Washington, D.C. 20549
YUHE INTERNATIONAL, INC.
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.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
The number of shares outstanding of each of the issuer’s classes of common equity as of June 30, 2010 is as follows:
ITEM 1. FINANCIAL STATEMENTS.
YUHE INTERNATIONAL, INC.
YUHE INTERNATIONAL, INC.
YUHE INTERNATIONAL, INC.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
YUHE INTERNATIONAL, INC.
YUHE INTERNATIONAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The interim condensed consolidated financial statements included herein, presented in accordance with United States generally accepted accounting principles and stated in US dollars, have been prepared by the Company, pursuant to the rules and regulations of the Securities and Exchange Commission. These statements reflect all adjustments, consisting of normal recurring adjustments, which, in the opinion of management, are necessary for fair presentation of the information contained therein. These interim condensed consolidated financial statements should be read in conjunction with the financial statements of the Company for the year ended December 31, 2009 and notes thereto included in the Form 10-K of Yuhe International, Inc. filed on March 31, 2010. The Company follows the same accounting policies in the preparation of interim reports.
Results of operations for the interim periods are not indicative of annual results.
| 2. | Organization and Basis of Preparation of Financial Statements |
Yuhe International, Inc.
Yuhe International, Inc., formerly known as First Growth Investors, Inc., “Yuhe” or “the Company”, was originally organized under the laws of the State of Nevada on September 9, 1997. Prior to its business combination with Bright Stand, the Company was not engaged in any business activities and had no operations, income producing assets or significant operating capital. At December 31, 2007, the Company was at development stage until its business combination with Bright Stand on March 12, 2008.
On March 12, 2008, the Company completed a reverse acquisition transaction with Bright Stand International Limited, or “Bright Stand”, and Kunio Yamamoto, a Japanese person and the sole former shareholder of Bright Stand.
This share exchange transaction resulted in Bright Stand’s former shareholder obtaining a majority voting interest in the Company. Generally accepted accounting principles of the United States require that the company whose shareholders retain the majority interest in a combined business be treated as the acquirer for accounting purposes, resulting in a reverse acquisition with Bright Stand as the accounting acquirer and Yuhe International Inc. as the acquired party. Accordingly, the share exchange transaction has been accounted for as a recapitalization of the Company.
| 2. | Organization and Basis of Preparation of Financial Statements – continued |
Bright Stand International Limited, or “Bright Stand”
On August 3, 2007, Bright Stand was incorporated with limited liability in the British Virgin Islands. On January 31, 2008, Bright Stand completed the acquisition of 100% common stock of Weifang Yuhe Poultry Co., Ltd., or “PRC Yuhe,” and 43.75% of Weifang Taihong Feed Co., Ltd., or “Taihong”. As a result, Bright Stand owned 100% of PRC Yuhe and owned 43.75% direct interest of Taihong and 56.25% indirect interest of Taihong through PRC Yuhe. PRC Yuhe and Taihong became the wholly-owned subsidiaries of Bright Stand.
PRC Yuhe
PRC Yuhe was established in Weifang, Shandong province of the People’s Republic of China, or the “PRC”, as a limited liability company on March 8, 1996. PRC Yuhe is a supplier of day-old chicken raised for meat production, or broilers, in the People’s Republic of China.
Taihong
Taihong was established in Weifang, Shandong province of the PRC, as a limited liability company on May 26, 2003. Taihong is a feed stock company whose primary purpose is to supply feed stock for PRC Yuhe’s breeder chicken.
The Company’s operations are conducted through PRC Yuhe and Taihong. The Company and its subsidiaries, hereinafter, collectively referred to as “the Group”, are engaged in the business of chicken and feed production.
| 3. | Summary of significant accounting policies |
(a) Principles of consolidation
The condensed consolidated financial statements, prepared in accordance with generally accepted accounting principles in the United States of America, include the assets, liabilities, revenues, expenses and cash flows of the Company and all its subsidiaries. This basis of accounting differs in certain material respects from that used for the preparation of the books and records of the Company’s principal subsidiaries, which are prepared in accordance with the accounting principles and the relevant financial regulations applicable to enterprises with limited liabilities established in the PRC, “PRC GAAP”, the accounting standards used in the place of their domicile. The accompanying consolidated financial statements reflect necessary adjustments not recorded in the books and records of the Company’s subsidiaries to present them in conformity with generally accepted accounting principles in the United States of America.
The condensed consolidated financial statements of the Company include the accounts of Yuhe International, Inc, Bright Stand International Limited, PRC Yuhe and Taihong after the date of acquisitions. All significant intercompany accounts, transactions and cash flows are eliminated on consolidation.
(b) Use of estimates
The preparation of the financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Management makes these estimates using the best information available at the time the estimates are made; however actual results could differ materially from those estimates.
(c) Basic and diluted earnings per share
The Company reports basic earnings per share in accordance with the FASB accounting standard. Basic earnings per share are computed using the weighted average number of shares outstanding during the periods presented. The weighted average number of shares of the Company represents the common stock outstanding during the reporting periods.
| 3. | Summary of significant accounting policies – continued |
Diluted earnings per share are based on the assumption that all dilutive options were converted or exercised. Dilution is computed by applying the treasury stock method. Under this method, options are assumed to be exercised at the time of issuance, and as if funds obtained thereby were used to purchase common stock at the average market price during the year.
Fair Value Measurements
The Company defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities, which are required to be recorded at fair value, the Company considers the principal or most advantageous market in which the Company would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as inherent risk, transfer restrictions and credit risk. The Company applies the following fair value hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:
Level 1 – Quoted prices in active markets for identical assets or liabilities.
Level 2 – Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 – Inputs that are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability.
The carrying amounts of financial assets and liabilities, such as cash and cash equivalents, trade accounts receivable, other receivables, accounts payable, and other payables, approximate their fair values because of the short maturity of these instruments and market rates of interest.
In January 2010, the FASB issued guidance to amend the disclosure requirements related to recurring and nonrecurring fair value measurements. The guidance requires disclosure of transfers of assets and liabilities between Level 1 and Level 2 of the fair value measurement hierarchy, including the reasons and the timing of the transfers and information on purchases, sales, issuance, and settlements on a gross basis in the reconciliation of the assets and liabilities measured under Level 3 of the fair value measurement hierarchy. The guidance for Level 3 reconciliation disclosures will be effective for annual and interim periods beginning after December 15, 2010. The Company will adopt this guidance beginning January 1, 2011. Adoption will not have a material impact on the Company’s consolidated financial statements.
Inventories consist of the following:
| | | June 30 | | | December 31 | |
| | | 2010 | | | 2009 | |
| | | | | | | |
| Raw materials | | $ | 7,109,990 | | | $ | 5,275,629 | |
| Work in progress | | | 2,234,544 | | | | 1,285,154 | |
| Finished goods | | | - | | | | - | |
| | | | | | | | | |
| | | $ | 9,344,534 | | | $ | 6,560,783 | |
Unlisted investments at June 30, 2010 and December 31, 2009 represent the 3% investment in Hanting Rural Credit Cooperative, “Hanting”, which was recorded at cost. For the three months ended June 30, 2010 and 2009, the Company recorded no dividend income from unlisted investment in Hanting. For the six months ended June 30, 2010 and 2009, the Company recorded $15,615 and $15,509, respectively, 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.
| 6. | Plant and equipment, net |
Plant and equipment consists of the following:
| | | June 30, | | | December 31, | |
| | | 2010 | | | 2009 | |
| | | | | | | |
| At cost | | | | | | |
| Buildings | | $ | 25,147,810 | | | $ | 19,071,808 | |
| Machinery | | | 6,061,015 | | | | 6,006,596 | |
| Motor vehicles | | | 120,574 | | | | 120,069 | |
| Furniture and equipment | | | 121,569 | | | | 102,154 | |
| | | | 31,450,968 | | | | 25,300,627 | |
| Less: accumulated depreciation | | | (4,853,464) | | | | (3,716,677 | ) |
| | | | 26,597,504 | | | | 21,583,950 | |
| Construction in progress | | | 6,027,586 | | | | 7,972,762 | |
| | | $ | 32,625,090 | | | $ | 29,556,712 | |
During the three months ended June 30, 2010, depreciation expenses amounted to $570,038, of which $560,906 and $9,132 were recorded as cost of revenue and general and administrative expenses, respectively. During the six months ended June 30, 2010, depreciation expenses amounted to $1,123,534, of which $1,060,514 and $63,020 were recorded as cost of revenue and general and administrative expenses, respectively.
