprehensive Income (Loss) –
      unaudited
                  
                  F-31Condensed
      Consolidated Statements of Cash Flows – unaudited
                  
                  F-32
      to F-33Notes
      to Condensed Consolidated Financial Statements – unaudited
                  
                  F-34
      to F-48





F-28





WEIFANG
YUHE POULTRY CO., LTD





CONDENSED
CONSOLIDATED BALANCE SHEET – unaudited


AS
AT JANUARY 31, 2008


(Stated
in US Dollars)





ASSETSCurrent
      assetsCash
      and cash equivalents
                
                $
                1,051,106Accounts
      receivable
                
                
                1,475Inventories
                
                
                4,624,425Advances
      to suppliers
                
                
                305,013Total
      current assets
                
                $
                5,982,019Deposits
      paid
                
                
                1,084,265Other
      receivables, net
                
                
                3,001,699Unlisted
      investments
                
                
                279,738Plant
      and equipment, net
                
                
                15,323,245Intangible
      assets, net
                
                
                2,832,869Due
      from related companies
                
                
                3,775,469Due
      from directors
                
                
                233,037Deferred
      expenses
                
                
                602,918Total
      assets
                
                $
                33,115,259LIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrent
      liabilitiesAccounts
      payable
                
                $
                4,800,665Current
      portion of long-term loans
                
                
                4,383,951Loans
      payable
                
                
                1,770,862Payroll
      and payroll related liabilities
                
                
                545,565Accrued
      expenses
                
                
                473,020Advances
      from customers
                
                
                209,694Tax
      payables
                
                
                125,645Due
      to related companies
                
                
                320,913Total
      current liabilities
                
                $
                12,630,315





See
accompanying notes to condensed consolidated financial statements




F-29




WEIFANG
YUHE POULTRY CO., LTD





CONDENSED
CONSOLIDATED BALANCE SHEET – unaudited (Continued)


AS
AT JANUARY 31, 2008


(Stated
in US Dollars)





Long-term
      liabilitiesLong-term
      loans
                
                
                6,165,365Total
      liabilities
                
                $
                18,795,680Commitments
      and contingencies (Note 18)EQUITYWeifang
      Yuhe Poultry Co., stockholders' equity:Registered
      capital
                
                
                3,019,003Additional
      paid-in-capital
                
                
                7,009,523Retained
      earnings
                
                
                3,058,878Accumulated
      other comprehensive income
                
                
                953,409Total
      Weifang Yuhe Poultry Co., stockholders' equity:
                
                
                14,040,813Noncontrolling
      interest
                
                
                278,766Total  equity
                
                
                14,319,579Total
      liabilities and  equity
                
                $
                33,115,259





See
accompanying notes to condensed consolidated financial
statements


F-30




WEIFANG
YUHE POULTRY CO., LTD





CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS AND


COMPREHENSIVE
INCOME (LOSS) – unaudited


FOR
THE PERIOD FROM JANUARY 1, 2008 TO JANUARY 31, 2008


(Stated
in US Dollars)




Net
      revenues
                  
                  $
                  1,491,329Cost
      of revenues
                  
                  
                  (1,337,438
                  )Gross
      profit
                  
                  
                  153,891Operating
      expenses:Selling
      expenses
                  
                  
                  (28,997
                  )General
      and administrative expenses
                  
                  
                  (122,695
                  )Total
      operating expenses
                  
                  
                  (151,692
                  )Income
      from operations
                  
                  
                  2,199Bad
      debts recovery
                  
                  
                  219,893Other
      income
                  
                  
                  5,604Interest
      income
                  
                  
                  5Interest
      expenses
                  
                  
                  (86,167
                  )Income
      before income taxes
                  
                  
                  141,534Income
      taxes
                  
                  
                  -Net
      income
                  
                  
                  141,534Less:
      Net income attributable to the noncontrolling interest
                  
                  
                  (73,398
                  )Net
      income attributable to Weifang Yuhe Poultry Co., Ltd
                  
                  $
                  68,136Net
      income
                  
                  $
                  141,534Other
      comprehensive incomeForeign
      currency translation adjustment
                  
                  
                  201,390Comprehensive
      income
                  
                  
                  342,924Comprehensive
      income attributable to the noncontrolling interest
                  
                  
                  (88,108
                  )Comprehensive
      income attributable to Weifang Yuhe Poultry Co., Ltd
                  
                  $
                  254,816





See
accompanying notes to condensed consolidated financial statements





F-31





WEIFANG
YUHE POULTRY CO., LTD





CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


FOR
THE PERIOD FROM JANUARY 1, 2008 TO JANUARY 31, 2008 – unaudited


(Stated
in US Dollars)





Cash
      flows from operating activitiesNet
      income attributable to Weifang Yuhe Poultry Co., Ltd
                
                $
                68,136Adjustments
      to reconcile net income to net cash used in operating
      activitiesDepreciation
                
                
                121,213Amortization
                
                
                5,200Income
      attributable to noncontrolling interest
                
                
                73,398Change
      in assets and liabilitiesAdvances
      to suppliers
                
                
                212,910Prepaid
      expenses
                
                
                64,556Deposits
      paid
                
                
                111,147Inventories
                
                
                (607,144
                )Deferred
      expenses
                
                
                (41,232
                )Accounts
      payable
                
                
                (768,683
                )Payroll
      and payroll related liabilities
                
                
                (304,784
                )Accrued
      expenses
                
                
                104,606Advances
      from customers
                
                
                15,465Other
      tax payables
                
                
                (9,266
                )Net
      cash used in operating activities
                
                $
                (954,478
                )Cash
      flows from investing activitiesDeposits
      paid and acquisition of property, plant & equipment
                
                $
                (206,700
                )Decrease
      in other receivables
                
                
                (238,310
                )Advances
      from related parties receivables
                
                
                2,321,943Net
      cash provided by investing activities
                
                $
                1,876,933





F-32





WEIFANG
YUHE POULTRY CO., LTD





CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS – unaudited (Continued)


FOR
THE PERIOD FROM JANUARY 1, 2008 TO JANUARY 31, 2008


(Stated
in US Dollars)





Cash
      flows from financing activitiesRepayments
      of loan payables
                
                $
                (1,555,807
                )Proceeds
      from capital contributions
                
                
                2,536,290Repayment
      to related parties
                
                
                (900,140
                )Net
      cash provided by financing activities
                
                $
                80,343Effect
      of foreign currency translation on cash and cash
    equivalents
                
                
                853Increase
      in cash and cash equivalents
                
                
                1,003,651Cash
      and cash equivalents-beginning of period
                
                
                47,455Cash
      and cash equivalents-end of period
                
                $
                1,051,106Supplementary
      cash flow information:Interest
      paid in cash
                
                $
                180





See
accompanying notes to condensed consolidated financial statements





F-33





WEIFANG
YUHE POULTRY CO., LTD


NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Stated
in US Dollars)





1.
            Organization
      and principal activities





Weifang
Yuhe Poultry Co., Ltd (“the Company”) was established in Weifang, Shandong of
the People’s Republic of China (the PRC) as a limited company on March 8, 1996.
The Company currently operates through itself and one subsidiary located in
Mainland China: Weifang Taihong Feed Co., Ltd. (Taihong).





Taihong
was established in Weifang, Shandong of the People’s Republic of China (the PRC)
as a limited company on May 26, 2003. Pursuant to a group reorganization on
September 14, 2007, the Company became the holding company of
Taihong.





The
Company and its subsidiary (hereinafter, collectively referred to as “the
Group”) are engaged in the business of chick and feed production.





2.
            Summary
      of significant accounting policies





(a)
            Method
      of Accounting





The
accompanying consolidated financial statements have been prepared in conformity
with accounting principles generally accepted in the United States of America.
The Company's functional currency is the Chinese Renminbi; however the
accompanying consolidated financial statements have been translated and
presented in United States Dollars ($).





(b)
            Principles
      of consolidation





The
consolidated financial statements are presented in US Dollars and include the
accounts of the Company, Taihong, a subsidiary which the company has a 56.25%
ownership. All significant inter-company balances and transactions are
eliminated in consolidation.





The
Company acquired its subsidiary on September 14, 2007 through a reorganization
between entities under common control. Accordingly, the transaction was
accounted for similar to a pooling of interests in accordance with SFAS 141
“Business Combination” Appendix D and is presented as if it had occurred at the
beginning of the first period presented. The following table depicts the
identity of the subsidiary:




Name of Company
                                  
                                  Place & date of
                                    Incorporation
                                  
                                  
                                  Attributable Equity
                                    Interest %
                                  
                                  
                                  Registered
                                    CapitalWeifang
      Taihong Feed Co., Ltd.
                                  
                                  PRC/May
      26 2003
                                  
                                  
                                  
                                  56.25
                                  
                                  
                                  $
                                  965,379
                                  
                                  
                                  (RMB8,000,000
      )


(c)
            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.





