Attached files
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EX-23.1 - CONSENT OF BERNSTEIN & PINCHUK LLP - Yongye International, Inc. | v170366_ex23-1.htm |
EX-23.2 - CONSENT OF PATRIZIO & ZHAO LLC - Yongye International, Inc. | v170366_ex23-2.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
8-K/A
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of the Securities Exchange Act 1934
Date of
Report (date of earliest event reported): October 16, 2009
YONGYE
INTERNATIONAL, INC.
(Exact
name of registrant as specified in charter)
Nevada
|
333-143314
|
20-8051010
|
(State
of Incorporation)
|
(Commission
File No.)
|
(IRS
Employer
Identification
No.)
|
6th Floor,
Suite 608, Xue Yuan International Tower,
No. 1
Zhichun Road, Haidian District, Beijing, PRC
(Address
Of Principal Executive Offices) (Zip Code)
+86 10
8231 8626
(Registrant’s
Telephone Number, Including Area Code)
____________________
(Former
Name or Former Address, if Changed Since Last Report)
Check the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of registrant under any of the following
provisions:
¨ Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
¨ Soliciting
material pursuant to Rule 14a-12(b) under the Exchange Act (17 CFR
240.14a-12(b))
¨ Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
¨ Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
Item
2.01. Completion of Acquisition or Disposition of
Asstes.
This
Current Report on Form 8-K/A amends the Current Report on Form 8-K filed by
Yongye International, Inc. (“Yongye” or the “Company”) on October 22, 2009 (the
“October Form 8-K”), regarding the completion of a restructuring process, by its
operating subsidiary, Yongye Nongfeng Biotechnology Company, Ltd (the “Yongye
Nongfeng”) whose 99.5% interest was owned by the Company’s 100% subsidiary Asia
Standard Oil, Ltd (the “ASO”) as of September 30, 2009, which involved the
purchase of the land, buildings and equipment which now comprise the 10,000 TPA
(tonnes per annuam) capacity fulvic acid nutrient manufacturing facility
currently owned and operated by Yongye Nongfeng. This amendment
provides the historical financial statements required under Item 9.01(a) and the
pro forma financial information required under Item 9.01(b), which were not
included in the original Form 8-K as described above. The assets
involved were originally owned by Yongye Nongfeng’s predecessor, Inner Mongolia
Yongye Biotechnology Company (“Inner Mongolia Yongye”), a company owned and
controlled by Mr. Zishen Wu, who is also the Chairman, President and CEO of
Yongye International.
Item
9.01. Financial Statements and Exhibits.
(a)
|
Financial statements
of business acquired.
|
Included
in this Form 8-K are the audited balance sheets of Inner Mongolia Yongye as of
December 31, 2008 and December 31, 2007, audited statements of operations
and comprehensive income of Inner Mongolia Yongye for the fiscal years
ended December 31, 2008 and 2007 and the accompanying audited statements of cash
flows and changes in shareholders’
equity for said fiscal years.
Also included are the unaudited
carve-out balance sheet of the Shengmingsu
Operation of Inner Mongolia Yongye as of September 30, 2009, unaudited
carve-out statements of operations and comprehensive income of the Shengmingsu
Operation of Inner Mongolia Yongye for the nine months ended September
30, 2009 and September 30, 2008 and accompanying unaudited statements of cash
flows for the nine months ended September 30, 2009 and September 30,
2008.
(b)
|
Pro forma financial
information.
|
Additionally, included below are the
unaudited pro forma consolidated financial statements of the Company as
follows:
|
·
|
Balance
Sheet as of September 30, 2009
|
|
·
|
Statement
of operations for the nine months ended September 30,
2009
|
|
·
|
Statement
of operations for the year ended December 31,
2008
|
(c)
|
Exhibits
|
Exhibit
No.
|
Description
|
23.1
|
Consent
of Bernstein & Pinchuk LLP, an
independent registered accounting firm
|
23.2
|
Consent
of Patrizio & Zhao LLC, an independent registered accounting
firm
|
2
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned hereunto
duly authorized.
YONGYE
INTERNATIONAL, INC.
|
||
By:
|
/s/ Zishen Wu
|
|
Name: Zishen
Wu
|
||
Title: Chairman,
President and CEO
|
||
Dated:
January 4, 2010
|
3
Report
of Independent Registered Public Accounting Firm
To the
Board of Directors and shareholders of INNER MONGOLIA
YONGYE BIOTECHNOLOGY COMPANY, LTD.
We have
audited the accompanying balance sheet of Inner Mongolia Yongye Biotechnology
Company, Ltd. ("the Company") as of December 31, 2008, and the related statement
of operations and comprehensive income, statement of changes in shareholders’
equity, and statement of cash flows for the year then ended. These financial
statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of the Company as of December 31,
2008, and the results of its operations and its cash flows for the year then
ended, in conformity with accounting principles generally accepted in the United
States of America.
/s/Bernstein
& Pinchuk LLP
New York, NY
December
21, 2009
4
Report of Independent
Registered Public Accounting Firm
To the
Board of Directors
Yongye
Biotechnology Co.