During the three months ended June 30, 2009, depreciation expenses amounted to $526,920, of which $480,070 and $46,850 were recorded as cost of revenue and general and administrative expenses, respectively. During the six months ended June 30, 2009, depreciation expenses amounted to $1,027,465, of which $924,404 and $103,061 were recorded as cost of revenue and general and administrative expenses, respectively.
Capitalized interest expense included in construction in progress totaled $164,160 and $302,058 for the three months ended June 30, 2010 and 2009, respectively.
Capitalized interest expense included in construction in progress totaled $370,223 and $302,058 for the six months ended June 30, 2010 and 2009, respectively.
As of June 30, 2010 and December 31, 2009, buildings and machinery of the Company with net book value of $341,109 and $556,178, respectively, were pledged as collateral under certain loan arrangements (Note 12).
| 7. | Deposits paid for acquisition of long term assets |
Deposits paid consist of the following:
| | | June 30, | | | December 31, | |
| | | 2010 | | | 2009 | |
| | | | | | | |
| Deposit paid for purchase of buildings | | $ | 6,979,275 | | | $ | 12,139,473 | |
| Deposits paid for construction in progress | | | 662,102 | | | | 218,336 | |
| Deposits paid for purchase of equipment | | | 3,701,434 | | | | 3,724,804 | |
| | | | | | | | |
| Total Deposits paid for acquisition of long term assets | | $ | 11,342,811 | | | $ | 16,082,613 | |
Intangible assets consist of the following:
| | | June 30, | | | December 31, | |
| | | 2010 | | | 2009 | |
| | | | | | | |
| Land use rights, at cost | | $ | 2,989,603 | | | $ | 2,977,098 | |
| Less: accumulated amortization | | | (159,140) | | | | (125,687) | |
| | | | | | | | | |
| | | $ | 2,830,463 | | | $ | 2,851,411 | |
As of June 30, 2010 and December 31, 2009, land use rights of the Company with net book value of $2,830,463 and $2,851,411, respectively, were pledged as collateral under certain loan arrangements.
During the three months ended June 30, 2010 and 2009, amortization expenses included in the cost of revenue were $16,403 and $16,388, respectively.
During the six months ended June 30, 2010 and 2009, amortization expenses included in the cost of revenue were $32,800 and $32,759, respectively.
The estimated aggregate amortization expenses for the land use right for the five succeeding years are as follows:
| Year | | | |
| Remainder of 2010 | | $ | 32,926 | |
| 2011 | | | 65,851 | |
| 2012 | | | 65,851 | |
| 2013 | | | 65,851 | |
| 2014 | | | 65,851 | |
| thereafter | | | 2,534,133 | |
| | | | |
| | | $ | 2,830,463 | |
| 9. | Due to related companies |
| | | June 30, | | | December 31, | |
| | | 2010 | | | 2009 | |
| | | | | | | |
| Others | | $ | 1,208 | | | $ | 1,208 | |
The amount due to related company is unsecured, interest free, has no fixed repayment date and is used for working capital purposes.
Loan from director totaled $293,746 (approximately Rmb2,000,000) and $292,517 (approximately Rmb 1,989,116) at June 30, 2010 and December 31, 2009, respectively, representing bank loan principal borrowed by a director on behalf of the Company. The loan is due on November 26, 2011 and bears interest at 8.19% per annum.
| | | June 30, | | | December 31, | |
| | | 2010 | | | 2009 | |
| | | | | | | |
| Interest payable | | $ | 69,484 | | | $ | 69,193 | |
| Deposits received | | | 97,825 | | | | 471,344 | |
| Others | | | 893,785 | | | | 803,364 | |
| | | | | | | | | |
| | | $ | 1,061,094 | | | $ | 1,343,901 | |
Deposit received represent deposits collected from customers as security for non-payment.
Others represent apartment rental reimbursement to staff and insurance payable.
The long-term loans are denominated in Chinese Renminbi and are presented in US dollars as follows:
| | | June 30, | | | December 31, | |
| | | 2010 | | | 2009 | |
| | | | | | | |
| Loans from Nansun Rural Credit, interest rate at 7.56% per annum, the various loans are due on Dec 10, 2011, Jan 26, 2013 and Mar 16, 2013 | | $ | 8,518,638 | | | $ | 8,775,521 | |
| Loan from Shuangyang Rural Credit, interest rate at 9.83% per annum, due on Oct 13, 2010 | | | 954,675 | | | | 950,682 | |
| Loan from Hanting Kaiyuan Rural Credit Cooperative, interest rate at 7.56% per annum, due on January 7, 2011 | | | 1,072,173 | | | | 1,067,689 | |
| | | | | | | | | |
| | | | 10,545,486 | | | | 10,793,892 | |
| Less: current portion of long-term loans | | | (2,026,848 | ) | | | (9,433,686 | ) |
| | | | | | | | | |
| | | $ | 8,518,638 | | | $ | 1,360,206 | |
Future maturities of long-term loans as at the relevant period indicated are as follows:
| June 30, | | | |
| 2011 | | $ | 2,026,848 | |
| 2012 | | | 293,746 | |
| 2013 | | | 8,224,892 | |
| | | | | |
| | | $ | 10,545,486 | |
| 13. | Accrued expenses and payroll related liabilities |
| | | June 30, | | | December 31, | |
| | | 2010 | | | 2009 | |
| | | | | | | |
| Salary | | $ | 1,753,820 | | | $ | 1,254,780 | |
| Employee benefits | | | 126,237 | | | | 102,385 | |
| Others | | | - | | | | 224,185 | |
| Accrued expenses | | | 1,121,645 | | | | 784,784 | |
| | | | | | | | | |
| | | $ | 3,001,702 | | | $ | 2,366,134 | |
Payroll related liabilities represent accrued payroll and welfare benefits to employees.
The Company was incorporated in Nevada and is subject to U.S. income tax at the statutory tax rate of 34%. No provision for income taxes have been made for the U.S. entity as it has a taxable loss for the three and six months ended June 30, 2010 and 2009, respectively. The Company has accumulated net operating loss carry forward of $1,491,792 as of June 30, 2010. A full valuation allowance of $507,209 has been provided against the deferred tax asset as of June 30, 2010.
Bright Stand was incorporated in the British Virgin Islands and is not subject to income taxes under the current laws of the British Virgin Islands.
PRC Yuhe is operating in the PRC, and in accordance with the relevant tax laws and regulations of the PRC, the corporation income tax rate is 25%. However, PRC Yuhe is an agricultural company, and in accordance with the relevant regulations regarding tax exemption, it 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 the PRC, the corporate income tax rate is 25%.
The Company uses the asset and liability method, where deferred tax assets and liabilities are determined based on the expected future tax consequences of temporary differences between the carrying amounts of assets and liabilities for financial and income tax reporting purposes. Taihong has a net operating loss carry forward and temporary difference, which resulted in deferred tax assets of $6,792 and $5,096, respectively, as of June 30, 2010.
| 14. | Income tax – continued |
The provision for income taxes consists of the following:
| | | For The Three Months Ended | | | For The Six Months Ended | |
| | | June 30, | | | June 30, | |
| | | 2010 | | | 2009 | | | 2010 | | | 2009 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| PRC (current) | | $ | - | | | $ | - | | | $ | - | | | $ | - | |
| Deferred tax | | | | | | | | | | | | | | | | |
Decrease (increase) in deferred tax asset | | | 3,329 | | | | (49,370 | ) | | | 5,930 | | | | (46,925 | ) |
| Change in valuation allowance | | | - | | | | 49,370 | | | | - | | | | 46,925 | |
| Income Tax Expenses | | $ | 3,329 | | | $ | - | | | $ | 5,930 | | | $ | - | |
| 14. | Income tax - continued |
Actual income tax expenses reported in the consolidated statements of income and comprehensive income differ from the amounts computed by applying the PRC statutory income tax rate of 25% to income before income taxes for the three and six months ended June 30, 2010 and 2009, respectively, for the following reasons:
| | | For The Three Months Ended | | | For The Six Months Ended | |
| | | June 30, | | | June 30, | |
| | | 2010 | | | 2009 | | | 2010 | | | 2009 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Income before income taxes | | $ | 3,058,712 | | | $ | 2,091,993 | | | $ | 5,988,313 | | | $ | 5,006,813 | |
| | | | | | | | | | | | | | | | | |
| Computed ”expected” income tax expense at 25% | | | 764,678 | | | | 522,998 | | | | 1,497,078 | | | | 1,251,703 | |
| Tax effect on permanent differences | | | (19,904 | ) | | | (49,370 | ) | | | (43,013 | ) | | | (46,925 | ) |
| Parent company losses for which no benefit has been recognized | | | 116,837 | | | | 84,691 | | | | 213,674 | | | | 177,136 | |
| Effect of tax holiday | | | (858,282 | ) | | | (558,319 | ) | | | (1,661,809 | ) | | | (1,381,914 | ) |
| | | | | | | | | | | | | | | | | |
| Income Tax Expenses | | $ | 3,329 | | | $ | - | | | $ | 5,930 | | | $ | - | |
| | | | | | | | | | | | | | | | | |
| 14. | Income tax - continued |
The tax effects of temporary differences and carryforwards that give rise to significant portions of deferred tax assets as of June 30, 2010 and December 31, 2009, were as follows:
| | | As of | | | As of | |
| | | June 30, | | | December 31, | |
| | | 2010 | | | 2009 | |
| | | | | | | |
| Deferred tax assets | | | | | | |
| Net operating loss carryforwards | | $ | 6,792 | | | $ | 12,691 | |
| Bad debt allowance | | | 5,096 | | | | 5,075 | |
| | | | 11,888 | | | | 17,766 | |
| Valuation Allowance | | | - | | | | - | |
| Total deferred tax assets | | $ | 11,888 | | | $ | 17,766 | |
| 14. | Income tax – continued |
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 June 30, 2010, the management considered that the Company had no uncertain tax positions which affected its consolidated financial position and results of operations or cash flow, and will continue to evaluate for the uncertain position in future. There are no estimated interest costs and penalties provided in the Company’s financial statements for the three and six months ended June 30, 2010 and 2009.