F-34




WEIFANG
YUHE POULTRY CO., LTD


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Stated
in US Dollars)





2.
            Summary
      of significant accounting policies
(Continued)





(d)
            Economic
      and political risks





The
Company’s operations are conducted in the PRC. Accordingly, the Company’s
business, financial condition and results of operations may be influenced by the
political, economic and legal environment in the PRC, and by the general state
of the PRC economy.




The
Company’s operations in the PRC are subject to special considerations and
significant risks not typically associated with companies in North America and
Western Europe. These include risks associated with, among others, the
political, economic and legal environment and foreign currency exchange. The
Company’s results may be adversely affected by changes in the political and
social conditions in the PRC, and by changes in governmental policies with
respect to laws and regulations, anti-inflationary measures, currency
conversion, remittances abroad, and rates and methods of taxation, among other
things.





(e)
            Plant
      and equipment





Plant and
equipment are carried at cost less accumulated depreciation. Depreciation is
provided over their estimated useful lives, using the straight-line method.
Estimated useful lives of the plant and equipment are as follows:




Buildings
                        
                        20
      yearsMachinery
                        
                        10
      yearsVehicle
                        
                        5
      yearsFurniture
      and equipment
                        
                        3
      years


The cost
and related accumulated depreciation of assets sold or otherwise retired are
eliminated from the accounts and any gain or loss is included in the statement
of income. The cost of maintenance and repairs is charged to income as incurred,
whereas significant renewals and betterments are capitalized.





(f)
            Intangible
      assets





Intangible
assets represent land use rights in the PRC. Land use rights are carried at cost
and amortized on a straight-line basis over the period of rights of 50 years
commencing from the date of acquisition of equitable interest. According to the
laws of the PRC, the government owns all of the land in the PRC. Companies or
individual are authorized to possess and use the land only through land usage
rights approved by the PRC government.





F-35








WEIFANG
YUHE POULTRY CO., LTD


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Stated
in US Dollars)





2.
            Summary
      of significant accounting policies
(Continued)





(g)
            Guarantee
      Expense




The
Company accounts for its liability for product guaranteed in accordance with
FASB Interpretation No. 45 (FIN 45), “Guarantor’s Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others.” Under FIN 45, the aggregate changes in the liability for accruals
related to product warranties issued during the reporting period must be charged
to expense as incurred.





The
Company guarantees a 98% survival rate of its product by delivering additional
2% of the product. The guarantee expires seven days after delivery. If the
survival rate falls below 96%, the Company provides additional guarantee
compensation to customers. Based on historical experience, the likelihood that
survival rate falls below 96% is remote and therefore no accrued guarantee
liability was recorded at period end. The Company records guarantee expense as
incurred. There was no guarantee expense for the period from January 1, 2008 to
January 31, 2008.





(h)
            Accounting
      for the impairment of long-lived
assets




The
long-lived assets held and used by the Company are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
assets may not be recoverable. It is reasonably possible that these assets could
become impaired as a result of technology or other industry changes.
Determination of recoverability of assets to be held and used is done by
comparing the carrying amount of an asset to future net undiscounted cash flows
to be generated by the assets.





If such
assets are considered to be impaired, the impairment to be recognized is
measured as the amount by which the carrying amount of the assets exceeds the
fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell. During the reporting
periods, there was no impairment loss.




(i)
            Inventories





Inventories
consisting of raw materials, work in progress and finished goods are stated at
lower of cost or net realizable value. The cost of inventories is determined
using weighted average cost method, and includes expenditure incurred in
acquiring the inventories and bringing them to their existing location and
condition. Net realizable value is the estimated selling price in the ordinary
course of business less any applicable selling expenses. Finished goods are
comprised of direct materials, direct labor and an appropriate proportion of
overhead. At each balance sheet date, inventories that are worth less than cost
are written down to their net realizable value, and the difference is charged to
the cost of revenues of that period.





(j)
            Trade
      receivables




Trade
receivables are recognized and carried at the original invoice amount less
allowance for any uncollectible amounts. An estimate for doubtful accounts is
made when collection of the full amount is no longer probable. Management
adopted an allowance policy which provides an allowance equivalent to 30% gross
amount of accounts receivables due over 6 months and 60% of gross amount of
accounts receivables due over 1 year. Full provision will be made for accounts
receivables due over 2 years. Bad debts are written off as incurred. It is a
common industry practice in the PRC that customers pay in advance before
delivery of the products. As a result, the Company maintains a low level of
trade receivables.





F-36




WEIFANG
YUHE POULTRY CO., LTD


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Stated
in US Dollars)





2.
            Summary
      of significant accounting policies
(Continued)




(k)
            Cash
      and cash equivalents




The
Company considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents. The Company maintains
bank accounts only in the PRC. The Company does not maintain any bank accounts
in the United States of America. Cash deposits in PRC banks are not insured by
any government agency or entity.





(l)
            Revenue
      recognition





Revenue
from sales of the Company's products is recognized when the significant risks
and rewards of ownership have been transferred to the third-party distributor
and larger producers at the time when the products are delivered to and accepted
by them, the sales price is fixed or determinable as stated in the sales
contract, and collection is reasonably assured.





(m)
            Cost
      of revenues





Cost of
revenues consists primarily of material costs, employee compensation,
depreciation and related expenses, which are directly attributable to the
production of products. Write-down of inventory to lower of cost or market is
also recorded in cost of revenues.





(n)
            Advertising





The Group
expensed all advertising costs as incurred. There was no advertising expenses
for the period from January 1, 2008 to January 31, 2008.





(o)
            Retirement
      benefit plans





The
employees of the Group are members of a state-managed retirement benefit plan
operated by the government of the PRC. The Group is required to contribute a
specified percentage of payroll costs to the retirement benefit scheme to fund
the benefits. The only obligation of the Group with respect to the retirement
benefit plan is to make the specified contributions.





Retirement
benefits in the form of contributions under defined contribution retirement
plans to the relevant authorities are charged to the statements of income as
incurred. The retirement benefit expenses for the period from January 1, 2008 to
January 31, 2008 were $5,843.





F-37




WEIFANG
YUHE POULTRY CO., LTD


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Stated
in US Dollars)





2.
            Summary
      of significant accounting policies
(Continued)





(p)
            Income
      tax





The
Company accounts for income taxes using an asset and liability approach and
allows for recognition of deferred tax benefits in future years. Under the asset
and liability approach, deferred taxes are provided for the net tax effects of
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes. A
valuation allowance is provided for deferred tax assets if it is more likely
than not these items will either expire before the Company is able to realize
their benefits, or that future realization is uncertain.





The
Company is operating in the PRC, and in accordance with the relevant tax laws
and regulations of PRC, the corporation income tax rate is 25%. However, the
Company is a poultry company, and in accordance with the relevant regulations
regarding the favorable tax treatment for an outstanding poultry company, the
Company is entitled to a tax free treatment until January 31, 2008.





The
corporate income tax for the subsidiary, Weifang Taihong Feed Co., Ltd is
25%.





(q)
            Shipping
      and handling fees





Shipping
and handling fees are expensed when incurred. Shipping and handling charges
included in the selling expenses for the period from January 1, 2008 to January
31, 2008 was $5,330.





(r)
            Noncontrolling
      interest





Noncontrolling
interest refers to the 43.75% investment by third parties in the equity of
Taihong and are not held by the Company.





(s)
            Foreign
      currency translation





The
accompanying financial statements are presented in United States dollars. The
functional currency of the Company is the Renminbi (RMB). The financial
statements are translated into United States dollars from RMB 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.





January
      31, 2008Balance
      sheet
                    RMB
      7.20180 to US$1.00Statement
      of income and comprehensive income
                    RMB
      7.25883 to
US$1.00





The RMB
is not freely convertible into foreign currency and all foreign exchange
transactions must take place through authorized institutions. No representation
is made that the RMB amounts could have been, or could be, converted into US$ at
the rates used in translation.




F-38





WEIFANG
YUHE POULTRY CO., LTD


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Stated
in US Dollars)





2.
            Summary
      of significant accounting policies
(Continued)




(t)
            Comprehensive
      income





Comprehensive
income is defined to include all changes in equity except those resulting from
investments by owners and distributions to owners. Among other disclosures, all
items that are required to be recognized under current accounting standards as
components of comprehensive income are required to be reported in a financial
statement that is presented with the same prominence as other financial
statements. The Company’s current component of comprehensive income is the
foreign currency translation adjustment.





(u)
            Fair
      value of financial instruments




SFAS No.
107, “Disclosures about Fair Value of Financial Instruments” (“SFAS 107”)
requires entities to disclose the fair values of financial instruments except
when it is not practicable to do so. Under SFAS No. 107, it is not practicable
to make this disclosure when the costs of formulating the estimated values
exceed the benefit when considering how meaningful the information would be to
financial statement users.