We have
audited the accompanying balance sheet of Yongye Biotechnology, Co. as of
December 31, 2007, and the related statements of operations and comprehensive
income, stockholders’ equity, and cash flows for the year then ended. These
financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We
conducted our audit in accordance with auditing standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Yongye Biotechnology Co. as of
December 31, 2007, and the results of their operations and cash flows for the
year then ended in conformity with accounting principles generally accepted in
the United States of America.
/s/
Patrizio & Zhao
Parsippany,
New Jersey
January
25, 2008
5
INNER
MONGOLIA YONGYE BIOTECHNOLOGY COMPANY, LTD.
BALANCE
SHEETS
December 31,
|
||||||||
2008
|
2007
|
|||||||
ASSETS
|
||||||||
CURRENT
ASSETS
|
||||||||
Cash
and cash equivalents
|
$ | 446,106 | $ | 101,802 | ||||
Restricted
cash for mortgage loan repayment
|
291,792 | 274,200 | ||||||
Accounts
receivable, net – third parties
|
- | 1,630,609 | ||||||
Accounts
receivable, net - related party
|
46,739 | - | ||||||
Inventory
|
5,978,733 | 9,851,788 | ||||||
Due
from affiliates
|
389,012 | 978,384 | ||||||
Advances
to suppliers
|
1,366,162 | - | ||||||
Other
receivables, net
|
288,228 | 27,038 | ||||||
Other
current assets
|
505,097 | - | ||||||
Total
Current Assets
|
9,311,869 | 12,863,821 | ||||||
INVESTMENT
UNDER COST METHOD
|
140,965 | - | ||||||
PROPERTY,
PLANT AND EQUIPMENT, NET
|
2,422,096 | 2,486,487 | ||||||
INTANGIBLES,
NET
|
3,814,084 | 3,665,584 | ||||||
LONG-TERM
INVESTMENTS
|
3,874,723 | 4,115,764 | ||||||
$ | 19,563,737 | $ | 23,131,656 | |||||
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
||||||||
CURRENT
LIABILITIES
|
||||||||
Accounts
payable and accrued expenses
|
$ | 273,250 | $ | 1,271,852 | ||||
Short-term
bank loans
|
3,501,503 | 5,484,000 | ||||||
Due
to shareholders
|
160,106 | 2,507,371 | ||||||
Due
to related party
|
192,741 | - | ||||||
Other
taxes payable
|
860,749 | 893,892 | ||||||
Other
payables
|
28,914 | 50,916 | ||||||
Total
Current Liabilities
|
5,017,263 | 10,208,031 | ||||||
LONG-TERM
SHAREHOLDERS LOANS
|
- | 12,153 | ||||||
SHAREHOLDERS'
EQUITY
|
||||||||
Capital
contribution
|
7,260,000 | 7,260,000 | ||||||
Retained
earnings
|
4,738,819 | 4,024,111 | ||||||
Statutory
reserve
|
560,041 | 480,629 | ||||||
Accumulated
other comprehensive income
|
1,987,614 | 1,146,732 | ||||||
Total
Shareholders' Equity
|
14,546,474 | 12,911,472 | ||||||
$ | 19,563,737 | $ | 23,131,656 |
See notes
to financial statements
6
INNER
MONGOLIA YONGYE BIOTECHNOLOGY COMPANY, LTD.
STATEMENTS
OF OPERATIONS AND COMPREHENSIVE INCOME
For
the years ended December 31,
|
||||||||
2008
|
2007
|
|||||||
SALES
|
||||||||
External
customers
|
$ | - | $ | 13,137,406 | ||||
Related
party
|
43,511,510 | - | ||||||
TOTAL
SALES
|
43,511,510 | 13,137,406 | ||||||
COST
OF GOODS SOLD
|
40,139,275 | 7,274,710 | ||||||
GROSS
PROFIT
|
3,372,235 | 5,862,696 | ||||||
SELLING,
GENERAL AND ADMINISTRATIVE EXPENSES
|
463,480 | 925,996 | ||||||
LOSS
FROM INVENTORY OBSOLESCENCE
|
1,865,867 | - | ||||||
2,329,347 | 925,996 | |||||||
INCOME
FROM OPERATIONS
|
1,042,888 | 4,936,700 | ||||||
OTHER
INCOME (EXPENSES)
|
||||||||
Interest
expense
|
(336,796 | ) | (212,239 | ) | ||||
Gain
from intangible assets disposal
|
138,777 | - | ||||||
Other
expense
|
(50,749 | ) | (365,907 | ) | ||||
(248,768 | ) | (578,146 | ) | |||||
INCOME
BEFORE PROVISION FOR INCOME TAX
|
794,120 | 4,358,554 | ||||||
PROVISION
FOR INCOME TAX
|
- | - | ||||||
NET
INCOME
|
794,120 | 4,358,554 | ||||||
OTHER
COMPREHENSIVE INCOME
|
||||||||
Foreign
currency translation fluctuation
|
840,882 | 723,298 | ||||||
COMPREHENSIVE
INCOME
|
$ | 1,635,002 | $ | 5,081,852 |
See notes
to financial statements
7
INNER
MONGOLIA YONGYE BIOTECHNOLOGY COMPANY, LTD.