Cumulative undistributed earnings of foreign subsidiaries, for which no U.S. income or foreign withholding taxes have been recorded, approximated $31 million at June 30, 2010. As the company intends to indefinitely reinvest all such earnings, no provision has been made for income taxes that may become payable upon distribution of such earnings as allowed under ASC 740.30, “Accounting for Income Taxes-Other considerations or special areas”.
| 15. | Fair value of financial instruments |
The fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties. The carrying amounts of financial assets and liabilities, such as cash and cash equivalents, trade accounts receivable, other receivables, accounts payable, and other payables, approximate their fair values because of the short maturity of these instruments and market rates of interest.
The fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties. The carrying amounts of financial assets and liabilities, such as cash and cash equivalents, trade accounts receivable, other receivables, accounts payable, and other payables, approximate their fair values because of the short maturity of these instruments and market rates of interest.
| 16. | Common stock and warrants |
(a) Common Stock
Total common stock issued and outstanding of the Company as at June 30, 2010 and December 31, 2009 was 15,809,563 and 15,722,180 shares, respectively.
(b) Warrants
On March 18, 2010, the Company issued 87,383 of common shares to WLT Brothers Capital, Inc as a result of its cashless exercise of 142,816 warrants. There are no warrants outstanding as at June 30, 2010.
As at June 30, 2010, the total number of stock options outstanding was 383,151 shares. The Company recognizes compensation expense, net of estimated forfeitures, over the requisite service period, which is the period during which the grantee is required to provide services in exchange for the award. The Company has elected to recognize compensation cost for awards with only a service condition that has a graded vesting schedule on a straight-line basis over the requisite service period for the entire award.
The Company uses the Black-Scholes option pricing model to calculate the grant-date fair value of an award, with the following assumptions: no dividend yield, expected volatility of 109.40%, and a risk-free interest rate of 3.00%. In determining volatility of the Company’s options, the Company used the average volatility of the Company’s stock. Fair value per the Black-Scholes model is $2,186,499. In accordance with FASB ASC 718, the Company has recorded stock-based compensation expense during the three and six months ended June 30, 2010, of $181,692 and $361,387, respectively, in connection with the issuance of this option. Stock-based compensation expense during the three and six months ended June 30, 2009 totaled $181,709 and $361,421, respectively.
The weighted average grant date fair value of options granted was $5.71 per share. The weighted average exercise price of these options was $3.708 per share. The total number of stock options outstanding as at June 30, 2010 and December 31, 2009 was 383,151 shares.
Following is a summary of the status of options outstanding at June 30, 2010:
| | | Options outstanding | | | Options exercisable |
Exercise price | | Number outstanding | | | Weighted average remaining contractual life (years) | | | Weighted Average Exercise price | | | Number exercisable | | | Weighted average remaining contractual life (years) | | | Weighted Average Exercise price |
| | | | | | | | | | | | | | | | | | | |
| $ | 3.708 | | | 383,151 | | | | 2.96 | | | $ | 3.708 | | | | 255,179 | | | | 2.96 | | | $ | 3.708 |
Basic earnings per share are computed on the basis of the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share are computed on the basis of the weighted average number of shares of common stock plus the effect of dilutive potential common shares outstanding during the period. The following table sets forth the computation of basic and diluted net income per share:
| | | For The Three Months Ended | | | For The Six Months Ended | |
| | | June 30, | | | June 30, | |
| | | 2010 | | | 2009 | | | 2010 | | | 2009 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Net income attributable to the common stockholders | | $ | 3,055,383 | | | $ | 2,091,993 | | | $ | 5,982,383 | | | $ | 5,006,813 | |
| | | | | | | | | | | | | | | | | |
| Weighted average outstanding shares of common stock | | | 15,809,563 | | | | 15,722,180 | | | | 15,772,872 | | | | 15,722,180 | |
| Dilutive effect of options, warrants, and contingently issuable shares | | | 219,473 | | | | - | | | | 268,521 | | | | - | |
| Common stock and common stock equivalents | | | 16,029,036 | | | | 15,722,180 | | | | 16,041,393 | | | | 15,722,180 | |
| | | | | | | | | | | | | | | | | |
| Earnings per share: | | | | | | | | | | | | | | | | |
| Basic | | $ | 0.19 | | | $ | 0.13 | | | $ | 0.38 | | | $ | 0.32 | |
| Diluted | | $ | 0.19 | | | $ | 0.13 | | | $ | 0.37 | | | $ | 0.32 | |
| | | | | | | | | | | | | | | | | |
Basic and diluted earnings per share are the same as there was no dilutive effect of the warrants and stock options for the three and six months ended June 30, 2009.
| 19. | Significant concentrations and risk |
(a) Customer Concentrations
The Company has the following concentrations of business with each customer constituting greater than 10% of the Company’s gross sales:
| | For The Three Months Ended | | For The Six Months Ended |
| | June 30, | | June 30, |
| | 2010 | 2009 | | 2010 | 2009 |
| | | | | | |
| | | | | | |
| Wei Yunchao | 13.05% | 11.62% | | 12.72% | 10.21% |
| Wang Jianbo | 10.83% | * | | 12.37% | * |
| Li Chuanwang | 10.13% | * | | 10.16% | * |
* Constitutes less than 10% of the Company’s gross sales.
The Company has not experienced any significant difficulty in collecting its accounts receivable in the past and is not aware of any financial difficulties being experienced by its major customers.
The Company has the following concentrations of business with each supplier constituting greater than 10% of the Company’s purchase:
| | For The Three Months Ended | | For The Six Months Ended |
| | June 30, | | June 30, |
| | 2010 | 2009 | | 2010 | 2009 |
| | | | | | |
| | | | | | |
| Gao Ping | * | * | | 11.22% | * |
| Wang Jianbo | * | * | | 11.15% | * |
| Ma Suping | * | * | | * | 14.19% |
* Constitutes less than 10% of the Company’s purchase.
| 19. | Significant concentrations and risk – continued |
(b) Credit Risk
Financial instruments that potentially subject the Company to significant concentration of credit risk consist primarily of cash and cash equivalents. As of June 30, 2010, substantially all of the Company’s cash and cash equivalents were held by major financial institutions located in the PRC, which management believes are of high credit quality.
(c) Company’s operations are in China
All of the Company’s products are produced in China. The Company’s operations are subject to various political, economic, and other risks and uncertainties inherent in China. Among other risks, the Company’s operations are subject to the risks of transfer of funds; domestic and international customs and tariffs; changing taxation policies; foreign exchange restrictions; and political conditions and governmental regulations.
| 20. | Business and geographical segments |
The Company’s operations are classified into two principal reportable segments that provide different products or services. PRC Yuhe is engaged in the business of breeding chicken while Taihong is engaged in the business of feed production, in which most of the products were used internally. Separate management of each segment is required because each business unit is subject to different production and technology strategies.
