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Yongye International Announces First Quarter 2010 Results

BEIJING, China, May 12 /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 the People's Republic of China ("PRC"), today announced its financial results for the quarter ended March 31, 2010.

    First Quarter 2010 Highlights
    -- Revenue increased 100.5% to $24.9 million from the first quarter of
    -- Gross profit increased 112.1% to $13.9 million
    -- Gross margin increased 304 basis points to 55.6%
    -- Income from operations increased 71.3% to $5.6 million
    -- Net income increased 32.2% to $4.4 million, or $0.10 per diluted share,
       compared to $3.3 million, or $0.12 per diluted share, in the first
       quarter of 2009
    -- Adjusted net income, which excludes the impact of the non-cash change
       in fair value of derivative liabilities of $12,534, increased 40.7% to
       $4.4 million, or $0.10 per diluted share, compared to $3.1 million, or
       $0.12 per diluted share, in the same period last year(*)
    -- Cash flow from operations increased to $0.5 million from negative
       $1.7 million, while doubling revenue
    -- Signed an agreement to acquire the development rights for a lignite
       coal resource project in Inner Mongolia, PRC for $35.1 million

"Our strong first quarter growth was driven by our successful geographic expansion via our retail-oriented distribution model," said Mr. Zishen Wu, Chairman and Chief Executive Officer. "We increased the number of independently-owned, Yongye branded stores in our distribution netwg interest 257,449 18,522 Net income attributable to Yongye International, Inc. 4,371,293 3,306,784 Earnings per share: Basic $0.10 $0.12 Diluted $0.10 $0.12 Weighted average shares used in computation: Basic 44,532,241 26,760,258 Diluted 44,696,427 26,760,258 YONGYE INTERNATIONAL, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED BALANCE SHEETS March 31, 2010 December 31, 2009 Current assets Cash $50,989,166 $65,518,181 Accounts receivable, net of allowance for doubtful accounts 8,774,317 6,161,796 Inventories 46,174,371 42,033,261 Prepayments 6,023,486 6,211,896 Prepaid expenses 343,106 112,879 Other receivables 323,532 383,841 Total Current Assets 112,627,978 120,421,854 Property, plant and, equipment, net 9,048,876 9,156,915 Intangible asset, net 82,414 85,058 Land use right, net 4,145,645 4,166,987 Deposits for assets acquisition 20,019,163 -- Other assets 4,426,209 2,029,012 Goodwill 9,947,462 9,945,862 Total Assets $160,297,747 $145,805,688 Current liabilities Short-term bank loan $-- $2,925,174 Long-term loans and payables - current portion 431,041 331,693 Accounts payable - related party 880,167 880,026 Accounts payable - third parties 4,033,650 344,774 Income tax payable 4,901,251 4,082,424 Advance from customers 31,311 29,157 Accrued expenses 894,985 479,609 Due to a related party 785,765 1,663,191 Other payables 411,182 553,286 Derivative liabilities - fair value of warrants 1,367,671 1,380,205 Total Current Liabilities 13,737,023 12,669,539 Long-term loans and payables 769,737 545,327 Total Liabilities 14,506,760 13,214,866 Equity Yongye International, Inc. shareholders' equity: Common stock: par value $.001; 75,000,000 shares authorized; 44,532,241 shares issued and outstanding at March 31, 2010 and December 31, 2009 44,532 44,532 Additional paid-in capital 118,583,308 118,583,308 Subscription receivable -- (8,550,000) Retained earnings 19,877,738 15,506,445 Accumulated other comprehensive income 349,491 329,139 Total Yongye International, Inc. shareholders' equity 138,855,069 125,913,424 Noncontrolling interest 6,935,918 6,677,398 Total Equity 145,790,987 132,590,822 Total Liabilities and Equity $160,297,747 $145,805,688 YONGYE INTERNATIONAL, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS For the Three Months Ended March 31, 2010 March 31, 2009 CASH FLOWS FROM OPERATING ACTIVITIES Net income $4,628,742 $3,325,306 Adjustments to reconcile net income to net cash provided by / (used in) operating activities: Depreciation and amortization 357,170 107,236 Reversal of bad debt provision -- (73,701) Decrease in fair value of derivative liabilities (12,534) (208,011) Changes in operating assets and liabilities: Accounts receivable (2,611,556) (3,302,662) Inventories (4,134,389) (1,466,830) Prepayments 132,734 (18,828) Due from a related party -- (72,763) Prepaid expenses (230,217) 97,734 Other receivables 60,371 424,992 Other assets (2,563,580) -- Accounts payable- related party -- 43,366 Accounts payable- third parties 3,688,858 -- Income tax payable 818,179 140,799 Advance from customers 2,149 (1,789,453) Accrued expenses 415,120 1,051,410 Other payables (38,885) 70,298 Net Cash Provided by / (Used in) Operating Activities 512,162 (1,671,107) CASH FLOWS FROM INVESTING ACTIVITIES Deposits made for assets acquisition (20,019,368) -- Proceeds from sale of property, plant and equipment 92,629 -- Purchase of property, plant and equipment (1,068,030) (1,446,782) Net Cash Used in Investing Activities (20,994,769) (1,446,782) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from long-term loans and payables 400,280 89,534 Repayment of long-term loans and payables (81,665) (29,870) Repayment of short-term loans (2,925,675) -- Proceeds from common stock issued 8,550,000 -- Net Cash Provided by Financing Activities 5,942,940 59,664 EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON CASH 10,652 5,016 NET DECREASE IN CASH (14,529,015) (3,053,209) Cash and cash equivalent at beginning of year 65,518,181 4,477,477 Cash and cash equivalent at end of year $50,989,166 $1,424,268 Supplemental cash flow information: Cash paid for income taxes 126,310 22,464 Cash paid for interest expense 34,962 9,833 YONGYE INTERNATIONAL, INC. AND SUBSIDIARIES RECONCILIATION OF NON-GAAP FINANCIAL DATA FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009 Three Months Ended Three Months Ended March 31, 2010 March 31, 2009 Net Diluted Net Diluted Income EPS Income EPS Adjusted Amount $4,358,759 $0.10 $3,098,773 $0.12 Change in fair value of derivative liabilities ($12,534) $0.00 ($208,011) $0.00 GAAP amount per consolidated statement of income $4,371,293 $0.10 $3,306,784 $0.12 Weighted average number of shares - diluted 44,696,427 26,760,258

