Yuhe Intl (PINK:YUII)

Yesterday, June 13, 2011 we released a report detailing our findings from due diligence conducted on YUII's alleged acquisition of 13 farms from Dajiang Enterprise Group Co., Ltd. During the course of our investigation a Geo investigator had two telephone conversations with Dajiang's Chairman and General Manager, Mr. Xuejiang Zheng. Mr. Zheng was asked a series of questions concerning the status of Dajiang's farms and whether they had already been sold to YUII. As detailed in our report, Mr. Zheng categorically denied the farms had been sold to YUII. He went on to make harshly negative comments about YUII and its business practices and reputation.

Today, YUII management conducted a conference call to address the issues raised in our report. YUII's management confirmed that Mr. Zheng had indeed talked to our investigator and they did not challenge our summation of his comments. Instead they asserted that Mr. Zheng had been asked misleading questions and our investigator falsely stated he represented US investors interested in investing in business operations in China. Further, they said Mr. Zheng would cooperate with YUII management to clear up any "misunderstandings" caused by his telephone conversations with our investigator. Management also offered documents to support the alleged acquisition.

To be clear, GeoInvesting did not contact Mr. Zheng seeking commentary on YUII. We simply asked straight forward questions looking for a yes or no response as to whether Dajiang had sold or committed to sell its farms to YUII or not. When asked directly if YUII had acquired Dajiang's farms, Mr. Zheng emphatically said, NO, seven times in our first conversation alone. He said no and meant no. Investors can review the transcripts of the calls between our investigator and Mr. Zheng and draw their own conclusions.

We remain highly skeptical of YUII's explanations concerning Mr. Zheng's statements. If YUII really acquired the farms from Dajiang, why under any set of circumstances would Mr. Zheng who was allegedly paid $12.1 million to complete the transaction deny the transaction took place? And, what would motivate him to lash out at YUII by making harsh statements charging the company was lying, had a poor reputation, was defrauding US investors, and that he rejected their advances and wanted nothing further to do with them? YUII's explanation would have us believe that Mr. Zheng contemplated selling chicken farms that he had already sold to YUII. We just don't buy YUII's explanation.

Further comments from the conference bring additional confusion:

• Mr. Zheng was not available to attend this call to clear up this "misunderstanding" due to short notice and prior commitments.
• When asked if YUII would seek legal action against Mr. Zheng, management indicated that they would not. Not seek legal action against an individual accusing YUII of deliberately seeking to "cheat U.S. investors"?!
• When asked if they could get a signed document from Zheng clearing up the issues raised on the phone calls, the company referred us to the document of sale rather than insisting Mr. Zheng present a document clearing up this specific issue.
• YUII remained unclear as to why they have not resolved the $600,000 delinquent employee benefits expense obligation reported in the 2010 Form 10-K. Given YUII's reported cash balance why would they just pay the obligation and be done with it?

In the coming days Geoinvesting will offer additional information regarding our findings from on-the-ground DD conducted both before and after the May 16^th press release that reported YUII had taken possession of 11 of the 13 farms it claims to have acquired from Dajiang. We will also have additional comments regarding inconsistencies in today's conference call. In the meantime, please feel free to review our full original premium report dated June 13, 2011 along with the transcripts and recordings of our investigator's telephone conversations with Mr. Zheng.  Below, you will also find the same report and supplements.