UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K/A

(Amendment No. 1)

(Mark One)

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

For the fiscal year ended: March 31, 2011

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

For the transition period from ____________ to _____________

Commission File No. 000-23806

YAYI INTERNATIONAL INC.

(Exact name of registrant as specified in its charter)

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

No. 9 Xingguang Road,

Northern Industrial Park of Zhongbei Town,

Xiqing District, Tianjin 300384, China

(Address of principal executive offices)

(86)22-2798-4033

(Registrant’s telephone number, including area code)

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

Title of each class	Name of each exchange on which registered
None	None

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

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

Yes [ ] No [ X ]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [ X ]

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files) Yes [ ] No [ ]

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

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

Large Accelerated Filer [ ]	Accelerated Filer [ ]

Non-Accelerated Filer [ ]	Smaller reporting company [ X ]
(Do not check if a smaller reporting company)

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

Yes [ ] No [ X ]

As of September 30, 2010 (the last business day of the registrant’s most recently completed second fiscal quarter), the aggregate market value of the shares of the registrant’s common stock held by non-affiliates (based upon the closing price of such shares as reported on the Over-the-Counter Bulletin Board) was approximately $12.5 million. Shares of the registrant’s common stock held by each executive officer and director and by each person who owns 10% or more of the outstanding comff mon stock have been excluded from the calculation in that such persons may be deemed to be affiliates of the registrant. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

There were a total of 26,454,558 shares of the registrant’s common stock outstanding as of June 28, 2011.

DOCUMENTS INCORPORATED BY REFERENCE

None.

EXPLANATORY NOTE

This Amendment No. 1 on Form 10-K/A (this "Amendment") hereby amends our Annual Report on Form 10-K for the fiscal year ended March 31, 2011, previously filed with the Securities and Exchange Commission (the "Commission’) on June 29, 2011 (the "Original Filing"). This Amendment is being filed mainly to reclassify $1,480,294 for the year ended March 31, 2011 from interest expense to accretion of preferred stock in the consolidated statement of operations and comprehensive income. In addition, the disclosure under the heading “Results of Operations” of Part II of this Amendment has been hereby revised and restated in its entirety. There is no impact on the balance sheets or earnings per common share.

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

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

Special Note Regarding Forward Looking Statements

In addition to historical information, this report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We use words such as “believe,” “expect,” “anticipate,” “project,” “target,” “plan,” “optimistic,” “intend,” “aim” or similar expressions which are intended to identify forward-looking statements. Such statements include, among others, those concerning 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, as well as all assumptions, expectations, predictions, intentions or beliefs about future events. You are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, including those identified in Item 1A, “Risk Factors” included herein, as well as assumptions, which, if they were to 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.

Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance, or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy or completeness of any of these forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. We are under no duty to update any of these forward-looking statements after the date of this report to conform our prior statements to actual results or revised expectations.

Use of Terms

Except as otherwise indicated by the context, references in this report to:

●	“BVI” refer to the British Virgin Islands;

●	“China,” “Chinese” and “PRC,” refer to the People’s Republic of China and for the purpose of this report, do not include Taiwan and the special administrative regions of Hong Kong and Macau;

●	“Exchange Act” refer to the Securities Exchange Act of 1934, as amended;

●	“Fuping Milkgoat” refer to Fuping Milkgoat Dairy Co., Ltd., a company organized under the laws of the PRC;

●	“Milkgoat China” refer to Milkgoat (China) Goat Dairy Co., Ltd., a company organized under the laws of the PRC;

●	“Milkgoat Industrial” refer to Milkgoat Industrial Co., Ltd, a limited liability company organized under the laws of BVI;

●	“Renminbi” and “RMB” refer to the legal currency of China;

●	“SEC” refer to the United States Securities and Exchange Commission;

●	“Securities Act” refer to the Securities Act of 1933, as amended;

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

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

●	“Weinan Milkgoat” refers to Weinan Milkgoat Production Co., Ltd., a company organized under the laws of the PRC.

PART II

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

The following management’s discussion and analysis should be read in conjunction with our financial statements and the notes thereto and the other financial information appearing elsewhere in this report. In addition to historical information, the following discussion contains certain forward-looking information. See “Special Note Regarding Forward Looking Statements” above for certain information concerning those forward looking statements.

According to the China Quality Net, maintained by China Quality Inspection Association, we are the first and one of the leading producers and distributors of premium goat milk formula products for infants, toddlers, young children, and adults in China. Our powder products are sold throughout most of China. We began selling powder products in Tianjin and Beijing in 2001, in Southern China in 2004 and Northern China in 2006. Our current formula product lines are targeted at the premium segment of the dairy market and health-conscious consumers. Headquartered in Tianjin, we sell and distribute our products through a nationwide network of retail points across China in 23 provinces and municipalities including supermarkets (including multinational chains), infant-maternity chain stores and drug stores, as well as catalogue sales and our dedicated online store at Taobao.com. We are vertically integrated and source raw goat milk from our proprietary dairy farms as well as neighboring goat dairy farmers on a long-term contract basis in milk collection centers, which helps us maintain quality control.

Since the end of 2009, we have been working with Trout & Partners to streamline our product portfolio and refine our brand image in order to position and strengthen our “Milk Goat” brand as the premium goat milk brand throughout China. We have restructured our original product portfolio of dozens of products and specifications and refined our marketing strategy. Our new product portfolio consists of three segments, infant formula products, adult products and children products with an aggregate 22 formula products under the "Milk Goat" brand with three package sizes of 600, 665 and 365 grams. As of March 2011, approximately 43.6% of our revenues were generated from the infant formula products, approximately 10.7% from products for children and approximately 45.7% from products for students and adults.

Principal Factors Affecting Our Financial Performance

Our operating results are primarily affected by the following factors:

●

Perceptions of Product Quality and Safety. Rising consumer wealth in China has contributed to a greater acceptance by consumers in China of and desire for higher-priced products with perceived quality advantages associated with such products. Thus, we believe that infant formula producers with a reputation for quality and safety should be able to command higher average selling prices and thereby generate higher gross margins than competitors that do not possess the same perceived reputation for quality and safety. Conversely, any decrease in consumer perceptions of quality and safety could adversely impact such producers’ sales and gross margins. We believe our past growth has benefited from our brand recognition and from real and perceived safety and quality of our formula products. Moreover, a decrease in the quality and safety of any particular producer could trigger wider negative perception of the decrease in the quality and safety of all producers, thereby affecting the industry generally. For example, the melamine contamination incident had resulted in a significant reduction in the sales of a number of major dairy product companies in China. If a future market crisis involving any of our products should occur, especially if management fails to respond to such a crisis in a timely and effective manner, our brand recognition and reputation could be severely damaged, which could adversely affect our results of operations.

●

Brand Recognition and Customer Loyalty. In recent years, there has been growing demand in China for premium formula products due to increasing consumer awareness of brand image and nutritional value of the products offered by leading producers. Although the market is still highly competitive, we believe that companies with strong national brands and customer loyalty will increasingly capture market share from regional brands with less brand recognition. Our success depends on sustaining the strength of our brands. If we fail to promote and maintain the brand equity of our products, then consumer perception of the superior nutritional benefits of our products may be diminished. If the difference in the value attributed to our products as compared to those of our competitors narrows, consumers may choose not to buy our products.

●

Competition and Market Position While China’s formula market is expected to grow significantly, we are facing intense competition. The market has become highly fragmented in recent years as an increasing number of formula producers have entered the market. We face significant competition from domestic and multinational producers of both cow and goat milk. We focus on developing and marketing premium products for the goat formula market in China. By leveraging our focused marketing strategy, our brand name and our sales and marketing infrastructure, we have been able to sell formula products to consumers in China’s largest cities and we believe that we are perceived as a company that is able to deliver premium quality that justifies our premium prices. This strategy has allowed us to maintain and improve our market share in our primary markets.

●

Product Offering and Pricing. As China becomes more affluent, formula products have become more affordable, resulting in the rapid growth of the overall market for formula in China. Despite the recent rapid growth, we believe much of the market is still underserved with respect to formula. We expect that this growth in demand will help drive sales for many formula producers, but companies with strong brand loyalty and extensive distribution networks in China will have greater ability to capitalize on such growth as well as to increase prices and pass on higher raw material costs to customers.

●

Raw Material Supply and Prices. The per unit costs of producing our formula are subject to the supply and price volatility of raw milk and other raw materials. For example, raw milk prices are affected by fluctuations in production and competition. Historically, we have been able to meet our raw milk supply needs by building our processing facilities close to our milk suppliers. Through our subsidiary Weinan Milkgoat located in Shaanxi Province, we have entered into long-term supply arrangements with local governmental and quasi-governmental authorities pursuant to which we purchase all the goat milk produced by the small collective farms at a price negotiated from time to time by us and the individual farms.

Taxation

United States

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

British Virgin Islands

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

PRC

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

The EIT Law and the Implementing Rules also imposes a unified EIT of 25% on both foreign invested enterprises and domestic enterprises, effective January 1, 2008. As a result, each of our PRC subsidiaries, Milkgoat China, Weinan Milkgoat, Fuping Milkgoat, and Shaanxi Milkgoat have been subject to a 25% income tax rate in calendar year 2008, 2009, 2010 and 2011.

Results of Operations

Year Ended March 31, 2011 Compared to Year Ended October 31, 2009

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

	Year Ended
	March 31, 2011			October 31, 2009			change			variance
Net Sales	$	26,909,879		$	24,845,685		$	2,064,194			8.3	%
Cost of goods sold		(10,075,452	)		(8,025,009	)		(2,050,443	)		25.6	%
Gross profit		16,834,427			16,820,676			13,751			0.1	%
Operating expenses
Sales and marketing expenses		(12,353,238	)		(5,760,446	)		(6,592,792	)		114.4	%
General and administrative expenses		(4,304,356	)		(1,972,190	)		(2,332,166	)		118.3	%
Income from continuing operations		176,833			9,088,040			(8,911,207	)		-98.1	%
Other income (expenses), net		480,048			(1,491,027	)		1,971,075			132.2	%
Income tax (expense)		(468,086	)		(2,201,032	)		1,732,946			-78.7	%
Net income		188,795			5,395,981			(5,207,186	)		-96.5	%
Accretion of preferred stock		(1,480,294	)		-			(1,480,294	)		100.0	%
Net (loss) income attributable to common stockholders		(1,291,499	)		5,395,981			(6,687,480	)		-123.9	%

Net Sales. Our net sales are generated from sales of products of premium goat milk formula. Net sales for the fiscal year ended March 31, 2011 were approximately $26.9 million, an increase of 8.3% compared to the fiscal year ended October 31, 2009. This increase was primarily attributable to the increase in the unit sales price, which was offset in part by an increase in the slotting fees offset to revenue as incurred and a decrease in sales volume. The unit sales price increased by 25.2% from $19,260 to $24,111 per ton, mainly due to an upgrade of formula and increased prices of main raw materials. In the first quarter of calendar year 2010, we started to streamline our product portfolio from 58 Store Keeping Units (SKU) to 10 SKU under the “MilkGoat” brand with upgraded formula. In addition, in order to develop infant-maternity stores as a sales channel alongside our commitment to establish our presence in supermarkets, we launched 14 infant-formula products specifically targeting infant-maternity stores in this fiscal year. The slotting fees increased to $5.5 million for the fiscal year ended March 31, 2011 compared to $1.0 million for the fiscal year ended October 31, 2009 mainly due to the expanding sales channels in hypermarkets and supermarkets. The sales volume decreased by 13.5% from 1,290 ton to 1,116 ton mainly due to the time required for the acceptance of the new products by the market.

In late 2010, AQSIQ announced new regulatory measures based on China’s Food Safety Law adopted by the People’s Congress earlier in 2010 requiring all infant milk formula and dairy product companies to submit applications to renew manufacturing licenses by the end of 2010 and to complete the renewal process by the end of March 2011. AQSIQ’s inspections have disrupted our normal manufacturing schedules and the roll out of our supermarket-focused distribution strategy has been slower than expected in the second half of calendar 2010. The distributors were hesitant to order our products after the new regulations were issued, which caused the slower growth of our sales volume than expected during September 2010 to March 2011. We obtained the renewed production licenses on March 31, 2011.

We believe the recent scandal will change the competitive landscape of China’s infant formula market and we expect more visibility after June 2011 when the approval process for new licenses is finalized. In the meantime, we are confident that our dual-pronged approach of developing infant-maternity stores while continuing to execute on our supermarket penetration strategy will build a solid foundation for our future growth momentum and profitability.

