Unassociated Document

10-Q 1 v165299_10q.htm Unassociated Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10−Q

(Mark One)

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

For the quarterly period ended: September 30, 2009

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

For the transition period from ____________ to _____________

Commission File Number: 333-83125

YUHE INTERNATIONAL, INC.

(Exact name of Registrant as Specified in its Charter)

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

301 Hailong Street

Hanting District, Weifang, Shandong Province

The People’s Republic of China

(Address of principal executive offices)

86 536 736 3688

(Registrant’s Telephone Number)

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

Yes ¨ No x

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

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

Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer ¨

Smaller reporting company x

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

Yes o No x

The number of shares outstanding of each of the issuer’s classes of common equity, as of September 30, 2009 is as follows:

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

TABLE OF CONTENTS

		Page
	PART I FINANCIAL INFORMATION

Item 1.	Condensed Financial Statements	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	18
Item 4T.	Controls and Procedures	18

	PART II OTHER INFORMATION

Item 1.	Legal Proceedings	20
Item 1A.	Risk Factors	20
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	20
Item 3.	Defaults Upon Senior Securities	21
Item 4.	Submission of Matters to a Vote of Securities Holders	21
Item 5.	Other Information	21
Item 6.	Index to Exhibits	22
Signatures		23
Certifications		24

PART I

FINANCIAL INFORMATION

ITEM 1. CONDENSED FINANCIAL STATEMENTS.

Index to Financial Statements

		Page
Financial Statements

Condensed Consolidated Financial Statements for the Period from January 1, 2008 to January 31, 2008 for Weifang Yuhe Poultry Co., Ltd.		F-1 - F-23

Condensed Consolidated Financial Statements for the Three and Nine Months Ended September 30, 2009 and 2008 for Yuhe International, Inc.		F-24 - F-52

Unaudited Pro Forma Consolidated Financial Statements for Yuhe International, Inc.		F-53 - F-55

WEIFANG YUHE POULTRY CO., LTD

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(Stated in US dollars)

F-1

WEIFANG YUHE POULTRY CO., LTD

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

(Stated in US dollars)

		Page

Condensed Consolidated Balance Sheet - unaudited		F-3 to F-4

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) - unaudited		F-5

Condensed Consolidated Statements of Changes in Stockholders’ Equity - unaudited		F-6

Condensed Consolidated Statements of Cash Flows - unaudited		F-7 to F-8

Notes to Condensed Consolidated Financial Statements - unaudited		F-9 to F-23

F-2

WEIFANG YUHE POULTRY CO., LTD

CONDENSED CONSOLIDATED BALANCE SHEET - unaudited

AS AT JANUARY 31, 2008

(Stated in US Dollars)

ASSETS
Current assets
Cash and cash equivalents	$	1,051,106
Accounts receivable		1,475
Inventories		4,624,425
Advances to suppliers		305,013

Total current assets	$	5,982,019
Deposits paid		1,084,265
Other receivables, net		3,001,699
Unlisted investments		279,738
Plant and equipment, net		15,323,245
Intangible assets, net		2,832,869
Due from related companies		3,775,469
Due from directors		233,037
Deferred expenses		602,918
Total assets	$	33,115,259

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities
Accounts payable	$	4,800,664
Current portion of long-term loans		4,383,951
Loans payable		1,770,862
Payroll and payroll related liabilities		545,565
Accrued expenses		473,020
Advances from customers		209,694
Tax payables		125,645
Due to related companies		320,913
Total current liabilities	$	12,630,315

See accompanying notes to condensed consolidated financial statements

F-3

WEIFANG YUHE POULTRY CO., LTD

CONDENSED CONSOLIDATED BALANCE SHEET – unaudited (Continued)

AS AT JANUARY 31, 2008

(Stated in US Dollars)

Long-term liabilities
Long-term loans	$	6,165,365
Total liabilities	$	18,795,680

Commitments and contingencies	$	-

Minority interests	$	278,766

STOCKHOLDERS’ EQUITY
Registered capital	$	3,019,003
Additional paid-in capital		7,009,523
Retained earnings		3,058,878
Accumulated other comprehensive income		953,409

	$	14,040,813

Total liabilities and stockholders’ equity	$	33,115,259

See accompanying notes to condensed consolidated financial statements

F-4

WEIFANG YUHE POULTRY CO., LTD

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND

COMPREHENSIVE INCOME (LOSS) – unaudited

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

(Stated in US Dollars)

Net revenues	$	1,491,329
Cost of revenues		(1,337,438	)

Gross profit	$	153,891
Operating expenses:
Selling expenses		(28,997	)
General and administrative expenses		(122,695	)
Bad debts recovery		219,893
Total operating income		68,201
Income from operations	$	222,092
Non-operating (expenses) income:
Other income		5,604
Interest income		5
Interest expenses		(86,167	)
Total other (expenses)		(80,558	)

Income before income taxes	$	141,534

Income taxes		-

Net income before minority interests	$	141,534

Minority interests (earnings)		(73,398	)

Net income	$	68,136

Other comprehensive income		-
Foreign currency translation adjustment		201,390

Comprehensive income	$	269,526

See accompanying notes to condensed consolidated financial statements

F-5

WEIFANG YUHE POULTRY CO., LTD

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY – unaudited

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

(Stated in US Dollars)

							Accumulated
			Additional				Other
	Registered		paid-in		Retained		Comprehensive
	capital		capital		earnings		Income		Total

Balance, January 1, 2008	$	482,713	$	7,009,523	$	2,990,742	$	752,019	$	11,243,997
Net income		-		-		68,136		-		68,136
Injection of additional capital from Bright Stand (Note 12)		2,536,290		-		-		-		2,536,290
Foreign currency translation adjustment		-		-		-		201,390		201,390

Balance, January 31, 2008	$	3,019,003	$	7,009,523	$	3,058,878	$	953,409	$	14,040,813

See accompanying notes to condensed consolidated financial statements

F-6

WEIFANG YUHE POULTRY CO., LTD

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

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

(Stated in US Dollars)

Cash flows from operating activities
Net income	$	68,136
Adjustments to reconcile net income to net cash used in operating activities
Depreciation		121,213
Amortization		5,200
Minority interests		73,398
Change in assets and liabilities
Advances to suppliers		212,910
Prepaid expenses		64,556
Deposits paid		111,147
Inventories		(607,144	)
Deferred expenses		(41,232	)
Accounts payable		(768,683	)
Payroll and payroll related liabilities		(304,784	)
Accrued expenses		104,606
Advances from customers		15,465
Other tax payables		(9,266	)

Net cash used in operating activities	$	(954,478	)

Cash flows from investing activities
Deposits paid and acquisition of property, plant & equipment	$	(206,700	)
Decrease in other receivables		(238,310	)
Advances from related parties receivables		2,321,943
Net cash provided by investing activities	$	1,876,933

F-7

WEIFANG YUHE POULTRY CO., LTD

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS – unaudited (Continued)

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

(Stated in US Dollars)

Cash flows from financing activities
Repayments of loan payables	$	(1,555,807	)
Proceeds from capital contributions		2,536,290
Repayment to related parties		(900,140	)

Net cash provided by financing activities	$	80,343

Effect of foreign currency translation on cash and cash equivalents		853

Increase in cash and cash equivalents		1,003,651

Cash and cash equivalents-beginning of period		47,455

Cash and cash equivalents-end of period	$	1,051,106
Supplementary cash flow information:
Interest paid in cash	$	180

See accompanying notes to condensed consolidated financial statements

F-8

WEIFANG YUHE POULTRY CO., LTD

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

1. Organization and principal activities

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

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

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

2. Summary of significant accounting policies

(a) Method of Accounting

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

(b) Principles of consolidation

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

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

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

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

F-9

WEIFANG YUHE POULTRY CO., LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

2. Summary of significant accounting policies (Continued)

(d) Economic and political risks

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

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

(e) Plant and equipment

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

Buildings	20 years
Machinery	10 years
Vehicle	5 years
Furniture and equipment	3 years

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

(f) Intangible assets

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

F-10

WEIFANG YUHE POULTRY CO., LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

2. Summary of significant accounting policies (Continued)

(g) Guarantee Expense

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

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

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

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

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

(i) Inventories

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

(j) Trade receivables

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

F-11

WEIFANG YUHE POULTRY CO., LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

2. Summary of significant accounting policies (Continued)

(k) Cash and cash equivalents

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

(l) Revenue recognition

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

(m) Cost of revenues

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

(n) Advertising

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

(o) Retirement benefit plans

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

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

F-12

WEIFANG YUHE POULTRY CO., LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

2.	Summary of significant accounting policies (Continued)

(p)

Income tax

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

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

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

(q)

Shipping and handling fees

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

(r)

Minority interests

Minority interests refer to the 43.75% investment by third parties in the equity of Taihong and are not held by the Company.

(s)

Foreign currency translation

The accompanying financial statements are presented in United States dollars. The functional currency of the Company is the Renminbi (RMB). The financial statements are translated into United States dollars from RMB at year-end exchange rates as to assets and liabilities and average exchange rates as to revenues and expenses. Capital accounts are translated at their historical exchange rates when the capital transactions occurred.

