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Yongye Announces Fourth Quarter and Full Year 2009 Financial Results


News provided by

Yongye International, Inc.

Mar 15, 2010, 10:05 ET

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BEIJING, March 15 /PRNewswire-Asia-FirstCall/ -- Yongye International, Inc. (Nasdaq: YONG), ("Yongye" or the "Company") a leading developer, manufacturer, and distributor of Shengmingsu brand plant and animal nutrient products in China, today announced its financial results for the fourth quarter and fiscal year ended December 31, 2009.

    Fourth Quarter 2009 Highlights
    -- Revenue increased 248.2% to $10.1 million from $2.9 million in the
       fourth quarter of 2008
    -- Gross profit increased 275.7% to $5.4 million from $1.4 million
    -- Gross margin increased 390 basis points to 53.3% from 49.4%
    -- Operating income was $0.4 million, compared to an operating loss of
       $1.1 million in the fourth quarter of 2008
    -- Net loss was $0.1 million, compared to a net loss of $0.4 million in
       the same period last year
    -- Adjusted net income, which excludes the impact of non-cash charges
       related to the change in fair value of derivative liabilities of $3.1
       million, was $3.0 million, or $0.08 per diluted share, compared to an
       adjusted net loss of $1.0 million in the prior year period*
    -- Expanded the network of Yongye branded stores to 9,110 at the end of
       2009, compared to 7,000 at the end of the third quarter of 2009, and
       1,125 at the end of 2008
    -- Raised $69 million in gross proceeds via a public equity offering

    Full Year 2009 Highlights
    -- Revenue increased 104.0% to $98.1 million from $48.1 million in 2008
    -- Gross profit increased 109.0% to $52.1 million from $24.9 million
    -- Gross margin increased 129 basis points to 53.1% from 51.8%
    -- Operating income increased 129.4% to $31.4 million from $13.7 million
    -- Operating margin increased 355 basis points to 32.0% from 28.5%
    -- Net income was $2.2 million, or $0.07 per diluted share, compared to
       $13.3 million, or $0.56 per diluted share, last year.
    -- Adjusted net income, which excludes the impact of non-cash charges
       related to the change in fair value of derivative liabilities of $24.0
       million, was $26.2 million, or $0.83 per diluted share, compared to
       $11.2 million, or $0.56 per diluted share, last year*

"Due to the seasonality of our business, the fourth quarter of the year is normally our slowest," said Mr. Zishen Wu, Chairman and Chief Executive Officer. "However, based on the rapid expansion of our sales network in 2009, especially in central and southern China, and continued success in increasing our market penetration rates, we achieved very significant year-over-year revenue growth in the quarter. Our growth in the fourth quarter and for the full year reflects the increasing market recognition of the benefits of our Shengmingsu brand plant and animal products and the success of our extensive and growing distribution network in generating sales across the large and growing domestic agricultural market in China."

Fourth Quarter 2009 Results

Revenue for the three months ended December 31, 2009 was $10.1 million compared to $2.9 million for the same period in 2008, an increase of 248.2%. The increase in revenue was due to higher sales penetration in existing markets and the rapid expansion of the Company's distribution network. As of December 31, 2009, Yongye had 9,110 branded stores in its network, compared to 7,000 stores at the end of the third quarter of 2009, and 1,125 stores at the end of 2008.

Gross profit was $5.4 million compared to $1.4 million for the three months ended December 31, 2008, an increase of 275.7%. Gross margin was 53.3% compared to 49.4% in the same period last year. The increase in gross margin was primarily the result of the Company transitioning its manufacturing process in house during the fourth quarter and increasing economies of scale.

Selling, general and administrative expenses were $4.8 million, or 47.5% of sales, in the fourth quarter of 2009, compared to $2.5 million, or 87.3% of sales, in the same period last year. The decrease in margin was primarily due to more efficient marketing spending and increasing economies of scale. Operating income was $0.4 million compared to an operating loss of $1.1 million in the same period last year.

In January 2010, Yongye's sole operating entity in China, Yongye Nongfeng, received government approval for a preferential corporate income tax rate of 15% for the full years of 2009 and 2010. Since Yongye Nongfeng accrued its income tax expenses for the first three quarters of 2009 based on the statutory income tax rate of 25%, such approval resulted in a $2.8 million decrease in provision for income taxes in the fourth quarter of 2009.