The fair
values of all assets and liabilities do not differ materially from their
carrying amounts. None of the financial instruments held are derivative
financial instruments and none were acquired or held for trading purposes during
the period for January 1, 2008 to January 31, 2008.





(v)
            Recent
      accounting pronouncements





In
December 2007, the FASB issued SFAS No. 141R, “Business Combinations” (“SFAS No.
141R”). SFAS No. 141R amends SFAS 141 and provides revised guidance for
recognizing and measuring identifiable assets and goodwill acquired, liabilities
assumed, and any noncontrolling interest in the acquiree. It also provides
disclosure requirements to enable users of the financial statements to evaluate
the nature and financial effects of the business combination. It is effective
for fiscal years beginning on or after December 15, 2008 and will be applied
prospectively. We are currently evaluating the impact of adopting SFAS No. 141R
on our consolidated financial statements.





In
December 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No.
160, “Noncontrolling Interests in Consolidated Financial Statements — an
amendment of ARB No. 51” (“SFAS No. 160”). SFAS No. 160 requires that ownership
interests in subsidiaries held by parties other than the parent, and the amount
of consolidated net income, be clearly identified, labeled, and presented in the
consolidated financial statements. It also requires once a subsidiary is
deconsolidated, any retained noncontrolling equity investment in the former
subsidiary be initially measured at fair value. Sufficient disclosures are
required to clearly identify and distinguish between the interests of the parent
and the interests of the noncontrolling owners. It is effective for fiscal years
beginning on or after December 15, 2008 and requires retroactive adoption of the
presentation and disclosure requirements for existing minority interests. All
other requirements shall be applied prospectively. We are currently evaluating
the impact of adopting SFAS No. 160 on our consolidated financial
statements.




F-39





WEIFANG
YUHE POULTRY CO., LTD


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Stated
in US Dollars)





3.
            Inventories





Inventories
consist of the following:





Raw
      materials
                
                $
                706,405Work
      in progress
                
                
                3,870,136Finished
      goods
                
                
                47,884$
                4,624,425


4.
                Other
      receivables, net








Other
receivables, net consist of the following:




Loan
      receivables
                
                $
                3,234,413Other
      receivables
                
                
                230,459Less:
      Allowances
                
                
                (463,173
                )$
                3,001,699





Other
receivables are unsecured, interest free and have no fixed repayment
date.





Recovery
of bad debts of other receivable for the period ended January 31 2008 included
in other income $219,893.





Allowance
is made when collection of the full amount is no longer probable. Management
reviews and adjusts this allowance periodically based on historical experience,
current economic climate as well as its evaluation of the collectibility of
outstanding accounts. The Group evaluates the credit risks of its customers
utilizing historical data and estimates of future performance.




F-40





WEIFANG
YUHE POULTRY CO., LTD


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Stated
in US Dollars)





5.
            Unlisted
      investments





Unlisted
investments at January 31, 2008 are the 3% investments in Hanting Rural Credit
Cooperative (“Hanting”). It is stated at cost because the Group does not have
significant influence or control over this investment. The management of the
Company has reviewed the investment in Hanting for any impairment and determined
there is no indication that the carrying amount of Hanting may not be
recoverable.





6.
            Plant
      and equipments, net





Plant and
equipment consists of the following:




At
      costBuildings
                
                $
                9,849,070Machinery
                
                
                5,408,153Motor
      vehicles
                
                
                432,291Furniture
      and equipment
                
                
                276,570$
                15,966,084Less:
      accumulated depreciation
                
                
                (5,063,219
                )Construction
      in progress
                
                
                4,420,380$
                15,323,245





Depreciation
expenses included in the cost of sales during the period from January 1, 2008 to
January 31, 2008 was $83,448, and included in the general and administrative
expenses for the period ended January 31, 2008 was $37,765.





As of
January 31, 2008, buildings and machinery of the Group were pledged as
collateral under certain loan arrangements.





There was
no interest capitalized for the construction in progress during the period from
January 1, 2008 to January 31, 2008.





F-41




WEIFANG
YUHE POULTRY CO., LTD


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Stated
in US Dollars)





7.
            Intangible
      assets, net





Intangible
assets consist of the following:





Land
      use rights, at cost
                
                $
                3,117,798Less:
      accumulated amortization
                
                
                284,929$
                2,832,869





As of
January 31, 2008, land use rights of the Group were pledged as collateral under
certain loan arrangements.





Amortization
expense included in the cost of revenues during the period from January 1, 2008
to January 31, 2008 was $5,200.





8.
            Due
      from related companies





Hefeng Green
      Agriculture Co., Ltd - Mr. Gao Zhentao, the director of the company
      is also the director
                
                $
                72,263Shandong
      Yuhe Food Group Co., Ltd - Mr. Gao Zhentao, the director of the company is
      also the director
                
                
                3,653,930Shandong
      Yuhe New Agriculture Academy of Sciences - Mr. Gao Zhentao, the director
      of the company is also the director
                
                
                49,251Weifang
      Jiaweike Food Co., Ltd - Mr. Gao Zhentao, the director of the company is
      also the director
                
                
                25$
                3,775,469





The
amounts due from related companies are unsecured, interest free and have no
fixed repayment date.




F-42




WEIFANG
YUHE POULTRY CO., LTD


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Stated
in US Dollars)





9.
            Due
      from directors





Details
of due from directors are as follows:





Mr.
      Tan Yi
                
                $
                79,491Mr.
      Gao Zhenbo
                
                
                78,091Mr.
      Gao Zhentao
                
                
                75,455$
                233,037





The
amounts due from directors are unsecured, interest free and have no fixed
repayment date.





10.
            Loan
      payable





Loans
payable are loans from unrelated companies for temporary fund for operation
purposes. They are unsecured, interest free and have no fixed repayment
date.





11.
            Due
      to related companies




Weifang
      Hexing Breeding Co., Ltd - Mr. Gao Zhentao, the director of the
      company is also the director
                
                $
                301,965Shandong
      Yuhe Food Group Co., Ltd - Mr. Gao Zhentao, the director of the company is
      also the director
                
                
                18,948$
                320,913





The
amounts due to related companies are unsecured, interest free and have no fixed
repayment date. These loans are used for working capital purposes.




Bright
Stand is the legal and accounting acquirer of the Group. Bright Stand becomes
the sole shareholder of the company after January 31, 2008 business
combination.




F-43




WEIFANG
YUHE POULTRY CO., LTD


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Stated
in US Dollars)





12.
            Registered
      capital





As of
January 31, 2008, capital contributions paid-up amounted to $3,019,003 (RMB
22,224,004).





Prior to
the effective closing date of the acquisition transaction as discussed in Note
19, Bright Stand International Limited contributed $2,536,290 additional capital
to the Company for working capital purposes.




13.
            Long-term
      liabilities




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




Loans
      from Nansun Rural Credit, interest rate at 9.22% to 10.51% per
      annum, due from Nov 28, 08 to May 17, 10
                
                $
                8,350,383Loans
      from Shuangyang Rural Credit interest rate at 9.33% per
      annum, due on Oct 12, 08
                
                
                904,625Loans
      from Hanting Kaiyuan Rural Credit Cooperative, interest rate
      at 9.22% to 13.31% per annum, due from Nov 28, 08 to Jan 10,
      09
                
                
                1,015,963Loans
      from Hanting Rural Credit Cooperative, interest rate at 8.19%
      per annum, due from Nov 8, 09
                
                
                278,34510,549,316Less:
      current portion of long-term liabilities
                
                
                (4,383,951
                )6,165,365





Future
maturities of long-term loans as at January 31, 2008 are as
follows:




Remainder
      of 2008
                
                $
                4,383,9512009
                
                
                2,686,0402010
                
                
                3,479,326$
                10,549,317




F-44




WEIFANG
YUHE POULTRY CO., LTD


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Stated
in US Dollars)





14.
            Income
      tax





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





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




The Group
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. There are no material timing differences and
therefore no deferred tax asset or liability at January 31, 2008





The
provision for income taxes consists of the following:




Current
      taxPRC
                
                $
                -Deferral
      tax provision
                
                
                -$
                -





All of
the Group’s income (loss) before income taxes is from PRC sources. 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 (loss) before income taxes during the period from January
1, 2008 to January 31, 2008 for the following reasons:




Income
      before income taxes
                
                $
                141,534Computed
      “expected” income tax expense at 25%
                
                $
                35,384Tax
      effect on net taxable temporary differences
                
                
                (41,942
                )Effect
      of cumulative tax losses and tax holiday
                
                
                6,558$
                -




F-45




WEIFANG
YUHE POULTRY CO., LTD


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Stated
in US Dollars)





15.
            Related
      parties transactions





The
following material transactions with related parties during the years were in
the opinion of the directors, carried out in the ordinary course of business and
on normal commercial terms:




Sales
      of goods to a related company
                
                $
                695,851





Sales to
Weifang Hexing Breeding Co., Ltd, a related company, during the period from
January 1, 2008 to January 31, 2008.