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

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

F-13

WEIFANG YUHE POULTRY CO., LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

2.	Summary of significant accounting policies (Continued)

(t)

Comprehensive income

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

(u)

Fair value of financial instruments

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

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

(v)	Recent accounting pronouncements

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

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

F-14

WEIFANG YUHE POULTRY CO., LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

3.	Inventories

Inventories consist of the following:

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

4.	Other receivables, net

Other receivables, net consist of the following:

Loan receivables	$	3,234,413
Other receivables		230,459
Less: Allowances		(436,173	)

	$	3,001,699

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

Recovery of bad debts of other receivable for the period ended January 31 2008 included in other income $61,368.

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

F-15

WEIFANG YUHE POULTRY CO., LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

5.	Unlisted investments

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

6.	Plant and equipments, net

Plant and equipment consists of the following:

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

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

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

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

F-16

WEIFANG YUHE POULTRY CO., LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

7.	Intangible assets, net

Intangible assets consist of the following:

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

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

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

8.	Due from related companies

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

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

F-17

WEIFANG YUHE POULTRY CO., LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

9.	Due from directors

Details of due from directors are as follows:

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

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

10.	Loan payable

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

11.	Due to related companies

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

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

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

F-18

WEIFANG YUHE POULTRY CO., LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

12.	Registered capital

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

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

13.	Long-term liabilities

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

Loans from Nansun Rural Credit, interest rate at 9.22% to 10.51% per annum, due from Nov 28, 08 to May 17, 10	$	8,350,383

Loans from Shuangyang Rural Credit, interest rate at 9.33% per annum, due on Oct 12, 08		904,625

Loans from Hanting Kaiyuan Rural Credit Cooperative, interest rate at 9.22% to 13.31% per annum, due from Nov 28, 08 to Jan 10, 09		1,015,963

Loans from Hanting Rural Credit Cooperative, interest rate at 8.19% per annum, due from Nov 8, 09		278,345

		10,549,316
Less: current portion of long-term liabilities		(4,383,951	)
		6,165,365

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

Remainder of 2008	$	4,383,951
2009		2,686,040
2010		3,479,326
	$	10,549,317

F-19

WEIFANG YUHE POULTRY CO., LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

14.	Income tax

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

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

The Group uses the asset and liability method, where deferred tax assets and liabilities are determined based on the expected future tax consequences of temporary differences between the carrying amounts of assets and liabilities for financial and income tax reporting purposes. There are no material timing differences and therefore no deferred tax asset or liability at January 31, 2008

The provision for income taxes consists of the following:

Current tax
PRC	$	-
Deferral tax provision		-
	$	-

All of the Group’s income (loss) before income taxes is from PRC sources. Actual income tax expenses reported in the consolidated statements of income and comprehensive income differ from the amounts computed by applying the PRC statutory income tax rate of 25% to income (loss) before income taxes during the period from January 1, 2008 to January 31, 2008 for the following reasons:

Income before income taxes	$	141,534

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

	$	-

F-20

WEIFANG YUHE POULTRY CO., LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

15.	Related parties transactions

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

Sales of goods to a related company

695,851

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

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

16.	Significant concentrations and risk

(a)	Customer Concentrations

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

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

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

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

Ma Suping			15.94	%
Lu Xingzhong			10.20	%

(b)	Credit Risk

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

F-21

WEIFANG YUHE POULTRY CO., LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

16.	Significant concentrations and risk (Continued)

(c)	Group’s operations are in China

All of the Group’s products are produced in China. The Group’s operations are subject to various political, economic, and other risks and uncertainties inherent in China. Among other risks, the Group’s operations are subject to the risks of transfer of funds; domestic and international customs and tariffs; changing taxation policies; foreign exchange restrictions; and political conditions and governmental regulations.

17.	Business and geographical segments

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

Reportable Segments

	Production of chick			Production of feeds			Total

External revenue		1,443,425			47,904			1,491,329
Intersegment revenue					737,602			737,602
Interest income		5			-			5
Interest expense		(34,819	)		(51,348	)		(86,167	)
Depreciation and amortization		116,071			10,342			126,413
Net profit (loss) after tax		(26,232	)		167,766			141,534

Assets
Expenditures for long-lived assets		206,176			524			206,700

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

F-22

WEIFANG YUHE POULTRY CO., LTD

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

18.	Commitments and contingencies

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

Up to January 31,

2008	$	134,319
2009		146,530
2010		135,049
2011		77,648
2012		77,648
Thereafter		1,444,031
Total minimum lease payments	$	2,015,225

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

19.	Subsequent Events

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

F-23

YUHE INTERNATIONAL, INC.

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008

F-24

YUHE INTERNATIONAL, INC.

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008

Index to condensed consolidated financial statements

		Page

Condensed Consolidated Balance Sheets – unaudited		F-26

Condensed Consolidated Statements of Income and Comprehensive Income – unaudited		F-27

Condensed Consolidated Statements of Cash Flows – unaudited		F-28 - F-29

Notes to Unaudited Condensed Consolidated Financial Statements		F-30 - F-52

F-25

YUHE INTERNATIONAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Stated in US Dollars)

	September 30,		December 31,
	2009		2008
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	22,036,550	$	13,412,205
Accounts receivable, net of allowances of $18,847 and $18,845		919		902
Prepaid expenses		11,622		-
Inventories		5,985,164		6,644,961
Advances to suppliers		1,485,248		661,138

Total current assets		29,519,503		20,719,206

Plant and equipment, net		26,584,622		27,112,276
Deposits paid for acquisition of long term assets		10,109,322		6,092,359
Notes receivable, net and other receivable, net		125,636		74,720
Unlisted investments held for sale		300,154		299,427
Intangible assets, net		2,867,637		2,909,752
Due from related companies		2,770,165		3,706,589
Deferred expenses		554,922		604,973

Total assets	$	72,831,961	$	61,519,302

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Accounts payable	$	5,204,642	$	4,606,055
Current portion of long term loans		8,336,258		1,356,832
Other payables		1,405,067		937,535
Accrued expenses and payroll related liabilities		2,202,367		2,125,587
Advances from customers		1,208,451		673,528
Loan from director		292,500		291,792
Other liabilities		295,053		285,132
Due to related companies		5,612		210,633

Total current liabilities		18,949,950		10,487,094

Non-current liabilities
Long-term loans		2,457,002		9,410,289
Total liabilities		21,406,952		19,897,383

Commitments and contingencies

Stockholders' Equity
Common stock at $.001 par value; 500,000,000 shares authorized, 15,722,180 shares issued and outstanding		15,722		15,722
Additional paid-in capital		30,489,143		29,944,016
Retained earnings		19,676,639		10,522,673
Accumulated other comprehensive income		1,243,505		1,139,508

Total stockholders’ equity		51,425,009		41,621,919

Total liabilities and stockholders’ equity	$	72,831,961	$	61,519,302

See accompanying notes to unaudited condensed consolidated financial statements

F-26

YUHE INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME- (UNAUDITED)

(Stated in US Dollars)

	For The Nine Months Ended						For The Three Months Ended
	September 30						September 30
	2009			2008			2009			2008

Net revenue	$	33,956,993		$	16,318,263		$	13,208,230		$	9,609,781

Cost of revenue		(21,926,699	)		(11,732,602	)		(8,042,920	)		(7,089,355	)

Gross profit		12,030,294			4,585,661			5,165,310			2,520,426

Operating Expenses

Selling expenses		(315,372	)		(280,489	)		(113,776	)		(135,658	)
General and administrative expenses		(2,163,639	)		(1,500,458	)		(784,402	)		(781,247	)

Total operating expenses		(2,479,011	)		(1,780,947	)		(898,178	)		(916,905	)

Income from operations		9,551,283			2,804,714			4,267,132			1,603,521

Non-operating income (expenses)

Bad debts recovery		-			641,103			-			554,188
Interest income		182			4,518			41			63
Other income		5,126			98,962			-			93,062
(Loss) gain on disposal of fixed assets		26,697			87,588			(1,081	)		-
Investment income		15,509			6,074			-			-
Interest expenses		(441,236	)		(763,168	)		(115,809	)		(320,048	)
Other expenses		(3,595	)		(56,342	)		(3,130	)		-

Total other (expenses)		(397,317	)		18,735			(119,979	)		327,265

Net income before income taxes		9,153,966			2,823,449			4,147,153			1,930,786
Income taxes		-			-			-			-

Net income	$	9,153,966		$	2,823,449		$	4,147,153		$	1,930,786

Other comprehensive income
Foreign currency translation		103,997			1,142,354			51,919			73,604
Comprehensive income	$	9,257,963		$	3,965,803		$	4,199,072		$	2,004,390

Earnings per share
Basic	$	0.58		$	0.21		$	0.26		$	0.12
Diluted	$	0.57		$	0.20		$	0.26		$	0.12

Weighted average shares outstanding
Basic		15,722,180			13,750,966			15,722,180			15,543,330
Diluted		15,931,379			13,985,255			15,931,379			15,989,256

See accompanying notes to unaudited condensed consolidated financial statements

F-27

YUHE INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS - (UNAUDITED)

(Stated in US Dollars)