Net loss was $0.1 million in the fourth quarter of 2009, compared to a net loss of $0.4 million in the fourth quarter of 2008. The Company incurred non- cash charges related to the change in fair value of derivative liabilities of $3.1 million in the fourth quarter of 2009. Excluding the impact of these non-cash charges, adjusted net income was $3.0 million, or $0.08 per diluted share compared to an adjusted net loss of $1.0 million in the same period last year.*

*See the table following this press release for a reconciliation of net income and EPS to exclude non-cash charges related to the change in fair value of derivative liabilities.

Full Year 2009 Results

Revenue for twelve months ended December 31, 2009 was $98.1 million compared to $48.1 million in 2008, an increase of 104.0%. Gross profit was $52.1 million with a gross margin of 53.1%, compared to gross profit of $24.9 million with a gross margin of 51.8% for the twelve months ended December 31, 2008. Operating income was $31.4 million with an operating margin of 32.0%, compared to $13.7 million with an operating margin of 28.5% last year. Net income was $2.2 million, or $0.07 per diluted share, compared to $13.3 million, or $0.56 per diluted share, last year.

The Company incurred non-cash charges related to the change in fair value of derivative liabilities of $24.0 million in 2009. Excluding the impact of these non-cash charges, adjusted net income was $26.2 million, or $0.83 per diluted share, compared to $11.2 million, or $0.56 per diluted share, last year.*

The diluted weighted average number of shares outstanding increased from 20,106,433 in 2008 to 31,324,830 in 2009 because additional shares were issued in private placements in May 2009 and as part of the public offering in December 2009.

Financial Condition

As of December 31, 2009, the Company had $65.5 million in cash, compared to $4.5 million as of December 31, 2008. The increase in the Company's cash balance was primarily due to the proceeds the Company received from in the December 2009 financing. Working capital was $107.8 million, compared to $23.3 million at the end of 2008. As of year-end 2009, the Company had only $0.5 million in long-term debt. Stockholders' equity totaled $132.6 million as of December 31, 2009, compared to $28.5 million at the end of 2008.

Based on past experience and its development plan for 2010, the Company expects strong demand for its "Shengmingsu" branded nutrient products in the first half of 2010. Therefore, the Company significantly increased inventory in the fourth quarter of 2009 in order to effectively meet the market demand in 2010. The $107.8 million increase of working capital was primarily due to an increase in inventory of $21.3 million and cash balance of $61.0 million in 2009.

Recent Developments

In March 2010, Yongye's operating entity in China, Yongye Nongfeng Biotechnology, signed an agreement with a local supplier of humic acid to purchase an undeveloped lignite coal resources project in Inner Mongolia, PRC. According to the agreement, Nongfeng will pay Shuntong RMB240 million ($35.1 million) to acquire the development rights for this project. Yongye will use a portion of the proceeds received in the December 2009 public equity offering for this acquisition.

In December 2009, Yongye raised $69 million in gross proceeds via a public equity offering. As further outlined in the "Business Outlook" section of this press release, the proceeds are expected to be used for acquiring a lignite coal mine, constructing a new manufacturing facility and acquisitions and working capital.

In December 2009, the Company's senior management team rang the opening bell at the NASDAQ MarketSite in New York City.

In October 2009, Yongye completed the acquisition of the land, buildings, equipment, and fertilizer license of its predecessor, Inner Mongolia Yongye; thereby becoming a fully integrated manufacturer of agricultural nutrient products.

Business Outlook

From 2010 to 2012, Yongye expects to achieve at least a 50% annual growth rate in revenue through geographic expansion into new markets, increased penetration in existing markets, additional marketing and brand-building efforts, and expanded production capacity. By the end of 2010, the Company plans to expand its total number of branded stores to more than 20,000.

The Company also intends to improve its cost structure and enhance its profitability by gaining greater control over its supply chain and distribution network through a vertical integration strategy. In March 2010, Yongye announced an acquisition of an undeveloped lignite coal resources project in Inner Mongolia for RMB 240 million (approximately $35.1 million). According to a third party valuation report, the Lignite Coal Project area is estimated to contain over 40 million cubic meters of surface level lignite coal.

During 2010, the Company also expects to build a new manufacturing facility nearby, which is expected to be capable of extracting humic acid from coal and producing 20,000 tons per year of the Company's liquid plant product and 10,000 tons per year of its powder animal product. The Company's current manufacturing facility operates at almost full capacity to meet peak season demand and inventory requirements. In addition, the Company plans to acquire certain Shengmingsu distributors that have especially strong channel networks.