Reportable Segments
| | | For The Three Months Ended June 30, 2010 | | | For The Three Months Ended June 30, 2009 | | | For The Three Months Ended June 30, | |
| | | Production of chicks | | | Production of feed | | | Corporate | | | Production of chicks | | | Production of feed | | | Corporate | | | Total | |
| | | | | | | | | | | | | | | | | | | | | 2010 | | | 2009 | |
| External revenue | | $ | 12,425,421 | | | $ | 53,210 | | | $ | - | | | $ | 9,774,170 | | | $ | 60,203 | | | $ | - | | | $ | 12,478,631 | | | $ | 9,834,373 | |
| Intersegment revenue | | $ | - | | | $ | 2,047,225 | | | $ | - | | | $ | - | | | $ | 2,184,498 | | | $ | - | | | $ | 2,047,225 | | | $ | 2,184,498 | |
| Interest income | | $ | 81 | | | $ | 0 | | | $ | - | | | $ | 45 | | | $ | - | | | $ | - | | | $ | 81 | | | $ | 45 | |
| Interest expense | | $ | - | | | $ | (49,188 | ) | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | (49,188 | ) | | $ | - | |
| Depreciation and amortization | | $ | (557,658 | ) | | $ | (28,783 | ) | | $ | - | | | $ | (511,062 | ) | | $ | (32,245 | ) | | $ | - | | | $ | (586,441 | ) | | $ | (543,307 | ) |
| Net profit/(loss) after tax | | $ | 3,433,130 | | | $ | 89,603 | | | $ | (467,350 | ) | | $ | 2,233,277 | | | $ | 197,478 | | | $ | (338,762 | ) | | $ | 3,055,383 | | | $ | 2,091,993 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Expenditures for long-lived assets | | $ | 106,728 | | | $ | - | | | $ | - | | | $ | 4,321,477 | | | $ | 9,027 | | | $ | - | | | $ | 106,728 | | | $ | 4,330,504 | |
Note: Intersegment revenue of $2,047,225 was eliminated in consolidation.
| 20. | Business and geographical segments - continued |
| | | For The Six Months Ended June 30, 2010 | | | For The Six Months Ended June 30, 2009 | | | For The Six Months Ended June 30, | |
| | | Production of chicks | | | Production of feed | | | Corporate | | | Production of chicks | | | Production of feed | | | Corporate | | | Total | |
| | | | | | | | | | | | | | | | | | | | | 2010 | | | 2009 | |
| External revenue | | $ | 24,121,606 | | | $ | 113,942 | | | $ | - | | | $ | 20,602,014 | | | $ | 146,749 | | | $ | - | | | $ | 24,235,548 | | | $ | 20,748,763 | |
| Intersegment revenue | | $ | - | | | $ | 3,787,219 | | | $ | - | | | $ | - | | | $ | 4,590,411 | | | $ | - | | | $ | 3,787,219 | | | $ | 4,590,411 | |
| Interest income | | $ | 139 | | | $ | 0 | | | $ | - | | | $ | 134 | | | $ | 7 | | | $ | - | | | $ | 139 | | | $ | 141 | |
| Interest expense | | $ | - | | | $ | (115,138 | ) | | $ | - | | | $ | (115,400 | ) | | $ | (210,027 | ) | | $ | - | | | $ | (115,138 | ) | | $ | (325,427 | ) |
| Depreciation and amortization | | $ | (1,096,727 | ) | | $ | (59,608 | ) | | $ | - | | | $ | (995,787 | ) | | $ | (64,437 | ) | | $ | - | | | $ | (1,156,335 | ) | | $ | (1,060,224 | ) |
| Net profit/(loss) after tax | | $ | 6,647,235 | | | $ | 189,843 | | | $ | (854,695 | ) | | $ | 5,527,658 | | | $ | 187,694 | | | $ | (708,539 | ) | | $ | 5,982,383 | | | $ | 5,006,813 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Expenditures for long-lived assets | | $ | 438,883 | | | $ | - | | | $ | - | | | $ | 4,804,393 | | | $ | 69,490 | | | $ | - | | | $ | 438,883 | | | $ | 4,873,883 | |
Note: Intersegment revenue of $3,787,219 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.
| 21. | Commitments and contingencies |
Operating Leases - In the normal course of business, the Company leases the land for hen houses under operating lease agreements. The Company rents land, primarily for the feeding of the chicken. The operating lease agreements generally contain renewal options that may be exercised at the Company’s discretion after the completion of the base rental terms. The Company was obligated under operating leases requiring minimum rentals as follows:
| Remainder of six months ended June 30, 2010 | | | |
| | | | |
| 2010 | | $ | 34,860 | |
| 2011 | | | 69,721 | |
| 2012 | | | 69,721 | |
| 2013 | | | 69,721 | |
| 2014 | | | 69,721 | |
| Thereafter | | | 1,251,216 | |
| | | | | |
| Total minimum lease payments | | | 1,564,960 | |
During the three months ended June 30, 2010 and 2009, rental expenses were $55,437 and $28,623, respectively.
During the six months ended June 30, 2010 and 2009, rental expenses were $107,013 and $57,218, respectively.
| 21. | Commitments and contingencies - continued |
The Company entered into various breeder farm acquisition and construction contracts; the following is a summary of the commitments as of June 30, 2010:
| | | Total Consideration | | | Total Amount Paid as of June 30, 2010 | | | Remaining Balance as of June 30, 2010 | | Expected Date of Payment | | Starting Date of Project | | Date / Expected Date of Completion | | Notes | |
| Constructions of: | | | | | | | | | | | | | | | | | |
| Breeding Farm No. 1 and No. 28 | | $ | 6,120,000 | | | $ | 4,704,000 | | | $ | 1,416,000 | | Progressively from May 2010 | | May 2005 | | April 2010 | | | - | |
| Steel Structural Surface for Hatchery No. 3 | | | 572,805 | | | | 467,056 | | | | 105,749 | | Within three months upon completion | | December 2008 | | August 2010 | | | - | |
| Acquisition of 13 Breeder Farms | | | 15,255,706 | | | | 3,065,241 | | | | 12,190,465 | | End of December 2010 | | Acquired on December 24, 2009 | | End of December 2010 | | Expected to spend $2.49m for renovation | |
Acquisition of 5 Breeder Farms (Note 23) | | | 3,121,426 | | | | - | | | | 3,121,426 | | End of July 2010 | | July 14,2010 | | End of December 2010 | | | - | |
| | | | | | | | | | | | | | | | | | | | | | |
| Total | | $ | 25,069,937 | | | $ | 8,236,297 | | | $ | 16,833,640 | | | | | | | | | | |
| 21. | Commitments and contingencies - continued |
Construction of Breeding Farm No. 1 and No. 28
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 $4.5 million, approximately equivalent to RMB29 million, to build breeding farm No 1. The breeding farm can be split into the southern and the northern regions. The northern farm construction work and facilities have been set up by the end of February 2010. The capacity of the northern factory is 130,000 sets of parent broilers. The residual payment is $0.88 million, approximately equivalent to RMB6 million, for the building and facilities; and $0.53 million, approximately equivalent to RMB3.6 million, in machinery and is scheduled to be paid progressively from May 2010. On March 1, 2010, PRC Yuhe completed construction work and facilities of breeding farm no. 28. This breeder farm covers an area of 20.6 acres (125 mu) and has capacity for 130,000 parent breeders.
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 $380,000, approximately equivalent to RMB2.6 million. The construction has been completed at the end of October 2009. The residual payment of $87,770, approximately equivalent to RMB600,000, has been paid by the end of March 2010.
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 $572,805, approximately equivalent to RMB3.9 million. The steel structural surface has been completed and the interior remodeling is expected to complete in August 2010. The residual scheduled payment is $105,749, approximately equivalent to RMB 0.72 million, and is scheduled to be paid three months after completion of construction.
| 21. | Commitments and contingencies - continued |
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 a total consideration of $894,120, approximately equivalent to RMB6,112,300, and $861,280, approximately equivalent to RMB5,887,800, respectively. The constructions have been completed as of December 31, 2009. As of March 31, 2010, the Company has paid $781,150, approximately equivalent to RMB5,340,000, and $751,890, approximately equivalent to RMB5,140,000, respectively to these two suppliers. The residual payments of $112,970, approximately equivalent to RMB772,300, and $109,390, approximately equivalent to RMB747,800, have been paid by the end of June, 2010.
Acquisition of 13 Breeder Farms
On December 24, 2009, PRC Yuhe entered into an agreement to purchase thirteen breeder farms at a total consideration of $15,255,706, approximately equivalent to RMB103,870,000. As of June 30, 2010, PRC Yuhe has paid 80% of the total consideration, or $12,190,465, approximately equivalent to RMB83,000,000. The remaining balance of $3,065,241, approximately equivalent to RMB20,870,000, is expected to be paid by the end of December 2010. The farms cover a total area of 37 hectares (560 mu), for which PRC Yuhe acquired all the ground buildings as well as the land use rights for 36 years. The purchase price also includes in-house breeding facilities which supply feed, water and air to the parent breeders.