	For The Nine Months Ended
	September 30
	2009			2008
Cash flows from operating activities
Net income	$	9,153,966		$	2,823,449
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Stock based compensation		545,127			217,653
Depreciation		1,556,610			996,126
Amortization		49,144			42,853
Bad debts recovery		-			(641,103	)
Gain on disposal of fixed assets		(26,697	)		(87,588	)
Income from unlisted investment		-			(6,074	)
Changes in operating assets and liabilities:
Accounts receivable		(15	)		(25	)
Prepaid expenses		(11,622	)		-
Inventories		676,030			(4,011,259	)
Advances to suppliers		(868,859	)		(1,067,073	)
Deferred expenses		51,488			(17,183	)
Accounts payable		586,255			(331,343	)
Other payables		464,785			(386,548	)
Accrued expenses		248,356			(433,797	)
Payroll and payroll related liabilities		(176,201	)		52,590
Advances from customers		533,066			(178,218	)
Other taxes payable		9,223			9,386

Net cash provided by (used in) operating activities		12,790,656			(3,018,154	)

Cash flows from investing activities
Deposit paid and acquisition of property, plant and equipment		(4,944,105	)		(11,053,497	)
Advance to notes receivable		(25,282	)		(3,432,603	)
Proceeds from disposal of fixed assets		27,778			118,216
Acquisition of subsidiaries		-			(10,567,946	)
Proceeds from notes receivable		-			4,329,857
Proceeds from related parties receivables		-			67,216
Advance to related companies		944,874			-

Net cash (used in) investing activities		(3,996,735	)		(20,538,757	)

Cash flows from financing activities
Proceeds from loan payable		-			1,300,726
Repayment of loan payable		-			(1,099,842	)
Proceeds from related party payable		360,094			1,106,240
Repayment of related party payable		(570,506	)		(30,311	)
Capital contribution by shareholder		-			12,149,750
Proceeds from common stock sale - net of offering costs		-			15,359,523

Net cash flows (used in) provided by financing activities:		(210,412	)		28,786,086

(Continued)

F-28

YUHE INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS - (UNAUDITED)

(Stated in US Dollars)

(Continued)

Effect of foreign currency translation on cash and cash equivalents		40,836		140,328

Net increase in cash		8,624,345		5,369,503

Cash- beginning of period		13,412,205		1,050,168

Cash- end of period	$	22,036,550	$	6,419,671

Cash paid during the period for:
Interest paid	$	1,101,194	$	1,079,117

Supplemental disclosure of non cash activities:
Transfer of construction in progress to fixed assets	$	1,831,131	$	-
Accrual on construction in progress	$	-	$	304,524

See accompanying notes to unaudited condensed consolidated financial statements

F-29

YUHE INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.	Basis of presentation

The interim condensed consolidated financial statements included herein, presented in accordance with United States generally accepted accounting principles and stated in US dollars, have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. These statements reflect all adjustments, consisting of normal recurring adjustments, which, in the opinion of management, are necessary for fair presentation of the information contained therein. It is suggested that these interim condensed consolidated financial statements be read in conjunction with the financial statements of the Company for the year ended December 31, 2008 and notes thereto included in the Form 10K of Yuhe International, Inc. (Formerly known as First Growth Investors, Inc.) filed on March 31, 2009. The Company follows the same accounting policies in the preparation of interim reports.

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

2.	Organization and Basis of Preparation of Financial Statements

Yuhe International, Inc.

Yuhe International, Inc., formerly known as First Growth Investors, Inc., “Yuhe” or “the Company” was originally organized under the laws of the State of Nevada on September 9, 1997. The Company was not presently engaged in any business activities and had no operations, income producing assets or significant operating capital. At December 31, 2007, the Company was at development stage until its business combination with Bright Stand on March 12, 2008.

F-30

YUHE INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

This share exchange transaction resulted in Bright Stand’s former shareholder obtaining a majority voting interest in the Company. Generally accepted accounting principles require that the company whose shareholders retain the majority interest in a combined business be treated as the acquirer for accounting purposes, resulting in a reverse acquisition with Bright Stand as the accounting acquirer and Yuhe International Inc. as the acquired party. Accordingly, the share exchange transaction has been accounted for as a recapitalization of the Company. The equity section of the accompanying financial statements has been restated to reflect the recapitalization of the Company due to the reverse acquisition as of the first day of the first period presented. The assets and liabilities acquired that, for accounting purposes, were deemed to have been acquired by Bright Stand were not significant.

Bright Stand International Limited, “Bright Stand”

On August 3, 2007, Bright Stand International Limited, “Bright Stand” was incorporated with limited liability in the British Virgin Islands. On January 31, 2008, Bright Stand International Limited completed the acquisition (note 4) of 100% common stock of Weifang Yuhe Poultry Co., Limited “PRC Yuhe” and 43.75% of Weifang Taihong Feed Co., Ltd., “Taihong”. As a result, Bright Stand owned 100% of PRC Yuhe and owned 43.75% direct interest of Taihong and 56.25% indirect interest of Taihong through PRC Yuhe. PRC Yuhe and Taihong became the wholly-owned subsidiaries of Bright Stand.

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

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

F-31

YUHE INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

3.	Principles of consolidation

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

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

The accompanying financial statements are presented in United States dollars. The functional currency of the Company and Bright Stand is US$ and the functional currency of PRC Yuhe and Taihong is Renminbi (RMB). The financial statements of PRC Yuhe and Taihong are translated into United States dollars from RMB at year-end exchange rates as to assets and liabilities and average exchange rates as to revenues and expenses. Capital accounts are translated at their historical exchange rates when the capital transactions occurred.

F-32

YUHE INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

4.	Basic and diluted earnings per share

The Company reports basic earnings per share in accordance with FASB ASC 260, “Earnings Per Share”. Basic earnings per share are computed using the weighted average number of shares outstanding during the periods presented. The weighted average number of shares of the Company represents the common stock outstanding during the reporting periods.

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

5.	Recent accounting pronouncements

In June 2009, the FASB issued SFAS No. 167, “Amendments to FASB ASC 810,” which changes how a reporting entity determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. The determination of whether a reporting entity is required to consolidate another entity is based on, among other things, the other entity’s purpose and design and the reporting entity’s ability to direct the activities of the other entity that most significantly impact the other entity’s economic performance. FASB ASC 810 will require a reporting entity to provide additional disclosures about its involvement with variable interest entities and any significant changes in risk exposure due to that involvement. A reporting entity will be required to disclose how its involvement with a variable interest entity affects the reporting entity’s financial statements. FASB ASC 810 is effective for fiscal years beginning after November 15, 2009, and interim periods within those fiscal years.

F-33

YUHE INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

5.	Recent accounting pronouncements – continued

Management is currently evaluating the requirements of FASB ASC 810 and the impact on the Company’s condensed consolidated financial statements.

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

6.	Reclassification

Certain reclassifications have been made to December 31, 2008 comparative condensed consolidated balance sheet to conform to the current period presentation. These reclassifications had no effect on previously reported results of operations or financial position.

Reclassification have been made to advances to suppliers and deposits paid for acquisition of long term assets in condensed consolidated balance sheet for December 31, 2008 to conform to the September 30, 2009 condensed consolidated balance sheet presentation.

7.	Acquisition of subsidiaries

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

The following table presents the unaudited results of operations of the Company as if the Yuhe acquisitions had been consummated as of January 1, 2008 and the results are shown for the nine months ended Sept 30, 2008 includes certain pro forma adjustments, including depreciation and amortization on the assets acquired, and other adjustments.

F-34

YUHE INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

7.	Acquisition of subsidiaries – continued

	For The Nine Months Ended September 30,
	2008
	(Pro forma)

Revenues	$	17,809,592
Net income	$	2,964,983

Earnings per share
Basic	$	0.22
Diluted	$	0.21

Weighted average shares outstanding
Basic		13,750,966
Diluted		13,985,255

F-35

YUHE INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

8.	Inventories

Inventories consist of the following:

	September 30		December 31
	2009		2008
	(unaudited)
Raw materials	$	4,484,618	$	5,281,429
Work in progress		1,500,546		1,272,217
Finished goods		-		91,315

	$	5,985,164	$	6,644,961

9.	Unlisted investments

Unlisted investments at September 30, 2009 represent the 3% investments in Hanting Rural Credit Cooperative, “Hanting” recorded at cost. For the nine months and three months period ended September 30, 2009, the Company recorded $15,509 and $0, respectively as income from unlisted investment for dividends received from Hanting. For the nine months and three months period ended September 30, 2008, the Company recorded $6,074 and $0 as income from unlisted investment for dividends received from Hanting. Management of the Company has reviewed the investment in Hanting for impairment and determined there is no indication that the carrying amount of Hanting may not be recoverable.

F-36

YUHE INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

10.	Plant and equipment, net

Plant and equipment consists of the following:

	September 30,			December 31,
	2009			2008
	(unaudited)
At cost
Buildings	$	16,237,234		$	14,951,197
Machinery		5,859,475			5,064,593
Motor vehicles		120,077			119,786
Furniture and equipment		228,004			82,815

		22,444,790			20,218,391
Less: accumulated depreciation		(3,231,270	)		(1,678,071	)

		19,213,520			18,540,320
Construction in progress	$	7,371,102		$	8,571,956

		26,584,622			27,112,276

During the nine months ended September 30, 2009, depreciation expenses amounted to $1,556,610 among which $1,404,526 and $152,084 were recorded as cost of sales and administrative expense, respectively.