During
2008, Jiaweike was disposed of to the Weifang Hexing Breeding Co., Ltd, a
related company where Mr. Gao Zhentao, the director of the Company is also the
director. (note 5)





16.
            Significant
      concentrations and risk





(a)
  Customer Concentrations





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




Wang
      Jianbo
                
                
                24.89
                %Wei
      Yunchao
                
                
                22.10
                %Li
      Yubo
                
                
                18.03
                %




The Group
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 Group
has the following concentrations of business with each supplier constituting
greater than 10% of the Company’s gross purchases:





Ma
      Suping
                
                
                15.94
                %Lu
      Xingzhong
                
                
                10.20
                %





(b)
  Credit Risk





Financial
instruments that potentially subject the Group to significant concentration of
credit risk consist primarily of cash and cash equivalents. As of January 31,
2008, substantially all of the Group’s cash and cash equivalents were held by
major financial institutions located in the PRC, which management believes are
of high credit quality.




F-46




WEIFANG
YUHE POULTRY CO., LTD


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Stated
in US Dollars)





16.
            Significant
      concentrations and risk (Continued)





(c)
  Group’s operations are in China





All of
the Group’s products are produced in China. The Group’s operations are subject
to various political, economic, and other risks and uncertainties inherent in
China. Among other risks, the Group’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.





17.
            Business
      and geographical segments





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




Reportable
Segments





Production
                              of
      chick
                            
                            
                            Production
                              of
      feed
                            
                            
                            TotalExternal
      revenue
                            
                            
                            1,443,425
                            
                            
                            
                            47,904
                            
                            
                            
                            1,491,329Intersegment
      revenue
                            
                            
                            
                            
                            
                            
                            737,602
                            
                            
                            
                            737,602Interest
      income
                            
                            
                            5
                            
                            
                            
                            -
                            
                            
                            
                            5Interest
      expense
                            
                            
                            (34,819
                            )
                            
                            
                            (51,348
                            )
                            
                            
                            (86,167
                            )Depreciation
      and amortization
                            
                            
                            116,071
                            
                            
                            
                            10,342
                            
                            
                            
                            126,413Net
      profit (loss) after tax
                            
                            
                            (26,232
                            )
                            
                            
                            167,766
                            
                            
                            
                            141,534AssetsExpenditures
      for long-lived assets
                            
                            
                            206,176
                            
                            
                            
                            524
                            
                            
                            
                            206,700





Note:
Intersegment revenue of $737,602 was eliminated in consolidation.




F-47




WEIFANG
YUHE POULTRY CO., LTD


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Stated
in US Dollars)





18.
            Commitments
      and contingencies





Operating
Leases - In the normal course of business, the Company leases the land
for hen house under operating lease agreements. The Company rents land,
primarily for the feeding of the chickens. 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:




Up
      to January 31,2008
                  
                  $
                  134,3192009
                  
                  
                  146,5302010
                  
                  
                  135,0492011
                  
                  
                  77,6482012
                  
                  
                  77,648Thereafter
                  
                  
                  1,444,031Total
      minimum lease payments
                  
                  $
                  2,015,225




During
the period for January 1, 2008 to January 31, 2008, rent expenses amounted to
$22,432 was recorded as cost of sales.





19.
            Subsequent
      Events





In
January 31, 2008, Bright Stand International Limited, “Bright Stand”, a company
incorporated in the British Virgin Islands, acquired 100% equity ownership
of the Company and 43.75% equity ownership of Taihong for cash
consideration equal to the appraised fair market value of the Company in the
amount of $11,306,522, or RMB 81,450,000, and $312,530, or RMB 2,244,000.
As a result, the Company and Taihong became wholly-owned subsidiaries
of Bright Stand.




F-48





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, except in the “Management’s Discussion
And Analysis of Financial Condition And Results of Operation” where all
historical financial information prior to March 12, 2008 refers to Weifang Yuhe
Poultry Co. Ltd., “PRC Yuhe”, which includes the accounts of Weifang
Taihong Feed Co. Ltd., “Taihong”.





Overview




The
Company is in the middle of the broiler chicken supply chain. The Company
purchases baby 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 along the broiler supply chain 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.




2




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 History





The
Company has an offshore holding structure commonly used by foreign investors
with operations in China. The Company is a Nevada corporation which owns 100% of
the securities of Bright Stand International Limited, “Bright Stand”, an
international business company incorporated in the British Virgin Islands.
Bright Stand directly owns 100% of PRC Yuhe, a wholly foreign-owned enterprise
established under the laws of the PRC, and directly owns 43.75% and indirectly
owns, through PRC Yuhe, the remaining 56.25% of Taihong, a foreign invested
enterprise established under the laws of the PRC.





As of
March 31, 2009, Mr. Kunio Yamamoto, Pinnacle Fund, L.P., Pinnacle China
Fund L.P., Black River Small Capitalization Fund Ltd., Black River
Commodity Select Fund Ltd., Ardsley Partners Fund II, LP and CEDE & Co were
the Company’s significant shareholders: Mr. Yamamoto owned 48.7%, Pinnacle Fund,
L.P. owned 7.72%, Pinnacle China Fund L.P. owned 7.72%, Black River Small
Capitalization Fund Ltd. owned 8.24%, Black River Commodity Select Fund Ltd.
owned 6.18%, Ardsley Partners Fund II, LP owned 7.2% and CEDE & Co owned 7.5
% of the total outstanding shares of the Company’s common stock.








The
following chart depicts the Company’s organizational structure:










3




The
Company did not become engaged in the day-old broiler business until March 12,
2008. Effective March 12, 2008, the Company closed an Exchange Agreement with
Bright Stand and Kunio Yamamoto, a citizen of Japan, the sole former shareholder
of Bright Stand. Pursuant to the terms of the Exchange Agreement, the Company
acquired all of the outstanding capital stock of Bright Stand from Mr. Yamamoto
in exchange for 8,626,318 shares of its common stock. At the closing, Bright
Stand became the Company’s wholly-owned subsidiary. Immediately following the
closing of the Exchange Agreement, Mr. Yamamoto owned 8,626,318 shares of the
Company’s common stock.




Upon the
closing of the Exchange Agreement, the Company gained operating control over PRC
Yuhe and Taihong. PRC Yuhe has been owned by Bright Stand since January 31,
2008. Taihong has been owned by PRC Yuhe and Bright Stand since January 31,
2008. Before the closing of the Exchange Agreement, the Company was known as
First Growth Investors, Inc., and was originally formed for the purposes of
buying, selling and investing in vintage wines, which was the Company’s business
from 1997 through December 31, 2003. The Company had no operations from January
1, 2004 until the closing of the Exchange Agreement.





Effective
April 4, 2008, the Company amended its articles of incorporation to change its
name from “First Growth Investors, Inc.” to “Yuhe International, Inc.”, and
effect a 1-for-14.70596492 reverse stock split of its common stock. The
Company’s Board of Directors and shareholders approved the name change and the
reverse stock split pursuant to the Nevada Revised Statutes. The name change
became effective with NASDAQ’s Over-the-Counter Bulletin Board at the opening
for trading on April 7, 2008, under the new stock symbol of
“YUII.OB”.  All references to common stock in this filing are to
post-split shares as if the reverse stock split was effective as of the
beginning of the first period presented.





On April
20, 2008, the Company appointed CCG Elite Investor Relations as its investor
relations firm effective on May 1, 2008. On June 13, 2008, the Company appointed
three independent directors and one non-independent director to its board of
directors and formed an audit committee, compensation committee and nomination
committee under its board of directors.





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.




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





4




Under
normal circumstances, female parent breeder chickens 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
chickens 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 the
Company’s 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.





Competition





The
market for day-old broilers in China is highly fragmented. Shandong Province has
the highest number of day-old broilers in China. The Company’s market share was
approximately 3% in China in 2008 and the Company sold 75,000,000 day-old
broilers for the year 2008.




Day-old
broilers are very weak physically and need to be transported in closely
controlled temperature conditions during delivery. Therefore, producers of
broiler chicks usually only sell locally or to surrounding areas, which limits
the Company’s current effective sales market and competition to North
China.




Shandong
Minhe Animal Husbandry Co., Ltd., also located in Shandong Province, is one of
the Company’s major competitors for sales of day-old broilers. They are slightly
larger than the Company in terms of their annual day-old broiler production
volume. Another regional competitor of the Company’s is Jilin Deda, which is
located in Jilin Province in north-eastern China and is smaller than the Company
in terms of annual day-old broiler production volume. However, Jilin Deda is an
integrated chicken company, so it does not generally sell day-old broilers to
unaffiliated third parties.