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

		Year Ended
Product Name		March 31, 2011		October 31, 2009
Goat Milk Powder	Quantity (ton)		1,116		1,290
Products	Unit price	$	24,111	$	19,260

Cost of goods sold. Our cost of goods sold is primarily comprised of the costs of our raw materials, labor and overhead. Cost of goods sold for the year ended March 31, 2011 was approximately $10.1 million, an increase of 25.6% from the year ended October 31, 2009, primarily due to the giveaways that we distributed to customers for promotion purposes under the "buy two get one free" strategy and the increase in raw milk and added nutrients. The unit cost increased by 45.1%, from $6,221 per ton to $9,027 per ton. Due to the formula upgrading, the unit cost of manufacturing increased by 35.5% from $5,971 per ton to $8,093 per ton. The giveaway cost increased by 223.4% from $0.3 million for the year ended October 31, 2009 to $1.0 million for the year ended March 31, 2011. As a part of our marketing strategy for the new products, our sales people provided free promotional products to the new purchasers of our products.

Gross Profit. Our gross profit is equal to the difference between our net sales and the cost of goods. Gross profit for the 2011 fiscal year was approximately $16.8 million, an increase of 0.1% compared to the fiscal year ended October 31, 2009. Our gross margin for the fiscal year 2011 decreased to 62.6% from 67.7% for the fiscal year ended October 31, 2009. The decrease in gross margin is mainly due to the increase in slotting fees paid to supermarkets, giveaway costs and raw material prices.

Operating expenses. Our total operating and administrative expenses consist primarily of sales and marketing expenses and general and administrative expenses. Our total operating and administrative expenses for the fiscal year ended March 31, 2011 increased by approximately $8.9 million to $16.7 million or 115.4% from the fiscal year ended October 31, 2009. The following is a discussion of the reasons for this increase broken down by category of operating expense:

Sales and marketing expenses. For the fiscal year 2011, sales and marketing expenses increased approximately 114.4% to $12.4 million from $5.8 million for the fiscal year ended October 31, 2009. The increase was a combined result of an increase in temporary promoter’s salaries, promotional and advertising expenses. Promotional expenses were approximately $6.2 million for the fiscal year ended March 31, 2011, an increase of 210.0% compared with $2.0 million for the fiscal year ended October 31, 2009, which is mainly due to our sales road show program organized across 23 provinces and municipalities for the new products. Advertising expenses were approximately $2.1 million for the fiscal year ended March 31, 2011, an increase of 312.1% compared with $0.5 million for the fiscal year ended October 31, 2009. The primary reason for the increase was that we launched our new television advertisement campaign in CCTV to promote the new product portfolio nationwide. The television commercials started airing on January 1, 2010 on China Central Television Channel, which is generally considered one of the most valuable channels in China. Temporary promoter’s salaries increased 75.2% from 1.7 million to 2.9 million compared with the fiscal year ended October 31, 2009, which mainly due to expanding sales channels in supermarkets this fiscal year. In the second half of 2009, we spent $0.4 million to engage Trout & Partners, a U.S.-based marketing strategy consultancy with a strong presence in China, to assist us in refining our product positioning and marketing strategy. Trout & Partners has a proven track record in China of transforming regional Chinese brands into nationally recognized names. We believe that our investment in sales and marketing for building our "Milkgoat" brand as well as further strengthening our distribution capability will bring substantial and tangible benefits in the long term.

General and administrative expenses. General and administrative expenses for the fiscal year ended March 31, 2011 increased by 118.3% to $4.3 million from $2.0 million for the fiscal year ended October 31, 2009. It was primarily attributable to $1.1 million for the stock options granted to key employees and certain directors in June 2010, as well as the increased compensation of $0.7 million for the current and new senior managers and executives.

Other income/(expenses). Our other income (expenses) consists primarily of change in fair value of derivative liabilities, interest and amortization of deferred debt issuance cost. Other income for the fiscal year ended March 31, 2011 was approximately $0.48 million, increased by approximately $2.0 million as compared to the other expenses of $1.5 million for the fiscal year ended October 31, 2009. This increase was a combined result of an increase income of $2.8 million for the fair value of derivative liabilities related to the $8.92 million convertible notes, the decrease expenses of $0.1 million for liquidated damages arising from the registration rights agreement settlement in November 2009 and modification expense of Series A and D warrants in December 2009, offset by an increase expense of $0.4 million in amortization of deferred financing costs and debt discount, an increased expense of $0.2 million for make good shares and $0.3 million registration penalties related to $8.92 million convertible notes.

Income Tax. Our income tax expenses for the fiscal year ended March 31, 2011 decreased by 78.7%, from approximately $2.2 million for the fiscal year ended October 31, 2009, to approximately $0.5 million. The decrease was primarily attributable to decrease in income before tax in the year ended March 31, 2011.

Net Income (Loss). As a result of the factors described above, net income was approximately $0.2 million for the fiscal year ended March 31, 2011 as compared to net income of $5.4 million for the fiscal year ended October 31, 2009.

Net (loss) Income attributable to stockholders. Net loss attributable to stockholders for the fiscal year ended March 31, 2011 decreased by 123.9%, from net income attributable to stockholders approximately $5.4 million for the fiscal year ended October 31, 2009, due to factors described above and $1.5 million in accretion for $15 million Series A Preferred Stock. See Note 20 to the Consolidated Financial Statements for our accounting treatment of Series A Preferred Stock.

Liquidity and Capital Resources

As of March 31, 2011, we had cash and cash equivalents of approximately $13.4 million and working capital of approximately $9.7 million.

We intend to, and are in the process of, expanding our administrative and production facilities to meet our current needs and anticipated increased demand for our products. In connection therewith, we plan to spend approximately $8.0 million during the eighteen months ending September 30, 2012 ($3.4 million during the fiscal year ending March 31, 2012 and $4.6 million during the six months ending September 30, 2012. The $8.0 million in capital expenditure is expected to be mainly used for the following items:

●	the purchase of machineries and equipment for the new powder processing plant in Weinan, Shaanxi and machineries and equipment in Fuping, Shaanxi with the capital expenditure of $3.1 million;

●	the purchase of livestock, the construction of goat farms and goat milk collection stations in an amount of $0.5 million;

●	the packing equipment purchase and renovation of the office and staff apartment building in Jinghai, Tianjin in an amount of $4.2 million; and the purchase of information technology equipment and systems in an amount of $0.2 million.

On July 30, 2010, Milkgoat China renewed a loan of RMB 10,000,000 (approximately $1,469,000) from Shanghai Pudong Development Bank, Tianjin Branch, or Pudong Bank, for use as working capital. The loan has an annual interest rate of 6.372% and the interest must be paid on a quarterly basis on the 20th of the last month of each quarter. Under the terms of the loan agreement, Milkgoat China is subject to customary affirmative and negative covenants. The loan may be accelerated and Pudong Bank may demand immediate payment of the principal and accrued interest upon the occurrence of an event of default which includes, among other things, a failure to make principal or interest payments, a failure to comply with other covenants and certain events of liquidation or bankruptcy.

On September 27, 2010, we entered into a securities purchase agreement, or the Securities Purchase Agreement, with 119 U.S. accredited investors, or the PIPE Investors, and Euro Pacific Capital, Inc., as representative of the PIPE Investors, pursuant to which we issued and sold to the PIPE Investors 892 units at a purchase price of $10,000 per unit, resulting in gross proceeds of $8.92 million to us. Each unit consists of a three-year, 9% convertible promissory note in the principal amount of $10,000, or the Convertible Note, and a three-year Series F Warrant, to purchase 1,250 shares of our common stock at an exercise price of $2.50 per share. The Convertible Notes are payable at an interest rate of 9% per annum, payable semiannually in arrears on the last day of the first and third calendar quarters commencing March 31, 2011 and mature on September 26, 2013, or the Maturity Date. The Convertible Notes are also convertible into shares of our common stock at any time prior to the Maturity Date at $2.00 per share, which conversion price is subject to weighted average and other customary anti-dilution protections. See our Current Report on Form 8-K filed on October 1, 2010 for more information of this private placement transaction.

On November 4, 2010, Milkgoat China entered into a working capital loan agreement with Tianjin Bank, Shaoxing Dao Branch, or Tianjin Bank, pursuant to which, Tianjin Bank loaned to Milkgoat China RMB20,000,000 (approximately $2,991,862) to purchase raw materials. The loan has a term of 12 months and expires on November 3, 2011. The fixed annual interest rate of the loan is 6.672% . Under the terms of the loan agreement, Milkgoat China is subject to customary affirmative and negative covenants. The loan may be accelerated and Tianjin Bank may demand immediate payment of the principal and accrued interests upon the occurrence of an event of default which includes, among other things, a failure to make principal or interest payments timely, a failure to comply with other covenants and certain events of bankruptcy. On November 5, 2010, RMB15, 000,000 (approximately $2,246,922) was disbursed to Milkgoat China, and the remaining RMB 5,000,000 (approximately $744,940) was disbursed to Milkgoat China on January 6, 2011.

On November 8, 2010, Milkgoat China entered into a non-committed short term revolving facility agreement with CITI Bank (China) Co., Ltd, Tianjin Branch, or Citi Bank, pursuant to which, Citi Bank agreed to make available to Milkgoat China a RMB 8 million (approximately $1,217,637) revolving credit facility to purchase raw materials and for working capital purposes. A separate agreement will be entered into each time as advance is made under the credit facility. The term of each advance is up to three months. The interest rate on each advance will be memorialized in the separate agreement. Tianjin Mengyang Biotechnology Co., Ltd., Fung Shek and Li Liu acted as guarantors under this agreement. As of March 31, 2011, no advance had been made.

On January 6, 2011, Milkgoat China entered into a working capital loan agreement with Bank of Beijing. Pursuant to the short-term loan agreement, Bank of Beijing agreed to loan to the Company an aggregate RMB 10,000,000 (approximately $1,489,880) for the use as working capital. The loan has a monthly interest rate of 0.5084% and the interests must be paid on a quarterly basis on the 20th of the last month of each quarter. The loan expires on January 5, 2012 but can be renewed upon the written consent by Bank of Beijing. Under the terms of the loan agreement, we are subject to customary affirmative and negative covenants. The loan may be accelerated and Bank of Beijing. may demand immediate payment of the principal and accrued interests upon the occurrence of an event of default which includes, among other things, a failure to make principal or interest payments, a failure to comply with other covenants and certain events of liquidation or bankruptcy.

On June 10, 2011, Milkgoat China renewed a loan agreement with Tianjin Rural Commercial Bank for RMB30,000,000 (approximately $4,566,140). The annual interest rate is 7.572% and the loan is due on June 9, 2012. The loan is guaranteed by Tianjin Haitai Investment Guarantee Co., Ltd.

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

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

	Years Ended
	March 31, 2011			October 31, 2009

Net cash (used in) provided by operating activities	$	(1,181,337	)	$	6,534,843
Net cash (used in) investing activities		(1,765,867	)		(12,400,482	)
Net cash provided by financing activities		11,359,250			15,360,090
Net increase in cash and cash equivalent	$	8,632,715		$	9,476,935

Operating Activities:

Net cash used in operating activities for the fiscal year ended March 31, 2011 was approximately $1.2 million compared to net cash provided by operating activities of approximately $6.5 million for the fiscal year ended October 31, 2009. Net cash used in operating activities for the fiscal year ended March 31, 2011 was mainly attributable to the net income from operations of approximately $0.2 million, non-cash items not affecting cash flows of $0.5 million, offset by an approximately $1.9 million increase in working capital. The changes in working capital for the fiscal year ended March 31, 2011 was primarily related to a $1.0 million increase in accounts receivable reflecting extended credit term for new products promotion. We increased goat milk powder production to meet expected sales demand, which resulted in a $1.2 million increase in inventory and a $0.2 million increase in accounts payables. We increased bank’s acceptance bills paid to our suppliers instead of paying by cash in bank directly during the three months ended March 31, 2011, which resulted in a $1.0 million increase in restricted cash and a $0.5 million increase in notes payables. There was a $0.8 million decrease in advance to suppliers due to the decrease in the prepayment for CCTV advertising expenses and the prepayment for packaging materials. We issued $8.92 million convertible notes in September 2010, which caused $0.4 million increase in restricted cash that should be left in the escrow account and $0.4 million increase in other payables due to the accrued interest expenses.

Net cash provided by operating activities for the fiscal year ended October 31, 2009 was mainly attributable to the net income of $5.4 million, non-cash items not affecting cash flows of $0.8 million and a $0.3 million decrease in working capital.