During the nine months ended September 30, 2008, depreciation expenses amounted to $996,126 among which $810,418 and $185,708 were recorded as cost of sales and administrative expense, respectively.

During the three months ended September 30, 2009, depreciation expenses amounted to $529,145 among which $480,122 and $49,023 were recorded as cost of sales and administrative expense, respectively.

During the three months ended September 30, 2008, depreciation expenses amounted to $374,216 among which $322,336 and $51,880 were recorded as cost of sales and administrative expense, respectively.

Capitalized interest expense included in construction in progress totaled $425,079 and $123,021 for the nine and three months ended September 30, 2009, and $437,221 for the year ended December 31, 2008, respectively.

As of September 30, 2009, buildings and machinery of the Company with net book value of $6,601,015 were pledged as collateral under certain loan arrangements.

F-37

YUHE INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

11.	Intangible assets, net

Intangible assets consist of the following:

	September 30,			December 31,
	2009			2008
	(unaudited)
Land use rights, at cost	$	2,976,924		$	2,969,714
Less: accumulated amortization		(109,287	)		(59,962	)

	$	2,867,637		$	2,909,752

As of September 30, 2009, land use rights of the Company were pledged as collateral under certain loan arrangements.

During the nine months ended September 30, 2009 and 2008, amortization expenses included in the cost of sales were $49,144 and $42,853 respectively.

During the three months ended September 30, 2009 and 2008, amortization expenses included in the cost of sales were $16,385 and $16,356 respectively.

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

Year
Remainder of 2009	$	16,393
2010		65,572
2011		65,572
2012		65,572
2013		65,572
thereafter		2,588,956

	$	2,867,637

F-38

YUHE INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

12.	Due to related companies

	September 30,		December 31,
	2009		2008
	(unaudited)
Weifang Hexing Breeding Co., Ltd. "Weifang Hexing" - Gao Zhentao, a director of the Company is also a director of Weifang Hexing	$	-	$	185,885

Others		5,612		24,748
	$	5,612	$	210,633

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

13.	Due from related companies

	September 30,		December 31,
	2009		2008
	(unaudited)

Hexing Green Agriculture Co., Ltd., "Hexing Green", - Mr. Gao Zhentao, a director of the Company is also a director of Hexing Green	$	-	$	75,754

Shandong Yuhe Food Co., Ltd, "Yuhe Food"- Mr. Gao Zhentao, a director of the Company is also a director of Yuhe Food		2,770,165		3,580,553

Shandong Yuhe New Agriculture of Sciences, "Shandong Yuhe"- Mr. Gao Zhentao, a director of the Company is also a director of Shandong Yuhe		-		50,257

Weifang Jiaweike Food Co., Ltd, "Weifang Jiaweike" - Mr. Gao Zhentao, a director of the Company is also a director of Weifang Jiaweike		-		25

	$	2,770,165	$	3,706,589

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

F-39

YUHE INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

14.	Long-term loans

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

	September 30,			December 31,
	2009			2008
	(unaudited)
Loans from Nansun Rural Credit, interest rate at 7.56% to 13.82% per annum, $292,158 due on December 9, 2009, remaining balance due on March 10, May 17, May 28 and Nov 29, 2010	$	8,775,008		$	8,753,757

Loan from Shuangyang Rural Credit, interest rate at 9.83% per annum, due on October 13, 2010		950,626			948,324

Loan from Hanting Kaiyuan Rural Credit Cooperative, interest rate at 7.56% per annum, due on January 7, 2011		1,067,626			-

Loan from Hanting Kaiyuan Rural Credit Cooperative, interest rate at 11.09% per annum, due from November 28, 2008 to January 10, 2009		-			1,065,040

		10,793,260			10,767,121
Less: current portion of long-term loans		(8,336,258	)		(1,356,832	)

	$	2,457,002		$	9,410,289

F-40

YUHE INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Future maturities of long-term loans as at September 30, 2009 are as follows:

September 30,
2010	$	8,336,258
2011		2,457,002

	$	10,793,260

F-41

YUHE INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

15.	Income tax

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

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

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

The Company uses the asset and liability method, where deferred tax assets and liabilities are determined based on the expected future tax consequences of temporary differences between the carrying amounts of assets and liabilities for financial and income tax reporting purposes. Taihong has a net operating loss carry forward and resulted in deferred tax asset of $43,329 as of September 30, 2009. Management intends to maintain a full valuation allowance of $43,329 against the deferred tax assets until sufficient positive evidence exists to support reversal of the valuation allowance. Management will reassess the valuation allowance at the end of year 2009.

F-42

YUHE INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

15.	Income tax - continued

The provision for income taxes consists of the following:

	For The Nine Months Ended						For The Three Months Ended
	September 30,						September 30,
	2009			2008			2009			2008
Current tax
- PRC	$	-		$	-		$	-		$	-
- Change in deferred tax asset		(5,986	)		(20,909	)		(6,221	)		(13,056	)
- Change in valuation allowance		5,986			20,909			6,221			13,056

	$	-		$	-		$	-		$	-

All of the Company’s income (loss) before income taxes is from PRC sources. Actual income tax expenses reported in the consolidated statements of income and comprehensive income differ from the amounts computed by applying the PRC statutory income tax rate of 25% for the fiscal year of 2009 and 2008 respectively to income (loss) before income taxes for the nine and three months ended September 30, 2009 and 2008 for the following reasons:

	For The Nine Months Ended						For The Three Months Ended
	September 30,						September 30,
	2009			2008			2009			2008
	(unaudited)			(unaudited)			(unaudited)			(unaudited)

Income before income taxes	$	9,153,966		$	2,823,449		$	4,147,153		$	1,930,786

Computed “expected” income tax expense at 25%		2,288,491			705,862			1,036,788			482,697
Tax effect on net taxable temporary differences		(77,964	)		-			(30,805	)		-
Effect of cumulative tax losses on Taihong		(5,986	)		(20,909	)		(6,221	)		(13,056	)
Effect of cumulative tax losses		298,726			116,437			121,590			105,621
Effect of tax holiday		(2,503,267	)		(801,390	)		(1,121,352	)		(575,261	)

	$	-		$	-		$	-		$	-

F-43

YUHE INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

16.	Fair value of financial instruments

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

17.	Stock options

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

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

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

As at September 30, 2009, the total number of stock options outstanding was 383,151 shares. The Company recognizes compensation expense, net of estimated forfeitures, over the requisite service period, which is the period during which the grantee is required to provide services in exchange for the award. The Company has elected to recognize compensation cost for awards with only a service condition that has a graded vesting schedule on a straight-line basis over the requisite service period for the entire award.

F-44

YUHE INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

17.	Stock options– continued

The Company uses the Black-Scholes option pricing model to calculate the grant-date fair value of an award, with the following assumptions: no dividend yield, expected volatility of 109.40%, and a risk-free interest rate of 3.00%. In determining volatility of the Company’s options, the Company used the average volatility of the Company’s stock. Fair value per the Black-Scholes model is $2,186,499. In accordance with FASB ASC 718, the Company has recorded stock-based compensation expense during the nine months and three months ended September 30, 2009 of $545,127 and $183,706 in connection with the issuance of this option.

The weighted average grant date fair value of options granted was $5.71 per share. The weighted average exercise price of these options was $4.90 per share. The total number of stock options outstanding as at September 30, 2009 and December 31, 2008 was 383,151 shares.

18.	Earnings per share

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

	For The Nine Months Ended				For The Three Months Ended
	September 30,				September 30,
	2009		2008		2009		2008
	(unaudited)		(unaudited)		(unaudited)		(unaudited)

Net income attributable to the common stockholders	$	9,153,966	$	2,823,449	$	4,147,153	$	1,930,786

Weighted average outstanding shares of common stock
Common stock and common stock equivalents		15,722,180		13,750,966		15,722,180		15,543,330
Dilutive effect of options, warrants, and contingently issuable shares		15,931,379		13,985,255		15,931,379		15,989,256

Earnings per share:
Basic	$	0.58	$	0.21	$	0.26	$	0.12
Diluted	$	0.57	$	0.20	$	0.26	$	0.12

F-45

YUHE INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

19.	Business and geographical segments

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

F-46

YUHE INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

19. Business and geographical segments - continued

Reportable Segments

	For The Nine Months Ended September 30, 2009									For The Nine Months Ended September 30, 2008									For The Nine Months Ended September 30
	Production of chicks			Production of feed			Corporate			Production of chicks			Production of feed			Corporate			Total
																			2009			2008

External revenue	$	33,740,804		$	216,189		$	-		$	15,995,782		$	322,481		$	-		$	33,956,993		$	16,318,263
Intersegment revenue		-			7,181,507			-			-			8,593,623			-			7,181,507			8,593,623
Interest income		174			8			-			386			1			4,131			182			4,518
Interest expense		(115,400	)		(325,836	)		-			(344,299	)		(418,869	)		-			(441,236	)		(763,168	)
Depreciation and amortization		(1,509,106	)		(96,648	)		-			(955,356	)		(83,623	)		-			(1,605,754	)		(1,038,979	)
Net profit/(loss) after tax		10,013,067			335,797			(1,194,898	)		3,205,560			83,634			(465,745	)		9,153,966			2,823,449

Expenditures for long-lived assets		4,804,393			69,490			-			12,271,784			2,609			-			4,873,883			12,274,393

Note: Intersegment revenue of $7,181,507 was eliminated in consolidation.