STATEMENTS
OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS
ENDED DECEMBER 31, 2008 AND 2007
Shareholders'
Capital
Contribution
|
Retained
Earnings
|
Statutory
Reserve
|
Accumulated
other
Comprehensive
Income
|
Total
Shareholders'
Equity
|
||||||||||||||||
Balance
at December 31, 2006
|
$ | 7,260,000 | $ | 101,412 | $ | 44,774 | $ | 423,434 | $ | 7,829,620 | ||||||||||
Net
income
|
- | 4,358,554 | - | - | 4,358,554 | |||||||||||||||
Statutory
reserve
|
- | (435,855 | ) | 435,855 | - | - | ||||||||||||||
Other
comprehensive income
|
- | - | - | 723,298 | 723,298 | |||||||||||||||
Balance
at December 31, 2007
|
7,260,000 | 4,024,111 | 480,629 | 1,146,732 | 12,911,472 | |||||||||||||||
Net
income
|
- | 794,120 | - | - | 794,120 | |||||||||||||||
Statutory
reserve
|
- | (79,412 | ) | 79,412 | - | - | ||||||||||||||
Other
comprehensive income
|
- | - | - | 840,882 | 840,882 | |||||||||||||||
Balance
at December 31, 2008
|
$ | 7,260,000 | $ | 4,738,819 | $ | 560,041 | $ | 1,987,614 | $ | 14,546,474 |
See notes
to financial statements
8
INNER
MONGOLIA YONGYE BIOTECHNOLOGY COMPANY, LTD.
STATEMENTS
OF CASH FLOWS
For the years ended December
31,
|
||||||||
2008
|
2007
|
|||||||
CASH
FLOWS FROM OPERATING ACTIVITIES
|
||||||||
Net
income
|
$ | 794,120 | $ | 4,358,554 | ||||
Adjustments
to reconcile net income to net cash provided by (used in) operating
activities:
|
||||||||
Depreciation
and amortization
|
305,771 | 212,423 | ||||||
Loss
on disposal of fixed assets
|
- | 149,853 | ||||||
Gain
on disposal of intangible assets
|
(138,777 | ) | - | |||||
Bad
debt expense
|
(48,683 | ) | 31,907 | |||||
Changes
in current assets and current liabilities:
|
||||||||
Accounts
receivable – third parties
|
1,106,271 | (1,124,042 | ) | |||||
Accounts
receivable – related parties
|
604,693 | - | ||||||
Inventory
|
4,435,201 | (7,814,789 | ) | |||||
Due
from affiliates
|
642,021 | (267,345 | ) | |||||
Other
receivables
|
(255,429 | ) | 66,926 | |||||
Advances
to suppliers
|
(1,344,960 | ) | 93,091 | |||||
Prepaid
expenses
|
- | 5,741 | ||||||
Accounts
payable and accrued expenses
|
(1,063,436 | ) | 1,068,613 | |||||
Other
taxes payable
|
(89,088 | ) | 835,137 | |||||
Due
to related party
|
189,750 | |||||||
Other
payables
|
(24,877 | ) | (2,234,407 | ) | ||||
Net
Cash Provided by/(Used in) Operating Activities
|
5,112,577 | (4,618,338 | ) | |||||
CASH
FLOWS FROM INVESTING ACTIVITIES
|
||||||||
Acquisition
of property, plant and equipment
|
- | (308,312 | ) | |||||
Acquisition
of Intangibles
|
- | (909 | ) | |||||
Restricted
cash for mortgage loan repayment
|
- | (263,340 | ) | |||||
Net
Cash Used in Investing Activities
|
- | (572,561 | ) | |||||
CASH
FLOWS FROM FINANCING ACTIVITIES
|
||||||||
Proceeds
from short-term bank loans
|
7,899,745 | 4,345,110 | ||||||
Repayment
of short-term bank loans
|
(10,197,853 | ) | - | |||||
(Repayment)
proceeds from shareholders loans
|
(2,469,206 | ) | 864,258 | |||||
Repayment
of long-term loans
|
(12,733 | ) | (12,131 | ) | ||||
Net
Cash (Used in)/Provided by Financing Activities
|
(4,780,047 | ) | 5,197,237 | |||||
EFFECT
OF FOREIGN CURRENCY TRANSLATION ON CASH AND CASH
EQUIVALENTS
|
11,774 | 6,441 | ||||||
NET
INCREASE IN CASH AND CASH EQUIVALENTS
|
344,304 | 12,779 | ||||||
CASH
AND CASH EQUIVALENTS — BEGINNING OF THE YEAR
|
101,802 | 89,023 | ||||||
CASH
AND CASH EQUIVALENTS - END OF THE YEAR
|
$ | 446,106 | $ | 101,802 | ||||
Supplemental
cash flow information:
|
||||||||
Cash
paid for income taxes
|
$ | - | $ | - | ||||
Cash
paid for interest expense
|
$ | 355,401 | $ | 212,239 | ||||
Noncash
investing and financing activities:
|
||||||||
During
the year ended December 31, 2008, the Company contributed two patents
with fair value of $138,777 to Yongye Nongfeng (see
note1).
|
See notes
to financial statements
9
INNER
MONGOLIA YONGYE BIOTECHNOLOGY COMPANY, LTD.