Investing Activities:

Net cash used in investing activities for the fiscal year ended March 31, 2011 was approximately $1.8 million, a decrease of approximately $10.6 million from the fiscal year ended October 31, 2009. The change was mainly caused by the fact that the prepayment of $9.9 million for the construction of Jinghai fortifying plant; $1.8 million for the prepayment of Jinghai equipment during the fiscal year ended October 31, 2009, while we did not make similar payments during the fiscal year ended March 31, 2011. During the fiscal year ended March 31, 2011, there was also an increase in capital expenditures of approximately $1.8 million, among which $0.6 million for Shaanxi new processing plant, $0.5 million for the prepayment of production equipment for the new fortifying plant in Jinghai, Tianjin; $0.7 million for Tianjin and Fuping production facilities upgrading related to our production licenses renewal.

Financing Activities:

Net cash provided by financing activities for the fiscal year ended March 31, 2011 was approximately $11.4 million compared to approximately $15.4 million of net cash provided by these activities during the fiscal year ended October 31, 2009. The change is primarily attributable to the $8.9 million gross proceeds from the convertible debt transaction closed on September 27, 2010, compared with $15.0 million gross proceeds from the private placement transaction closed in June 2009. In addition, the net cash provided by bank loans increased by $2.5 million for the fiscal year ended March 31, 2011 compared with the fiscal year ended October 31, 2009.

Effects of Inflation

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

Off Balance Sheet Arrangements

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

Critical Accounting Policies and Estimates

The consolidated financial statements include the financial statements of us and our subsidiaries. All transactions and balances among us and our subsidiaries have been eliminated upon consolidation. Certain amounts included in or affecting our consolidated financial statements and related disclosures must be estimated, requiring us to make certain assumptions with respect to values or conditions that cannot be known with certainty at the time the financial statements are prepared. These estimates and assumptions affect the amounts we report for assets and liabilities, our disclosure of contingent assets and liabilities at the date of our financial statements, and the reported amounts of revenues and expenses during the reported periods. We routinely evaluate these estimates, utilizing historical experience, consulting with experts and utilizing other methods we consider reasonable in the particular circumstances.

Nevertheless, actual results may differ significantly from our estimates. Any effects on our business, financial position or results of operations resulting from revisions to these estimates are recorded in the period in which the facts that give rise to the revision become known.

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

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

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

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

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

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

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

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

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

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

Recent Accounting Pronouncements

In December 2010, FASB issued ASU No. 2010-28, Intangibles – Goodwill and Other (Topic 350): When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts. The amendments in this Update affect all entities that have recognized goodwill and have one or more reporting units whose carrying amount for purposes of performing Step 1 of the goodwill impairment test is zero or negative. The amendments in this Update modify Step 1 so that for those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that a goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that an impairment may exist. The qualitative factors are consistent with existing guidance, which requires that goodwill of a reporting unit be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.

For public entities, the amendments in this Update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2010. Early adoption is not permitted.

Upon adoption of the amendments, any resulting goodwill impairment should be recorded as a cumulative-effect adjustment to beginning retained earnings in the period of an adoption. Any goodwill impairments occurring after the initial adoption of the amendments should be included in earnings. This standard is not currently applicable to the Company.

In January 2010, FASB issued ASU No. 2010-06, Fair Value Measurements and Disclosures (ASC Topic 820), Improving Disclosures about Fair Value Measurements. This update provides amendments to ASC Topic 820 that will provide more robust disclosures about (1) the different classes of assets and liabilities measured at fair value, (2) the valuation techniques and inputs used, (3) the activity in Level 3 fair value measurements, and (4) the transfers between Levels 1, 2, and 3. This standard is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. The adoption of this standard did not have a material impact to the Company’s financial position or results of operations.

In January 2010, FASB issued ASU No. 2010-05, Compensation – Stock Compensation (ASC Topic 718), Escrowed Share Arrangements and the Presumption of Compensation. This update codifies Emerging Issues Task Force D-110. This standard is not currently applicable to the Company.

In January 2010, FASB issued ASU N0. 2010-01, Equity (ASC Topic 505), Accounting for Distributions to Shareholders with Components of Stock and Cash. The update clarifies that the stock portion of a distribution to shareholders that allows them to elect to receive cash or stock with a potential limitation on the total amount of cash that all shareholders can elect to receive in the aggregate is considered a share issuance that is reflected prospectively in earnings per share and is not considered a stock dividend for purposes of ASC Topic 505 and Topic 260, Earnings Per Share. This standard is effective for interim and annual periods ending on or after December 15, 2009, and should be applied on a retrospective basis. This standard is not currently applicable to the Company.

In April 2010 the FASB issued Accounting Standards Update (ASU) No. 2010-13, Compensation – Stock Compensation (ASC Topic 718), Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades. This Update provides amendments to Accounting Standards Codification (ASC) Topic 718 to clarify that an employee share-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the entity’s equity securities trades should not be considered to contain a condition that is not a market, performance, or service condition. Therefore, an entity would not classify such an award as a liability if it otherwise qualifies as equity. The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010. The amendments in this Update should be applied by recording a cumulative-effect adjustment to the opening balance of retained earnings. The cumulative-effect adjustment should be calculated for all awards outstanding as of the beginning of the fiscal year in which the amendments are initially applied, as if the amendments had been applied consistently since the inception of the award. The cumulative-effect adjustment should be presented separately. Earlier application is permitted. This standard will be adopted as of April 1,2011 and the adoption of this standard will not have a material impact to the financial statements.

In December 2010,FASB issued ASU No.2010-29 Business Combinations(Topic 805):Disclosure of Supplementary Pro Forma Information for Business Combinations. The amendments in this Update specify that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The amendments also expand the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The amendments in this Update are effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010.The Company intends to adopt the disclosure requirements for any business combinations after April 1, 2011. The adoption of this standard will not have any material impact to the Company's financial statements.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The Company’s audited consolidated financial statements for the year ended March 31, 2011, the five-month period ended March 31, 2010 and the year ended October 31, 2009 together with the report of the independent certified public accounting firm thereon and the notes thereto, are presented beginning at page F-1 of this report.

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.

Financial Statements and Schedules

The financial statements are set forth under Item 8 of this annual report on Form 10-K. Financial statement schedules have been omitted since they are either not required, not applicable, or the information is otherwise included.

Exhibit List

The following exhibits are filed as part of this report or incorporated by reference:

Exhibit No.		Description
2.1		Agreement and Plan of Merger by and among Ardmore, Ardmore Acquisition Corp, Tryant LLC and Charleston Industrial Ltd. [incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on June 12, 2008].

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

3.2		Amended and Restated Bylaws of the Company adopted on November 27, 2010 [incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on December 2, 2010].

3.3		Amended and Restated Certificate of Designation of Series A Preferred Stock, as filed with the Secretary of State of the State of Delaware on July 20, 2010 [incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on July 23, 2010].

4.1		Form of 9% Convertible Promissory Note [incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-1 filed on March 2, 2011].

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

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

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

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

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

4.7		Form of Series F Common Stock Purchase Warrant [incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on October 1, 2010].

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

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

10.3

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

10.31	English Translation of Supplemental Employment Agreement, dated June 1, 2010, by and between Tianjin Yayi Industrial Co. Ltd. and Li Liu [incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on June 4, 2010].

10.32	English Translation of Licensing Agreement, dated April 10, 2001, by and among Tianjin Yayi and Taiwan Richlink [incorporated by reference to Exhibit 10.31 to the Company’s Annual Report on Form 10-K filed on June 29, 2010].

10.33	English Translation of Supplemental Agreement, dated June 12, 2009, by and among Tianjin Yayi, Taiwan Richlink Enterprise Company Ltd. and Li Liu [incorporated by reference to Exhibit 10.32 to the Company’s Annual Report on Form 10-K filed on June 29, 2010].

10.34	English Translation of Supplemental Agreement, dated June 12, 2009, by and between Tianjin Yayi and Tianjin Mengyang [incorporated by reference to Exhibit 10.33 to the Company’s Annual Report on Form 10-K filed on June 29, 2010].

10.35	English Translation of Form of Loan Agreement, dated June 3, 2010, by and between Tianjin Yayi Industrial Co. Ltd. and Tianjin Rural Cooperative Bank, Kexin Branch [incorporated by reference to Exhibit 10.34 to the Company’s Annual Report on Form 10-K filed on June 29, 2010].

10.36	English Translation of Shanghai Pudong Development Bank Working Capital Loan Agreement, dated July 30, 2010, by and between Tianjin Yayi and Shanghai Pudong Development Bank, Tianjin Branch [incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on August 16, 2010].

10.37	English Translation of Purchase Agreement, dated May 24, 2010, by and between Tianjin Yayi and Tianjin Jinhongji Import & Export Trading Co., Ltd [incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed on August 16, 2010].

10.38	English Translation of Construction Agreement, dated May 25, 2010, by and between Tianjin Yayi and Tianjin Jinghai Power Co., Ltd. [incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q filed on August 16, 2010].

10.39	English Translation of Agreement on GMP Cleaning Workshop Installation, dated May 26, 2010, by and between Tianjin Yayi and Tianjin Jinquan Co., Ltd. [incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q filed on August 16, 2010].

10.40	Form of Securities Purchase Agreement, dated September 27, 2010, by and among the Company, the Investors and Euro Pacific Capital, Inc. as representative of the Investors [incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 1, 2010].

10.41	Make Good Escrow Agreement, dated September 27, 2010, by and among the Company, Global Rock Stone Industrial Ltd, Euro Pacific Capital, Inc. and Escrow, LLC [incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on October 1, 2010].

10.42	Form of Registration Rights Agreement, dated September 27, 2010, by and among the Company, the Investors and Euro Pacific Capital, Inc. as representative of the Investors [incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on October 1, 2010].

10.43	Closing Escrow Agreement, dated September 27, 2010, by and among the Company, Euro Pacific Capital, Inc. and Escrow, LLC [incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on October 1, 2010].

10.44	English Translation of Employment Agreement, dated May 21, 2009, by and between Tianjin Yayi Industrial Co., Ltd. and Li Liu [incorporated by reference to Exhibit 10.44 to the Company’s Registration Statement on Form S-1 filed on March 2, 2011]..**

10.45	English Translation of Employment Agreement, dated May 21, 2009, by and between Tianjin Yayi Industrial Co., Ltd. and Fung Shek [incorporated by reference to Exhibit 10.45 to the Company’s Registration Statement on Form S-1 filed on March 2, 2011].**

10.46	Working Capital Loan Agreement, dated November 4, 2010, between Tianjin Yayi and Tianjin Bank, Shaoxing Dao Branch. [incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on November 15, 2010].

10.47	English Translation of Form of Raw Goat Milk Supply Agreement [incorporated by reference to Exhibit 10.47 to the Company’s Registration Statement on Form S-1 filed on March 2, 2011].

10.48	English Translation of Construction Agreement, dated June 16, 2011, between Shaanxi Milkgoat Dairy Co., Ltd and China Tenth Metallurgical Group Corporation [incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 22, 2011].

10.49	English Translation of Working Capital Loan Agreement, dated June 10, 2011, between Milkgoat (China) Goat Dairy Co., Ltd. and Tianjin Rural Commercial Bank, High-Tech Branch.*

14.1	Code of Business Conduct and Ethics [incorporated by reference to Exhibit 14.1 to the Company’s Current Report on Form 8-K filed on January 28, 2011]

21	Subsidiaries of the registrant*

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

31.1	Certifications of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2	Certifications of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1	Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2	Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*Filed with the Original Filing.

**Represents management contract or compensatory plan or arrangement.

SIGNATURES

In accordance with section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant caused this Report on Form 10-K/A to be signed on its behalf by the undersigned, thereto duly authorized individual.

Date: November 10, 2011

		YAYI INTERNATIONAL INC.

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

	By:	/s/ Veronica Jing Chen
		Veronica Jing Chen
		Chief Financial Officer

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

Signature	Capacity	Date

/s/ Li Liu	President and Chief Executive Officer	November 10, 2011
Li Liu	(Principal Executive Officer)

*	Chief Financial Officer (Principal Financial
Veronica Jing Chen	Officer and Principal Accounting Officer)

*	Vice President and Director
Fung Shek

*	Director
Cili Yan

*	Director
Kenneth Jue Lee

*	Director
Gang Sheng

*By: /s/ Li Liu		November 10, 2011
Li Liu, Attorney -in-Fact

EXHIBIT INDEX

Exhibit No.		Description
2.1		Agreement and Plan of Merger by and among Ardmore, Ardmore Acquisition Corp, Tryant LLC and Charleston Industrial Ltd. [incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on June 12, 2008].

