789860--6/29/2010--Yayi_International

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RISKS RELATED TO OUR BUSINESS Our products may not achieve or maintain market acceptance The global economic crisis could further impair the dairy industry thereby limiting demand for our products and affecting the overall availability and cost of external financing for our operations. We depend on the national and local governments to support our industry and us. Recently discovered contamination of milk powder products produced in China could result in negative publicity and have a material adverse effect on our business. Our business and financial results depend on maintaining a consistent and cost-effective supply of raw milk and other raw materials, which come from limited geographic areas in China. Any interruption in our supply of raw mail fruits could materially and adversely affect our results of operations, financial condition and business prospects. Our failure to renew or protect our exclusive rights to use the knowhow provided by Taiwan Richlink Enterprise Company Ltd. may have a negative effect on our results of operations. The milk business is highly competitive and, therefore, we face substantial competition in connection with the marketing and sale of our products. Possible volatility of raw milk costs makes our operating results difficult to predict, and a steep cost increase could cause our profits to diminish significantly. Our sales and reputation may be affected by product liability claims, litigation, product recalls, or adverse publicity in relation to our products. We compete in an industry that is brand-conscious, and unless we are able to establish and maintain brand name recognition, our sales may be negatively impacted. Expansion of our business may put added pressure on our management and operational infrastructure impeding our ability to meet any potential increased demand for the products that we sell and possibly hurting our future operating results. Due to our rapid growth in recent years, our past results may not be indicative of our future performance and evaluating our business and prospects may be difficult. We depend heavily on key personnel, and turnover of key employees and senior management could harm our business. Our inability to protect our intellectual property may prevent us from successfully marketing our products and competing effectively. We do not carry any business interruption insurance, third-party liability insurance for our production facilities or insurance that covers the risk of loss of our products in shipment We may be exposed to liabilities under the Foreign Corrupt Practices Act, and any determination that we violated the Foreign Corrupt Practices Act could have a material adverse effect on our business. Our management has identified deficiencies in our internal control over financial reporting, which if not properly remediated could result in material misstatements in our future interim and annual financial statements and have a material adverse effect on our business, financial condition and results of operations and the price of our common stock. We have not voluntarily implemented various corporate governance measures, in the absence of which, shareholders may have limited protections against related party transactions, conflicts of interest and similar matters. There are limitations on the liability of our directors, and we may have to indemnify our officers and directors in certain instances. RISKS RELATED TO DOING BUSINESS IN CHINA Adverse changes in political and economic policies of the PRC government could impede the overall economic growth of China, which could reduce the demand for our products and damage our business. Uncertainties with respect to the PRC legal system could limit the legal protections available to you and us. If we are found to have failed to comply with applicable laws, we may incur additional expenditures or be subject to significant fines and penalties. The PRC government exerts substantial influence over the manner in which we must conduct our business activities. Extensive regulation of the food processing and distribution industry in China could increase our expenses resulting in reduced profits. Because Shaanxi Coalfield Geology Bureau Hydrological Team failed to obtain necessary approval from relevant government authority when they leased an allocated land to Fuping Milkgoat, there is no guarantee that the PRC government will not challenge the validity of the lease in the future. Our business will suffer if the operations of our certain goat firms need to be suspended. Restrictions on currency exchange may limit our ability to receive and use our sales revenue effectively. Fluctuations in exchange rates could adversely affect our business and the value of our securities. Restrictions under PRC law on our PRC subsidiaries ability to make dividends and other distributions could materially and adversely affect our ability to grow, make investments or acquisitions that could benefit our business, pay dividends to you, and otherwise fund and conduct our businesses. Under the New EIT Law, we may be classified as a resident enterprise of China. Such classification will likely result in unfavorable tax consequences to our non-PRC stockholders and us. If the China Securities Regulatory Commission, or CSRC, or another PRC regulatory agency determines that CSRC approval is required in connection with the reverse acquisition of Charleston, the reverse acquisition may be unwound, or we may become subject to penalties. The M A Rule establishes more complex procedures for some acquisitions of Chinese companies by foreign investors, which could make it more difficult for us to pursue growth through acquisitions in China. You may have difficulty enforcing judgments against us. RISKS RELATED TO THE MARKET FOR OUR STOCK GENERALLY The market price of our common stock is volatile, leading to the possibility of its value being depressed at a time when you may want to sell your holdings. We may be subject to penny stock regulations and restrictions and you may have difficulty selling shares of our common stock. Our common stock is quoted on the OTC Bulletin Board which may have an unfavorable impact on our stock price and liquidity. Certain provisions of our Articles of Incorporation may make it more difficult for a third party to effect a change-of-control. The conversion of preferred stock or exercise of warrants we issued in our previous private placements may result in dilution to the holders of our common stock and cause the price of our common stock to decline. We may not have sufficient funds to redeem our outstanding Series A Preferred Stock upon the request of the holders and we may have difficulties to raise the funds necessary to settle redemption of the Series A Preferred Stock, which could negatively affect our financial condition and results of operations. We do not plan to pay any dividends in the foreseeable future.

Full 10-K form ▸

789860--6/29/2010--Yayi_International_Inc