F-47

YUHE INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

	For The Three Months Ended September 30, 2009									For The Three Months Ended September 30, 2008									For The Three Months Ended September 30
	Production of chicks			Production of feed			Corporate			Production of chicks			Production of feed			Corporate			Total
																			2009			2008

External revenue	$	13,138,790		$	69,440		$	-		$	9,480,412		$	129,369		$	-		$	13,208,230		$	9,609,781
Intersegment revenue		-			2,591,095			-			-			4,079,840			-			2,591,095			4,079,840
Interest income		41			-			-			63			-			-			41			63
Interest expense		-			(115,809	)		-			(157,591	)		(162,457	)		-			(115,809	)		(320,048	)
Depreciation and amortization		(513,319	)		(32,211	)		-			(358,729	)		(31,841	)		-			(545,530	)		(390,570	)
Net profit/(loss) after tax		4,485,409			148,104			(486,360	)		2,301,047			52,223			(422,484	)		4,147,153			1,930,786

Expenditures for long-lived assets		-			-			-			386,503			555			-			-			387,058

Note: Intersegment revenue of $2,591,095 was eliminated in consolidation.

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

F-48

YUHE INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

20.	Commitments and contingencies

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

As of September 30,

2009	$	22,530
2010		90,120
2011		90,120
2012		90,120
2013		90,120
Thereafter		1,489,993

Total minimum lease payments		1,873,003

During the nine months ended September 30, 2009 and 2008, rental expenses were $85,836 and $118,265 respectively.

During the three months ended September 30, 2009 and 2008, rental expenses were $28,618 and $45,283 respectively.

Construction of Breeding Farm No. 1

On August 15, 2008, PRC Yuhe completed construction work and facilities to set up the southern farm of breeding farm No 1. On August 30, 2008, PRC Yuhe purchased 100,000 sets of parent breeders and began to feed. By the end of December 2008, PRC Yuhe has spent RMB 29 million, approximately equivalent to $4.5 million, to build breeding farm No 1. The breeding farm can be split into the southern and the northern regions. PRC Yuhe looks forward to completing the northern farm construction work and facilities to set up by December in 2009. The residual scheduled payment is RMB 6 million, equivalent to $0.9 million, for the building and facilities; and RMB 4.9 million, approximately equivalent to $0.72 million, in machinery. The capacity of the northern factory is 140,000 sets of parent broilers.

F-49

YUHE INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

20.	Commitments and contingencies - continued

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

On December 6, 2008, PRC Yuhe entered into a construction agreement with a contractor to build and renovate five of its breeding farms for a total consideration of RMB2.6 million, approximately equivalent to $380,000. The construction has been completed at the end of October 2009. The residual scheduled payment is RMB600,000, equivalent to $87,750 and is scheduled to be paid in December 2009.

Construction of Steel Structural Surface for Hatchery No. 3

On December 10, 2008, PRC Yuhe entered into a construction agreement with a contractor to build the steel structure for its hatchery farm No. 3 for a total consideration of RMB3.9 million, approximately equivalent to $570,000. The construction is estimated to be completed at December 2009. The residual scheduled payment is RMB2 million, equivalent to $292,540.

Construction of Breeding Farm and Steel Structural Surface

On June 23, 2009, PRC Yuhe entered into two construction agreements with contractors to build part of the above breeding farms and construct the steel structure for total considerations of RMB 6,112,300, approximately $892,984 and RMB5,887,800, approximately $860,186, respectively. The construction is estimated to be completed by the end of November, 2009. As of September 30, 2009, the Company has advanced RMB5,340,000, approximately $781,100 and RMB5,140,000, approximately $751,700, respectively to these two suppliers.

F-50

YUHE INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

21.	Equipment Leasing and Rental Arrangement

On November 11, 2008, PRC Yuhe entered into equipment leasing agreement and property rental agreement, collectively, the “Agreements”, with Shandong Nongbiao Purina Feed Co., Ltd., “Shandong Nongbiao Purina”. Shandong Nongbiao Purina will construct a feed production facility on a property leased from PRC Yuhe and become the exclusive feed supplier for PRC Yuhe. Pursuant to the terms and conditions of the Agreements, Shandong Nongbiao Purina will lease certain equipment for feed production from, and install them at the premises owned by PRC Yuhe. The lease term for both the equipment leasing agreement and property rental agreement is 10 years. After completion of the feed production facility, the lease term will commence on the date that the production begins. Shandong Nongbiao Purina shall pay to PRC Yuhe an annual rental payment for the leased land, premises and facilities of RMB 1,500,000, approximately equivalent to $219,200. The rent payable by Shandong Nongbiao Purina under the rental agreement will be offset against the prepaid equipment rental costs of RMB10,000,000, approximately equivalent to $1,463,000. As at September 30, 2009, Shandong Nongbiao Purina advanced USD1,150,000 (RMB7,863,000) to PRC Yuhe as rental payment and was recorded as advances from customers.

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

F-51

YUHE INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

22. Make Good Escrow Agreements

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

The Company entered into a Make Good Escrow Agreement, dated March 12, 2008, with Mr. Kunio Yamamoto, the “Make Good Pledgor”, Tri-State Title & Escrow, LLC, Roth Capital Partners LLC, “Roth Capital” and each of the investors in the private offering of securities of the Company. On July 31, 2009, Roth Capital instructed the Escrow Agent to release 1,679,992 shares of common stock, the 2008 Make Good Shares, to Mr. Kunio Yamamoto, the Make Good Pledgor. In August, 2009, 1,679,992 shares of the Company’s common stock were released to Mr. Kunio Yamamoto.

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

23. Subsequent events

The Company evaluated subsequent events through the date the accompanying financial statements were issued, which was November 11, 2009.

F-52

YUHE INTERNATIONAL, INC.

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

F-53

YUHE INTERNATIONAL, INC.

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

Basis of Presentation

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

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

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

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

F-54

YUHE INTERNATIONAL, INC.

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008

	Pro forma for the period from January 1, 2008 to January 31, 2008			As reported from February 1, 2008 to September 30, 2008			Pro forma Adjustment	Pro forma Total

Net revenues	$	1,491,329		$	16,318,263		$	$	17,809,592
Cost of revenue		(1,337,438	)		(11,732,602	)			(13,070,040	)
Gross profit		153,891			4,585,661				4,739,552

Operating expenses
Selling expenses		(28,997	)		(280,489	)			(309,486	)
General and administrative expenses		(122,695	)		(1,500,177	)			(1,622,872	)
Total operating expenses		(151,692	)		(1,780,666	)			(1,932,358	)

Income from operations		2,199			2,804,995				2,807,194

Non-operating income (expenses)
Bad debts recovery		219,893			641,103				860,996
Interest income		5			4,518				4,523
Other income		5,604			192,624				198,228
Interest expenses		(86,167	)		(763,168	)			(849,335	)
Other expenses		-			(56,623	)			(56,623	)

Total other income (expenses)		139,335			18,454				157,789

Net Income (loss) before income tax		141,534			2,823,449				2,964,983
Income Tax		-			-				-

Net income (loss)	$	141,534		$	2,823,449		$	$	2,964,983

Earnings per share
Basic	$	0.02		$	0.18			$	0.22
Diluted	$	0.02		$	0.18			$	0.21

Weighted average shares outstanding
Basic		8,626,318			15,543,330				13,750,966
Diluted		8,626,318			15,989,256				13,985,255

F-55

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

Special Note Regarding Forward Looking Statements

This Quarterly Report on Form 10-Q, including the following “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements that are based on the beliefs of the Company’s management and involve risks and uncertainties, as well as assumptions that, if they ever materialize or prove incorrect, could cause the results of the Company to differ materially from those expressed or implied by such forward-looking statements. The words “believe,” “expect,” “anticipate,” “project,” “targets,” “optimistic,” “intend,” “aim,” “will” or similar expressions are intended to identify forward-looking statements. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including statements regarding new and existing products, technologies and opportunities; statements regarding market and industry segment growth and demand and acceptance of new and existing products; any projections of sales, earnings, revenue, margins or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements regarding future economic conditions or performance; uncertainties related to conducting business in China; any statements of belief or intention; any of the factors mentioned in the “Risk Factors” section of the Company’s S-1 or amendment thereof or annual report on Form 10-K; and any statements of assumptions underlying any of the foregoing. Except as otherwise indicated by the context, references in this report to the “Company,” “Yuhe International,” “we,” “us,” or “our,” are references to the combined business of Yuhe International, Inc. and its subsidiaries, except in the “Management’s Discussion And Analysis of Financial Condition And Results of Operation” where all historical financial information prior to March 12, 2008 refers to Weifang Yuhe Poultry Co. Ltd., “PRC Yuhe”, which includes the accounts of Weifang Taihong Feed Co. Ltd., “Taihong”.

Overview

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

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

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

The Company’s History

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

The following chart depicts the Company’s organizational structure:

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

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

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

On June 13, 2008, the Company appointed three independent directors and one non-independent director to its board of directors and formed an audit committee, compensation committee and nomination committee under its board of directors.