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

3.2		Amended and Restated Bylaws of the Company adopted on November 27, 2010 [incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on December 2, 2010].

3.3		Amended and Restated Certificate of Designation of Series A Preferred Stock, as filed with the Secretary of State of the State of Delaware on July 20, 2010 [incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on July 23, 2010].

4.1		Form of 9% Convertible Promissory Note [incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-1 filed on March 2, 2011].

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

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

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

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

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

4.7		Form of Series F Common Stock Purchase Warrant [incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on October 1, 2010].

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

10.31	English Translation of Supplemental Employment Agreement, dated June 1, 2010, by and between Tianjin Yayi Industrial Co. Ltd. and Li Liu [incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on June 4, 2010].

10.32	English Translation of Licensing Agreement, dated April 10, 2001, by and among Tianjin Yayi and Taiwan Richlink [incorporated by reference to Exhibit 10.31 to the Company’s Annual Report on Form 10-K filed on June 29, 2010].

10.33	English Translation of Supplemental Agreement, dated June 12, 2009, by and among Tianjin Yayi, Taiwan Richlink Enterprise Company Ltd. and Li Liu [incorporated by reference to Exhibit 10.32 to the Company’s Annual Report on Form 10-K filed on June 29, 2010].

10.34	English Translation of Supplemental Agreement, dated June 12, 2009, by and between Tianjin Yayi and Tianjin Mengyang [incorporated by reference to Exhibit 10.33 to the Company’s Annual Report on Form 10-K filed on June 29, 2010].

10.35	English Translation of Form of Loan Agreement, dated June 3, 2010, by and between Tianjin Yayi Industrial Co. Ltd. and Tianjin Rural Cooperative Bank, Kexin Branch [incorporated by reference to Exhibit 10.34 to the Company’s Annual Report on Form 10-K filed on June 29, 2010].

10.36	English Translation of Shanghai Pudong Development Bank Working Capital Loan Agreement, dated July 30, 2010, by and between Tianjin Yayi and Shanghai Pudong Development Bank, Tianjin Branch [incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on August 16, 2010].

10.37	English Translation of Purchase Agreement, dated May 24, 2010, by and between Tianjin Yayi and Tianjin Jinhongji Import & Export Trading Co., Ltd [incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed on August 16, 2010].

10.38	English Translation of Construction Agreement, dated May 25, 2010, by and between Tianjin Yayi and Tianjin Jinghai Power Co., Ltd. [incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q filed on August 16, 2010].

10.39	English Translation of Agreement on GMP Cleaning Workshop Installation, dated May 26, 2010, by and between Tianjin Yayi and Tianjin Jinquan Co., Ltd. [incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q filed on August 16, 2010].

10.40	Form of Securities Purchase Agreement, dated September 27, 2010, by and among the Company, the Investors and Euro Pacific Capital, Inc. as representative of the Investors [incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 1, 2010].

10.41	Make Good Escrow Agreement, dated September 27, 2010, by and among the Company, Global Rock Stone Industrial Ltd, Euro Pacific Capital, Inc. and Escrow, LLC [incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on October 1, 2010].

10.42	Form of Registration Rights Agreement, dated September 27, 2010, by and among the Company, the Investors and Euro Pacific Capital, Inc. as representative of the Investors [incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on October 1, 2010].

10.43	Closing Escrow Agreement, dated September 27, 2010, by and among the Company, Euro Pacific Capital, Inc. and Escrow, LLC [incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on October 1, 2010].

10.44	English Translation of Employment Agreement, dated May 21, 2009, by and between Tianjin Yayi Industrial Co., Ltd. and Li Liu [incorporated by reference to Exhibit 10.44 to the Company’s Registration Statement on Form S-1 filed on March 2, 2011]..**

10.45	English Translation of Employment Agreement, dated May 21, 2009, by and between Tianjin Yayi Industrial Co., Ltd. and Fung Shek [incorporated by reference to Exhibit 10.45 to the Company’s Registration Statement on Form S-1 filed on March 2, 2011].**

10.46	Working Capital Loan Agreement, dated November 4, 2010, between Tianjin Yayi and Tianjin Bank, Shaoxing Dao Branch. [incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on November 15, 2010].

10.47	English Translation of Form of Raw Goat Milk Supply Agreement [incorporated by reference to Exhibit 10.47 to the Company’s Registration Statement on Form S-1 filed on March 2, 2011].

10.48	English Translation of Construction Agreement, dated June 16, 2011, between Shaanxi Milkgoat Dairy Co., Ltd and China Tenth Metallurgical Group Corporation [incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 22, 2011].

10.49

English Translation of Working Capital Loan Agreement, dated June 10, 2011, between Milkgoat (China) Goat Dairy Co., Ltd. and Tianjin Rural Commercial Bank, High-Tech Branch.*

14.1	Code of Business Conduct and Ethics [incorporated by reference to Exhibit 14.1 to the Company’s Current Report on Form 8-K filed on January 28, 2011]

21	Subsidiaries of the registrant*

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

31.1	Certifications of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2	Certifications of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1	Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2	Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*Previously filed with the Original Filing.

**Represents management contract or compensatory plan or arrangement.

YAYI INTERNATIONAL INC. AND SUBSIDIARIES
FOR THE YEARS ENDED MARCH 31, 2011 AND 2010
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
	Page
Report of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets	F-3
Consolidated Statements of Operations and Comprehensive Income (Loss)	F-4
Consolidated Statements of Stockholders’ Equity	F-5
Consolidated Statements of Cash Flows	F-6
Notes to Consolidated Financial Statements	F-7

F-1

Report of Independent Registered Public Accounting Firm

To the Board of Directors and

Stockholders of Yayi International Inc.

We have audited the accompanying consolidated balance sheets of Yayi International Inc. (“the Company”) as of March 31, 2011 and 2010, and the related consolidated statements of operations and comprehensive income (loss), stockholders' equity and cash flows for the year ended March 31, 2011, five months ended March 31, 2010 and for the year ended October 31, 2009. The Company’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of March 31, 2011 and 2010, and the consolidated results of their operations and their cash flows for the year ended March 31, 2011, the five months ended March 31, 2010 and for the year ended October 31, 2009, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 2 to the consolidated financial statements, the accompanying 2011 financial statements have been restated in relation to the accounting for accretion of the redemption value of the redeemable preferred stock during the year ended March 31, 2011.

/s/Morison Cogen LLP

Bala Cynwyd, Pennsylvania

June 29, 2011, except for Note 2,

to which the date is November 10, 2011

F-2

YAYI INTERNATIONAL INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	March 31 2011		March 31 2010


ASSETS
Current assets:
Cash and cash equivalents	$	13,360,392	$	4,727,677
Restricted cash		1,412,404		28,314
Accounts receivable, net of allowances of $72,036 and $53,771		4,776,780		3,530,937
Other receivable, net of allowances of $43,230 and $22,833		574,383		598,170
Inventories, net of allowances of $0 and $0		3,885,481		2,561,265
Prepaid expenses		309,894		121,523
Land use rights - current portion		19,611		18,847
Advances		900,033		1,560,743
Deferred tax asset – current portion		374,124		-
Deferred financing cost - current portion		159,496		-
Total current assets		25,772,598		13,147,476

Property, plant and equipment, net		8,063,507		6,505,130
Livestock, net		563,402		659,584
Goodwill		289,643		278,372
Land use rights		942,939		923,525
Advances on property, plant and equipment		19,063,439		17,816,135
Deferred tax asset		31,225		472,889
Deferred financing cost		867,552		-

Total assets	$	55,594,305	$	39,803,111


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Short term loans	$	10,654,328	$	6,704,406
Accounts payable		884,407		662,120
Other payable and accrued expenses		3,172,782		1,257,185
Advance from customers		90,232		141,136
Income and other tax payable		1,214,494		1,338,194
Accrued sales return		-		45,503
Long term loans - current portion		17,697		40,823
Total current liabilities		16,033,940		10,189,367

Long-term liabilities:
Due to shareholders		5,450,233		5,312,801
Derivative liabilities		1,776,400		-
Convertible notes, net of discount of $3,858,839 and $0		5,061,161		-
Accrued expenses – non-current portion		473,283		-
Long-term loans		-		17,009
Total non-current liabilities		12,761,077		5,329,810

Total liabilities		28,795,017		15,519,177

Commitments and contingencies (Note 18)		-		-

PREFERRED STOCK, par value $0.001, 10,000,000 shares authorized, Series A 10% non-cumulative redeemable convertible preferred stock, redemption $9.80 per share plus 25% interest from date of issuance to date of redemption, 1,530,612 shares issued and outstanding		15,745,165		14,264,871

STOCKHOLDERS' EQUITY

Common stock, par value $0.001, 100,000,000 shares authorized, 26,454,558 and 26,387,728 shares issued and outstanding, respectively		26,454		26,387
Additional paid-in capital		5,840,290		4,721,337
Statutory surplus reserve fund		1,142,397		1,142,397
Retained earning		2,529,601		3,821,100
Accumulated other comprehensive income		1,515,381		307,842

Total stockholders’ equity		11,054,123		10,019,063

Total liabilities and stockholders' equity	$	55,594,305	$	39,803,111

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

F-3

YAYI INTERNATIONAL INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

	Year ended March 31,			Five months ended March 31,						Year ended October 31,
	2011			2010			2009			2009
	(Restated)						(unaudited)
Net sales	$	26,909,879		$	6,085,193		$	9,283,420		$	24,845,685

Cost of goods sold		(10,075,452	)		(2,369,642	)		(2,892,709	)		(8,025,009	)

Gross profit		16,834,427			3,715,551			6,390,711			16,820,676

Operating expenses:
Sales and marketing expenses		(12,353,238	)		(3,908,573	)		(1,973,212	)		(5,760,446	)
General and administrative expenses		(4,304,356	)		(1,318,077	)		(685,843	)		(1,972,190	)

Total operating expenses		(16,657,594	)		(5,226,650	)		(2,659,055	)		(7,732,636	)

Income (loss) from operations		176,833			(1,511,099	)		3,731,656			9,088,040

Other income (expenses):
Interest income		19,909			8,250			2,902			11,993
Interest expenses		(714,925	)		(221,549	)		(359,014	)		(706,750	)
Amortization of deferred debt issuance cost		-			(91,227	)		(333,160	)		-
Amortization of deferred financing costs and debt discount		(957,865	)		-			-			(572,747	)
Change in fair value of derivative liabilities		2,771,080			-			-			-
Warrant modification expense		-			(88,500	)		-			-
Liquidated damages		-			-			-			(140,000	)
Expense on make good provision		(205,683	)		-			-			-
Registration penalties		(267,600	)		-			-			-
Other (expenses) income		(164,868	)		12,237			2,394			(83,523	)

Income (loss) before income tax		656,881			(1,891,888	)		3,044,778			7,597,013

Income tax benefit (expenses)		(468,086	)		289,093			(869,614	)		(2,201,032	)

Net income (loss)		188,795			(1,602,795	)		2,175,164			5,395,981
Accretion of preferred stock		(1,480,294	)		-			-			-
Net income (loss) attributable to common stockholders		(1,291,499	)		(1,602,795	)		2,175,164			5,395,981

Other comprehensive income
Foreign currency translation adjustment		1,207,539			6,039			(44,791	)		(50,928	)

Comprehensive income (loss) attributable to common stockholders	$	(83,960	)	$	(1,596,756	)	$	2,130,373		$	5,345,053

Earnings (Loss) per share of common stock
- Basic	$	(0.05	)	$	(0.06	)	$	0.09		$	0.22
- Diluted	$	(0.05	)	$	(0.06	)	$	0.09		$	0.22
Weighted average shares of common stock outstanding
- Basic		26,438,125			26,017,835			25,000,000			25,000,000
- Diluted		26,438,125			26,017,835			25,000,000			25,000,000

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

F-4

YAYI INTERNATIONAL INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

								Statutory					Accumulated
	Common stock				Additional			Surplus					Other		Total
	Number of				paid-in			Reserve		Retained			Comprehensive		Stockholders’
	shares		Amount		capital			Fund		Earnings			Income		Equity

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

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

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

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

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

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

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

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

Cashless exercise of 9,169 Series D warrants into 5,840 shares of common stock		5,840		6		(6	)		-		-			-		-