NOTES TO
FINANCIAL STATEMENTS
FOR THE
YEAR ENDED DECEMBER 31, 2008
NOTE 1 -
ORGANIZATION AND DESCRIPTION OF BUSINESS
Inner
Mongolia Yongye Biotechnology Company., Ltd. (the “Company” or “Inner
Mongolia Yongye”) was formed on September 16, 2003, under the corporate laws of
the People’s Republic of China (“PRC”). Its primary business is to research,
manufacture, and sell fulvic acid based liquid and powder nutrient compounds for
plant and animal feed used in the agriculture industry (the “Shengmingsu
Operation”). Before December 31, 2008, the Shengmingsu Operation substantially
accounted for almost 100% of the Company’s sales, cost of goods sold and
expenses. The Company is located in the City of Huhhot, Inner Mongolia
Autonomous Region., the People’s Republic of China (‘PRC”). Mr. Zishen Wu, Chief
Executive Officer, President and Chairman of the Company, owns a controlling
91.67% of the equity interest in the Company.
In
November 2007, the Company and Asia Standard Oil (“ASO”) a Hong Kong investment
holding company 100% owned by Yongye International, Inc., entered into a
Sino-Foreign cooperative joint venture contract (the “Contract”) to form a
cooperative joint venture, Yongye Nongfeng Biotechnology Co. Ltd (“Yongye
Nongfeng”), pursuant to which, the Company and ASO were to own 10% and 90% of
the equity interests in Yongye Nongfeng, respectively. On January 4, 2008, the
incorporation and establishment of Yongye Nongfeng was approved by the Inner
Mongolia Department of Commerce and the Inner Mongolia Administration for
Industry and Commerce. The commercial scope of business of Yongye Nongfeng is
the distribution and sale of selected products. The period of the
cooperative joint venture is ten years and may be extended by a written
application submitted to the relevant government authority for approval no less
than six months prior to the expiration of the cooperative joint
venture.
In May
2008, upon the agreement among the Company, ASO and Yongye Nongfeng, the
ownership of Yongye Nongfeng was revised, pursuant to which the Company and ASO
became 0.5% and 99.5% equity interest owner of Yongye Nongfeng, respectively. At
the time, ASO did not fully inject its share of the capital into Yongye Nongfeng
and did not do so until May 31, 2009. Based upon actual capital injection into
Yongye Nongfeng, the Company and ASO were respectively 0.6% and 99.4% owners of
Yongye Nongfeng as of December 31, 2008.
In
January 2008, Yongye Nongfeng entered into an agreement (the “Agreement”) with
the Company, pursuant to which Yongye Nongfeng agreed to purchase finished goods
that were to be manufactured by the Company at a fixed price of RMB 350 per case
for fulvic acid, plant based products and RMB 120 per case for fulvic acid,
animal based products. Before signing the Agreement, the Company sold the
finished goods to third parties at an average price of RMB780 per case for plant
products and RMB270 per case for animal products during the year ended December
31, 2007. The term of the Agreement was for the period from January 15, 2008 to
January 14, 2013. Pursuant to the Agreement, Yongye Nongfeng was able to
terminate the agreement by giving one month notice to the Company. Yongye
Nongfeng then sold the finished goods to third parties at an average
price of RMB730 per case for plant products and RMB240 per case for animal
products.
Yongye
Nongfeng and the Company also entered into certain lease-exchange arrangements
related to land-use rights, buildings and equipment (see Note
19).
10
NOTE 2 -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF
PRESENTATION
The
accompanying financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America (GAAP)
taking into consideration of the Agreement (see Note1).
USE OF
ESTIMATES
The
preparation of financial statements in conformity with GAAP requires management
to make estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues, expenses, and related disclosures at the date of the
financial statements and during the reporting period. Actual results could
differ from those estimates.
CASH AND
CASH EQUIVALENTS
In
accordance with Statement of Financial Accounting Standards No. 95, “Statement
of Cash Flows,” the Company considers all highly liquid instruments with
original maturities of three months or less to be cash and cash
equivalents.
RESTRICTED
CASH
The
Company’s restricted cash is related to deposits required by bank for the bank
loans obtained by the Company.