Results
of Operations





The
Company has consolidated the results of PRC Yuhe and Taihong into its
Consolidated Financial Statements from January 1, 2009 to March 31,
2009 and February 1, 2008 to March 31, 2008. For comparative purposes, the
Company has provided a pro forma Consolidated Statement of Operations from
January 1, 2008 to March 31, 2008, (please refer to F-24–F-26), to provide
comparable presentation to its reported results for the three months ended
March 31, 2009 and 2008. The Company believes that providing this pro forma
financial statement as if it had consolidated PRC Yuhe and Taihong as of January
1, 2008 may assist investors in assessing performance between periods and
in developing expectations of future performance.




5




All amounts,
                                      
                                      
                                      As a
                                      
                                      
                                      All amounts,
                                      
                                      
                                      As a
                                      
                                      
                                      Increase/
                                      
                                      
                                      Increase/
                                      
                                      
                                      All amounts,
                                      
                                      
                                      As a
                                      
                                      
                                      Increase/
                                      
                                      
                                      Increase/other than
                                      
                                      
                                      percentage of
                                      
                                      
                                      other than
                                      
                                      
                                      percentage of
                                      
                                      
                                      (Decrease)
                                      
                                      
                                      (Decrease)
                                      
                                      
                                      other than
                                      
                                      
                                      percentage of
                                      
                                      
                                      (Decrease)
                                      
                                      
                                      (Decrease)percentage, in
                                      
                                      
                                      net revenues
                                      
                                      
                                      percentage, in
                                      
                                      
                                      net revenues
                                      
                                      
                                      Dollar ($)
                                      
                                      
                                      Percentage
                                      
                                      
                                      percentage, in
                                      
                                      
                                      net revenues
                                      
                                      
                                      Dollar ($)
                                      
                                      
                                      PercentageU.S. dollars
                                      
                                      
                                      
                                      
                                      
                                      U.S. dollars
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      U.S. dollarsFor the three
                                      
                                      
                                      For the three
                                      
                                      
                                      For the three
                                      
                                      
                                      For the three
                                      
                                      
                                      For the three
                                      
                                      
                                      For the three
                                      
                                      
                                      For the three
                                      
                                      
                                      For the three
                                      
                                      
                                      For the three
                                      
                                      
                                      For the threemonths
                                        ended
                                      
                                      
                                      months
                                        ended
                                      
                                      
                                      months
                                        ended
                                      
                                      
                                      months
                                        ended
                                      
                                      
                                      months
                                        ended
                                      
                                      
                                      months
                                        ended
                                      
                                      
                                      months
                                        ended
                                      
                                      
                                      months
                                        ended
                                      
                                      
                                      months
                                        ended
                                      
                                      
                                      months
                                        endedMarch
      31
                                      
                                      
                                      March
      31
                                      
                                      
                                      March
      31
                                      
                                      
                                      March
      31
                                      
                                      
                                      March
      31
                                      
                                      
                                      March
      31
                                      
                                      
                                      March
      31
                                      
                                      
                                      March
      31
                                      
                                      
                                      March
      31
                                      
                                      
                                      March
      312009
                                      
                                      
                                      2009
                                      
                                      
                                      2008
                                      
                                      
                                      2008
                                      
                                      
                                      2009
                                      
                                      
                                      2009
                                      
                                      
                                      2008
                                      
                                      
                                      2008
                                      
                                      
                                      2009
                                      
                                      
                                      2009(Pro
      forma)
                                      
                                      
                                      (Pro
      forma)
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      (As
      reported)
                                      
                                      
                                      (As
      reported)Sales
      revenue
                                      
                                      
                                      10,914,390
                                      
                                      
                                      
                                      100.00
                                      %
                                      
                                      
                                      2,594,880
                                      
                                      
                                      
                                      100.00
                                      %
                                      
                                      
                                      8,319,510
                                      
                                      
                                      
                                      320.61
                                      %
                                      
                                      
                                      1,103,551
                                      
                                      
                                      
                                      100.00
                                      %
                                      
                                      
                                      9,810,839
                                      
                                      
                                      
                                      889.02
                                      %Costs
      of goods sold
                                      
                                      
                                      6,852,353
                                      
                                      
                                      
                                      62.78
                                      %
                                      
                                      
                                      2,212,145
                                      
                                      
                                      
                                      85.25
                                      %
                                      
                                      
                                      4,640,208
                                      
                                      
                                      
                                      209.76
                                      %
                                      
                                      
                                      874,707
                                      
                                      
                                      
                                      79.26
                                      %
                                      
                                      
                                      5,977,646
                                      
                                      
                                      
                                      683.39
                                      %Gross
      profit
                                      
                                      
                                      4,062,037
                                      
                                      
                                      
                                      37.22
                                      %
                                      
                                      
                                      382,735
                                      
                                      
                                      
                                      14.75
                                      %
                                      
                                      
                                      3,679,302
                                      
                                      
                                      
                                      961.32
                                      %
                                      
                                      
                                      228,844
                                      
                                      
                                      
                                      20.74
                                      %
                                      
                                      
                                      3,833,193
                                      
                                      
                                      
                                      1,675.02
                                      %Selling
      expenses
                                      
                                      
                                      92,940
                                      
                                      
                                      
                                      0.85
                                      %
                                      
                                      
                                      77,537
                                      
                                      
                                      
                                      2.99
                                      %
                                      
                                      
                                      15,403
                                      
                                      
                                      
                                      19.87
                                      %
                                      
                                      
                                      48,540
                                      
                                      
                                      
                                      4.40
                                      %
                                      
                                      
                                      44,400
                                      
                                      
                                      
                                      91.47
                                      %General
      and administrative expenses
                                      
                                      
                                      743,990
                                      
                                      
                                      
                                      6.82
                                      %
                                      
                                      
                                      383,664
                                      
                                      
                                      
                                      14.79
                                      %
                                      
                                      
                                      360,326
                                      
                                      
                                      
                                      93.92
                                      %
                                      
                                      
                                      260,969
                                      
                                      
                                      
                                      23.65
                                      %
                                      
                                      
                                      483,021
                                      
                                      
                                      
                                      185.09
                                      %Operating
      (loss) income
                                      
                                      
                                      3,225,107
                                      
                                      
                                      
                                      29.55
                                      %
                                      
                                      
                                      (78,466
                                      )
                                      
                                      
                                      -3.02
                                      %
                                      
                                      
                                      3,303,573
                                      
                                      
                                      
                                      -4,210.20
                                      %
                                      
                                      
                                      (80,665
                                      )
                                      
                                      
                                      -7.31
                                      %
                                      
                                      
                                      3,305,772
                                      
                                      
                                      
                                      -4,098.15
                                      %Bad
      debts recovery
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      233,038
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (233,038
                                      )
                                      
                                      
                                      -100.00
                                      %
                                      
                                      
                                      13,145
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (13,145
                                      )
                                      
                                      
                                      -100.00
                                      %Interest
      income
                                      
                                      
                                      96
                                      
                                      
                                      
                                      0.00
                                      %
                                      
                                      
                                      163
                                      
                                      
                                      
                                      0.01
                                      %
                                      
                                      
                                      (67
                                      )
                                      
                                      
                                      -41.10
                                      %
                                      
                                      
                                      158
                                      
                                      
                                      
                                      0.01
                                      %
                                      
                                      
                                      (62
                                      )
                                      
                                      
                                      -39.24
                                      %Other
      income
                                      
                                      
                                      15,509
                                      
                                      
                                      
                                      0.14
                                      %
                                      
                                      
                                      11,504
                                      
                                      
                                      
                                      0.44
                                      %
                                      
                                      
                                      4,005
                                      
                                      
                                      
                                      34.81
                                      %
                                      
                                      
                                      5,900
                                      
                                      
                                      
                                      0.53
                                      %
                                      
                                      
                                      9,609
                                      
                                      
                                      
                                      -162.86
                                      %Interest
      expenses
                                      
                                      
                                      325,427
                                      
                                      
                                      
                                      2.98
                                      %
                                      
                                      
                                      266,641
                                      
                                      
                                      
                                      10.28
                                      %
                                      
                                      
                                      58,786
                                      
                                      
                                      
                                      22.05
                                      %
                                      
                                      
                                      180,474
                                      
                                      
                                      
                                      16.35
                                      %
                                      
                                      
                                      144,953
                                      
                                      
                                      
                                      80.32
                                      %Other
      expenses
                                      
                                      
                                      465
                                      
                                      
                                      
                                      0.00
                                      %
                                      
                                      
                                      30,545
                                      
                                      
                                      
                                      1.18
                                      %
                                      
                                      
                                      (30,080
                                      )
                                      
                                      
                                      -98.48
                                      %
                                      
                                      
                                      30,545
                                      
                                      
                                      
                                      2.77
                                      %
                                      
                                      
                                      (30,080
                                      )
                                      
                                      
                                      -98.48
                                      %Income
      taxes
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -Net
      income (loss)
                                      
                                      
                                      2,914,820
                                      
                                      
                                      
                                      26.71
                                      %
                                      
                                      
                                      (130,947
                                      )
                                      
                                      
                                      -5.05
                                      %
                                      
                                      
                                      3,045,767
                                      
                                      
                                      
                                      -2,325.95
                                      %
                                      
                                      
                                      (272,481
                                      )
                                      
                                      
                                      -24.69
                                      %
                                      
                                      
                                      3,187,301
                                      
                                      
                                      
                                      -1,169.73
                                      %




6




Net revenue.Sales revenue
increased by $8.3 million, or 321%, from $2.6 million for the three months ended
March 31, 2008 to $10.91 million for the three months ended March 31, 2009. The
increase was driven by the increase in sales volume of 18.3 million day-old
broilers, or 381%, from 4.8 million birds for the three months ended March 31,
2008 to 23.1 million birds for the three months ended March 31, 2009. The
increase in sales volume was partially offset by a decrease in selling price.
The selling price of day-old broilers decreased from 3.27 RMB per bird for the
three months ended March 31, 2008 to approximately 2.99 RMB, or 8.5%, per bird
for the three months ended March 31, 2009. The increase in sales volume was the
result of expansion in production capacity as well as the increase of parent
breeders volume at the end of 2008.