Cashless exercise of 171,185 Series C warrants into 46,794 shares of common stock		46,794		47		(47	)		-		-			-		-


Cashless exercise of 34,725 Series A warrants into 14,196 shares of common stock		14,196		14		(14	)		-		-			-		-

Employee stock-based compensation		-		-		1,119,020			-		-			-		1,119,020

Net income for the year ended March 31, 2011		-		-		-			-		188,795			-		188,795

Accretion of preferred stock		-		-		-			-		(1,480,294	)		-		(1,480,294	)

Foreign currency translation		-		-		-			-		-			1,207,539		1,207,539

Balance at March 31, 2011 - Restated		26,454,558	$	26,454	$	5,840,290		$	1,142,397	$	2,529,601		$	1,515,381	$	11,054,123

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

F-5

YAYI INTERNATIONAL INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year Ended March 31,			Five months ended March 31,						Year Ended October 31
	2011			2010			2009			2009
	(Restated)						(unaudited)

Cash flow from operating activities
Net (loss) income	$	188,795		$	(1,602,795	)	$	2,175,164		$	5,395,981
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Net foreign currency transaction loss		-			337			-			15,743
Depreciation of property, plant and equipment		646,028			195,151			143,189			348,561
Depreciation of livestock		86,105			11,600			1,449			6,126
Amortization of land use rights		17,612			-			-			-
Amortization of deferred financing costs		93,061			18,686			-			184,846
Disposal of property, plant and equipment		-			6,144			-			-
Allowance of bad debts-Accounts receivable		14,728			7,498			-			5,263
Allowance of bad debts-Other receivable		19,217			13,684			-			(20,078	)
Employee stock-based compensation		1,119,020			-			-			-
Sales return allowance		(45,520	)		(121,025	)		107,544			(77,770	)
Warrant modification expense		-			88,500			-			-
Change in fair value of derivative liabilities		(2,771,080	)		-			-			-
Make good provision		205,683			-			-			-
Registration penalties		267,600			-			-			-
Accretion of debt discount		864,804			72,541			-			387,901

(Increase) decrease in operating assets:
Restricted cash		(1,379,798	)		(28,314	)		-			396
Accounts receivable		(1,032,329	)		(499,891	)		(632,746	)		(443,691	)
Other receivable		32,811			110,629			(332,944	)		(646,217	)
Inventories		(1,167,287	)		(54,224	)		554,803			816,331
Prepaid expenses		(183,774	)		(37,588	)		(3,394	)		(44,199	)
Advances		739,946			(875,434	)		387,347			(669,021	)
Other Assets		-			-			-			(4,078	)
Deferred tax asset and current assets		100,104			(475,320	)		176,258			15,888

Increase (decrease) in operating liability:
Accounts payable		231,265			(606,517	)		(288,104	)		(194,617	)
Advance from customers		(54,288	)		84,769			(3,576	)		52,713
Income and other tax payable		(177,240	)		(231,178	)		230,797			324,290
Other payable and accrued expenses		1,003,200			25,889			770,114			1,080,475
Net cash (used in) provided by operating activities		(1,181,337	)		(3,896,858	)		3,285,901			6,534,843

Cash flows from investing activities
Purchase of property, plant and equipment		(1,200,949	)		(411,613	)		(175,169	)		(3,586,072	)
Advance for construction of factory and warehouse		-			-			(3,795,704	)		(6,462,478	)
Advance for acquisition of land use rights		-			-			(145,989	)		(145,940	)
Deposit for purchase of machinery and equipment		(597,987	)		(208,980	)		-			(2,091,053	)
Proceeds from sale of livestock		93,461			-			-			-
Purchase and breeding of livestock		(60,392	)		(563,723	)		(75,487	)		(114,939	)
Acquisition of land use right		-			(796,106	)		-			-
Net cash used in investing activities		(1,765,867	)		(1,980,422	)		(4,192,349	)		(12,400,482	)

Cash flows from financing activities
Proceeds from short term loans		13,391,277			2,925,705			2,232,020			6,681,198
Repayment of short term loans		(9,608,176	)		(2,691,648	)		(729,943	)		(5,433,460	)
Proceeds from long term loans		-			61,235			167,579			-
Repayment of long term loans		(41,553	)		(3,402	)		(14,473	)		(33,999	)
Repayment of convertible debt and accrued interest		-			(56,000	)		-			-
Net proceeds from issuance of Series A preferred stock		-			-			-			14,264,871
Capital contribution from shareholders		-			-			-			5,979
Net proceeds received from issuance of convertible notes		7,623,729			-			-			-
Dividend paid to previous stockholders of Milkgoat China		-			-			-			(2,550,504	)
Due (from) to shareholders		(6,027	)		(23	)		(6,336	)		2,426,005
Net cash provided by financing activities		11,359,250			235,867			1,648,847			15,360,090

Effect of exchange rate changes in cash		220,669			877			(2,110	)		(17,516	)

Net increase in cash and cash equivalents		8,632,715			(5,640,536	)		740,289			9,476,935

Cash and cash equivalents, beginning of period		4,727,677			10,368,213			891,278			891,278

Cash and cash equivalents, end of period	$	13,360,392		$	4,727,677		$	1,631,567		$	10,368,213

Supplemental disclosure of cash flow information
Cash paid during the period

Interest paid	$	672,686		$	242,458		$	316,883		$	604,633
Income tax paid	$	634,096		$	372,528		$	421,461		$	2,050,646

Supplemental disclosure of non-cash financing and investing activities;
Accrued payment for purchase of property, plant and equipment	$	707,846		$	-		$	-		$	-

Repayment of short-term loan from Tianjin Mengyang offset against advances	$	-		$	-		$	-		$	877,508
Settlement of dividend payable	$	-		$	-		$	-		$	1,916,669
Non-cash exercise of 127,363 warrants into common stock	$	-		$	91		$	-		$	-
Conversion of convertible note plus accrued interest into common stock	$	-		$	1,400,000		$	-		$	-
Non-cash exercise of 215,079 warrants into common stock	$	67		$	-		$	-		$	-
Placement agent warrants in deferred cost financing	$	231,929		$	-		$	-		$	-
Advances transferred to property, plant and equipment	$	83,567		$	269,124		$	-		$	-
Advance transferred to land use rights	$	-		$	146,285		$	-		$	-
Accretion of preferred stock	$	1,480,294		$	-		$	-		$	-

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

F-6

YAYI INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Nature of Business

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

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

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

On August 18, 2010, one of the Company’s subsidiaries, Charleston Industrial Limited changed its name to Milkgoat Industrial Co., Ltd. (Milkgoat Industrial”), under the BVI Business Companies Act, 2004.

F-7

YAYI INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On December 17, 2010, one of the Company’s subsidiaries, Tianjin Yayi Industrial Co., Ltd. changed its name to Milkgoat (China) Goat Dairy Co., Ltd. (Milkgoat China”), as approved by Tianjin City Administration for Industry & Commerce.

In March 2010, Yayi International Inc. changed its fiscal year end from October 31 to March 31.

The principal business activities of the Company consist of manufacturing and selling of goat milk powder. All business activities of the Company are conducted principally by its subsidiaries Milkgoat China, Weinan Milkgoat Production Co., Ltd. (Weinan Milkgoat”), Fuping Milkgoat Dairy Co., Ltd (Fuping Milkgoat”) and Shaanxi Milkgoat Dairy Co., Ltd (Shaanxi Milkgoat”) operating in the PRC whereas Milkgoat Industrial is a BVI investment holding company.

2. Restatement of Previously Issued Financial Statements

On November 3, 2011, the Company filed with the Securities and Exchange Commission (“SEC”) a Current Report on Form 8-K, to report management’s determination that the Company’s financial statements for the year ended March 31, 2011, included in its Annual Report on Form 10-K filed with the SEC on June 29, 2011 (the “2011 Form 10-K”), should no longer be relied upon. The error in such financial statements is primarily due to the incorrect application of generally accepted accounting principles related to the classification of the periodic accretions to redemption value of the redeemable preferred stock incurred in 2011 as interest expense instead of as a charge against retained earnings. The Company had previously believed that the classification of the accretion amount follows Financial Accounting Standards Board Accounting Standards Codification (“ASC”) 480-10 and treated it as an expense. Upon further study, since the Company has previously determined that the preferred stock is redeemable and falls outside the scope of ASC 480-10, it should not apply the guidance under ASC 480-10 toward the accretion of redemption value. The Company determined that ASC 480-10-S99 should be applied and the accretion be treated as a charge against retained earnings, similar to a dividend to preferred stockholders. Therefore, the Company determined that the historical financial statements for the year ended March 31, 2011 included in the Company’s 2011 Form 10-K require restatement to properly record accretion of redemption value of the redeemable preferred stock as a charge to retained earnings.

F-8

YAYI INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Current Report on Form 8-K which the Company filed with the SEC on November 3, 2011 also reported management’s determination that the Company’s financial statements for the fiscal quarter ended June 30, 2011, included in its Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2011, filed with the SEC on August 15, 2011 (the “June 2011 Form 10-Q”), should no longer be relied upon due to an error in such financial statements with respect to the classification for the accretion of redeemable preferred stock’s redemption value.

The restatement has no effect on the consolidated balance sheet as of March 31, 2011 and the earnings per share for the year ended March 31, 2011. The effect of the restatements on the financial statements for the year ended March 31, 2011 is set forth below:

Consolidated Statements of Operations and Comprehensive Income (Loss):	For the Year Ended March 31, 2011
	As reported			Adjustment			As restated
Interest expense	$	(2,195,219	)	$	1,480,294		$	(714,925	)
Income (loss) before tax		(823,413	)		1,480,294			656,881
Net income (loss)		(1,291,499	)		1,480,294			188,795
Accretion of preferred stock		-			(1,480,294	)		(1,480,294	)
Net loss attributable to common stockholder		(1,291,499	)		-			(1,291,499	)

Loss per share - Basic	$	(0.05	)	$	-		$	(0.05	)
Loss per share - Diluted	$	(0.05	)	$	-		$	(0.05	)

Consolidated Statements of Cash Flows:	For the Year Ended March 31, 2011
	As reported			Adjustment			As restated
Net income (loss)	$	(1,291,499	)	$	1,480,294		$	188,795
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Accretion of preferred stock		1,480,294			(1,480,294	)		-
Net cash used in operating activities	$	(1,181,337	)		-		$	(1,181,337	)

F-9

YAYI INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Statements of Stockholders’ Equity:	For the Year Ended March 31, 2011
	As reported			Adjustment			As restated
Net(loss) income for the year ended March 31, 2011	$	(1,291,499	)	$	1,480,294		$	188,795
Accretion of preferred stock		-			(1,480,294	)		(1,480,294	)
Retained Earnings Balance at March 31, 2011	$	2,529,601			-		$	2,529,601

3. Summary of Significant Accounting Policies

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

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

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

F-10

YAYI INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. Summary of Significant Accounting Policies – Continued

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

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

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

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

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

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

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

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

F-11

YAYI INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. Summary of Significant Accounting Policies – Continued

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

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

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

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

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

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

F-12

YAYI INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. Summary of Significant Accounting Policies - Continued

Research and development - Research and development costs are expensed as incurred. Research and development expenses amounted to $74,337 and $150,101 for the year ended March 31, 2011 and October 31, 2009, respectively, $40,898 and $57,558 for the five months ended March 31, 2010 and 2009, respectively.

Advertising and promotion costs - Costs incurred in direct-response advertising are capitalized and amortized on a straight-line basis over the duration of the advertising campaign. As of March 31, 2011, there was no capitalized direct-response advertising. All other advertising costs are expensed as incurred. Advertising and promotion costs amounted to $8,232,330 and $1,956,512 for the year ended March 31, 2011 and October 31, 2009, respectively, As of March 31, 2010, there was no capitalized direct-response advertising. Advertising and promotion costs amounted to $2,727,631 and $1,046,940 for the five months ended March 31, 2010 and 2009, respectively.

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

F-13

YAYI INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. Summary of Significant Accounting Policies – Continued

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

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

Gains and losses resulting from transactions denominated in foreign currencies are included in other income (expense) in the consolidated statements of operations.

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

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

F-14

YAYI INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. Summary of Significant Accounting Policies – Continued

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

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

Shipping and handling cost - Shipping and handling costs related to delivery of finished goods are included in other selling, general and administrative expenses. During the year ended March 31, 2011 and October 31, 2009, shipping and handling costs were $445,688 and $504,353, respectively. During the five months ended March 31, 2010 and 2009, shipping and handling costs were $137,942 and $89,011, respectively.