The Company’s Business Operations

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

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

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

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

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

Competition

The market for day-old broilers in China is highly fragmented. Shandong Province has the highest number of day-old broilers in China. The Company’s market share was approximately 3% in China in the first nine months of 2009 and the Company sold 78.8 million day-old broilers for the first nine months in 2009.

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

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

Results of Operations

The Company has consolidated the results of PRC Yuhe and Taihong into its Consolidated Financial Statements from January 1, 2009 to September 30, 2009 and February 1, 2008 to September 30, 2008.

The following is a discussion of the Company’s results of operations for the three months ended September 30, 2009 compared to the three months ended September 30, 2008.

Three Months Ended September 30, 2009 Compared to Three Months Ended September 30, 2008

Quarter to Date	All amounts, other than percentage, in U.S. dollars For the three months ended September 30 2009			As a percentage of net revenues For the three months ended September 30 2009			All amounts, other than percentage, in U.S. dollars For the three months ended September 30 2008		As a percentage of net revenues For the three months ended September 30 2008			Increase/ (Decrease) Dollar ($) For the three months ended September 30 2008		Increase/ (Decrease) Percentage For the three months ended September 30 2008

Sales revenue		13,208,230			100.00	%		9,609,781		100.00	%		3,598,449		37.45	%
Costs of goods sold		8,042,920			60.89	%		7,089,355		73.77	%		953,565		13.45	%
Gross profit		5,165,310			39.11	%		2,520,426		26.23	%		2,644,884		104.94	%

Selling expenses		113,776			0.86	%		135,658		1.41	%		-21,882		-16.13	%
General and administrative expenses		784,402			5.94	%		781,247		8.13	%		3,155		0.40	%
Operating income		4,267,132			32.31	%		1,603,521		16.69	%		2,663,611		166.11	%
Bad debts recovery		-			0.00	%		554,188		5.77	%		-554,188		-100.00	%
Interest income		41			0.00	%		63		0.00	%		-22		-35.16	%
Other income		-			0.00	%		93,062		0.97	%		-93,062		-100.00	%
(Loss) gain on disposal of fixed assets		(1,081	)		0.01	%		-		0.00	%		1,081		-
Interest expenses		115,809			0.88	%		320,048		3.33	%		-204,239		-25.38	%
Other expenses		3,130			0.03	%		-		0.00	%		3,130
Income taxes		-			0.00	%		-		0.00	%		-
Net income		4,147,153			31.40	%		1,930,786		20.09	%		2,216,367		114.79	%

Net revenue. Sales revenue increased by $3.6 million, or 37%, from $9.6 million for the three months ended September 30, 2008 to $13.2 million for the three months ended September 30, 2009. The increase was driven by the increase in sales volume of 6.1 million day-old broilers, or 26%, from 23.9 million birds for the three months ended September 30, 2008 to 30 million birds for the three months ended September 30, 2009. The increase in sales volume was the result of expansion in production capacity in year 2008 and 2009.

The sales growth was also driven by the increase in selling price. The selling price of day-old broilers increased from RMB2.57 per bird for the three months ended September 30, 2008 to RMB2.85 per bird for the three months ended September 30, 2009. This 10% increase in day old broiler price year over year was mainly due to the abnormal low price in the third quarter of year 2008, which has been affected by 2008 Olympic Games. Compared to the average price of RMB2.74 in the first nine months of year 2009, the price of RMB 2.85 in the third quarter of year 2009 was at a normal level.

Sales of retired breeder stocks increased by $89,000, or 27%, from $330,000 for the three months ended June 30, 2008 to $419,000 for the three months ended September 30, 2009. The sales growth was due to the significant increase in the volume of parent breeders at the end of 2008 and the early retirement of certain breeder stock whose productivity has decreased.

Sales of eggs increased by $12,000, or 10%, from $120,000 for the three months ended September 30, 2008 to $132,000 for the three months ended September 30, 2009. This increase is in line with the growth of the day-old broiler sales volume.

Since almost all the products of Taihong were supplied to its parent, PRC Yuhe, revenue contributed from Taihong’s external sales was $69,000, or 0.5%, of the Company’s total revenues for the three months ended September 30, 2009.

Cost of revenues. The Company’s cost of revenues increased by $0.9 million, or 13.5%, from $7.1 million for the three months ended September 30, 2008 to $8.0 million for the three months ended September 30, 2009. The main reason for the increase in the cost of revenues was the increase in sales volume, which was partially offset by a decrease in unit cost of day-old broilers. The unit cost of day-old broilers decreased 12% from the three months ended September 30, 2008 to the three months ended September 30, 2009. This decrease was due to the Company’s expanded productivity which diluted allocated cost.

As a percentage of net revenues, the cost of revenues decreased by 13%, from 74% for the three months ended September 30, 2008 to 61% for the three months ended September 30, 2009. The decrease in cost of revenues as a percentage of net revenues was mainly due to the selling price increase and unit cost decrease as discussed above.

Sales of retired breeder stocks is $419,000 in the third quarter of year 2009, compared to the cost of the retired breeder stock being sold which is $330,000. The net increase is $89,000.

Gross profits. The Company’s gross profit increased by $2.64 million, or 105%, from $2.52 million for the three months ended September 30, 2008 to $5.16 million for the three months ended September 30, 2009. Gross profit as a percentage of net revenues was approximately 39.1% for the three months ended September 30, 2009, as compared to 26.2% for the three months ended September 30, 2008. Compared against the gross margin of 38% and 37% in year 2008 and 2007, the margin in the third quarter of year 2009 is at a normal level.

General and administrative expenses. The general and administrative expenses increased slightly by $3,000, or 0.4%, from $781,000 for the three months ended September 30, 2008 to $784,000 in the three months ended September 30, 2009. The general and administrative expenses comprised mainly of public company related expenses of $486,000 including the stock based compensation of $184,000, representing 63% of total general and administrative expenses, human resources and related expenses of $48,000, representing 6% of total general and administrative expenses, facilities and utility expenses of $78,000, representing 10% of total general and administrative expense, and travel expenses of $99,000, representing 13% of total general and administrative expenses.

Selling Expenses. The Company’s selling expenses decreased by $22,000, or 16%, from $135,000 for the three months ended September 30, 2008 to $113,000 for the three months ended September 30, 2009. The main reason for the decrease in the selling expense is the decrease in the packaging expense, which lowered 20% due to the price decreasing in package raw material. Selling expenses comprised mainly of packaging and packaging expenses of $81,000, representing 72% of total selling expenses, human resources and related expenses of $10,000, representing 9% of total selling expenses, and travel and office expenses of $15,000, representing 13% of total selling expense. Selling expenses as a percentage of revenues decreased from 1.41% in the three months ended September 30, 2008 to 0.86% in the three months ended September 30, 2009.

Interest expense. Interest expense decreased by $204,000, or 25%, from $320,000 for the three months ended September 30, 2008 to $116,000 for the three months ended September 30, 2009. Interest expense decreased because of the increase in interest being capitalized in construction in progress.

Other expense. Other expense amounted to $3,000 for the three months ended September 30, 2009. It consists mainly of donation payment.

Provision for Income Taxes. PRC Yuhe is a poultry company, and in accordance with the relevant regulations, the PRC government announced the exemption of income taxes on poultry producers, effective as of January 1, 2008.

The corporate income tax rate for its subsidiary Taihong is 25%. There is no provision for income tax because Taihong has a net operating loss carry forward which resulted in a deferred tax asset of $43,329 as of September 30, 2009. Taihong historically experiences net losses before income taxes, and management does not expect Taihong to generate net income before taxes in the future as its business is to supply feed to PRC Yuhe.

Net profit. Net profit increased by $2.22 million, or 115%, from $1.93 million for the three months ended September 30, 2008 to $4.15 million for the three months ended September 30, 2009, as a result of the factors described above.

Nine months Ended September 30, 2009 Compared to Nine months Ended September 30, 2008

Quarter to Date	All amounts, other than percentage, in U.S. dollars For the nine months ended September 30 2009		As a percentage of net revenues For the nine months ended September 30 2009			All amounts, other than percentage, in U.S. dollars For the nine months ended September 30 2008		As a percentage of net revenues For the nine months ended September 30 2008			Increase/ (Decrease) Dollar ($) For the nine months ended September 30 2009			Increase/ (Decrease) Percentage For the nine months ended September 30 2009			All amounts, other than Percentage, in U.S. dollars For the eight months ended September 30 2008		As a percentage of net revenues For the eight months ended September 30 2008			Increase/ (Decrease) Dollar ($) For the nine/eight months ended September 30 2009			Increase/ (Decrease) Percentage For the nine/eight months ended September 30 2009
						(Pro forma)		(Pro forma)									(As reported)		(As reported)

Sales revenue		33,956,993		100.00	%		17,809,592		100.00	%		16,147,401			90.67	%		16,318,263		100.00	%		17,638,730			108.09	%
Costs of revenue		21,926,699		64.57	%		13,070,040		73.39	%		8,856,659			67.76	%		11,732,602		71.90	%		10,194,097			86.89	%
Gross profit		12,030,294		35.43	%		4,739,552		26.61	%		7,290,742			153.83	%		4,585,661		28.10	%		7,444,633			162.35	%