Mr. Wu added, "By directly sourcing the raw materials that account for the largest percentage of our cost of goods sold and by more tightly integrating the production of humic acid with our fulvic acid extraction process, we expect to achieve significant cost savings and improved long-term visibility into our business. Additionally, we expect that the acquisition of certain of our strongest distributors will help us exert more direct control over our sales process and will ultimately lead to the increased margins and profitability.

"We continue to strengthen Yongye's leadership position in the market through geographic expansion, deeper market penetration, and increasing productivity in our operations. Based on our three-year strategic plan and with the capital we raised in December 2009, we expect to continue to see strong organic growth. In addition, we continue to explore upstream and downstream acquisitions so as to integrate our value chain and further improve the profitability of our business."

Conference Call

The Company will host a conference call at 09:00 a.m. Eastern Time Tuesday, March 16, 2010 to discuss its full year 2009 results.

To participate in the live conference call, please dial the following number five to ten minutes prior to the scheduled conference call time: +1-877-407-5374. International callers should dial +1-702-894-2288. The conference pass code is 631 572 80.

For those who are unable to participate in the conference call at the time of the call, a replay will be available for fourteen days after the call is held. To access the replay, please dial +1-800-642-1687. International callers should dial +1-706-645-9291. The replay pass code is 631 572 80.

Use of Adjusted Financial Measures

GAAP results for the three and twelve months ended December 31, 2009 include non-cash charges related to the change in fair value of derivative liabilities. To supplement the Company's condensed consolidated financial statements presented on a GAAP basis, the Company has provided adjusted financial information excluding the impact of these items in this release. It is a departure of U.S. GAAP, however, the Company's management believes that this adjusted measure provides investors with a better understanding of how the results relate to the Company's historical performance. A reconciliation of the adjustments to GAAP results appears in the table accompanying this press release. This additional adjusted information is not meant to be considered in isolation or as a substitute for GAAP financials. The adjusted financial information that the Company provides also may differ from the adjusted information provided by other companies.

About Yongye International, Inc.

Yongye International, Inc., headquartered in Beijing, is engaged in the development, manufacturing, distribution and sales of Shengmingsu brand plant and animal nutrient products. The Company's patented and patent pending formulas and proprietary extraction processes allow it to create products that increase crop yields and improve the health of livestock. Its sole operating subsidiary, Inner Mongolia Yongye Nongfeng Biotechnology Co., Ltd., is headquartered in Beijing with major operations located in Inner Mongolia, People's Republic of China. For more information, please visit the Company's website at http://www.yongyeintl.com .

Safe Harbor Statement

This press release contains certain statements that may include "forward-looking statements." All statements other than statements of historical fact included herein are "forward-looking statements." These forward-looking statements are often identified by the use of forward-looking terminology such as "believes," "expects" or similar expressions, involving known and unknown risks and uncertainties. Although the Company believes that the expectations reflected in these forward-looking statements are reasonable, they do involve assumptions, risks and uncertainties, and these expectations may prove to be incorrect. You should not place undue reliance on these forward-looking statements, which speak only as of the date of this press release. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of a variety of factors, including the risk factors discussed in the Company's periodic reports that are filed with the Securities and Exchange Commission and available on the SEC's website (http://www.sec.gov). All forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by these risk factors. Other than as required under the securities laws, the Company does not assume a duty to update these forward-looking statements.

                          - Financial Tables Follow -



                   YONGYE INTERNATIONAL, INC. AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME

                       For the Three Months Ended      For the Years Ended
                          December      December      December     December
                          31, 2009      31, 2008      31, 2009     31, 2008
    Sales
      External
       customers        $10,104,197    $2,902,692   $95,870,906  $48,092,271
      Related party           1,853            --     2,221,936           --
    Total sales          10,106,050     2,902,692    98,092,842   48,092,271
    Cost of sales         4,714,576     1,467,720    45,989,386   23,165,684
    Gross profit          5,391,474     1,434,972    52,103,456   24,926,587
    Selling expenses      3,004,950     1,228,242    14,720,657    8,665,755
    Research &
     development
     expenses               207,360            --     1,690,248           --
    General and
     administrative
     expenses             1,793,691     1,307,209     4,289,488    2,573,017
    Income from
     operations             385,473    (1,100,479)   31,403,063   13,687,815
    Other expenses/
     (income)
      Interest
       expense, net          44,563        69,698        70,101        3,135
      Other (income)/
       expenses, net         13,178      (200,888)     (174,152)     526,039
      Increase/
       (decrease) in
       fair value of
       derivative
       liabilities        3,104,666      (654,541)   24,009,802   (2,118,797)
    Total other
     expenses/
     (income), net        3,162,407      (785,731)   23,905,751   (1,589,623)
    Earnings before
     income tax
     expense             (2,776,934)     (314,748)    7,497,312   15,277,438
    Income tax
     expense             (2,839,165)       41,990     4,997,105      864,292