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

Slotting fees of $5,526,217 and $1,032,609 were recorded as a reduction of sales revenue for the year ended March 31, 2011 and five months ended March 31, 2010, respectively. There were no slotting fees incurred for the year ended October 31, 2009 and five months ended March 31, 2009.

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

F-15

YAYI INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. Summary of Significant Accounting Policies - Continued

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

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

Recently Adopted Accounting Pronouncements

In January 2010, FASB issued ASU No. 2010-05, Compensation - Stock Compensation (Topic 718): Escrowed Share Arrangements and the Presumption of Compensation. This update codifies Emerging Issues Task Force D-110. The adoption of this standard did not have a material impact to the Company’s financial position or results of operations.

In January 2010, FASB issued ASU No. 2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements. This update provides amendments to ASC Topic 820 that will provide more robust disclosures about (1) the different classes of assets and liabilities measured at fair value, (2) the valuation techniques and inputs used, (3) the activity in Level 3 fair value measurements, and (4) the transfers between Levels 1, 2, and 3. This standard is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. The adoption of this standard did not have a material impact to the Company’s financial position.

In January 2010, FASB issued ASU N0. 2010-01, Equity (Topic 505): Accounting for Distributions to Shareholders with Components of Stock and Cash. The update clarifies that the stock portion of a distribution to shareholders that allows them to elect to receive cash or stock with a potential limitation on the total amount of cash that all shareholders can elect to receive in the aggregate is considered a share issuance that is reflected prospectively in earnings per share and is not considered a stock dividend for purposes of ASC Topic 505 and Topic 260, Earnings Per Share. This standard is effective for interim and annual periods ending on or after December 15, 2009, and should be applied on a retrospective basis. The adoption of this standard did not have a material impact to the Company’s financial position or results of operations.

F-16

YAYI INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. Summary of Significant Accounting Policies – Continued

Recently Issued Accounting Pronouncements Not Yet Adopted

In April 2010 the FASB issued Accounting Standards Update (ASU) No. 2010-13, Compensation - Stock Compensation (ASC Topic 718), Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades. This Update provides amendments to ASC Topic 718 to clarify that an employee share-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the entity’s equity securities trades should not be considered to contain a condition that is not a market, performance, or service condition.

Therefore, an entity would not classify such an award as a liability if it otherwise qualifies as equity. The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010. The amendments in this Update should be applied by recording a cumulative-effect adjustment to the opening balance of retained earnings. The cumulative-effect adjustment should be calculated for all awards outstanding as of the beginning of the fiscal year in which the amendments are initially applied, as if the amendments had been applied consistently since the inception of the award. The cumulative-effect adjustment should be presented separately. Earlier application is permitted. This standard will be adopted effective April 1, 2011.

In December 2010, FASB issued ASU No. 2010-28, Intangibles - Goodwill and Other (Topic 350): When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts. The amendments in this Update affect all entities that have recognized goodwill and have one or more reporting units whose carrying amount for purposes of performing Step 1 of the goodwill impairment test is zero or negative. The amendments in this Update modify Step 1 so that for those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that a goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that an impairment may exist. The qualitative factors are consistent with existing guidance, which requires that goodwill of a reporting unit be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.

For public entities, the amendments in this Update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2010. Early adoption is not permitted.

F-17

YAYI INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. Summary of Significant Accounting Policies – Continued

This standard is not currently applicable to the Company.

In December 2010, FASB issued ASU No. 2010-29, Business Combinations (Topic 805): Disclosure of Supplementary Pro Forma Information for Business Combinations. The amendments in this Update specify that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The amendments also expand the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The amendments in this Update are effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. The Company intends to adopt the disclosure requirements for any business combinations after April 1, 2011.

As of March 31, 2011, there were no other recently issued accounting standards not yet adopted which would have had a material effect on the Company’s financial statements.

4. Restricted Cash

	March 31,		March 31,
	2011		2010

Bank deposits held as collateral for bills payable	$	1,004,314	$	28,314
Bank deposits held in escrow (Note 15)		408,090		-
	$	1,412,404	$	28,314

Cash of $408,090 from the private placement was held in escrow for the Company as of March 31, 2011 (Note 15).

F-18

YAYI INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5. Other Receivable

	March 31,			March 31,
	2011			2010

Advance to staff	$	37,892		$	28,542
Security deposit		470,313			592,461
Sundry		109,408			-
		617,613			621,003
Less: allowance for bad debts		(43,230	)		(22,833	)
	$	574,383		$	598,170

6. Inventories, net

Inventories, net consist of:

	March 31,		March 31,
	2011		2010

Raw materials	$	2,709,596	$	1,678,207
Packaging		497,341		289,188
Finished goods		678,544		593,870
	$	3,885,481	$	2,561,265

As of March 31, 2011 and 2010, there was no allowance made for obsolete or slow moving inventory.

F-19

YAYI INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7. Advances on Property, Plant and Equipment

Advances and deposits on property, plant and equipment consist of:

	March 31,		March 31,
	2011		2010

Advances to Tianjin Mengyang Biological Development Co., Ltd ("Tianjin
Menyang"), formerly Tianjin Milkgoat Dairy Co., Ltd.
- purchase of office building (Note 18)	$	4,348,488	$	4,179,284
- purchase of factory and warehouse (Note 18)		11,489,095		11,042,041
- advances for renovation of office building (Note 18)		356,159		342,300
Deposits for construction in progress (Note 18)		572,366		331,696
Advanced payment for purchasing machinery and equipment		2,297,331		1,920,814
	$	19,063,439	$	17,816,135

The main body construction of office building had been completed as of September 2010. The construction project is under inspection and the completion date is subject to the inspection report to be issued. Based on the Company’s estimate, the completion date is expected to be postponed to the end of October, 2011 (Note 18). The Company expects that the building will be operational during the fourth calendar quarter of 2012.

The main body construction of factory and warehouse had been completed as of September 2010. The construction project is under inspection and the completion date is subject to the inspection report to be issued. Based on the Company’s estimate, the completion date is expected to be postponed to the end of October, 2011 (Note 18). The Company expects that the facility will start operating during the fourth calendar quarter of 2012.

The construction in progress relates to the construction and installation of central system pipelines. The estimated completion date of installation is postponed to the fourth calendar quarter of 2013 (Note 19).

The advanced payment for purchasing machinery and equipment relates to the purchases of machinery and equipment from several suppliers. They are expected to be delivered to the Company between July 2012 and March 2013 after the approval of final inspection.

F-20

YAYI INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8. Property, Plant and Equipment, net

Property, plant and equipment, net consist of the following:

	March 31,			March 31,
	2011			2010

At cost:
Leasehold improvement	$	71,714		$	68,924
Plant and buildings		4,338,544			1,708,463
Machinery		3,895,981			2,525,876
Furniture, fixtures and equipment		239,364			202,581
Motor vehicles		338,091			324,936
		8,883,694			4,830,780
Less: accumulated depreciation and amortization		(1,799,269	)		(1,096,228	)
		7,084,425			3,734,552
Construction in progress		979,082			2,770,578
	$	8,063,507		$	6,505,130

During the year ended March 31, 2011, depreciation expenses amounted to $646,028, of which $550,895 and $95,133 was recorded as cost of sales and other selling, general and administrative expense, respectively.

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

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

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

F-21

YAYI INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9. Land use rights

Land use rights consist of:

	March 31,		March 31,
	2011		2010

Land use rights	$	980,526	$	942,372
Less: accumulated amortization		17,976		-
		962,550		942,372
Less: current portion		19,611		18,847
Land use rights, net of current portion	$	942,939	$	923,525

The estimated aggregate amortization expenses for intangible assets for the five succeeding years are as follows:

Year
2011	$	19,611
2012		19,611
2013		19,611
2014		19,611
2015		19,611
Thereafter		864,495
	$	962,550

During the year ended March 31, 2011 and October 31, 2009, amortization expenses amounted to $17,612 and $0 was recorded as cost of sales, respectively. During the five months ended March 31, 2010 and 2009, there was no amortization expenses incurred.

F-22

YAYI INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10. Short Term Loans

Lender	Loan Period	Collateral / Guarantee	Interest Rate per annum		March 31, 2011		March 31, 2010

Shanghai Pudong Development Bank	Renew on July 30, 2010 and the new due date is July 30, 2011	Guaranteed by the Tianjin Haitai Investment Guarantee Co., Ltd.	6.4%		304,409		292,565

Shanghai Pudong Development Bank	Renew on July 30, 2010 and the new due date is July 30, 2011	Guaranteed by the Tianjin Haitai Investment Guarantee Co., Ltd.	6.4%		1,217,637		1,170,258

Allied Merit International Investment, Inc.	November 5, 2007 to the completion of first round of fund raising after the reverse merger -		-	$	-	$	121,705

Tianjin Rural Commercial Bank	June 3, 2010 to June 2, 2011	Guaranteed by the Tianjin Haitai Investment Guarantee Co., Ltd.	5.8%		913,229		-

Tianjin Rural Commercial Bank	June 3, 2010 to June 2, 2011	Guaranteed by the Tianjin Haitai Investment Guarantee Co., Ltd.	5.8%		1,217,637		-

Tianjin Rural Commercial Bank	June 3, 2010 to June 2, 2011	Guaranteed by the Tianjin Haitai Investment Guarantee Co., Ltd.	5.8%		1,217,637		-

Tianjin Rural Commercial Bank	June 3, 2010 to June 2, 2011	Guaranteed by the Tianjin Haitai Investment Guarantee Co., Ltd.	5.8%		1,217,637		-

Bank of Beijing	January 6, 2011 to January 5, 2012	Guaranteed by the Beijing Huaxia Jingu Guarantee Co., Ltd.	6.1%		1,522,047		-

Bank of Tianjin	January 6, 2011 to November 3, 2011	Guaranteed by the Tianjin Bohai Investment Guarantee Co., Ltd.	6.7%		761,024		-

Bank of Tianjin	November 4, 2010 to November 3, 2011	Guaranteed by the Tianjin Bohai Investment Guarantee Co., Ltd.	6.7%		2,283,071		-

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

Tianjin Rural Commercial Bank	May 22, 2009 to May 21, 2010	Guaranteed by the Tianjin Haitai Investment Guarantee Co., Ltd.	6.4%		-		1,462,822

Tianjin Rural Commercial Bank	July 3, 2009 to May 21, 2010	Guaranteed by the Tianjin Haitai Investment Guarantee Co., Ltd.	6.4%		-		2,194,234

				$	10,654,328	$	6,704,406

F-23

YAYI INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10. Short Term Loans – Continued

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

On June 3, 2010, the Company entered into three loan agreements with Tianjin Rural Commercial Bank for RMB8,000,000 (approximately $1,217,637) each and a loan agreement for RMB6,000,000 (approximately $913,229). The annual interest rate is 5.8% and the loans are due on June 2, 2011. These loans are guaranteed by Tianjin Haitai Investment Guarantee Co., Ltd. with the guarantee fee of RMB360,000 (approximately $54,794) paid on July 20, 2010. The loans were subsequently renewed on June 10, 2011 (Note 22).

On July 30, 2010, the Company renewed two loan agreements with Shanghai Pudong Development Bank for RMB2,000,000 (approximately $304,409) and RMB8,000,000 (approximately $1,217,637). RMB 10,000,000 (approximately $1,522,047) was paid on November 4, 2010 and RMB 5,000,000 (approximately $761,024) was paid on January 6, 2011. The annual interest rate is 6.4% and the loans are due on November 3, 2011. These loans are guaranteed by Tianjin Haitai Investment Guarantee Co., Ltd. with the guarantee fee of RMB150,000 (approximately 22,831) paid on July 30, 2010.

On November 4, 2010, the Company entered into a loan agreement with Bank of Tianjin for RMB15,000,000 (approximately $2,283,071). The annual interest rate is 6.7% and the loan is due on November 3, 2011. The loan is guaranteed by Tianjin Bohai Investment Guarantee Co., Ltd. with the guarantee fee of RMB400,000 (approximately $60,882) paid on November 4, 2010.

On January 6, 2011, the Company entered into a loan agreement with Bank of Beijing for RMB10,000,000 (approximately $1,522,047). The annual interest rate is 6.1% and the loan is due on January 5, 2012. The loan is guaranteed by Beijing Huaxia Jingu Guarantee Co., Ltd. with the guarantee fee of RMB230,400 (approximately $35,068) paid on January 6, 2011.

