HEILONGJIANG, China, May 15 — Yanglin Soybean, Inc. (OTC Bulletin Board: YSYB) (“Yanglin” or the “Company”), one of the leading domestic processors of soybean products in China, today reported its unaudited financial results for the fiscal quarter ended March 31, 2010.
Mr. Shulin Liu, Chief Executive Officer of Yanglin, commented, “During 2009, we experienced certain difficulties caused by the unfavorable pricing environment for both our raw materials and end products, as a result of the combined effect of the Chinese government’s strategic reserve purchase of domestic soybeans and large imports of soybean into China at lower prices. In the first quarter of 2010, however, we managed to generate a slight gross profit, as a result of the improvement in the prices of our products. In addition, we generated $3.2 million of cash from operations for the three months ended March 31, 2010 compared to using $956K of cash for the comparable quarter 2009. The cash generated in the first quarter of 2010 was primarily a result of reducing the purchase of inventory. We believe that, as one of the largest domestic soybean processors in Northeast China, with an annual production capacity of 520,000 metric tons, that we are well positioned in China’s domestic soybean industry, which still receives continuing support from the Chinese government and, which we believe, has promising prospects in the long-term, considering the growing demand for the soybean products in the country.”
Mr. Lu continued, “In addition to the implementation of cost saving measures, we are closely monitoring new government policy announcements. In late 2009, after lobbying efforts of the domestic soybean industry, the Chinese government announced that it would grant subsidies to soybean processors who purchased domestic non-GM soybeans from farmers at a government-guided price. We believe that this measure may help domestic soybean processors, including Yanglin, to recover the cost of raw materials. More importantly, we believe that this measure is a signal by the government of its willingness to render further support to our industry. In the meantime, we intend to continue to focus on making our operations more efficient and on providing the same high-quality products and service our customers expect.”
First Quarter 2010 Results
Total revenue for the first quarter of 2010 was $34.1 million, compared to $43.0 million recorded for the first quarter of 2009. The decrease in sales during this period was mainly caused by reduced supply of raw materials, due to the fact that China suffered from a reduction in the soybean production in 2009 due to the conversion to corn for better economics and the unfavorable weather conditions. Meanwhile, the average selling prices of our products increased in the first quarter of 2010, since the demand for soybean products was traditionally strong during the Chinese New Year and the prices of imported soybeans were high in the first quarter, as compared to historical data. As a result, we generated a gross profit. Gross profit for the first quarter of 2010 was $16,623,as compared to a gross loss of $1,142,022 for the first quarter of 2009.
Total operating expenses for the first quarter of 2010 decreased to $914,818, from $1,087,426 in the first quarter of 2009. Selling expenses for the first quarter of 2010 decreased to $64,776, slightly lower than $69,246 for the first quarter of 2009. General and administrative expenses for the first quarter of 2010 were $850,042, as compared to $1,018,180 for the first quarter of 2009. The reduction was mainly the result of the strict cost saving measures in items such as business entertainment and travel.
Operating loss for the first quarter of 2010 was $898,195, as compared to a loss of $2,229,448 for the first quarter of 2009. Yanglin has been recognized as a “Key Leading Enterprise” in the industrial sector of the important agriculture industry by the Chinese government. The Company will benefit from its income tax exempt status from January 2010 until June 2012.
During 2009, we adopted the provisions of FASB ASC Topic 815, “Derivatives and Hedging” (“ASC 815″) (previously ElTF 07-5, “Determining Whether an instrument (or an Embedded Feature) is Indexed to an Entity’s Own Stock”). In 2009, we incurred non-cash income of $59.4 million resulting from the change in fair value of warrants issued to investors in conjunction with the Company’s Series A Convertible Preferred Stock in October 2007. The accounting treatment of the warrants resulted from an anti-dilution provision to the warrant holders. In the first quarter of 2010, the non-cash income related to the change in fair value of these warrants was $5.1 million, as compared to $27.1 million in the first quarter of 2009, as restated.
Net income for the first quarter of 2010, after including the non-cash income from the change in fair value of warrants, totaled $4.0 million, or $0.13 per diluted share, compared with net income of $24.9 million, after including the non-cash income from the change in fair value of the warrants, or $0.63 per diluted share for the first quarter of 2009.
Cash Positions
The Company’s balance sheet as of March 31, 2010 included cash of $38.0 million, compared with $34.8 million at December 31, 2009. The Company had net working capital of $26.1 million as of March 31, 2010 compared to $26.5 million as of December 31, 2009. Total shareholders’ equity was $34.9 million as of March 31, 2010 compared to $30.9 million as of December 31, 2009.
Business Update
Mr. Liu concluded, “Over the last few months of 2009, we have been pleased to see some positive signs coming on the horizon, including news that the Chinese government will grant a subsidy to domestic soybean processors for the soybeans they purchased from local farmers. We believe that this policy is the start of a series of potential further financial supports to the domestic non-GM soybean industry, which we believe will be favorable to our operations when received. In addition, in the first quarter of 2010, we managed to generate a slight gross profit, which we believe is also a positive sign. We are still confident in the long-term prosperity of China’s soybean market and business, and we believe that we will see a recovery of our operations and profitability.”