ACCOUNTS
RECEIVABLE AND BAD DEBT RESERVE
Trade
accounts receivable are stated at the amount management expects to collect from
balances outstanding at the end of the period and policy is based upon industry
practice for similar companies in the PRC. Based on its assessment of the credit
history with customers having outstanding balances and current relationships
with them, management makes conclusions whether any realization of losses on
balances outstanding at the end of the period will be deemed uncollectible based
on the age of the receivables. The Company reserves 10% of accounts receivable
balances that have been outstanding for more than 6 months but less than one
year, 20% of accounts receivable balances that have been outstanding between one
year and two years, 50% of receivable balances that have been outstanding
between two year and three years, and 100% of receivable balances that have been
outstanding for more than three years. Allowance for doubtful accounts amounted
to $0 and $46,469 at December 31, 2008 and 2007, respectively.
INVENTORY
Inventory
is stated at the lower of weighted average cost or market, which takes into
account historical prices on a continuing basis.
INVESTMENT
UNDER COST METHOD
For
investment in an entity over which the Company does not have significant
influence, the Company carries the investment at cost adjusted for
other-than-temporary declines in fair value and recognizes income when receiving
dividends from distribution of investee’s earnings. The Company reviews the
investments under cost method for impairment whenever events or changes in
circumstances indicate that the carrying value may no longer be recoverable. An
impairment loss is recognized in earnings equal to the difference between the
investment cost and its fair value at the balance sheet date of the reporting
period for which the assessment is made. The fair value of the investment would
then become the new cost basis of the investment. No impairment charges were
recorded for the year ended December 31, 2008.
11
PROPERTY,
PLANT AND EQUIPMENT
Property,
plant and equipment are stated at cost and depreciated using the straight-line
method over the estimated useful lives of the assets. Estimated useful lives are
as follows:
Estimated
Useful Life
Buildings
|
50
years
|
Machinery
and equipment
|
10-20
years
|
Vehicles
|
10
years
|
Office
equipment
|
5
years
|
REVENUE
RECOGNITION
The
Company recognizes revenue of product sales when title has been transferred, the
risks and rewards of ownership have been transferred to the customer, the fee is
fixed and determinable, and the collection of the related receivable is
probable. The Company reports revenue net of value added taxes if applicable. If
the product has expired or the package is broken at the time of receipt, the
customer has the right to exchange it for a new product with intact package; and
customers do not have the right to return unused, intact product to the Company
after it has been delivered.
ADVERTISING
COSTS
Advertising
costs are expensed as incurred. Advertising costs for the years ended December
31, 2008 and 2007 were $3,532 and $15,800, respectively.
RESEARCH
AND DEVELOPMENT COSTS
Research
and development costs are expensed as incurred. Research and development costs
for the year ended December 31, 2008 and 2007 were $45,486 and $0,
respectively.
IMPAIRMENT
OF LONG-LIVED ASSETS
The
Company follows SFAS No. 144, “Accounting for the Impairment or Disposal of
Long-Lived Assets” (“SFAS 144”), which addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. Per SFAS 144, the
Company is required to periodically evaluate the carrying value of long-lived
assets and to record an impairment loss when indicators of impairment are
present and the undiscounted cash flows estimated to be generated by those
assets are less than the asset’s carrying amounts.
In that
event, a loss is recognized based on the amount by which the carrying amount
exceeds the fair market value of the long-lived assets. Loss on long-lived
assets to be disposed of is determined in a similar manner, except that fair
market values are reduced for the cost of disposal. Based on its review, the
Company concluded that as of December 31, 2008 and 2007 there were no
significant impairments of their long-lived assets.
12
INCOME
TAXES
Deferred
income taxes are computed using the asset and liability method, such that
deferred tax assets and liabilities are recognized for the expected future tax
consequences of temporary differences between financial reporting amounts and
the tax basis of existing assets and liabilities based on currently enacted tax
laws and tax rates in effect in the People’s Republic of China for the periods
in which the differences are expected to reverse. Income tax expense is the tax
payable for the period plus the change during the period in deferred income
taxes.
A
valuation allowance is provided when it is more likely than not that some
portion or all of the deferred tax assets will not be realized. No differences
were noted between the book and tax bases of the Company’s assets and
liabilities, respectively. Therefore, there are no deferred tax assets or
liabilities for the years ended December 31, 2008 and 2007. The Company is
subject to PRC Enterprise Income Tax at a rate of 25% of net income for the year
ended December 31, 2008. Since the Company is located in the economic
development area in Inner Mongolia Autonomous Region and recognized as a
qualified Hi-tech Company by the Inner Mongolia Government, the Company is
exempt from income tax for 10 years from the first year it obtains profit (year
2005 to 2014) according to the approval issued by Inner Mongolia Tax
Bureau.
FOREIGN
CURRENCY TRANSLATION AND TRANSACTIONS
The
financial position and results of operations of the Company’s foreign
subsidiaries are determined using local currency (Chinese Yuan) as the
functional currency. The reporting currency is the US dollar. Assets
and liabilities of the subsidiaries are translated at the prevailing exchange
rate in effect at each year end. Contributed capital accounts are translated
using the historical rate of exchange when capital is injected. Income statement
accounts are translated at the average rate of exchange during the year.