F-24

YAYI INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11. Due to Shareholders

	March 31,		March 31,
	2011		2010
	(audited)		(audited)

Li Liu, a director of the Company, officer and principal shareholder	$	3,531,966	$	3,394,534
Other shareholders		1,918,267		1,918,267
	$	5,450,233	$	5,312,801

On June 12, 2009, the persons who were shareholders of Milkgoat China before Milkgoat Industrial acquired their interests in Milkgoat China on January 15, 2008 (the “Original Shareholders”) entered into a restructuring agreement whereby the Original Shareholders, upon receipt of RMB30,500,000 (approximately $4,564,345) of dividend payable from Milkgoat Industrial agreed to provide an interest-free loan of the same amount to Milkgoat China. The entire amount of dividend was paid to the Original Shareholders and was lent to Milkgoat China by the Original Shareholders.

The amounts due to director, Li Liu and the other shareholders are unsecured with no stated interest and are not expected to be repaid within the fiscal year ending March 31, 2012.

F-25

YAYI INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

12. Long-Term Loans

As of March 31, 2011 and 2010, the Company has the following long-term loans:

	March 31,			March 31,
	2011			2010

Installment loan from Daimler-chrysler Automotive Finance Ltd, interest free, monthly principal and interest payment of $3,402 from February 5, 2010 to August 5, 2011	$	17,697		$	57,832
Less: current portion		(17,697	)		(40,823	)
Long-term loans, net of current portion	$	-		$	17,009

(a) The convertible notes payable, net of debt discount consists of the following as of March 31, 2011 and 2010:

	March 31,		March 31,
	2011		2010

Convertible notes payable	$	4,604,447	$	-
Accretion of debt discount - warrants and beneficial conversion feature		456,714		-
Convertible notes payable, net	$	5,061,161	$	-

Accrued interest on the convertible notes payable as of March 31, 2011 was $0. The interest expense on the convertible notes for the year ended March 31, 2011 was $154,342.

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

F-26

YAYI INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13. Income and Other Tax Payables

Income and other tax payables consist of the following:

	March 31,			March 31,
	2011			2010

Income tax (receivable) payable	$	(251,670	)	$	17,585
Value added tax payable		1,439,970			1,295,321
Individual income withholding tax payable		4,962			316
Other tax payables		21,232			24,972
	$	1,214,494		$	1,338,194

14. Income Tax

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

United States

The Company was incorporated in Delaware and is subject to United States of America tax law. No provisions for income taxes have been made as the Company has a taxable loss for the year ended March 31, 2011. No tax benefit has been realized since a valuation allowance has offset the deferred tax asset resulted from the net operating loss.

BVI

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

PRC

Milkgoat China, Weinan Milkgoat, Fuping Milkgoat and Shaanxi Milkgoat are subject to PRC income tax. Income tax expense for the year ended March 31, 2011 and October 31, 2009 were $468,086 and $2,201,032, respectively. Income tax expense (benefit) for the five months ended March 31, 2010 and 2009 were ($289,093) and $869,614 respectively.

Effective January 1, 2008, the statutory PRC tax rate is 25%. Therefore, the statutory PRC rate for the years ended March 31, 2011 and October 31, 2009 and the five months ended March 31, 2010 and 2009 was 25%.

F-27

YAYI INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

14. Income Tax – Continued

The income tax provision (benefit) consists of the following:

	Year ended			Five months ended						Year ended
	March 31,			March 31,						October 31,
	2011			2010			2009			2009
							(unaudited)
Current	$	535,626		$	(155,700	)	$	1,090,628		$	2,189,207
		-			-			-			-
Deferred		368,713			(472,893	)		(17,514	)		(455,475	)
Change in valuation allowance		(436,253	)		339,500			(203,500	)		467,300
	$	468,086		$	(289,093	)	$	869,614		$	2,201,032

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

	Year ended		Five months ended				Year ended
	March 31,		March 31,				October 31,
	2011		2010		2009		2009
					(unaudited)

Tax provision (benefit) at PRC statutory rate	25.0	%	(25.0	%)	25.0	%	25.0	%
(Over) under accrual in prior years	(13.2	%)	0.0	%	0.1	%	1.7	%
Unrecognized tax benefit of current period tax losses	21.1	%	0.6	%	0.0	%	0.0	%
Parent company's expenses not subject to PRC tax	38.4	%	9.1	%	3.5	%	2.3	%
Effective tax rate	71.3	%	(15.3	%)	28.6	%	29.0	%

F-28

YAYI INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

14. Income Tax – Continued

The components of the deferred tax assets are as follows:

	March 31,			March 31,
	2011			2010

Deferred tax asset for NOL carryforwards - China	$	263,600		$	173,000
Deferred tax asset for NOL carryforwards - US		1,538,769			1,618,300
Warrant and option expense		1,168,384			743,200
Temporary difference from advertisement		-			232,236
Temporary difference from intercompany sales profit		2,409			1,259
Temporary difference from slotting fee		374,124			220,243
Temporary difference from allowance for doubtful accounts receivable		28,816			19,151
		3,376,102			3,007,389
Valuation allowance		(2,970,753	)		(2,534,500	)
Total deferred tax assets	$	405,349		$	472,889

Deferred income taxes have been classified in the consolidated balance sheets as of March 31, 2011 and 2010 as follows:

	March 31,		March 31,
	2011		2010

Current assets	$	374,124	$	-
Noncurrent assets		31,225		472,889

Net deferred tax assets	$	405,349	$	472,889

The valuation allowance for deferred tax assets as of March 31, 2011 and 2010 was $2,970,753 and $2,534,500, respectively. The change in total allowance for the year ended March 31, 2011was an increase of $436,253 and for the 5 months ended March 31,2010 was an increase of $339,500.

F-29

YAYI INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

14. Income Tax – Continued

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which the net operating losses and temporary differences become deductible. Management considered projected future taxable income and tax planning strategies in making this assessment. At March 31, 2011, the Company had net operating loss carry forwards for United States Federal and State income tax purposes of approximately $3,585,455 (the “NOL carry forwards-US”), which were available to offset future US taxable income, if any, through 2031. At March 31, 2011, the Company had net operating loss carry forwards, associated with its subsidiaries Weinan Milkgoat, Fuping Milkgoat and Shaanxi Milkgoat, for PRC income tax purposes of approximately $1,054,542 (the “NOL carry forwards – China”), which are available to offset future PRC taxable income, if any, until it is fully offset against future taxable income subject to the approval of the Chinese tax authority. Based upon the uncertainty of future US taxable income, the limited operating histories of its subsidiaries, Weinan Milkgoat, Fuping Milkgoat, and Shaanxi Milkgoat, management has fully reserved the deferred tax asset associated with the warrant expense and NOL carry forwards for US and PRC income tax purposes.

The Company did not recognize any interest or penalties related to unrecognized tax benefits in the year ended March 31, 2011 and five months ended March 31, 2010. The Company had no uncertain positions that would necessitate recording of tax related liability. The Company is subject to examination by the respective tax authorities.

F-30

YAYI INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

15. Warrants

Series A Warrants

During the year ended March 31, 2011, 14,196 shares of common stock had been issued upon the cashless exercise of 34,725 Series A Warrants. For the five months ended March 31, 2010, 13,022 shares of common stock had been issued upon the cashless exercise of 17,363 Series A Warrants.

Series C Warrants

As of March 31, 2011, 46,794 shares of common stock had been issued upon the cashless exercise of 171,185 Series C Warrants.

Series D Warrants and Placement Agent Fee

In connection with the merger with Milkgoat Industrial on June 6, 2008, we paid the placement agent an aggregate of approximately $104,000 in commissions and approximately $21,000 for expenses for its services in the offering. We also issued the placement agent and its designees Series D Warrants (which generally have the same terms as the Series A Warrants) to acquire an aggregate of 144,448 shares of common stock. The Series D Warrants were valued at $67,368 as the fair value. Of the total placement agent expense of $192,368, $150,828 was allocated to debt issuance costs and the remaining $41,540 of advisory cost was recorded as an expense. The debt issuance costs are amortized by the interest method over the term of the convertible notes.

For the year ended March 31, 2011 and October 31, 2009, amortization of debt issuance costs and accretion of debt discount from the warrants and embedded derivatives issued in respect of the merger on June 6, 2008 totaled $0 and $487,821 as they have been fully amortized and accreted as of March 31, 2011. For the five months ended March 31, 2010 and 2009, amortization of debt issuance costs and accretion of debt discount from the warrants and embedded derivatives issued in respect of the merger on June 6, 2008 (“merger”) totaled $91,227 and $118,913, respectively.

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

Pursuant to a registration rights agreement with the purchasers of 52 units of convertible promissory notes issued upon completion of merger with Milkgoat Industrial on June 6, 2008, the Company agreed to register the resale of the shares of common stock underlying these notes and Series A Warrants. The Company did not file a registration statement by July 21, 2008, as required by the agreement.

F-31

YAYI INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

15. Warrants – Continued

On November 24, 2009, the Company and the investors entered into a Settlement Agreement (the “Settlement Agreement”), to settle the Company’s obligations under the aforementioned registration rights agreement for failure to file a registration statement in accordance with the terms of the registration rights agreement. Pursuant to the Settlement Agreement, each investor is entitled to convert the entire principal amount of and accrued interest on all of the notes it holds into the Company’s common stock at a conversion price of $1.08 per share.

The Company modified the Series A and Series D warrant exercise price to $0.98 per share in 2009 pursuant to the Settlement Agreement. Additional expenses of $71,400 and $17,100, respectively, were recorded as a result of the reduction in Series A and Series D warrant exercise prices.

During the year ended March 31, 2011, 5,840 shares of common stock had been issued upon the cashless exercise of 9,169 Series D Warrants. For the five months ended March 31, 2010, 78,432 shares of common stock had been issued upon the cashless exercise of 110,000 Series D Warrants.

16. Issuance of Convertible Notes and Series of Warrants

On September 27, 2010, the Company issued and sold to certain investors 892 units at a purchase price of $10,000 per unit, resulting in gross proceeds of $8.92 million to the Company. Each unit consists of a three-year, 9% convertible promissory note in the principal amount of $10,000 (the “9% Convertible Note”) and a three-year Series F common stock purchase warrant (the “Series F Warrant”), to purchase 1,250 shares of the Company’s common stock at an exercise price of $2.50 per share.

The 9% Convertible Notes are payable at an interest rate of 9% per annum, payable semiannually in arrears on the last day of the first and third calendar quarters (i.e., March 31 and September 30) commencing March 31, 2011 and mature on September 26, 2013 (the “Maturity Date”). Except for the secured Indebtedness (as defined in the 9% Convertible Note) of the Company and its subsidiaries in existence on September 27, 2010, the obligations of the Company under the 9% Convertible Notes will rank senior with respect to all existing indebtedness of the Company as of September 27, 2010 and to any and all Indebtedness incurred thereafter. The 9% Convertible Notes are also convertible into shares of common stock at any time prior to the Maturity Date at $2.00 per share, which conversion price is subject to weighted average and other customary anti-dilution protections. At any time after September 26, 2011, the Company may redeem all but not less than all of the outstanding principal amount of any 9% Convertible Notes by payment of 108% of the outstanding principal amount of the 9% Convertible Notes, together with accrued but unpaid interest.

The 9% Convertible Notes contain customary affirmative and negative covenants. The 9% Convertible Notes also contain customary events of default, upon which the holders of the 9% Convertible Notes may declare all outstanding 9% Convertible Notes to be due and payable immediately.

F-32

YAYI INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

16. Issuance of Convertible Notes and Series of Warrants - Continued

The Series F Warrants issued in connection with the private placement in September 2010 entitle the investors to purchase an aggregate of 1,115,000 shares of common stock at an initial exercise of $2.50 per share, which exercise price is subject to the customary weighted average and stock based anti-dilution protection. The Series F Warrants may be exercised in a cash or cashless way at any time upon the election of the holders until September 26, 2013.

Placement Agent Fee

The Company paid a cash commission of $713,600, which is equal to 8% of the gross proceeds of the financing to the placement agent. In addition, the Company issued Series F Warrants to the designees of the placement agent to purchase an aggregate of 312,200 shares of common stock of the Company at an exercise price of $2.50 per share, as partial compensation for services provided by them in connection with the private placement.