Selling expenses		315,372		0.93	%		309,486		1.74	%		5,886			1.90	%		280,489		1.72	%		34,883			12.44	%
General and administrative expenses		2,163,639		6.37	%		1,622,872		9.11	%		540,767			33.32	%		1,500,458		9.19	%		663,181			44.20	%
Operating income		9,551,283		28.13	%		2,807,194		15.76	%		6,744,089			240.24	%		2,804,714		17.19	%		6,746,569			240.54	%
Bad debts recovery		-		-			860,996		-			(860,996	)		-100.00	%		641,103		-			(641,103	)		-100.00	%

Interest income		182		0.00	%		4,523		0.03	%		(4,342	)		-95.99	%		4,518		0.03	%		(4,337	)		-95.98	%
Other income		20,635		0.06	%		198,228		1.11	%		(177,593	)		-89.59	%		105,036		0.64	%		(84,401	)		-80.35	%
(Loss) gain on disposal of fixed assets		26,697		0.08	%		-		0.00	%		26,697			-			87,588		0.54	%		(60,891	)		-69.52	%
Interest expenses		441,236		1.30	%		849,335		4.77	%		(408,099	)		-48.05	%		763,168		4.68	%		(321,932	)		-42.18	%
Other expenses		3,595		0.01	%		56,623		0.32	%		(53,028	)		-93.65	%		56,342		0.35	%		(52,747	)		-93.62	%

Income taxes		-		-			-		-			-						-		-			-
Net income		9,153,966		26.96	%		2,964,983		16.65	%		6,188,983			208.74	%		2,823,449		17.30	%		6,330,517			224.21	%

The Company has consolidated the results of PRC Yuhe and Taihong into its Consolidated Financial Statements from January 1, 2009 to September 30, 2009 and February 1, 2008 to September 30, 2008. For comparative purposes, the Company has provided a pro forma Consolidated Statement of Operations from January 1, 2008 to September 30, 2008 (please refer to F-27–F-29) to provide comparable presentation to its reported results for the nine months ended September 30, 2009 and 2008. The Company believes that providing this pro forma financial statement as if it had consolidated PRC Yuhe and Taihong as of January 1, 2008 may assist investors in assessing performance between periods and in developing expectations of future performance.

Net revenue (As reported). Sales revenue increased by $17.6 million, or 108%, to $33.9 million for the nine months ended September 30, 2009 from $16.3 million for the period from February 1, 2008 to September 30, 2008.

Net revenue (Pro forma). Sales revenue increased by $16.1 million, or 90%, to $33.9 million for the nine months ended September 30, 2009 from $17.8 million for the nine months ended September 30, 2008. The increase was driven by the increase in sales volume of the Company’s day-old broilers by 38 million birds, or 94%, from 41 million birds for the nine months ended September 30, 2008 to 79 million birds for the nine months ended September 30, 2009. The increase in sales volume was a result of capacity expansion in year 2008 and 2009. The increase in sales volume was partially offset by a decrease in unit selling price. The selling price of day-old broilers decreased slightly from RMB 2.82 per bird for the three months ended September 30, 2008 to RMB 2.74, or 3%, per bird for the three months ended September 30, 2009. The price decrease was mainly due to the decreasing pork price, which led to a decrease in unit price of its substitution, chicken meat as discussed above, the pork price rebounded in the third quarter of year 2009.

Cost of revenues (As reported). The Company’s cost of revenues increased by $10.2 million, or 87%, to $21.9 million for the nine months ended September 30, 2009 from $11.7 million for the period from February 1, 2008 to September 30, 2008.

Cost of revenues (Pro forma). The Company’s cost of revenues increased by $8.9 million, or 68%, to $21.9 million for the nine months ended September 30, 2009 from $13.1 million for the nine months ended September 30, 2008. The main reason for the increase in the cost of revenues was the increase in sales volume, which was partially offset by a decrease in unit cost of day-old broilers. The unit cost of day-old broilers decreased 19% from the three months ended September 30, 2008 to the three months ended September 30, 2009. This decrease was due to the Company’s expanded productivity which diluted allocated cost.

As a percentage of net revenues, the cost of revenues decreased by 8%, from 73% for the nine months ended September 30, 2008, to 65% for the nine months ended September 30, 2009. The lower cost of revenues as a percentage of net revenues for the nine months ended September 30, 2009 was attributable to the breeder stock having reached maturity level and normal egg production rates. This resulted in a lower unit-cost as there were more day-old broilers to absorb fixed hatching costs. For the comparative period in 2008, the cost of revenues as a percentage of net revenues is higher because the breeder stock has not matured in the first quarter 2008, causing a lower production rate and a higher unit-cost, affecting the nine months ended September 30, 2008.

Gross profit (As reported). The Company’s gross profit increased by $7.4 million, or 162% to $12 million for the nine months ended September 30, 2009 from $4.5 million for the period from February 1, 2008 to September 30, 2008.

Gross profit (Pro forma). The Company’s gross profit increased by $7.3 million, or 154%, to $12 million for the nine months ended September 30, 2009 from $4.7 million for the nine months ended September 30, 2008. Gross profit as a percentage of net revenues was 35.4% for the nine months ended September 30, 2009, as compared to 26.6% for the nine months ended September 30, 2008. The increase was mainly attributable to the normal productivity level better leveraged sales price in the first nine months of year 2009.

General and administrative expenses (As reported). The general and administrative expenses increased by $0.66 million, or 44%, to $2.2 million for the nine months ended September 30, 2009 from $1.5 million for the period from February 1, 2008 to September 30, 2008.

General and administrative expenses (Pro forma). The general and administrative expenses increased by $0.54 million, or 33%, to $2.2 million for the nine months ended September 30, 2009 from $1.6 million for the nine months ended September 30, 2008. The increase in general and administrative expense was mainly due to the public company related expenses for the nine months ended September 30, 2009. The general and administrative expenses comprised mainly of public company related expenses of $1.2 million including stock based compensation of $545,000, representing 58% of total general and administrative expenses, human resources and related expenses of $0.2 million, representing 10% of total general and administrative expenses, facilities and utility expenses of $0.3 million, representing 13% of total general and administrative expense, and travel expenses of $0.3 million, representing 15% of total general and administrative expenses.

Selling Expenses (As reported). The Company’s selling expenses increased by $35,000, or 12%, to $315,000 for the nine months ended September 30, 2009 from $280,000 for the period from February 1, 2008 to September 30, 2008.

Selling Expenses (Pro forma). The Company’s selling expenses increased by $6,000, or 2%, to $315,000 for the nine months ended September 30, 2009 from $309,000 for the same period in 2008. Selling expenses comprised mainly of packaging and transportation expenses of $0.2 million, representing 64% of total selling expenses; human resources and related expenses of $45,000, representing 14% of total selling expenses; and travel and office expenses of $31,000, representing 16% of total selling expense. The increase in selling expenses was primarily due to the increase in sales volume. As a percentage of net revenues, selling expenses decreased by 0.81%, to 0.93% for the nine months ended September 30, 2009 from 1.74% for the same period in 2008. The Company’s selling expense will not increase in proportion with sales growth because the Company distributes its product through distributors.

Interest expenses (As reported). Interest expenses decreased by $322,000, or 26%, to $441,000 for the nine months ended September 30, 2009 from $763,000 for the period from February 1, 2008 to September 30, 2008. The decrease was due to the increase in interest being capitalized in construction in progress. Excluding capitalized interest, interest expense on bank loans would have been $984,000 for the nine months ended September 30, 2009.

Interest expenses (Pro forma). Interest expenses decreased by $408,000, or 48%, to $441,000 for the nine months ended September 30, 2009 from $849,000 for the nine months ended September 30, 2008. Excluding capitalized interest, interest expense on bank loans would have been $984,000 for the nine months ended September 30, 2009. This increase in interest expense of $221,000 was due to the interest rate on bank loans for the year ended September 30, 2009 compared with the lower interest rates for the same period of 2008.

Net profit (As reported). Net profit increased by $6.3 million, or 220%, to $9.1 million for the nine months ended September 30, 2009 from net profit of $2.8 million for the period from February 1, 2008 to September 30, 2008, as a result of the factors described above.

Net profit (Pro forma). Net profit increased by $6.2 million, or 205%, to $9.1 million for the nine months ended September 30, 2009 from net profit of $2.9 million for the nine months ended September 30, 2008, as a result of the factors described above.

Liquidity and Capital Resources

The Company expects that its strong positive working capital of $10.57 million as of September 30, 2009 will meet its foreseeable working capital needs for the next 12 months from the date of this report as management believes the Company would be able to renew the $8.3 million bank loans that are due in the next 12 months.

General

As of September 30, 2009, the Company had cash and cash equivalents of approximately $22.04 million. The following table provides detailed information about the Company’s net cash flow for the nine months ended September 30, 2009.

	Nine months ended
	September 30, 2009
Net cash provided by operating activities	$	12,790,656
Net cash used in investing activities		(3,996,735	)

Net cash used in financing activities		(210,412	)
Effect of foreign currency translation on cash		40,836
Net cash inflow		8,624,345
Cash at beginning of period		13,412,205
Cash at end of period	$	22,036,550

Operating Activities. Net cash provided by operating activities was $13 million for the nine months ended September 30, 2009. Net cash provided by operating activities was primarily attributable from the net income of $9.2 million; an increase of $0.5 million of advance from customers; an increase of $0.6 million of accounts payable; and noncash adjustment for depreciation of $1.6 million; non cash compensation of $0.5 million. In addition, inventory level has remained fairly consistent at the $6 million to $6.6 million level; therefore, no significant impact to operating cash flow during the nine months ended September 30, 2009.