    Net income               62,231      (356,738)    2,500,207   14,413,146
    Less: Net income
     attributable to
     the noncontrolling
     interest               176,272         9,962       304,556    1,102,388
    Net income attri-
     butable to Yongye
     International, Inc.   (114,041)     (366,700)    2,195,651   13,310,758
    Earnings per share:
    Basic                    $(0.03)       $(0.06)        $0.07        $0.68
    Diluted                  $(0.03)       $(0.06)        $0.07        $0.56
    Weighted average
     shares used in
     computation:
    Basic                35,471,826    26,760,258    31,324,830   19,599,054
    Diluted              35,640,303    26,760,258    31,324,830   20,106,433



                      YONGYE INTERNATIONAL, INC. AND SUBSIDIARIES
                             CONSOLIDATED BALANCE SHEETS

                                     December 31, 2009   December 31, 2008
    Current assets
      Cash                                $65,518,181            $4,477,477
      Accounts receivable, net of
       allowance for doubtful
       accounts                             6,161,796             2,748,042
      Inventories                          42,033,261            20,708,193
      Prepayments                           6,211,896                44,051
      Due from a related party                     --               192,741
      Prepaid expenses                        112,879               189,478
      Other receivables                       383,841               680,752
        Total Current Assets              120,421,854            29,040,734

    Property, plant and,
     equipment, net                         9,156,915             5,368,074
    Intangible asset, net                      85,058                95,453
    Land use right, net                     4,166,987                    --
    Other assets                            2,029,012                    --
    Goodwill                                9,945,862                    --
        Total Assets                     $145,805,688           $34,504,261

    Current liabilities
      Short-term bank loan                 $2,925,174                   $--
      Long-term loans - current
       portion                                331,693               167,652
      Accounts payable - related
       party                                  880,026                46,739
      Accounts payable - third
       parties                                344,774                    --
      Income tax payable                    4,082,424               219,366
      Advance from customers                   29,157             1,869,400
      Accrued expenses                        479,609               583,880
      Due to a related party                1,663,191                    --
      Other payables                          553,286               774,526
      Derivative liabilities -
       fair value of warrants               1,380,205             2,107,931
        Total Current Liabilities          12,669,539             5,769,494

    Long-term loans                           545,327               230,121

        Total Liabilities                  13,214,866             5,999,615

    Stockholders' equity
      Common stock: par value $.001;
       75,000,000 shares authorized;
       44,532,241 shares issued and
       outstanding at December 31,
       2009 and 26,760,258 shares
       issued and outstanding at
       December 31, 2008                       44,532                26,760
      Additional paid-in capital          118,583,308            13,633,604
      Subscription receivable              (8,550,000)                   --
      Retained earnings                    15,506,445            13,310,794
      Accumulated other
       comprehensive income                   329,139               329,445
        Total Equity of the
         Company's Stockholders           125,913,424            27,300,603
    Noncontrolling interest                 6,677,398             1,204,043
        Total Stockholders' Equity        132,590,822            28,504,646

        Total Liabilities and
         Stockholders' Equity            $145,805,688           $34,504,261



                   YONGYE INTERNATIONAL, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                 For the Years Ended
                                       December 31, 2009     December 31, 2008

    CASH FLOWS FROM OPERATING ACTIVITIES
      Net income                           $2,500,207            $14,413,146
        Adjustments to reconcile
         net income to net cash used
         in operating activities:
        Depreciation and
         amortization                         578,511                118,104
        Loss on sale of property,
         plant and equipment                    5,995                     --
        (Reversal)/provision of
         bad debt provision                  (305,338)               305,338
        Increase/(decrease) in
         fair value of derivative
         liabilities                       24,009,802             (2,118,797)
        Changes in operating
         assets and liabilities (net
         of effect of an acquisition
         in 2009):
        Accounts receivable                (3,099,156)            (3,053,380)
        Inventories                       (21,262,135)           (20,708,193)
        Prepayments                        (6,107,924)               (44,051)
        Due from a related party                   --               (192,741)
        Prepaid expenses                       77,013               (189,478)
        Other receivables                     298,444               (680,752)
        Other assets                       (1,751,395)                    --
        Accounts payable- related
         party                                832,723                 46,739
        Accounts payable- third
         parties                              344,589                     --
        Income tax payable                  3,860,435                219,366
        Advance from customers             (1,843,898)             1,869,400
        Accrued expenses                     (105,659)               583,880
        Other payables                       (222,593)               764,526
      Net Cash Used in Operating
       Activities                          (2,190,379)            (8,666,893)