Sales of
retired breeder stocks increased by $0.39 million, or 175%, from $0.24 million
for the three months ended March 31, 2008 to $0.61 million for the three months
ended March 31, 2009. There are two reasons for this sales growth, the first is
the significant increase in the volume of parent breeders at the end of 2008.
The second reason is the old age of certain breeder stock, whose productivity
has decreased.





Sales of
eggs amount increased by $57,000, or 138%, from $41,000 for the three months
ended March 31, 2008 to $98,000 for the three months ended March 31,
2009. This increase is in line with the growth of the day-old broiler sales
volume.





Since
almost all the products of Taihong were supplied to its parent, PRC Yuhe,
revenue contributed from Taihong’s external sales is $89,000, or 0.8%, of the
Company’s total revenues for the three months ended March 31, 2009.





Cost of revenues.The
Company’s cost of revenues increased by $4.6 million, or 210%, from $2.2 million
for the three months ended March 31, 2008 to $6.85 million for the three months
ended March 31, 2009. The main reason for the increase in the cost of revenues
was the increase in sales volume. As a percentage of net revenues, the cost of
revenues decreased by 22%, from 85% for the three months ended March 31, 2008,
to 62% for the three months ended March 31, 2009. The decrease in cost of
revenues as a percentage of net revenues was mainly due to the low productivity
leading to the unit cost increase in the first quarter of year 2008. However, it
returned to the normal productivity level for the three months ended March 31,
2009.





Gross profits.The Company’s
gross profit increased by $3.68 million from $0.38 million for the three months
ended March 31, 2008 to $4.06 million for the three months ended March 31, 2009.
Gross profit as a percentage of net revenues was approximately 37.22% for the
three months ended March 31, 2009, as compared to 14.75% for the three months
ended March 31, 2008. The increase was mainly attributable to the Company
reaching a normal productivity level in 2009 compared with lower productivity
level in 2008.





General and administrative
expenses.The general and
administrative expenses increased by $360,000, or 94%, from $384,000 for the
three months ended March 31, 2008 to $744,000 in the three months ended March
31, 2009, The increase in general and administrative expenses was mainly due to
the public company related expense for the three months ended March 31, 2009.
The general and administrative expenses comprised mainly of public company
related expenses of $370,000, representing 50% of total general and
administrative expenses, human resources and related expenses of $101,000,
representing 14% of total general and administrative expenses, transportation
costs of $14,000, representing 2% of total general and administrative expenses,
facilities and utility expenses of $101,000, representing 14% of total general
and administrative expense, travel expenses of $106,000, representing 14% of
total general and administrative expenses.





Selling Expenses.The
Company’s selling expenses increased by $15,000, or 20%, from $78,000 for the
three months ended March 31, 2008 to $93,000 for the three months ended March
31, 2009. Selling expenses comprised mainly of packaging and transportation
expenses of $55,000, representing 59% of total selling expenses, human resources
and related expenses of $17,000, representing 18% of total selling expenses, and
travel and office expenses of $14,000, representing 15% of total selling
expense. The increase in selling expenses was primarily due to the increase in
sales volume. Selling expenses as a percentage of revenues is 0.85% in the three
months ended March 31, 2009, compared to 2.99% in the three months ended March
31, 2008. The proportion of the increase of the sales volume is significantly
greater than the increase in the selling expenses and also there are some items
which are fixed overhead costs, such as human resources and related expenses
which are not directly varied with the change in sales volume. Therefore, it
resulted in 2.14% decreased in percentage of revenues compared with the first
quarter of 2008.





7




Interest expense.Interest expense
increased by $59,000, or 22.1%, from $267,000 for the three months ended March
31, 2008 to $326,000 for the three months ended March 31, 2009. Interest expense
consisted primarily of interest on bank loans. The increase was mainly due to
the interest rate in the first quarter of year 2009 is higher than that in the
same period of 2008.





Other income.Other income
amounted to $16,000 for the three months ended March 31, 2009. It represented
dividend income from the unlisted investment held for sale in Hanting Rural
Credit Cooperative.





Provision for Income
Taxes. The PRC government announced the exemption of income
taxes on poultry producers, effective as of January 1, 2008.





The
corporate income tax rate for the Company’s subsidiary Taihong is 25%. There is
no provision for income tax because Taihong has a net operating loss carry
forward which resulted in a deferred tax asset of $62,649 as of March 31, 2009.
Taihong historically experiences net losses before income taxes, and management
does not expect Taihong to generate net income before taxes in the future as its
business is to supply feed to PRC Yuhe. As such, a full valuation allowance of
$62,649 is recorded against the deferred tax asset.





Net
profit. Net profit increased by $3.04 million from loss of $131,000 for the
three months ended March 31, 2008 to $2.91 million for the three months ended
March 31, 2009, as a result of the factors described above.





Liquidity
and Capital Resources





The
Company expects that its strong positive working capital of $18.70 million as of
March 31, 2009 will meet its foreseeable working capital needs for the next 12
months from the date of this report.





General





As of
March 31, 2009, the Company had cash and cash equivalents of approximately $18.1
million. The following table provides detailed information about the Company’s
net cash flow for the three months ended March 31, 2009.





Three months ended
                    March 31, 2009Net
      cash provided by operating activities
                  
                  $
                  4,386,943Net
      cash used in investing activities
                  
                  
                  (26
                  )Net
      cash provided by financing activities
                  
                  
                  275,336Effect
      of foreign currency translation on cash
                  
                  
                  17,521Net
      cash inflow
                  
                  
                  4,679,774Cash
      at beginning of period
                  
                  
                  13,412,205Cash
      at end of period
                  
                  $
                  18,091,979




Operating Activities.Net
cash provided by operating activities was $4.39 million for the three months
ended March 31, 2009. Net cash provided by operating activities was primarily
attributable from the net income of $2.91 million and an increase of $1 million
of accounts payable for the ordinary course of purchase for the three months
ended March 31, 2009.





Investing Activities.Net
cash used in investing activities for the three months ended March 31, 2009 was
$26. Net cash used in investing activities was mainly due to the payment of
deposits and acquisition of property, plant and equipment of $41, 000 and it was
off set by the proceeds received from related parties’ receivables of
41,000.




8




Financing Activities.Net
cash provided by investing activities for the three months ended March 31, 2009
was $275,000. Net cash provided by investing activities was mainly due to the
proceeds from the loan of $275,000 from related parties.





Loan
Facilities





As at
March 31, 2009, maturities of the Company’s bank loans are as
follows:





As at March 31,2009
                  
                  $
                  292,1582010
                  
                  
                  9,422,1112011
                  
                  
                  1,066,378$
                  10,780,647




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




Type
                    
                    Contracting
                      party
                    
                    Valid period
                    
                    Duration
                    
                    
                    AmountBank
      loan
                    
                    Hanting
      Kaiyuan Rural Credit Cooperative
                    
                    July
      7, 2009-Jan 7, 2011
                    
                    18
      months
                    
                    
                    $
                    1,066,378Bank
      loan
                    
                    Nansun
      Rural Credit
                    
                    Nov
      28,2008-Nov 28, 2010
                    
                    24
      months
                    
                    
                    
                    4,820,615Bank
      loan
                    
                    Nansun
      Rural Credit
                    
                    Dec
      10, 2007-Dec 9, 2009
                    
                    24
      months
                    
                    
                    
                    292,158Bank
      loan
                    
                    Nansun
      Rural Credit
                    
                    May
      17, 2008-May 17, 2010
                    
                    36
      months
                    
                    
                    
                    3,651,981Bank
      loan
                    
                    Shuangyang
      Rural Credit
                    
                    Oct
      16,2008 -Oct 13, 2010
                    
                    24
      months
                    
                    
                    
                    949,515Total
                    
                    
                    
                    
                    
                    
                    
                    
                    $
                    10,780,647





The
Company has loan facilities from three institutions and the following are the
material terms of such bank loans





Loan from
Hanting Kaiyuan Rural Credit Cooperative:





On July
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 $1,066,378 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, January 7, 2011. PRC Yuhe uses the loan to
finance the purchase of raw materials. The loan is secured by the plant and
equipment of PRC Yuhe with a net book of $1,162,199 as of March 31,
2009.