Purchase of Land Use Right and Construction of Breeding Farm
On December 26, 2009, PRC Yuhe entered into an agreement to purchase land use right and buildings on this land for a total consideration of $2,937,000, approximately equivalent to RMB 20,000,000. The land use right is for 50 years. As of June 30, 2010, full payment has already been made. PRC Yuhe plans to build a breeding farm on this piece of land, construction contract has not been entered into as of June 30, 2010. Construction is expected to commence in October 2010 and the estimated completion date is December 2010.
| 22. | Equipment Leasing and Rental Arrangement |
On November 11, 2008, PRC Yuhe entered into equipment leasing agreement and property rental agreement, collectively, the “Agreements”, with Shandong Nongbiao Purina Feed Co., Ltd., “Shandong Nongbiao Purina”.Shandong Nongbiao Purina will construct a feed production facility on a property leased from PRC Yuhe and become the exclusive feed supplier for PRC Yuhe. Pursuant to the terms and conditions of the Agreements, Shandong Nongbiao Purina will lease certain equipment for feed production from, and install them at the premises owned by PRC Yuhe. The lease term for both the equipment leasing agreement and property rental agreement is 10 years. After completion of the feed production facility, the lease term commenced in July 2009 when the production began. Shandong Nongbiao Purina shall pay to PRC Yuhe an annual rental payment for the leased land, premises and facilities of $219,420, approximately equivalent to RMB1,500,000. The rent payable by Shandong Nongbiao Purina under the rental agreement will be offset against the prepaid equipment rental costs of $1,462,820, approximately equivalent to RMB10,000,000. As at June 30, 2010, Shandong Nongbiao Purina advanced $710,808, approximately equivalent to RMB4,839,610, to PRC Yuhe as rental payment and was recorded as advances from customers.
In connection with the execution of the Agreements, Shandong Yuhe Food Group Co., Ltd., “Yuhe Group”, a PRC company based in Shandong Province, would be the guarantor of PRC Yuhe for $658,000, approximately equivalent to RMB4,500,000, for the first five years and for $439,000, approximately equivalent to RMB3,000,000, for the next five years. No guarantee fee is required according to the above Agreements.
The leasing arrangement with Purina is accounted for as operating lease with the exception of the lease of equipment. The equipment leased to Purina are accounted for as direct financing lease because the equipment has an economic useful life of 10 years and the term of the equipment lease is for 10 years.
The following lists the components of the net investment in direct financing as of June 30, 2010 and December 31, 2009, respectively:
| | | June 30, | | | December 31, | |
| | | 2010 | | | 2009 | |
| | | | | | | |
| Minimum lease payments receivable | | $ | 547,192 | | | $ | 544,903 | |
| | | | | | | | | |
| Less: Unearned income | | | (146,756 | ) | | | (162,161 | ) |
| | | | | | | | | |
| Net investment in direct financing lease | | $ | 400,436 | | | $ | 382,742 | |
| 22. | Equipment Leasing and Rental Arrangement – continued |
As of June 30, 2010, future minimum lease payments to be received for each of the five succeeding fiscal years are as follows: $0 in 2010 to 2013 and $25,719 in 2014. There were no minimum lease payments to be received in 2010 to 2013 because Purina has advanced $553,695 for equipment rental as of June 30, 2010.
There are no contingent rentals included in income for the three and six months ended June 30, 2010 and 2009.
On July 14, 2010, PRC Yuhe entered into an asset purchase agreement, or the “Purchase Agreement”, with Liaoning Haicheng Songsen Stock Farming and Feed Co., Ltd., or “Haicheng Songsen”, and Mr. Jiang Zhaolin, the controlling shareholder of Haicheng Songsen, collectively, the “Seller”. Neither Haicheng Songsen nor Mr. Jiang Zhaolin is affiliated with the Company.
Pursuant to the Purchase Agreement, the Seller has agreed to sell to PRC Yuhe certain assets of Haicheng Songsen, including five breeder farms with a total area of approximately 52 acres and total building coverage of approximately 680,000 square feet in Haicheng, Liaoning Province, China, for a purchase price of approximately $3,121,426, equivalent to RMB 21,252,540, or the “Transaction”.
| | Concurrently, PRC Yuhe entered into a service agreement, or the “Service Agreement”, with Mr. Jiang Zhaolin. Pursuant to the Service Agreement, Mr. Jiang Zhaolin has agreed to provide PRC Yuhe with certain services related to completion and closing of the Transaction in consideration for certain number of restricted shares of common stock of the Company calculated at a price of $10 per share with total consideration equal to approximately $2,943,336, equivalent to RMB 20 million. Based on such calculation, Mr. Jiang Zhaolin will receive approximately 300,000 restricted shares at the closing of the Transaction. |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Special Note Regarding Forward Looking Statements
This Quarterly Report on Form 10-Q, including the following “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements that are based on the beliefs of the Company’s management and involve risks and uncertainties, as well as assumptions that, if they ever materialize or prove incorrect, could cause the results of the Company to differ materially from those expressed or implied by such forward-looking statements. The words “believe,” “expect,” “anticipate,” “project,” “targets,” “optimistic,” “intend,” “aim,” “will” or similar expressions are intended to identify forward-looking statements. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including statements regarding new and existing products, technologies and opportunities; statements regarding market and industry segment growth and demand and acceptance of new and existing products; any projections of sales, earnings, revenue, margins or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements regarding future economic conditions or performance; uncertainties related to conducting business in China; any statements of belief or intention; any of the factors mentioned in the “Risk Factors” section of the Company’s S-1 or amendment thereof or annual report on Form 10-K; and any statements of assumptions underlying any of the foregoing. Except as otherwise indicated by the context, references in this report to the “Company,” “Yuhe International,” “we,” “us,” or “our,” are references to the combined business of Yuhe International, Inc. and its subsidiaries.
Overview
The Company is in the middle of the broiler chicken supply chain. The Company purchases parent breeding stocks from primary breeder farms, raises them for hatching eggs and sells live day-old broilers to the market. The Company’s business segment has the highest margin along the supply chain. The Company produces high-quality day-old broilers supported by its know-how in the areas of feed ingredient composition, immunizations system and breeding techniques, gained through over a decade of experience.
Unless otherwise noted, all dollar figures provided herein are translated into United States Dollars from Renminbi at year-end exchange rates as to assets and liabilities and average exchange rates as to revenues and expenses. Capital accounts are translated at their historical exchange rates when the capital transactions occurred.
Unless otherwise noted, all historical financial information prior to March 12, 2008 refers to PRC Yuhe, which includes the accounts of Taihong.
The Company’s Business Operations
The Company’s business is part of the commercial broiler supply chain.
Day-old broilers are one-day-old broilers that are sold to broiler raisers. Day-old broilers sold by the Company’s wholly-owned subsidiary, PRC Yuhe, are its primary source of revenue.
The Company purchases parent breeding chicken from grandparent breeder farms and raises them to maturity. Once these parent breeding chicken have matured, they produce hatching eggs that the Company incubates and then sells the resulting day-old broiler chicks to its customers.
Under normal circumstances, female parent breeder chicken become productive from the 26th week, and are no longer commercially productive after the 66th week. Typically a breeder is capable of producing approximately 167 eggs which will be hatched to 137 broilers over its production lifetime and the breeders are maintained by the Company for a period of 420 days. The Company sources its parent breeder chicken from licensed suppliers located in Beijing, and Shandong and Jiangsu provinces and these suppliers are required to have a vaccination certificate and a breeder production certificate for the sale of the breeders. The Company’s hatching eggs typically must be incubated for a period of 21 days. At least 28 weeks usually pass from the Company’s receipt of a day-old parent breeder to its sale of the first day-old broilers.
The Company operates in two elements of the broiler supply chain: day-old broiler production and feed production. These activities are operated under two separate subsidiaries, PRC Yuhe and Taihong, respectively.
The following is a discussion of the Company’s results of operations for the three months ended June 30, 2010 compared to the three months ended June 30, 2009.
