Yayi Intl (OTC BB:YYIN)

On December 31, 2011, Yayi International Inc. (the “Company”) entered into an Amendment and Agreement (the “Amendment”) with Euro Pacific Capital, Inc., as investor representative (the “Investor Representative”), pursuant to which the Company and the Investor Representative agreed to reduce the initial exercise price per share of outstanding Series F common stock purchase warrants from $2.50 to $0.24. As previously disclosed, the Company issued Series F common stock purchase warrants to purchase up to 1,427,200 shares of Company common stock in connection with the Company’s $8.92 million private placement offering closed on September 27, 2010. Pursuant to a Securities Purchase Agreement, dated September 27, 2010, by and among the Company, the investor signatories thereto (the “Investors”) and the Investor Representative, the Investor Representative was empowered to enter into the Amendment on behalf of the Investors for the matter described above.

On May 25, 2011, pursuant to a comment letter issued by the Securities and Exchange Commission (the “SEC”) relating to the Company’s Registration Statement on Form S-1 (File No. 333-170172) (the “Registration Statement”), management of Yayi International Inc., a Delaware company (the “Company”), after discussion with the Company’s independent registered public accounting firm, concluded that the previously-issued financial statements contained in the Company’s Quarterly Reports on Form 10-Q for the periods ended June 30, 2010, September 30, 2010 and December 31, 2010 (the “2010 Quarterly Financial Statements”) and the Transition Report on Form 10-K for the period between November 1, 2009 and March 31, 2010 (the “2010 Transition Financial Statements”) should no longer be relied upon because of an error in those financial statements, and that the Company would restate those financial statements to make the necessary accounting corrections and adjustments.

The need to restate the Company’s financial statements is primarily due to the incorrect application of generally accepted accounting principles related to the classification of the slotting fees incurred by the Company in 2010 as one-year amortizable assets instead of a one time offset to revenue as they are incurred. According to the distribution agreements the Company entered into with its distributors, the Company is responsible for the payment of slotting fees charged by the retail outlets to sell its products. Slotting fee for each product was paid in one lump sum to the retailers before the product is placed in the shelves of the stores for selling to end consumers. The Company had previously believed that this upfront payment of slotting fees fit the definition of an asset in accordance with FASB Concept No.6 and accordingly amortized the slotting fees paid upfront over a one-year period, which is the standard term of the distribution agreements.

However, after discussions with the staff of the SEC, the Company determined that such slotting fees should have been classified as one time offset to revenue as they are incurred. As a result, the Company has decided to restate the 2010 Quarterly Financial Statements and the 2010 Transition Financial Statements for this adjustment. The Company expects that the potential impact of this adjustment will result in a decrease in the revenues of $2,522,241 for the period between November 1, 2009 and December 31, 2010, or approximately 8.6% of the aggregated revenues previously reported and a decrease in the gross margin of 3.4 % for the same period.

The following table sets forth the estimated effect of the restatements:

														Fourteen
		Five Months			Three Months			Three Months			Three Months			Months
		Ended			Ended			Ended			Ended			Ended
		March			June			September			December			December
		31, 2010			30, 2010			30, 2010			31, 2010			31, 2010
Net sales as previously reported	$	6,966,183			7,610,266			8,413,837			6,334,154			29,324,440
Adjustments		(880,990	)		(1,390,572	)		(346,461	)		95,782			(2,522,241	)
Net sales as restated		6,085,193			6,219,694			8,067,376			6,429,936			26,802,199
Gross profit as previously reported	$	4,596,541			4,930,029			5,538,906			3,866,359			18,931,835
Adjustments		(880,990	)		(1,390,572	)		(346,461	)		95,782			(2,522,241	)

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Gross profit as restated		3,715,551			3,539,457			5,192,445			3,962,141			16,409,594
Gross margin as previously reported		66.0%			64.8%			65.8%			61.0%			64.6%
Gross margin as restated		61.1%			56.9%			64.4%			61.6%			61.2%
Impact on pre-tax (loss) income	$	(880,990	)		(1,390,572	)		(346,461	)		95,782			(2,522,241	)
Increase in income tax (benefit) expense		(220,247	)		(347,643	)		(86,615	)		23,945			(630,560	)
Impact on net (loss) income after tax		(660,743	)		(1,042,929	)		(259,846	)		71,837			(1,891,681	)
Net (loss) profit as previously reported	$	(942,052	)		32,898			(452,518	)		(306,177	)		(1,667,849	)
Adjustments, net of tax		(660,743	)		(1,042,929	)		(259,846	)		71,837			(1,891,681	)
Net loss as restated		(1,602,795	)		(1,010,031	)		(712,364	)		(234,340	)		(3,559,530	)
Basic EPS as previously reported		(0.04	)		0.00			(0.02	)		(0.01	)
Basic EPS as restated		(0.06	)		(0.04	)		(0.03	)		(0.01	)