Loans
from Nansun Rural Credit:





PRC Yuhe
renewed four loan agreements with Nansun Rural Credit on November 28
2008.  The interest rate for the loan agreements is 13.82% per annum
for the renewed bank loan contract, compared to the original rate of 9.21%,
which enjoyed the support of government. The total amount of these four bank
loans is $4,820,615.





The other
four loans with an outstanding balance of $3,651,981 from Nansun Rural Credit
have an interest rate reduced from 12.1% to 8.64% due to the interest rate
adjustment by the Chinese government.





9




The last
bank loan from Nansun Rural Credit with an outstanding balance of $292,158 was
engaged in Oct, 2007, with an interest rate reduced from 10.46% to 7.56% per
annum.





The loans
are used for financing of working capital. All loans are secured by the land use
right and building of PRC Yuhe and Taihong with a net book value of $11,982,757
as of March 31, 2009.





Loan from
Shuangyang Rural Credit:





Taihong
renewed the loan agreements with Shuangyang Rural Credit on October 16, 2008,
amounting to $949,515. The interest rate for the loans is 9.83% per annum for
the renewed bank loan agreements, compared with an original rate of 10.51%.
Taihong is obligated under such loan agreements to pay interest monthly and
repay the loans on their maturity date, October 13, 2010. The loans are secured
by the plant and equipment of Taihong with a net book value of $1,000,942 as of
March 31, 2009.





Due to
related companies:





As of
March 31, 2009, the Company has $480,521 due to Weifang Hexing Breeding Co.,
Ltd., a company for which Mr. Gao Zhentao serves as a director.  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 March
31, 2009:





Payment due by periodContractual Obligations
                        
                        Total
                        
                        
                        Less than 1
                          year
                        
                        
                        1-3 years
                        
                        
                        3-5 years
                        
                        
                        More than
                          5 yearsLong-Term
      Debt Obligations
                        
                        $
                        10,780,647
                        
                        
                        $
                        292,158
                        
                        
                        $
                        10,488,489
                        
                        
                        
                        -
                        
                        
                        
                        -Due
      to Related Companies
                        
                        $
                        489,887
                        
                        
                        $
                        489,887
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -Operating
      Lease Obligations
                        
                        $
                        1,915,819
                        
                        
                        $
                        67,511
                        
                        
                        $
                        90,014
                        
                        
                        $
                        90,014
                        
                        
                        $
                        1,668,280Capital
      Lease Obligations
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -Purchase
      Obligations
                        
                        $
                        889,717
                        
                        
                        $
                        889,717
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -Other
      Long-Term Liabilities Reflected on the Registrant’s Balance Sheet under
      GAAP
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -Total
                        
                        $
                        14,076,070
                        
                        
                        $
                        1,739,273
                        
                        
                        $
                        10,578,503
                        
                        
                        $
                        90,014
                        
                        
                        $
                        1,668,280




Critical
Accounting Policies





The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires the Company’s management to
make assumptions, estimates and judgments that affect the amounts reported in
the financial statements, including the notes thereto, and related disclosures
of commitments and contingencies, if any. The Company considers its critical
accounting policies to be those that require the more significant judgments and
estimates in the preparation of financial statements, including the
following:





l
            Inventory -Inventories
      consisting of raw materials, work in progress and finished goods are
      stated at the lower of cost and net realizable value. The cost of
      inventories is determined using the weighted average cost method, and
      includes expenditures incurred in acquiring the inventories and bringing
      them to their existing location and condition. Net realizable value is the
      estimated selling price in the ordinary course of business less any
      applicable selling expenses. Finished goods are comprised of direct
      materials, direct labor and an appropriate proportion of overhead. At each
      balance sheet date, inventories that are worth less than cost are written
      down to their net realizable value, and the difference is charged to the
      cost of revenues of that period.




10




l
            Trade
      receivable–Trade receivables
      are recognized and carried at the original invoice amount less an
      allowance for any uncollectible amounts. An estimate for doubtful accounts
      is made when collection of the full amount is no longer probable. Bad
      debts are written off as incurred.





l
            Notesreceivable – Notes
      receivable are stated at the original principal amount less an allowance
      for any uncollectible amounts. Management provides for an allowance when
      collection of the full amount is no longer probable by establishing an
      allowance equivalent to 30% of gross amount of notes receivable due over 6
      months and 60% of gross amount of notes receivables due over 1 year. Full
      provision will be made for notes receivable due over 2
    years.





l
            Plant and equipment -
      Plant and equipment are carried at cost less accumulated depreciation.
      Depreciation is provided over their estimated useful lives, using the
      straight-line method. Estimated useful lives of the plant and equipment
      are as follows:





Buildings
              20
      yearsMachinery
              10
      yearsVehicles
              5
      yearsFurniture
      and equipment
              3
      years





The cost
and related accumulated depreciation of assets sold or otherwise retired are
eliminated from the accounts and any gain or loss is included in the statement
of income. The cost of maintenance and repairs is charged to income as incurred,
whereas significant renewals and betterments are capitalized.





l
            Valuation of long-lived assets
      - Long-lived assets held and used by the Company are reviewed for
      impairment whenever events or changes in circumstances indicate that the
      carrying amount of assets may not be recoverable. It is reasonably
      possible that these assets could become impaired as a result of technology
      or other industry changes. Determination of recoverability of assets to be
      held and used is by comparing the carrying amount of an asset to future
      net undiscounted cash flows to be generated by the
  assets.





If such
assets are considered to be impaired, the impairment to be recognized is
measured as the amount by which the carrying amount of the assets exceeds the
fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell. During the reporting
periods, there was no impairment loss.





l
            Intangible assets -
      Intangible assets represent land use rights in the PRC. Land use rights
      are carried at cost and amortized on a straight-line basis over the period
      of rights of 50 years commencing from the date of acquisition of equitable
      interest. According to the laws of PRC, the government owns all of the
      land in PRC. Companies or individual are authorized to possess and use the
      land only through land usage rights approved by the PRC
      government.





l
            Guarantee
      Expense - The Company accounts for its liability for products
      guaranteed in accordance with FASB Interpretation No. 45 (FIN 45),
      "Guarantor's Accounting and Disclosure Requirements for Guarantees,
      Including Indirect Guarantees of Indebtedness of Others."  Under FIN
      45, the aggregate changes in the liability for accruals related to product
      warranties issued during the reporting period must be charged to expense
      as incurred.





The
Company guarantees a 98% survival rate of its product by delivering additional
2% of the product.  The guarantee expires seven days after delivery. 
If the survival rate falls below 98%, the Company provides an additional
guarantee compensation to customers.  Based on historical experience, the
likelihood that survival rate falls below 96% is remote and therefore no accrued
guarantee liability was recorded at period end.  The Company records
guarantee expense as incurred.




11




l
            Revenue recognition -
      Net revenue is recognized when the third-party distributors and broiler
      farms and integrated chicken companies take delivery and acceptance of
      products.  The Company treats both the distributors and broiler farms
      and integrated chicken companies as end customers.  The price is
      fixed or determinable as stated in the sales contract, and the
      collectability is reasonably assured.  Customers do not have a
      general right of return on products
delivered.





l
            Use of estimates- The
      preparation of the Company’s financial statements in conformity with
      accounting principles generally accepted in the United States of America
      (“GAAP”) requires management to make estimates and assumptions that affect
      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 period.
      Actual results could differ from those estimates. The financial statements
      include some amounts that are based on management’s best estimates and
      judgments. These accounts and estimates include, but are not limited to,
      the valuation of accounts receivable, other receivables, inventories,
      deferred income taxes, and the estimation on useful lives of plant and
      equipment. These estimates may be adjusted as more current information
      becomes available, and any adjustment could be
  significant.





l
            Significant Estimates -
      Relating to Specific Financial Statement Accounts and Transactions Are
      Identified - The financial statements include some amounts that are based
      on management’s best estimates and judgments. The most significant
      estimates relate to allowance for uncollectible accounts receivable,
      inventory work in process valuation and obsolescence, depreciation, useful
      lives, taxes, and contingencies. These estimates may be adjusted as more
      current information becomes available, and any adjustment could be
      significant.





l
            Income tax – The
      Company accounts for income taxes using an asset and liability approach
      and allows for recognition of deferred tax benefits in future
      years.  Under the asset and liability approach, deferred taxes
      are provided for the net tax effects of temporary differences between the
      carrying amounts of assets and liabilities for financial reporting
      purposes and the amounts used for income tax purposes.  A
      valuation allowance is provided for deferred tax assets if it is more
      likely than not these items will either expire before the Company is able
      to realize their benefits, or that future realization is
      uncertain.