Three Months Ended June 30, 2010 Compared to Three Months Ended June 30, 2009
| Year to Date | All amounts, | As a | All amounts, | As a | Increase/ | Increase/ |
| other than | percentage of | other than | percentage of | (Decrease) | (Decrease) |
| percentage, are in | net revenue | percentage, are in | net revenue | Dollar ($) | Percentage |
| U.S. dollars | | U.S. dollars | | | |
| For the three | For the three | For the three | For the three | For the three | For the three |
| months ended | months ended | months ended | months ended | months ended | months ended |
| June 30 | June 30 | June 30 | June 30 | June 30 | June 30 |
| 2010 | 2010 | 2009 | 2009 | 2010 | 2010 |
| | | | | | |
| Sales revenue | 12,478,631 | 100.00% | 9,834,373 | 100.00% | 2,644,258 | 26.89% |
| Cost of revenue | 8,355,543 | 66.96% | 7,031,426 | 71.50% | 1,324,117 | 18.83% |
| Gross profit | 4,123,088 | 33.04% | 2,802,947 | 28.50% | 1,320,141 | 47.10% |
| | | | | | | |
| Selling expenses | 201,568 | 1.62% | 108,656 | 1.10% | 92,912 | 85.51% |
| General and administrative expenses | 810,623 | 6.50% | 635,247 | 6.46% | 175,376 | 27.61% |
| Operating income | 3,110,897 | 24.93% | 2,059,044 | 20.94% | 1,051,853 | 51.08% |
| Interest income | 81 | 0.00% | 45 | 0.00% | 36 | 80.00% |
| Other (expense) income | (3,081) | -0.02% | 5,126 | 0.05% | (8,207) | -160.11% |
| Loss on disposal of fixed assets | - | 0.00% | 27,778 | 0.28% | (27,778) | -100.00% |
| Investment income | 3 | 0.00% | - | 0.00% | 3 | -100.00% |
| Interest expenses | 49,188 | 0.39% | - | 0.00% | 49,188 | -100.00% |
| Income tax expenses | 3,329 | 0.03% | - | 0.00% | 3,329 | -100.00% |
| Net income | 3,055,383 | 24.48% | 2,091,993 | 21.27% | 963,390 | 46.05% |
The Company has consolidated the results of PRC Yuhe and Taihong into its Consolidated Financial Statements from January 1, 2010 to June 30, 2010 and January 1, 2009 to June 30, 2009.
Net revenue. Sales revenue amounted to $12.48 million for the three months ended June 30, 2010, increased by $2.64 million, or 27%, from $9.83 million for the three months ended June 30, 2009. The revenue increase was driven by the increase in sales volume of the Company’s day-old broilers by 8.9 million birds, or 34%, from 25.7 million birds in 2009 to 34.6 million birds in 2010 for the three-month period ended on June 30. The increase in sales volume of the broilers was a result of capacity expansion in the first quarter of fiscal year 2010. Nevertheless, the sales revenue increase as a result of the broiler sales volume increase was partially offset from $3.12 million to $2.64 million by the revenue decrease in retired parent broilers and by-products by $0.48 million. The unit selling price of the broilers of RMB 2.38 per bird remained unchanged year over year for the three months ended June 30, 2010.
For the breakdown of the total revenue, $12.08 million, or 96.8% of total sales, came from day old broilers sales; $0.15 million, or 1.2% of the total sales, came from the sales of retired parent broilers, which contributed a gross income of $42,000 for the three-month period; $0.11 million, or 0.9% of total sales, came from sales of non-fecundated eggs; $0.09 million, or 0.7% of total sales, came from chicken dung and other business; and $0.05 million, or 0.4% of total sales, came from external feed sales of Taihong.
Cost of revenues. The Company’s cost of revenues increased by $1.32 million, or 18.83%, to $8.36 million for the three months ended June 30, 2010 from $7.03 million for the three months ended June 30, 2009. The increase in the cost of revenues was mainly driven by the increase in the sales volume of day-old broilers, and was partially offset by a decrease in unit cost of the broilers. The unit cost of day-old broilers decreased by 4.3% from RMB1.71 for the three months ended June 30, 2009 to RMB1.64 for the three months ended June 30, 2010. This decrease was due to the decreased proportion of our internally-produced broilers, which had higher costs than those of the externally-purchased broilers in the three months ended June 30, 2010. We retired selected breeders earlier than expected, and conducted feather changing solution on selected breeders in our fiscal year 2010 production plan, both of which contributed to the decrease of the unit cost of day-old broilers. As a percentage of net revenues, the cost of revenues decreased by 4.54%, from 71.5% for the three months ended June 30, 2009, to 66.96% for the three months ended June 30, 2010.
Gross profit. The Company’s gross profit increased by $1.32 million, or 47.1%, to $4.12 million for the three months ended June 30, 2010 from $2.8 million for the three months ended June 30, 2009. Gross margin as a percentage of net revenues was 33% for the three months ended June 30, 2010, as compared to 28.5% for the three months ended June 30, 2009. The increase was mainly because of the good management of the external eggs and hence the cost of day-old broilers has decreased as discussed above.
General and administrative expenses. The general and administrative expenses increased by $0.18 million, or 27.61%, to $0.81 million for the three months ended June 30, 2010 from $0.64 million for the three months ended June 30, 2009. The increase in general and administrative expenses was mainly due to increased legal and compliance expenses related to public company status. S3 filing expenses increased by $0.13 million, and additional SOX compliance advisory fees increased by $0.04 million.
The general and administrative expenses comprised mainly of public company related expenses of $0.47 million, including stock based compensation of $181,692, representing 58% of total general and administrative expenses; human resources and related expenses of $0.13 million, representing 16% of total general and administrative expenses; auditing and advisory expenses of $0.05 million, representing 6% of total general and administrative expenses; transportation costs of $0.03 million, representing 4% of total general and administrative expenses; facilities and utility expenses of $0.06 million, representing 7% of total general and administrative expense; travel expenses of $0.03million, representing 4% of total general and administrative expenses; and tax expense of $0.03 million ,representing 4% of total general and administrative expenses.
Selling Expenses. The Company’s selling expenses increased by $92,912, or 86%, to $201,568 for the three months ended June 30, 2010 from $108,656 for the same period in 2009. Selling expenses comprised mainly of packaging and transportation expenses of $163,371, representing 81% of total selling expenses; human resources and related expenses of $14,593, representing 7% of total selling expenses; and travel, office expenses and advertising expenses of $16,361, representing 8% of total selling expense. The increase in selling expenses was primarily due to the increase in packaging and transportation expenses as a result of increased sales volume. In addition, the unit cost of day old broiler box increased by RMB0.35, or 12%, to RMB3.36 for the three months ended June 30, 2010 from RMB3.01 for the same period in 2009. As a percentage of net revenue, selling expenses increased by 0.5%, from 1.1% for the three months ended June 30, 2009, to 1.6% for the three months ended June 30, 2010.
Interest expenses. Interest expenses increased by $49,188 for the three months ended June 30, 2010 from $0 for the same period in 2009. The increase in interest expense was attributed to the fact that all financing interest was capitalized in construction in progress in the second quarter of fiscal 2009. Capitalized interest for the three months ended June 30, 2010 and 2009 was $164,160 and $302,000 respectively. If interest was not capitalized, interest expenses on bank loans would have been $213,348 and $302,000 for the three months ended June 30, 2010 and 2009 respectively. This year over year decrease was mainly due to the interest rate decrease in the second quarter of 2010, and the Company has repaid a loan of $292,622(RMB2,000,000) on May 17,2010.
Net profit. Net profit increased by $0.96 million, or 46%, to $3.06 million for the three months ended June 30, 2010 from $2.09 million for the three months ended June 30, 2009, as a result of the factors described above.
Six Months Ended June 30, 2010 Compared to Six Months Ended June 30, 2009
| Year to Date | All amounts, | As a | All amounts, | As a | Increase/ | Increase/ |
| other than | percentage of | other than | percentage of | (Decrease) | (Decrease) |
| percentage, are in | net revenue | percentage, are in | net revenue | Dollar ($) | Percentage |
| U.S. dollars | | U.S. dollars | | | |
| For the six | For the six | For the six | For the six | For the six | For the six |
| months ended | months ended | months ended | months ended | months ended | months ended |
| June 30 | June 30 | June 30 | June 30 | June 30 | June 30 |
| 2010 | 2010 | 2009 | 2009 | 2010 | 2010 |
| | | | | | |
| Sales revenue | 24,235,548 | 100.00% | 20,748,763 | 100.00% | 3,486,785 | 16.80% |
| Costs of revenue | 16,212,105 | 66.89% | 13,883,779 | 66.91% | 2,328,326 | 16.77% |
| Gross profit | 8,023,443 | 33.11% | 6,864,984 | 33.09% | 1,158,459 | 16.87% |
| | | | | | | |
| Selling expenses | 312,515 | 1.29% | 201,596 | 0.97% | 110,919 | 55.02% |
| General and administrative expenses | 1,631,139 | 6.73% | 1,379,237 | 6.65% | 251,902 | 18.26% |
| Operating income | 6,079,789 | 25.09% | 5,284,151 | 25.47% | 795,638 | 15.06% |
| Interest income | 139 | 0.00% | 141 | 0.00% | (2) | -1.41% |
| Other income (expense) | 8,084 | 0.03% | 4,661 | 0.02% | 3,423 | 73.44% |
| Loss on disposal of fixed assets | 176 | 0.00% | 27,778 | 0.13% | (27,602) | -99.37% |
| Investment income | 15,615 | 0.06% | 15,509 | 0.07% | 106 | 0.68% |
| Interest expenses | 115,138 | 0.48% | 325,427 | 1.57% | (210,289) | -64.62% |
| Income tax expenses | 5,930 | 0.02% | - | 0.00% | 5,930 | 100.00% |
| Net income | 5,982,383 | 24.68% | 5,006,813 | 24.13% | 975,569 | 19.48% |
The Company has consolidated the results of PRC Yuhe and Taihong into its Consolidated Financial Statements from January 1, 2010 to June 30, 2010 and January 1, 2009 to June 30, 2009.