Make Good Escrow Agreement

On September 27, 2010, the Company, a major shareholder of the Company, Global Rock, Euro Pacific Capital, Inc. and Escrow, LLC entered into a make good escrow agreement (the “Make Good Escrow Agreement”). Pursuant to the Make Good Escrow Agreement, Global Rock agreed to place a total of 669,000 shares of common stock held by it, which is equal to 15% of the amount of shares of common stock issuable upon conversion of the 9% Convertible Notes (the “Make Good Shares”), into escrow to secure certain make good obligations of the Company. In the event that the combined net sales of the Company of both of the fiscal years ending March 31, 2011 and 2012 is less than $125 million, Global Rock will transfer the Make Good Shares to the investors, on a pro rata basis to the extent of shortfall of the actual net sales achieved compare to the guaranteed net sales of $125 million for no additional consideration. As of March 31, 2011, it is probable that the guaranteed net sales of $125 million for fiscal years ending March 31, 2011 & 2012 may not be achieved. The estimated fair value as of March 31, 2011 of the 266,390 shares expected to be delivered is $205,683 and is reflected as accrued expenses – non current on the balance sheet as of March 31, 2011. The fair value of Make Good Escrow Agreement will be analyzed every period end using a probability weighted assessment method and adjusted if necessary.

F-33

YAYI INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

16. Issuance of Convertible Note and Series of Warrants - Continued

Registration Rights Agreement

In connection with the private placement of September 2010, the Company and the investors entered into a registration rights agreement (the “Registration Rights Agreement”), pursuant to which, the Company granted registration rights to holders of registrable securities, which include (i) the shares of common stock issuable upon the conversion of the 9% Convertible Notes, (ii) the Make Good Shares, as applicable, (iii) the shares of common stock issuable upon the exercise of Series F Warrants issued to the investors and the placement agent, and (iv) any securities issued or issuable upon any stock split, dividend or other distribution, recapitalization or similar event, or any price adjustment as a result of such stock splits, reverse stock splits or similar events with respect to any of the securities referenced in (i) – (iii) above.

Pursuant to the Registration Rights Agreement, the Company is required to file a registration statement on Form S-1 (the “Registration Statement”), within 30 days after the closing of the private placement, or the Closing, and cause the Registration Statement to be declared effective by the Securities and Exchange Commission with 180 days after the Closing. The Company may be subject to liquidated damages in an amount up to 8% ($713,600) of the aggregate investment amount paid by the investors in the private placement if it is unable to file, obtain and maintain effectiveness of the Registration Statement as required by the Registration Rights Agreement by March 27, 2011. The Company filed the Registration Statement on October 27, 2010. As of March 31, 2011, the Company has accrued a registration penalty of $267,600.

Closing Escrow Agreement

On September 27, 2010, the Company also entered into a closing escrow agreement with the placement agent and the escrow agent (the “Closing Escrow Agreement”), pursuant to which, among other things, the Company has placed a certain amount of cash received from the private placement ($408,090) (the “Holdback Amount”), with the escrow agent, which is sufficient to satisfy the payment to the investors of one semiannual interest payment due on the aggregate principal amount of all 9% Convertible Notes issued in the private placement, which includes accrued interest due on the principal amount of the 9% Convertible Notes from September 27, 2010 through March 31, 2011. If, an event of default (as defined in the 9% Convertible Notes) is declared by the placement agent with respect to a failure by the Company to make a semiannual interest payment to the investors in accordance with the 9% Convertible Notes, the escrow agent will disburse a certain portion of the Holdback Amount to the investors, and within 30 days following the disbursement, the Company will deposit an additional amount equal to the Holdback Amount with the escrow agent to be retained and disbursed. On the Maturity Date or at any time prior to the Maturity Date when 75% of all 9% Convertible Notes have been converted, all remaining funds of the Holdback Amount will be disbursed to the Company.

F-34

YAYI INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

16. Issuance of Convertible Note and Series of Warrants – Continued

Accounting for Convertible Notes and Series F Common Stock Warrants

The 9% Convertible Notes and Series F Warrants (issued to both investors and the placement agent) contain ratchet provision which will reduce the conversion and exercise price, based on a formula, if the Company sells or issues securities at a price lower than the conversion or exercise price. The embedded conversion option of the 9% Convertible Notes and the warrants do not meet the test of being indexed only to the Company’s common stock as defined in ASC 815-40-15 because the formula is not based on the market price. Accordingly, the embedded conversion option and warrants are accounted for as derivative liabilities and are required to be re-measured at the end of every reporting period with the change in fair value in the statement of operations.

The 8% placement agent fee and other offering costs totaling $888,180 and the fair value of the Series F warrants issued to the placement agent of $231,929 are accounted for deferred financing fees. The gross proceeds of $8,920,000 are allocated to the fair value of the Series F warrants issued to the investors of $828,319, fair value of the embedded conversion option of $3,487,233, and the carrying value of the convertible notes of $4,604,447. The fair value of the embedded conversion option is calculated using a Cox-Ross-Rubinstein (“CRR”) binomial model with the following assumptions: conversion price of $2.00, risk free interest rate of 0.66%, expected term of 3 years, and a volatility of 130%. The fair value of the warrants is calculated using the CRR binomial model with the following assumptions: exercise price of $2.5 per share, risk free interest rate of 0.66%, expected term of 3 years, and a volatility of 130%. The expected volatility is based on average volatility of five comparable companies in the same industry and the Company’s historical volatility.

The value of the embedded conversion option and the warrants are re-measured at March 31, 2011 using the CRR binomial model with the same assumptions as stated above except for a risk free interest rate of 0.91% and volatility of 120%. The decrease in fair value of these derivative liabilities for the year ended March 31, 2011 totaled $2,771,081, respectively (Note 16).

The initial carrying value of the convertible notes will be accreted to their redemption value of $8,920,000 over the three years term of the convertible notes at an effective interest rate of 34.77 %. Effective interest expense recorded for the year ended March 31, 2011 is $864,805.

F-35

YAYI INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

16. Issuance of Convertible Note and Series of Warrants – Continued

The following table summarizes all of the Company’s warrants outstanding as of March 31, 2011.

	Shares outstanding		Fair Value
Warrants outstanding in respect of the merger:
Series A Warrants		549,812	$	432,097
Series B Warrants		2,148,148		1,144,743
Series C Warrants		14,000		6,530
Series D Warrants		25,279		19,867
		2,737,239	$	1,603,237

Warrants outstanding for extension of maturity date of loan from Allied Merit:
Series E Warrants		250,000	$	233,547

							Exercise Price
							per Common
	Warrant Shares			Vested Shares			Stock Range

Balance, October 31, 2009		3,329,681			3,329,681		$	1.08-1.35

Granted or vested during the 5 months ended March 31, 2010		-			-			-
Exercised during the 5 months ended March 31, 2010		(127,363	)		(127,363	)	$	0.98
Expired during the 5 months ended March 31, 2010		-			-			-
Balance, March 31, 2010		3,202,318			3,202,318		$	0.98-1.35

Granted or vested during the year ended March 31, 2011		1,427,200			1,427,200		$	2.50
Exercised during the year ended March 31, 2011		(215,079	)		(215,079	)	$	0.98-1.35
Expired during the year ended March 31, 2011		-			-			-
Balance, March 31, 2011		4,414,439			4,414,439		$	0.98-1.35

F-36

YAYI INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

16. Issuance of Convertible Note and Series of Warrants - Continued

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

	Warrants Outstanding

		Number Outstanding Currently	Weighted Average Remaining		Weighted Average Exercise Price of Warrants
	Range of Exercise Prices	Exercisable at March 31, 2011	Contractual Life (Years)		Currently Exercisable

$	0.98-1.35	2,987,239	0.19	$	1.06
$	2.50	1,427,200	2.50	$	2.50

F-37

YAYI INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

17. Fair Value Measurements

Fair Value Measurements and Fair Value of Financial Instruments

The Company adopted the guidance of Accounting Standards Codification 820, or ASC 820, for fair value measurements which clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:

Level 1 - Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.

Level 2 - Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other then quoted prices that are observable, and inputs derived from or corroborated by observable market data.

Level 3 - Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.

The following table sets forth a summary of changes in fair value of Level 3 liabilities for the year ended March 31, 2011:

Liabilities:
Balance of derivative liabilities as of March 31, 2010	$	-
Initial fair value of derivative liabilities		4,547,481
Change the in fair value of derivative liabilities		(2,771,081	)
Balance of derivative liabilities as of March 31, 2011	$	1,776,400

The fair value of the derivative liabilities was determined using the CRR binominal model (Note 15), the following table sets forth the components of derivative liabilities:

	March 31,		March 31,
	2011		2010

Derivative liabilities – warrants to investors and placement agent	$	394,802	$	-
Derivative liabilities – conversion option on convertible notes		1,381,598		-
Balance of derivative liabilities	$	1,776,400	$	-

F-38

YAYI INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

17. Fair Value Measurements (continued)

Estimating fair values of derivative financial instruments requires the development of significant and subjective estimates that may, and are likely to, change over the duration of the instrument with related changes in internal and external market factors. In addition, valuation techniques are sensitive to changes in the trading market price of our common stock and its estimated volatility. Because derivative financial instruments are initially and subsequently carried at fair values, the Company’s income may include significant charges or credits as these estimates and assumptions change.

The carrying amounts reported in the balance sheets for cash, accounts receivable, other receivables, short-term borrowings, accounts payable and accrued expenses, customer advances, and amounts due to/from related parties approximate their fair market value based on the short-term maturity of these instruments. The carrying value of long-term loans approximates fair value since the interest rate associated with the debt approximates the current market interest rate.

18. Employee Stock Ownership Plan

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

The Company also entered into separate Yayi International Inc. 2010 Employee Stock Option and Stock Award Plan Award Agreements (the “Option Agreements”), with each of Ms. Jing Chen, the Company's Chief Financial Officer and Mr. Fung Shek, the Company's Vice President and Director. Under the terms of the Option Agreements, the Company agreed to grant a stock option, at an exercise price at $2.25 per share, to each of Ms. Chen and Mr. Shek for the purchase of 250,000 shares of common stock and 106,000 shares of common stock, respectively. According to the Option Agreements, 25% of the option granted to each of Ms. Chen and Mr. Shek will vest on the first anniversary of the grant date, and the balance will vest in equal quarterly installments over the next three years on the last day of each quarter, subject to Ms. Chen's and Mr. Shek's continuing employment with the Company through these dates. These options are not vested as of March 31, 2011.

On May 31, 2010, the company also entered into separate Option Agreements under the Plan with certain non-executive employees, pursuant to which the Company granted to these employees options to purchase an aggregate of 842,400 shares of common stock, at an exercise price of $2.25 per share. These options vests evenly over 4 years subject to such employees’ continuing employment with the Company through these dates and meeting the performance goals established by the department manager and/or the Company’s CEO as the case may be subject to the understanding that the Company’s CEO’s assessment shall be final.

F-39

YAYI INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

18. Employee Stock Ownership Plan - Continued

These options have been valued at $1,184,979 on grant date. The Company uses the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 54%, risks free interest rate of 2.75% and expected option life of seven years. The options expire ten years from the date of issuance.

The compensation expenses accrued for the Plan which is subject to employees’ continuing employment and meeting the performance goals established by the department manager and/or the Company’s CEO. During the year ended March 31, 2011, a total of 385,300 shares of common stock failed to vest and have been cancelled due to employee resignation and employees not meeting performance target. For the year ended March 31, 2011, the Company reversed compensation expense of $88,895 on these stock options that were not vested. As of March 31, 2011, none of the options issued to non-executive employees are vested.

On June 11, 2010, the Company entered into an Option Agreement under the Plan with Mr. Kenneth Lee. Under the terms of the Option Agreement, the Company granted a stock option, at an exercise price at $0.98 per share, to Mr. Lee for the purchase of 707,992 shares of common stock of the Company. According to the Option Agreement, the Option will fully vest after six months from the grant date. Pursuant to the employment arrangement between Mr. Lee and SAIF Partner, Mr. Lee is deemed to hold such option for the benefit of SAIF Partner. These options are fully vested as of March 31, 2011.

These options have been valued at $951,315, the Company uses the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 55%, risk free interest rate of 2.03%, expected term of 5.25 years. All of the options shall vest in one time after six months from the grand date. The options expire ten years from the date of issuance.

The following table summarizes the weighted average remaining contractual life and exercise price of the Company’s outstanding options as of March 31, 2011:

		Options Outstanding
				Number Outstanding		Weighted Average		Weighted Average Exercise
Range of Exercise Prices		Number Outstanding at March 31, 2011		Currently Exercisable at March 31, 2011		Remaining Contractual Life (Years)		Price Options at March 31, 2011

$	0.98-2.25		1,521,092		707,992		9.19	$	1.66

Yayi International Inc 10-K/A