    CASH FLOWS FROM INVESTING ACTIVITIES
      Proceeds from sale of
       property, plant and equipment           12,425                     --
      Purchase of property, plant
       and equipment                       (1,560,587)            (5,475,572)
      Payment for the acquisition
       of Shengmingsu manufacturing
       business                            (2,834,676)                    --
      Net Cash Used in Investing
       Activities                          (4,382,838)            (5,475,572)

    CASH FLOWS FROM FINANCING ACTIVITIES
      Proceeds from bank loans              2,923,600                432,325
      Repayment of bank loans                (248,150)               (34,552)
      Proceeds from common stock
       and warrants issued                 69,547,206             19,350,651
      Payment for common stock
       and warrants issuance costs         (4,528,456)            (1,461,659)
    Net Cash Provided by
     Financing Activities                  67,694,200             18,286,765

    EFFECT OF FOREIGN EXCHANGE
     RATE CHANGES ON CASH                     (80,279)               325,041
    NET INCREASE IN CASH                   61,040,704              4,469,341
    Cash and cash equivalent at
     beginning of year                      4,477,477                  8,136
    Cash and cash equivalent at
     end of year                          $65,518,181             $4,477,477



                      YONGYE INTERNATIONAL, INC. AND SUBSIDIARIES
                       RECONCILIATION OF NON-GAAP FINANCIAL DATA


                            Three Months Ended      Three Months Ended
                            December 31, 2009       December 31, 2008
                          Net Income  Diluted EPS  Net Income  Diluted EPS
    Adjusted Amount       $2,990,625     $0.08    ($1,021,241)    ($0.04)
    Change in fair
     value of
     derivative
     liabilities          $3,104,666     $0.09      ($654,541)    ($0.02)
    GAAP amount per
     consolidated
     statement of
     income                ($114,041)    $0.00      ($366,700)    ($0.01)
    Weighted average
    number of shares
    - diluted             35,640,303               26,760,258



                           Twelve Months Ended       Twelve Months Ended
                            December 31, 2009          December 31, 2008
                         Net Income  Diluted EPS  Net Income    Diluted EPS
    Adjusted Amount      $26,205,453     $0.83    $11,191,961      $0.56
    Change in fair
     value of
     derivative
     liabilities         $24,009,802     $0.76    ($2,118,797)    ($0.00)
    GAAP amount per
     consolidated
     statement of
     income               $2,195,651     $0.07    $13,310,758      $0.56
    Weighted average
     number of shares
     - diluted            31,461,397               20,106,433


    *Diluted EPS calculation in accordance with GAAP (FASB No. 128) requires
    the reversal of gain or loss from the change in fair value of derivative
    liabilities in the numerator, and an increase in the number of common
    shares of ordinary shares equivalents outstanding in the denominator (See
    December 31, 2009 and 2008 Financial Statements). Therefore, the change in
    fair value of derivative liabilities is not reversed again when
    calculating Non-GAAP diluted EPS for three and twelve months ended
    December 31, 2009 and 2008.

    In the diluted EPS calculation in accordance with GAAP for three and
    twelve months ended December 31, 2009 and 2008, the gain or loss from the
    change in fair value of derivative liabilities in the numerator was not
    reversed, as this effect would have been anti-dilutive. Therefore, the
    change in fair value of derivative liabilities is reversed when
    calculating Non-GAAP diluted EPS for three and twelve months ended
    December 31, 2009 and 2008.


    For more information, please contact:

    Yongye International, Inc.
     Mr. Larry Gilmore, VP of Corporate Strategy
     Phone: +86-10-8232-8866 x8880
     Email: [email protected]

    CCG Investor Relations
     Mr. Crocker Coulson, President
     Phone: +1-646-213-1915 (New York)
     Email: [email protected]

     Mr. Athan Dounis, Account Manager
     Phone: +1-646-213-1916
     Email: [email protected]
     Web:   http://www.ccgirasia.com

SOURCE Yongye International, Inc.

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