ork by over 50% during the first three months of the year, pushing our geographic reach further into central and Southern China. In addition, our aggressive and integrated marketing strategy continues to yield positive results. Our rapid sales growth, rising brand recognition, and growing store network are a testament to the strength of our Shengmingsu brand, the uniqueness of our sales and marketing model, and the strong local support of our distribution partners."

First Quarter 2010 Results

Revenue for the three months ended March 31, 2010 was $24.9 million compared to $12.4 million for the same period in 2009, an increase of 100.5%. 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 March 31, 2009, Yongye had 13,880 branded stores in its network, compared to 9,110 stores at the end of 2009, and 1,125 stores at the end of 2008.

Gross profit was $13.9 million for the three months ended March 31, 2010 compared to $6.5 million for the three months ended March 31, 2009, an increase of 112.1%. Gross margin was 55.6% compared to 52.5% 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 of last year and increasing economies of scale.

Selling, general and administrative expenses were $8.1 million, or 32.6% of sales, in the first quarter of 2010, compared to $3.0 million, or 23.8% of sales, in the same period last year. The increase in margin was primarily due to additional expenses related to advertising and promotional activities and, to a lesser extent, increases in freight expenses, salaries, professional fees and travel expenses. Operating income was $5.6 million compared to $3.3 million in the same period last year.

Net income was $4.4 million, or $0.10 per diluted share, in the first quarter of 2010, compared to net income of $3.3 million, or $0.12 per diluted share, in the first quarter of 2009. The Company recorded a non-cash change in fair value of derivative liabilities of $12,534 in the first quarter of 2010. Excluding the impact of this non-cash item, adjusted net income was $4.4 million, or $0.10 per diluted share, compared to adjusted net income of $3.1 million, or $0.12 per diluted share in the same period last year.(*)

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

Financial Condition

As of March 31, 2010, the Company had $51.0 million in cash, compared to $65.5 million as of December 31, 2009. Working capital was $98.9 million, compared to $107.7 million at the end of 2009. As of year-end 2009, the Company had only $0.5 million in long-term debt. Stockholders' equity totaled $145.8 million as of March 31, 2010, compared to $132.6 million at the end of 2009.

    Recent Developments
    -- In May 2010, Yongye announced that the Company started the construction
       of a new production facility in Wuchuan County, Hohhot Municipal City,
       Inner Mongolia Autonomous Region.
    -- In March 2010, Yongye announced that both the Company's plant and
       animal nutrient products won the "Special Houji Award" at the 16th
       annual China Yangling Agricultural Hi-Tech Fair (the "CAF") in December
    -- In March 2010, Yongye signed an agreement to acquire the development
       rights for a lignite coal resource project in Inner Mongolia, PRC for
       $35.1 million.