Translation adjustments arising from the use of different exchange rates from
period to period are included in the cumulative translation adjustment account
in shareholders' equity. Gains and losses resulting from foreign currency
transactions are included in operations.
FAIR
VALUE OF FINANCIAL INSTRUMENTS
The
Company follows Statement of Financial Accounting Standards ("SFAS") 157, Fair
Value Measurements. SFAS 157 clarifies the definition of fair value, prescribes
methods for measuring fair value, and establishes a fair value hierarchy to
classify the inputs used in measuring fair value as follows:
Level 1 -
Inputs are unadjusted quoted prices in active markets for identical assets or
liabilities available at the measurement date.
Level 2 -
Inputs are unadjusted quoted prices for similar assets and liabilities in active
markets, quoted prices for identical or similar assets and liabilities in
markets that are not active, inputs other than quoted prices that are
observable, and inputs derived from or corroborated by observable market
data.
Level 3 -
Inputs are unobservable inputs which reflect the reporting entity's own
assumptions on what assumptions the market participants would use in pricing the
asset or liability based on the best available information.
The
carrying amounts of cash and cash equivalents, term deposits, trade receivables,
and accounts payable approximate their fair value due to the short-term nature
of these instruments.
13
RECENTLY
ISSUED ACCOUNTING PRONOUNCEMENTS
In
June 2009, the Financial Accounting Standards Board (“FASB”) issued SFAS
No. 168, “The FASB Accounting Standards Codification and the Hierarchy of
Generally Accepted Accounting Principles” (“SFAS No. 168”). SFAS
No. 168 establishes the FASB Accounting Standards Codification (the
“Codification”) as the source of authoritative accounting principles recognized
by the FASB to be applied by nongovernmental entities in the preparation of
financial statements in conformity with U.S. GAAP. Rules and interpretive
releases of the Securities and Exchange Commission under the authority of the
federal securities law are also sources of GAAP for SEC registrants. The
Codification does not change current U.S. GAAP, but is intended to simplify user
access to all authoritative U.S. GAAP by providing all the authoritative
literature related to a particular topic in one place. This statement will have
no impact on the Company’s consolidated financial statements, but it will change
the referencing of authoritative accounting literature to conform to the
Codification.
In
September 2006, the FASB issued Statement No. 157, “Fair Value Measurement”
(SFAS No. 157). Effective July 1, 2009, this standard was incorporated into
the Financial Accounting Standards Board Accounting Standard Codification (ASC)
Section 820, Fair Value Measurements and Disclosures (FASB ASC 820). FASB
ASC 820 does not require new fair value measurements, but provides guidance on
applying fair value and expands required
disclosures. FASB ASC 820 is effective for the Company beginning
in fiscal 2008, for fair value measurements of financial assets and financial
liabilities and for fair value measurements of nonfinancial items that are
recognized or disclosed at fair value in the financial statements on a recurring
basis, and is effective beginning in fiscal 2009, for fair value measurements of
nonfinancial assets and nonfinancial liabilities that are recognized or
disclosed at fair value in the financial statements on a nonrecurring basis. The
adoption of FASB ASC 820 is not expected to have a material impact on the
Company's results of operations, cash flows or financial positions.
In
December 2007, the FASB issued FASB Statement No. 141(R), Business Combinations, and
FASB Statement No. 160, Noncontrolling Interests in
Consolidated Financial Statements – an amendment to ARB No. 51. In
April 2009, the FASB issued FSP FAS 141(R)-1, Accounting for Assets Acquired and
Liabilities Assumed in a Business Combination That Arise from
Contingencies, which amends and clarifies FASB 141 (R) to address
application issues on initial recognition and measurement, subsequent
measurement and disclosure of assets and liabilities arising from contingencies
in a business combination. Effective July 1, 2009, SFAS No.141(R) and FSP
FAS 141(R)-1 were incorporated into the ASC Section 805, Business
Combinations (FASB ASC 805) and SFAS No.160 was incorporated into the ASC
Section 810, Consolidation (FASB ASC 810). FASB ASC 805 and 810
require most identifiable assets, liabilities, noncontrolling interests, and
goodwill acquired in a business combination to be recorded at “full fair value”
and require noncontrolling interests (previously referred to as minority
interests) to be reported as a component of equity, which changes the accounting
for transactions with noncontrolling interest holders. Both Statements are
effective for periods beginning on or after December 15, 2008, and earlier
adoption is prohibited. FASB ASC 805 will be applied to business combinations
occurring after the effective date. FASB ASC 810 will be applied prospectively
to all noncontrolling interests, including any that arose before the effective
date. The adoption of FASB ASC 805 and FASB ASC 810 has no impact on
the Company’s financial statement.