The Group
is operating in the PRC, and in accordance with the relevant tax laws and
regulations of PRC, the corporate income tax rate is 25%. Weifang Yuhe Poultry
Co., Ltd   is a poultry company, and in accordance with the relevant
regulations regarding the favorable tax treatment for an outstanding poultry
company, the Company is entitled to income tax exemption effective as of January
1, 2008.





The
corporate income tax for the subsidiary, Weifang Taihong Feed Co., Ltd is
25%.




l
            Fair value of financial
      instruments– SFAS No. 107, “Disclosures about Fair Value of
      Financial Instruments” (“SFAS 107”) requires entities to disclose the fair
      values of financial instruments except when it is not practicable to do
      so. Under SFAS No. 107, it is not practicable to make this disclosure when
      the costs of formulating the estimated values exceed the benefit when
      considering how meaningful the information would be to financial statement
      users.





The fair
values of all assets and liabilities do not differ materially from their
carrying amounts. None of the financial instruments held are derivative
financial instruments and none were acquired or held for trading purposes during
the years ended March 31, 2009 and December 31, 2008.





l
            Statutory reserve – In
      accordance with the relevant laws and regulations of the PRC and the
      articles of associations of the Company’s PRC subsidiaries, PRC Yuhe and
      Taihong are required to allocate 10% of their net income reported in the
      PRC statutory accounts, after offsetting any prior years’ losses, to the
      statutory surplus reserve, on an annual basis.  When the balance
      of such reserve reaches 50% of the respective registered capital of the
      subsidiaries, any further allocation is optional.  The statutory
      surplus reserves can be used to offset prior years’ losses, if any, and
      may be converted into registered capital, provided that the remaining
      balances of the reserve after such conversion is not less than 25% of
      registered capital. The statutory surplus reserve is
      non-distributable.





12




Effects
of Inflation





Inflation
and changing prices have not had a material effect on the Company’s business and
the Company does not expect that inflation or changing prices will materially
affect its business in the foreseeable future. However, the impact of inflation
on PRC Yuhe and Taihong may not be readily recoverable in the prices of the
Company’s products.





Off
Balance Sheet Arrangements




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





Seasonality




The
Company’s business has been subject to material seasonal variations in
operations for the normal life cycle of 66 weeks of the breeder stock. Breeder
stock produced eggs at their mature stage, around weeks 28 - 60 and therefore,
the Company’s business will have seasonal variation on the early and aged stage
of the breeder stock. In addition, the Company normally raised a new batch of
breeder stock after the aged breeder stock retires and is sold. This impact of
seasonality can be resolved when the Company expands its batches of breeder
stocks.





ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK




Not
required for a smaller reporting company.




ITEM
4. CONTROLS AND PROCEDURES





The
Company’s management, with the participation of its chief executive officer and
chief financial officer, Messrs. Gao Zhentao and Hu Gang, respectively evaluated
the effectiveness of its disclosure controls and procedures. The term
“disclosure controls and procedures,” as defined in Rules 13a-15(e) and
15d-15(e) under the Exchange Act, means controls and other procedures of a
company that are designed to ensure that information required to be disclosed by
a company in the reports, such as this 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. The company’s disclosure controls and procedures are designed to
provide reasonable assurance of achieving its objectives, and management
necessarily applies its judgment in evaluating the cost-benefit relationship of
possible controls and procedures. Based on that evaluation, Messrs. Gao and Hu
concluded that because of the significant deficiency in internal control over
financial reporting described below, the Company’s disclosure controls and
procedures were not effective as of March 31, 2009.





Management
had concluded, as of March 31, 2009, that material weaknesses existed with
respect to compliance with Section 402 of the Sarbanes-Oxley Act.  As
of March 31, 2009, the Company advanced money to four related parties with a
total outstanding amount in excess of $3.6 million, of which, the Company
advanced over $3.5 million to one related party, Shandong Yuhe Food Group Co.,
Ltd.





There
were no changes in the Company’s internal control over financial reporting
identified in connection with the evaluation performed that occurred during the
quarter covered by this report that has materially affected or is reasonably
likely to materially affect, its internal control over financial
reporting.





13





PART
II


OTHER
INFORMATION




ITEM
1. LEGAL PROCEEDINGS




From time
to time, the Company may become involved in various lawsuits and legal
proceedings that arise in the ordinary course of business. However, litigation
is subject to inherent uncertainties, and an adverse result in these or other
matters may arise from time to time that may harm its business.





To the
Company’s knowledge, no director, officer or affiliate of the Company, and no
owner of record or beneficial owner of more than five percent, 5%, of the
Company’ securities, or any associate of any such director, officer or security
holder is a party adverse to the Company or has a material interest adverse to
the Company in reference to pending litigation.




ITEM
1A. RISK FACTORS





There
have been no material changes to the risk factors previously discussed in the
Company’s Post-Effective Amendment No. 1 to the Registration Statement filed
with the Securities and Exchange Commission on April 22, 2009.




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





Since
January 1, 2005, the Company has issued unregistered securities to a limited
number of accredited investors as described below:





(1)
  On November 16, 2007, the Company issued 951,996 shares of its common
stock to Halter Financial Investments, L.P., an accredited inventor, for
aggregate proceeds of $425,000. The issuance and sales of these securities were
deemed to be exempt from registration pursuant to Section 4(2) of the Securities
Act. The Company declared and paid a special cash dividend of $3.088 per
share, to its shareholders on November 19, 2007. Halter Financial
Investments, L.P. did not participate in such dividend. The dividend was payable
to shareholders of record on November 15, 2007. The dividend payment date was
November 19, 2007. The dividend was payable to the Company’ shareholders who
held 135,999 shares of its common stock and resulted in a total dividend
distribution of $420,000. The funds for the dividend came from the $425,000
proceeds received from the sale of common stock to Halter Financial Investments,
L.P.





(2)
  On March 12, 2008 in connection with transactions related to the
acquisition of Bright Stand International Limited, the Company issued 8,626,318
shares of its common stock to Kunio Yamamoto, an accredited investor. The
issuance and sales of these securities were deemed to be exempt from
registration pursuant to Section 4(2) of the Securities Act.





(3)
  On March 12, 2008 the Company issued 5,829,018 shares of its common stock
to twenty-five accredited investors for aggregate proceeds of
approximately $18,000,000. The issuance and sales of these securities were
deemed to be exempt from registration pursuant to Rule 506 under the
Securities Act. The Company plans to use part of the proceeds to build new
chicken farm and purchase new equipment for the expansion of the Company’s
production capacity.





(4) On
October 27, 2008, the Company issued 178,848 new shares to Roth Capital
Partners, LLC based on their cashless exercise of 333,198 warrants issued to it
as compensation for their services as co-placement agent. The issuance of
these securities was deemed to be exempt from registration pursuant to Section
4(2) of the Securities Act.




There
were no underwritten offerings employed in connection with any of the
transactions set forth above.




ITEM
3. DEFAULTS UPON SENIOR SECURITIES




None.




14




ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS




None.




ITEM
5. OTHER INFORMATION





Make Good
Escrow Agreements





According
to the Consolidated Statements of Income and Comprehensive Income of the Company
in its Form 10-K for the fiscal year ended December 31, 2008 filed by the
Company with the Securities and Exchange Commission on March 31, 2009, the
Company’s After Tax Net Income for the fiscal year ended December 31, 2008 was
reported as $10,524,885, which has exceeded the 2008 Guaranteed After Tax Net
Income, as agreed in the Make Good Escrow Agreements described
below.





The
Company entered into a Make Good Escrow Agreement, dated March 12, 2008,
with Mr. Kunio Yamamoto, the “Make Good Pledgor”, Tri-State Title &
Escrow, LLC, Roth Capital Partners LLC, “Roth Capital” and each of the investors
in the private offering of securities of the Company.  The Company is
working with Roth Capital in connection with the release of 1,679,992 shares of
common stock, the 2008 Make Good Shares, to Mr. Kunio Yamamoto, the Make Good
Pledgor.





The
      Company entered into a separate Make Good Escrow Agreement, dated March
      12, 2008, with Mr. Kunio Yamamoto, the “Make Good Pledgor”, Interwest
      Transfer Company, Inc., the “Escrow Agent”, and HFG International Limited,
      “HFG”.  HFG has executed a Form of Release to release 235,196 shares
      of the Company’s common stock to Mr. Kunio Yamamoto, the Make Good
      Pledgor.  On or about April 27, 2009, 235,196 shares of the Company’s
      common stock were released by HFG to Mr. Kunio
    Yamamoto.





ITEM
6. INDEX TO 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




15




SIGNATURES





In
accordance with the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.





DATED:
May 15, 2009





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)




16





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




17