Business Outlook

From 2010 to 2012, Yongye expects to achieve at least a 50% annual growth rate in revenue. The Company also reaffirms its previously issued guidance. The Company expects 2010 annual revenues of between $160 million and $165 million, representing an increase of between 63% and 68% over last year's revenue of $98.1 million. The Company expects adjusted net income, which excludes the impact of certain non-cash expenses such as the change in fair value of warrants and share-based compensation, of between $42 million and $45 million, representing an increase of between 60% and 72% over 2009 adjusted net income of $26.2 million. The Company also reaffirms its previously announced estimate that the number of independently-owned, branded stores selling Yongye's Shengmingsu products will increase to at least 20,000 by the end of 2010, which represents a 120% increase over the 2009 year-end figure of 9,110.

The Company recently announced its intention to acquire development right of a lignite coal resource project and construct a new production facility nearby. Acquiring this mine is of great strategic importance as humic acid, which is extracted from lignite coal, accounts for the largest percentage of the Company's cost of goods sold and it is important for Yongye to secure this crucial resource at a cost effective price. This acquisition will help the Company ensure that its fast growing Shengmingsu business won't be subject to fluctuations in market price, quality or delivery of this key raw material.

The new production facility that the Company began construction recently will help the Yongye continue to meet the strong demand for its products in the domestic agricultural market in China. In addition, Yongye expects the new facility, once complete, to lead to significant cost savings as a result of the increasing vertical integration of the Company's business. Upon completion, the new facility will expand annual production capacity for Yongye's Shengmingsu plant nutrient product from 10,000 tons per annum currently to 30,000 tons per annum, and that for its Shengmingsu animal nutrient product from 1,000 tons per annum currently to 11,000 tons per annum. The new facility is expected to be operational by the end of the third quarter of 2010.

Capital expenditures for the new production facility are expected to be between $15 million to $20 million. The Company plans to use proceeds from its December 2009 financing towards the construction.

Mr. Wu added, "We expect to continue to see strong organic growth in our business driven by geographic expansion into new markets, increased penetration in existing markets, additional marketing and brand building efforts, and expanded production capacity. We look forward to completing the construction of our new production facility in the third quarter and expect to increase gross and operating margins over time by pursuing this vertical integration strategy."

Conference Call

The Company will host a conference call at 10:00 a.m. Eastern Time on May 14, 2010, to discuss its first quarter 2010 results.

To participate in the live conference call, please dial the following number five to ten minutes prior to the scheduled conference call time: (877) 407-5374. International callers should dial +1 (702) 894-2288. The conference pass code is 74617871.

For those who are unable to participate on the live conference call, a replay will be available for fourteen days. To access the replay, please dial (800) 642-1687. International callers should dial +1 (706) 645-9291. The replay pass code is 74617871.

Use of Adjusted Financial Measures

GAAP results for the three months ended March 31, 2010 include a non-cash 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 this item 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 is a Chinese organic agricultural nutrient company headquartered in Beijing, with its production facilities located in Hohhot, Inner Mongolia, China. Yongye markets two lines of organic nutrient products: a liquid nutrient product which is sprayed on plants and a powder nutrient product which is added to animal feed. Both products are sold under the brand name "Shengmingsu," which means "life essential" in Chinese. 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. The Company sells its products to provincial or regional distributors, who then channel those products to a carefully selected network of independently-owned Yongye branded stores in China. For more information, please visit the Company's website at .

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 ( ). 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.

    For further information, please contact:

    Yongye International, Inc.
     Mr. Larry Gilmore-VP of Corporate Strategy
     Phone: +86-10-8232-8866 x 8880

    CCG Investor Relations, Inc.
     Athan Dounis, Account Manager
     Phone: +1-646-213-1916

     Mr. Crocker Coulson, President
     Phone: +1-646-213-1915


                                               For the Three Months Ended
                                            March 31, 2010    March 31, 2009

    Sales                                      $24,934,716       $12,435,775
    Cost of sales                               11,077,957         5,902,607
    Gross profit                                13,856,759         6,533,168

    Selling expenses                             6,288,003         2,620,298
    Research & development expenses                100,565           288,572
    General and administrative expenses          1,851,254           345,157
    Income from operations                       5,616,937         3,279,141

    Other expenses/(income)
    Interest expense, net                            7,458             5,958
    Other expenses, net                             48,783               441
    Decrease in fair value of derivative
     liabilities                                   (12,534)         (208,011)

    Total other expenses/(income), net              43,707          (201,612)
    Earnings before income tax expense           5,573,230         3,480,753
    Income tax expense                             944,488           155,447
    Net income                                   4,628,742         3,325,306

    Less: Net income attributable to the
SOURCE Yongye International, Inc.
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