In
March 2008, the FASB issued SFAS No. 161, “Disclosures about
Derivative Instruments and Hedging Activities — an amendment of FASB
Statement No. 133” (“SFAS No. 161”), which required enhanced
disclosures about an entity’s derivative and hedging activities and was intended
to improve the transparency of financial reporting. Effective July 1, 2009,
SFAS No.161 and SFAS No.133 were incorporated into the ASC Section 815,
Derivatives and Hedging (FASB ASC 815). FASB ASC 815 applies to all
derivative instruments, including bifurcated derivative instruments and related
hedging items accounted for under SFAS No. 133 and its related
interpretations. SFAS No. 161 amends and expands the disclosure
requirements of SFAS No. 133 with the intent to provide users of financial
statements with an enhanced understanding of: (i) how and why an
entity uses derivative instruments; (ii) how derivative instruments and
related hedged items are accounted for under SFAS No. 133 and its related
interpretations; and (iii) how derivative instruments and related hedged
items affect an entity’s financial position, financial performance and cash
flows. The provisions of this standard do not require disclosures for
earlier periods presented for comparative purposes at initial adoption FASB
ASC 815 was effective for fiscal years and interim periods beginning after
November 15, 2008. The adoption of FASB ASC 815 is not expected to
have a material impact on the Company's results of operations, cash flows or
financial positions.
14
In
February 2007, the FASB issued Statement No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities” (FAS 159). The statement, which is
expected to expand fair value measurement, permits entities to choose to measure
many financial instruments and certain others items at fair value. FAS 159 is
effective for the Company beginning in the first quarter of 2009. This
pronouncement should not have a material impact on the Company’s financial
statements.
NOTE
3-ACCOUNTS RECEIVABLE
Net
accounts receivable at December 31, 2008 and 2007 consisted of the
following:
December 31, 2008
|
December 31, 2007
|
|||||||
Accounts
receivable-third parties
|
$ | - | $ | 1,677,078 | ||||
Accounts
receivable-related party
|
46,739 | - | ||||||
Less:
allowance for doubtful accounts
|
- | (46,469 | ) | |||||
Total
|
$ | 46,739 | $ | 1,630,609 |
As of
December 31, 2008, accounts receivable –related parties of $46,739 was
receivables from Yongye Nongfeng. These amounts represented the receivable
generated in selling inventories to a related party.
A bad
debt provision of $46,469 was reversed for the year ended December 31, 2008 as
the total amount of the related accounts receivable, which was previously
provided for as of December 31, 2007, was repaid by customers during the year
ended December 31, 2008. No bad debt expense provision was required for the year
ended December 31, 2008 as management believes no accounts are uncollectible as
of December 31, 2008.
NOTE 4-
INVENTORY
Inventory
at December 31, 2008 and 2007 consisted of the following:
December 31,
2008
|
December 31,
2007
|
|||||||
Raw
materials
|
$ | 325,516 | $ | 384,361 | ||||
Packaging
supplies
|
73,648 | 195,127 | ||||||
Work-in-process
|
5,579,569 | 4,969,350 | ||||||
Finished
goods
|
- | 4,302,950 | ||||||
Total
|
$ | 5,978,733 | $ | 9,851,788 |
15
NOTE 5-
DUE FROM AFFILIATES
The
Company and its affiliated entities constantly borrow money from each other for
working capital purposes. The balance due from these entities at December 31,
2008 and 2007 was $389,012 and $978,384. The amounts are unsecured and
non-interest bearing, and has no defined payment terms.
NOTE 6-
ADVANCE TO SUPPLIERS
$1,366,162
of advance to suppliers at December 31, 2008 is payment in advance to suppliers
of the Company’s raw materials.
NOTE 7-
OTHER CURRENT ASSETS
Other
current assets as of December 31, 2008 represented medicinal plants with
long-term growth period. These medicinal plants are to be used for human medical
treatments. The Company sold these assets in March 2009. As of December 31,
2007, they were classified as long-term investments and $389,803 was included in
long-term investments in conjunction with the right to use land (see Note
10).
NOTE 8-
INVESTMENT UNDER COST METHOD
Investment
under cost method as of December 31, 2008 represented the cost of an equity
investment the Company made in Yongye Nongfeng during the year measured by fair
value of the contributed assets. In November 2007, the Company and ASO entered
into a Sino-Foreign cooperative joint venture contract to form a cooperative
joint venture, the resulting entity was Yongye Nongfeng. Pursuant to the
agreement, the Company invested $100,000 in the form of two patents internally
developed by the Company, and received 10% of the equity interests in
Yongye Nongfeng. On January 4, 2008, the Company contributed the patents whose
fair value was $140,965 at the date to Yongye Nongfeng, completed the
incorporation process and established Yongye Nongfeng. (See Note1)
NOTE 9-
PROPERTY AND EQUIPMENT
Property
and equipment at December 31, 2008 and 2007 consisted of the
following:
December 31, 2008
|
December 31,
2007
|
|||||||
Buildings
|
$ | 1,660,353 | $ | 1,560,251 | ||||
Manufacturing
equipment
|
844,920 | 788,641 | ||||||
Office
equipment and furniture
|
30,205 | 33,724 | ||||||
Construction-in-process
|
1,912 | 1,797 | ||||||
Vehicles
|
446,445 | 419,529 | ||||||
2,983,835 | 2,803,942 | |||||||
Less:
Accumulated depreciation
|
561,739 | 317,455 | ||||||
Total
|
$ | 2,422,096 | $ | 2,486,487 |
Depreciation
expense for the years ended December 31, 2008 and 2007 was $220,442 and
$125,931, respectively.