Investing Activities. Net cash used in investing activities for the three months ended September 30, 2009 was $4 million. It was mainly for capital expenditure in the building of breeder farms and payment of rental deposit for the breeder farms totaling $4.9 million for the nine months ended September 30, 2009. The following is a summary of the $4.9 million cash used in deposits paid and acquisition of property, plant and equipment:

	Nine months ended
	September 30,2009
Rental deposits	$	2,587,750
Deposits paid for construction of breeding farm		1,053,085
Deposits paid for purchase of equipment		147,208
Purchase of equipment		548,303
Capitalized interest		542,765
Others		64,994
Total deposit paid and acquisition of property, plant and equipment	$	4,944,105

Financing Activities. Net cash used in financing activities for the nine months ended September 30, 2009 was $210,412. Net cash used in financing activities was attributed to the decrease of the net payment to related parties for working capital purposes.

Loan Facilities

As at September 30, 2009, maturities of the Company’s bank loans are as follows:

	As of September 30, 2009
2010		8,336,258
2011		2,457,002

	$	10,793,260

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

Type	Contracting Party	Valid period	Duration	Amount

Bank loan	Hanting Kaiyuan Rural Credit Cooperative	January 7, 2009-Jan 7, 2011	18 months	$	1,067,626
Bank loan	Nansun Rural Credit	Nov 28,2008-Nov 28, 2010	24 months		4,826,255
Bank loan	Nansun Rural Credit	Dec 10, 2008-Dec 9, 2009	24 months		292,500
Bank loan	Nansun Rural Credit	May 17, 2008-May 17, 2010	36 months		3,656,253
Bank loan	Shuangyang Rural Credit	Oct 16,2008 -Oct 13, 2010	24 months		950,626
Total				$	10,793,260

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

Loan from Hanting Kaiyuan Rural Credit Cooperative:

On January 8, 2009, PRC Yuhe renewed the loan agreement with Hanting Kaiyuan Rural Credit Cooperative. Pursuant to the loan agreement, Hanting Kaiyuan Rural Credit Cooperative loaned PRC Yuhe $1,067,626 at an interest rate of 7.56% per annum. PRC Yuhe is obligated under such loan agreement to pay interest monthly and repay the loan on its maturity date, January 7, 2011. The loan is secured by the plant and equipment of PRC Yuhe with a net book of $1,026,842 as of September 30, 2009.

Loans from Nansun Rural Credit:

PRC Yuhe renewed four loan agreements with Nansun Rural Credit on November 28, 2008. The interest rate for the loan agreements is 13.82% per annum for the renewed bank loan agreement, compared to the original rate of 9.21%, which enjoyed the support of government. The total amount of these four bank loans is $4,826,255.

The other four loans with an outstanding balance of $3,656,253 from Nansun Rural Credit have an interest rate reduced from 12.1% to 8.64% due to the interest rate adjustment by the PRC government.

The last bank loan from Nansun Rural Credit with an outstanding balance of $292,500 was borrowed in October 2008 with an interest rate reduced from 10.46% to 7.56% per annum.

All loans are secured by the land use right and building of PRC Yuhe and Taihong with a net book value of $8,933,078 as of September 30, 2009.

Loan from Shuangyang Rural Credit:

Taihong renewed the loan agreements with Shuangyang Rural Credit on October 16, 2008, amounting to $950,626. The interest rate for the loans is 9.83% per annum. Taihong is obligated under such loan agreements to pay interest monthly and repay the loans on their maturity date, October 13, 2010. The loans are secured by the plant and equipment of Taihong with a net book value of $931,914 as of September 30, 2009.

Due to related companies:

As of September 30, 2009, the Company has $2,194 due to Weifang Hexing Breeding Co., Ltd., a company for which Mr. Gao Zhentao serves as a director. The amounts due to this related company are unsecured, interest free and have no fixed repayment date. These loans are used for working capital purposes.

Obligations Under Material Contracts

Below is a table setting forth the Company’s material contractual obligations as of September 30, 2009:

	Payment due by period
Contractual Obligations	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years

Long-Term Debt Obligations	$	10,793,260	$	8,336,258	$	2,457,002		-		-
Due to Related Companies	$	5,612	$	5,612		-		-		-
Operating Lease Obligations	$	1,873,003	$	22,530	$	270,360	$	180,240	$	1,399,873
Capital Lease Obligations		-		-		-		-		-
Purchase Obligations	$	1,101,256	$	1,101,256		-		-		-

Other Long-Term Liabilities Reflected on the Registrant’s Balance Sheet under GAAP		-		-		-		-		-
Total	$	13,773,131	$	9,465,656	$	2,727,362	$	180,240	$	1,399,873

Critical Accounting Policies

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



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

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



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

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

Buildings	20 years
Machinery	10 years
Vehicles	5 years
Furniture and equipment	3 years



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



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



Guarantee Expense - The Company accounts for its liability for products guaranteed in accordance with FASB ASC 460, “Guarantees” (“FASB ASC 460”). Under FASB ASC 460, the aggregate changes in the liability for accruals related to product warranties issued during the reporting period must be charged to expense as incurred.

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



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



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



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



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

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



Fair value of financial instruments – FASB ASC 825, “Disclosures about Fair Value of Financial Instruments” (“FASB ASC 825”) requires entities to disclose the fair values of financial instruments except when it is not practicable to do so. Under FASB ASC 825, it is not practicable to make this disclosure when the costs of formulating the estimated values exceed the benefit when considering how meaningful the information would be to financial statement users.



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

Effects of Inflation

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

Off Balance Sheet Arrangements

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

Seasonality

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not required for a smaller reporting company.

ITEM 4T. CONTROLS AND PROCEDURES

(a) Evaluation of disclosure controls and procedures.

The Company’s disclosure controls and procedures are designed to provide reasonable assurance of achieving its objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

The Company’s management, with the participation of its chief executive officer and chief financial officer, Messrs. Gao Zhentao and Hu Gang, respectively evaluated the effectiveness of its disclosure controls and procedures. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports, such as this 10-Q, that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, Messrs. Gao and Hu concluded that because of the existence of certain related party loans in violation of Section 402 of the Sarbanes-Oxley Act of 2002 contributed to in part by a lack of review and approval of these related party loans by independent directors constituting a significant deficiency in internal control over financial reporting, the Company’s disclosure controls and procedures were not effective as of September 30, 2009. As of September 30, 2009, the Company advanced money to four related parties with a total outstanding amount in excess of $2.77 million, of which, the Company advanced over $2.77 million to one related party, Shandong Yuhe Food Group Co., Ltd.

(b) Changes in internal control over financial reporting.

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

PART II

OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, the Company may become involved in various lawsuits and legal proceedings that arise in the ordinary course of business. To the Company’s knowledge, no director, officer or affiliate of the Company, and no owner of record or beneficial owner of more than five percent, 5%, of the Company’s securities, or any associate of any such director, officer or security holder is a party adverse to the Company or has a material interest adverse to the Company in reference to pending litigation.

ITEM 1A. RISK FACTORS

Not required for a smaller reporting company.

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

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

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

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

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

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

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

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

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

None.

ITEM 5. OTHER INFORMATION

Make Good Escrow Agreements

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

The Company entered into a Make Good Escrow Agreement, dated March 12, 2008, with Mr. Kunio Yamamoto, the “Make Good Pledgor”, Tri-State Title & Escrow, LLC, the “Escrow Agent”, Roth Capital Partners LLC, “Roth Capital” and each of the investors in the private offering of securities of the Company. On July 31, 2009, Roth Capital executed a Form of Release and instructed the Escrow Agent to release 1,679,992 shares of common stock, the 2008 Make Good Shares, to Mr. Kunio Yamamoto, the Make Good Pledgor. On or about August, 2009, 1,679,992 shares of the Company’s common stock were released to Mr. Kunio Yamamoto.

The NASDAQ Stock Market, the “Exchange”, informed the Company that the Exchange had approved the listing of the Company’s common stock on the Exchange. The Company’s common stock ceased trading on the OTC Bulletin Board and commenced trading on the Exchange on October 30, 2009 under the trading symbol “YUII”.

ITEM 6. INDEX TO EXHIBITS

31.1	Certification of Principal Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *

31.2	Certification of Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *

32.1	Certification of Principal Executive Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *

32.2	Certification of Principal Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *

	* filed herewith

SIGNATURES

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

DATED: November 11, 2009

YUHE INTERNATIONAL, INC.

By:	/s/ Gao Zhentao
Gao Zhentao
Chief Executive Officer
(On behalf of the Registrant and as Principal Executive Officer)

By:	/s/ Hu Gang
Hu Gang
Chief Financial Officer
(On behalf of the Registrant and as Principal Financial Officer)

EXHIBIT INDEX

Exhibit
Number		Description

31.1		Certification of Principal Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

31.2		Certification of Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

32.1		Certification of Principal Executive Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

32.2		Certification of Principal Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

* filed herewith