Net revenue. Sales revenue amounted to $24.24 million for the six months ended June 30, 2010, increased by $3.49 million, or 16.8%, from $20.75 million for the six months ended June 30, 2009. The revenue increase was driven by the increase in sales volume of the Company’s day-old broilers by 11.4 million birds, or 23%, from 48.8 million birds in 2009 to 60.2 million birds in 2010, for the six-month period ended on June 30. The revenue impact resulted from the increased sales volume was partially offset by the decreased unit selling price. The selling price of day-old broilers decreased from RMB 2.67 per bird for the six months ended June 30, 2009 to RMB 2.61 per bird, or 2%, for the six months ended June 30, 2010.
For the breakdown of the total revenue, $22.97 million, or 94.8% of total sales, came from day old broilers sales; $0.78 million, or 3.2% of the total sales, came from the sale of retired parent broilers, which contributed a gross income of $324,046 for the six-month period; $0.19 million, or 0.8% of total sales, came from sales of non-fecundated eggs; $0.19 million, or 0.8% of total sales, came from chicken dung and other business; and $0.11 million, or 0.4% of total sales, came from external feed sales of Taihong.
Cost of revenues. The Company’s cost of revenues increased by $2.3 million, or 16.8%, to $16.2 million for the six months ended June 30, 2010 from $13.9 million for the six months ended June 30, 2009. The increase in the cost of revenues was mainly driven by the increase in sales volume of day-old broilers. As a percentage of net revenues, the cost of revenues remained at the same level of 67% year over year. Another factor of the increase in the cost of revenues was the increased unit cost per bird. The unit cost per bird increased by RMB 0.02, or 1%, from RMB 1.78 per bird in 2009 to RMB 1.8 per bird in 2010 for the six months ended June 30. The increase in unit cost per bird was a result of the increased feed stock price in the six-month period.
Gross profit. The Company’s gross profit increased by $1.2 million, or 16.9%, to $8 million for the six months ended June 30, 2010, from $6.9 million for the six months ended June 30, 2009. Gross profit as a percentage of net revenues was 33.11% for the six months ended June 30, 2010, as compared to 33.09% for the six months ended June 30, 2009.
General and administrative expenses. The general and administrative expenses increased by $0.25 million, or 18%, to $1.63 million for the six months ended June 30, 2010, from $1.38 million for the six months ended June 30, 2009. The increase in general and administrative expenses was mainly due to the increase of certain public company related expenses by $0.15 million for the six months ended June 30, 2010. The general and administrative expenses comprised mainly of public company related expenses of $0.85 million, representing 52% of total general and administrative expenses, human resources and related expenses of $0.28 million, representing 17% of total general and administrative expenses, transportation costs of $0.06 million, representing 3% of total general and administrative expenses; facilities and utility expenses of $0.15 million, representing 9% of total general and administrative expense, auditing and advisory expenses of $0.05 million, representing 3% of total general and administrative expense, and travel expenses of $0.04 million, representing 2% of total general and administrative expenses.
Selling Expenses. The Company’s selling expenses increased by $110,919, or 55%, to $312,515 for the six months ended June 30, 2010 from $201,596 for the same period of 2009. Selling expenses comprised mainly of packaging and transportation expenses of $241,440, representing 77% of total selling expenses; human resources and related expenses of $29,123, representing 9% of total selling expenses; and travel and office expenses of $30,280, representing 10% 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 increased by 0.32%, to 1.29% for the six months ended June 30, 2010 from 0.97% for the same period of 2009.
Interest expenses. Interest expenses decreased by $210,289, or 65% to $115,138 for the six months ended June 30, 2010 from $325,427 for the six months ended June 30, 2009. Excluding capitalized interest, interest expenses on bank loans would have been $485,361 for the six months ended June 30, 2010 and $627,486 for the six months ended June 30, 2009. This decrease in interest expenses of $142,125 was due to the lower interest rate of 7.56% for the six months ended June 30, 2010, compared with the interest rates varying between 8.64% and 13.82% for the same period of 2009.
Net profit. Net profit increased by $0.98 million, or 19%, to $5.98 million for the six months ended June 30, 2010 from net profit of $5 million for the six months ended June 30, 2009, as a result of the factors described above.
Liquidity and Capital Resources
The Company expects that its strong working capital of $14.71 million and positive cash flow of $6.24 million generated from operating activities as of June 30, 2010 will meet its working capital requirements sufficiently for the next 12 months from the date of this report. In the first quarter of fiscal year 2010, the Company renewed seven bank loans for a total amount of $8.19 million, with the expected expiry dates in the calendar year of 2013.
The Company has entered into a fixed annual interest rate agreement on these bank loans at a reduced rate of 7.56%, compared to the previous variable interest rates ranging from 8.64% and 13.82% .
On May 17, 2010, the Company paid off a bank loan by the amount of $292,622(RMB2,000,000). The outstanding bank loan balance was approximately $10.55 million as of June 30, 2010. Under the renewed terms of the bank loans, the Company’s average bank loan interest rate will be reduced from 10.8% to 7.8%. The Company expects to reduce interest expense prior to any capitalized interest from approximately $1.2 million per annum, or approximately RMB 8.2 million, to $0.83 million per annum, or approximately RMB 5.8 million.
General
As of June 30, 2010, the Company had cash and cash equivalents of approximately $19.63 million. The following table provides detailed information about the Company’s net cash flow for the six months ended June 30, 2010.
| | | Quarter ended | |
| | | June 30, 2010 | |
| Net cash provided by operating activities | | $ | 6,243,157 | |
| Net cash used in investing activities | | | (450,254) | |
| | | | | |
| Net cash used in financing activities | | | (292,622) | |
| Effect of foreign currency translation on cash | | | 85,628 | |
| Net cash inflow | | | 5,585,909 | |
| Cash at beginning of period | | | 14,047,147 | |
| Cash at end of period | | $ | 19,633,056 | |
Operating Activities. Net cash provided by operating activities was $6.24 million for the six months ended June 30, 2010. Net cash provided by operating activities was primarily attributable from the net income of $5.98 million; an increase of $2.75 million of inventories; an increase of $0.10 million of long term prepaid rent; a decrease of $0.29 million of other payables; an increase of $0.24 million of accounts payables; an increase of $1.18 million of advances from customers; an increase of $0.62 million of accrued expenses and payroll related liabilities and non cash adjustment for depreciation and amortization of $1.16 million; non cash compensation of $0.36 million; and capitalized interest in construction in progress of $0.37 million.
Investing Activities. Net cash used in investing activities for the six months ended June 30, 2010 was $0.45 million. It comprised of capital expenditure of $0.44 million related to the construction of breeder farms and equipment purchase, and repayment of note receivables of $0.01 million for the six months ended June 30, 2010. The following is a summary of the $0.44 million cash spent on capital expenditure:
| | | Six Months ended | |
| | | June 30, 2010 | |
| Deposits paid for construction of breeding farm | | $ | 314,307 | |
| Deposits paid for purchase of property, plant and equipment | | | 69,761 | |
| Purchase of equipment | | | 54,816 | |
| Total deposit paid and acquisition of property, plant and equipment | | $ | 438,884 | |
Financing Activities. Net cash used in financing activities for the six months ended June 30, 2010 was $292,622. Net cash used in financing activities was attributed to the repayment of loans payables.
Loan Facilities
As at June 30, 2010, maturities of the Company’s bank loans are as follows:
| | | As of June 30, | |
| 1 year | | | 2,026,848 | |
| 2 years | | | 293,746 | |
| 3 years | | | 8,224,892 | |
| | | $ | 10,545,486 | |
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 8, 2009-Jan 7, 2011 | | 24 months | | $ | 1,072,173 | |
| Bank loan | | Nansun Rural Credit | | Mar 19, 2010-Mar 16, 2013 | | 36 months | | | 4,846,811 | |
| Bank loan | | Nansun Rural Credit | | Dec 11, 2009- Dec 10 2011 | | 24 months | | | 293,746 | |
| Bank loan | | Nansun Rural Credit | | Jan 29, 2010-Jan 26, 2013 | | 36 months | | | 3,378,081 | |
| Bank loan | | Shuangyang Rural Credit | | Oct 13,2008 -Oct 13, 2010 | | 24 months | | | 954,675 | |
| Total | | | | | | | | $ | 10,545,486 | |
The Company has ten loan facilities from three institutional lenders. The following are the material terms of such bank loans:
Loan from Hanting Kaiyuan Rural Credit Cooperative:
On January 8, 2009, PRC Yuhe renewed the loan agreement with Hanting Kaiyuan Rural Credit Cooperative. Pursuant to the loan agreement, Hanting Kaiyuan Rural Credit Cooperative loaned PRC Yuhe $1,072,173 at an interest rate of 7.56% per annum. PRC Yuhe is obligated under such loan agreement to pay interest monthly and repay the loan on its maturity date of January 7, 2011. The loan is secured by the plant and equipment of PRC Yuhe with a net book value of $341,109 as of June 30, 2010.
Loans from Nansun Rural Credit:
PRC Yuhe renewed four loan agreements with Nansun Rural Credit on March 19, 2010. The interest rate of the renewed loan agreements is 7.56% per annum, reduced from the original interest rate of 13.82% due to government policy support. The total amount of these four bank loans is $4,846,811.
Three other loans with an aggregate outstanding balance of $3,378,081 from Nansun Rural Credit have an interest rate reduced from 8.64% to 7.56% due to the interest rate adjustment by the PRC government.
The other bank loan from Nansun Rural Credit with an outstanding balance of $293,746 was entered into in December 2009, and has an interest rate of 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 $2,509,244 as of June 30, 2010.
Loan from Shuangyang Rural Credit:
Taihong renewed the loan agreements with Shuangyang Rural Credit on October 13 2008, amounting to $954,675. The interest rate on the loans is 9.83% per annum. Taihong is obligated under such loan agreements to pay interest monthly and repay the loans on their maturity date of October 13, 2010. The loans are secured by the land use right with a net book value of $321,219 as of June 30, 2010.
Due to related companies:
As of June 30, 2010, the Company has $1,208 due to Halter Financial Investments LP. The amounts due to this related company are unsecured, interest free and have no fixed repayment date. These loans are used for working capital purposes.
Obligations Under Material Contracts
Below is a table setting forth the Company’s material contractual obligations as of June 30, 2010:
| | | 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 | | $ | 10,545,486 | | | $ | 2,026,848 | | | $ | 8,518,638 | | | | - | | | | - | |
| Due to Related Companies | | $ | 1,208 | | | $ | 1,208 | | | | - | | | | - | | | | - | |
| Operating Lease Obligations | | $ | 1,564,960 9 | | | $ | 69,721 | | | $ | 139,442 | | | $ | 139,442 | | | $ | 1,216,355 9 | |
| Capital Lease Obligations | | | - | | | | - | | | | - | | | | - | | | | - | |
| Purchase Obligations | | $ | 4,090,685 | | | $ | 4,090,685 | | | | - | | | | - | | | | - | |
| | | | | | | | | | | | | | | | | | | | | |
| Other Long-Term Liabilities Reflected on the Registrant’s Balance Sheet under GAAP | | | - | | | | - | | | | - | | | | - | | | | - | |
| Total | | $ | 16,202,339 | | | $ | 6,188,462 | | | $ | 8,658,080 | | | $ | 139,442 | | | $ | 1,216,355 | |
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures.
The Company’s management, under the supervision and with the participation of its chief executive officer and chief financial officer, Messrs. Gao Zhentao and Hu Gang, respectively, evaluated the effectiveness of the Company’s disclosure controls and procedures as of June 30, 2010, the end of the period covered by this Report. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports, such as this Form 10-Q, that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, Messrs. Gao and Hu concluded that the Company’s disclosure controls and procedures were effective as of June 30, 2010.
(b) Changes in internal control over financial reporting.
As previously reported, management concluded that certain related party loans between the Company and Shandong Yuhe Food Group Co., Ltd., “Yuhe Food”, constituted prohibited transactions under Section 402 of the Sarbanes-Oxley Act of 2002. All such related party loans had been repaid as of the end of February 2010. In addition, there were certain audit adjustments identified by the Company’s former independent auditors related to the Company’s financial statements for the year ended December 31, 2009 indicating a material weakness in the Company’s internal control over financial reporting. The adjustments were mainly related to transferring amounts from work-in-progress to fixed assets, separating the current portion of long-term debt from long-term debt, and verifying the nature of capital leases and operating leases.
In order to address the foregoing material weaknesses, the Company has taken certain remedial action to strengthen its internal control over financial reporting during the quarter covered by this report that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting. In March 2010, the Company’s Audit Committee engaged Ernst & Young (China) Advisory Limited, or “Ernst & Young”, to review its payment procedures. Ernst & Young has finished its review, which covered all payments made between January 1, 2010 and March 31, 2010. Ernst & Young delivered a report on its review to all board members of the Company. On May 4, 2010, based on discussions with the Company’s management team and its review of the Ernst & Young report, the Board of Directors and the Audit Committee concluded that (1) the Company has cleared all inter-company balances with related party companies; (2) there was no payment between the Company and its related party companies from March 1, 2010 to March 31, 2010; and (3) no material exception was noted during the review of payment procedures.
In addition, the Board of Directors has implemented the following measures to ensure adequate internal controls in the payment procedures, prevent recurrence of unauthorized or improper related party payments and timely detect related party transactions.
A: Update and Revision of Relevant Policies and Procedures
The Company intends to update its code of business ethics and other relevant policies and procedures to clearly stipulate that.
| (1) | Related party loans are a violation of the Company’s code of business ethics and are strictly prohibited. |
| (2) | All related party transactions are required to be reported to and approved by the Board of Directors in advance. |
B: Implementation of the relevant policies and procedures
The revised policies will be communicated within the Company. All department heads will be required to confirm their acknowledgement of the revised policies in writing. The Finance Department will play a major role in the implementation of the revised policies and will strictly follow the revised policy and report any transactions that violate or appear to violate the policies.
C: Monitoring of the Operation of Internal Controls
The Company will fill the new position of Internal Auditor, who will directly report to the Chairman of the Audit Committee functionally, and to the Chief Financial Officer from an administrative perspective. The Internal Auditor will conduct an internal audit quarterly to review the Company’s payment procedures and test the controls as stated in the revised policies. The Internal Auditor will also conduct a specific audit to review all related party transactions quarterly to examine whether the revised policies are properly implemented. The Internal Auditor is required to report the results of these audits to the Board of Directors. The Internal Auditor has started to work on June 1, 2010. The Board of Directors has reviewed the background and experience of candidates and refined the job description of the Internal Auditor.
Under the direction of the Audit Committee, management will continue to review and make necessary changes to the system of internal controls and the control environment, as well as policies and procedures to improve the overall effectiveness of internal control over financial reporting.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, the Company becomes involved in various lawsuits and legal proceedings that arise in the ordinary course of business. While the ultimate outcome of these lawsuits and legal proceedings cannot be determined at this time, it is the opinion of management that the resolution of these actions will not have a material adverse effect on the Company’s financial condition, results of operations or cash flows.
ITEM 1A. RISK FACTORS
Not applicable.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. RESERVED
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
| 10.1 | Asset Purchase Contract dated July 14, 2010 between Weifang Yuhe Poultry Co., Ltd. and Haicheng Songsen Farming Feed Co., Ltd.* |
| 10.2 | Service Agreement dated July 14, 2010 between Haicheng Songsen Farming Feed Co., Ltd., Mr. Jiang Zhaolin and Weifang Yuhe Poultry Co., Ltd.* |
| 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. ** |
| | |
| | * this exhibit is an English translation of a foreign language document pursuant to Rule 306 of Regulation S-T |
| | ** filed herewith |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
DATED: August 13, 2010
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 |
| | | |
| 10.1 | | Asset Purchase Contract dated July 14, 2010 between Weifang Yuhe Poultry Co., Ltd. and Haicheng Songsen Farming Feed Co., Ltd.* |
| | | |
| 10.2 | | Service Agreement dated July 14, 2010 between Haicheng Songsen Farming Feed Co., Ltd., Mr. Jiang Zhaolin and Weifang Yuhe Poultry Co., Ltd.* |
| | | |
| 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.* |
* this exhibit is an English translation of a foreign language document pursuant to Rule 306 of Regulation S-T
** filed herewith