16
As of
December 31, 2008 and 2007, buildings with an original carrying amount of
$1,660,353 and $1,560,251 were pledged as security for the short-term bank loans
of $3,501,503 and $5,484,000, respectively (see Note 12).
NOTE 10-
INTANGIBLE ASSETS
Net
intangible assets at December 31, 2008 and 2007 were as follows:
December 31,
2008
|
December 31,
2007
|
|||||||
Rights
to use land
|
$ | 4,286,530 | $ | 4,028,099 | ||||
Less:
accumulated amortization
|
472,446 | 362,515 | ||||||
Total
|
$ | 3,814,084 | $ | 3,665,584 |
Amortization
expense for the years ended December 31, 2008 and 2007 amounted to $85,329 and
$86,492, respectively.
As of
December 31, 2008 and 2007, land use right with an original carrying amount of
$217,166 and $231,099 were pledged as security for the short-term bank loans of
$3,501,503 and $5,484,000, respectively (see Note 12).
NOTE 11-
LONG-TERM INVESTMENTS
As of
December 31, 2007, long-term investments consisted of medicinal plants with a
long-term growth period and the right to use the land on which the plants grow.
These medicinal plants are to be used for human medical treatments. The Company
sold the plants in March 2009 and replanted the same medical plants in the land
again. Therefore, as of December 31, 2008, plants with amount of $505,097 were
classified as other current assets (see note 6) and only the right to use the
land of $3,874,723 was included in long-term investments.
NOTE 12 -
ACCOUNTS PAYABLE AND ACCRUED EXPENSES
The
carrying value of accounts payable and accrued expenses approximate fair value
due to the short-term nature of the obligations.
NOTE 13 -
SHORT-TERM BANK LOANS
From
April to July 2008, the Company obtained loans totaling the amount of
$7,899,745 from Inner Mongolia Agricultural Development Bank of China, of which
the principal was to be paid at varying dates from April to July 2009. The
interest was to be calculated using an annual fixed interest rate of 7.47%
and paid monthly. The loan was secured by the Company’s buildings with
original carrying value of $1,660,353 and the land use right with
original carrying value of $217,166. The Company’s related party Inner Mongolia
Chilechuan Culture Development Co., Ltd, a company 90% owned by the Company’s
91.6% owner Mr. Zishen Wu, also provided its buildings and the right to use the
land as a pledge for the loans. The Company made early repayments
totaling $4,452,584 to the bank during the year ended December 31, 2008. As
of December 31, 2008, the detail of the bank loans follows:
17
Amount
|
Start date
|
Due Date
|
Annual interest rate
|
||||||||||
Loan
1
|
$ | 1,313,064 |
(RMB9,000,000)
|
May
4, 2008
|
April
30, 2009
|
7.47 | % | ||||||
Loan
2
|
$ | 1,021,272 |
(RMB7,000,000)
|
June
17, 2008
|
June
16, 2009
|
7.47 | % | ||||||
Loan 3
|
$ | 1,167,167 |
(RMB8,000,000)
|
July 9, 2008
|
July 8, 2009
|
7.47 | % | ||||||
Total
|
$ | 3,501,503 |
(RMB24,000,000)
|
The
Company repaid the loans in full prior to December 21,
2009.
From
April to May 2007, the Company obtained loans totaling the amount of
$5,484,000 from Inner Mongolia Agricultural Development Bank of China, of which
the principal was to be paid at varying dates from April to May 2008. The
interest was to be calculated using an annual fixed interest rate of 6.39%
and paid monthly. The loan was secured by the Company’s buildings with
original carrying value of $1,560,251 and land use rights with original carrying
value of $231,099. The Company’s related party Inner Mongolia Chilechuan Culture
Development Co., Ltd, a company 90% owned by the Company’s 91.6% owner Mr.
Zishen Wu, also provided its buildings and land use rights as pledge for
the loans. As of December 31, 2007, the detail of the bank loans
were:
Amount
|
Start date
|
Due Date
|
Annual interest rate
|
||||||||||
Loan
4
|
$ | 959,700 |
(RMB7,000,000)
|
April
3, 2007
|
April
2, 2008
|
6.39 | % | ||||||
Loan
5
|
$ | 1,096,800 |
(RMB8,000,000)
|
April
11, 2007
|
April
10, 2008
|
6.39 | % | ||||||
Loan
6
|
$ | 1,233,900 |
(RMB9,000,000)
|
April
25, 2007
|
April
24, 2008
|
6.39 | % | ||||||
Loan 7
|
$ | 2,193,600 |
(RMB16,000,000)
|
May 11, 2007
|
May 10, 2008
|
6.39 | % | ||||||
Total
|
$ | 5,484,000 |
(RMB40,000,000)
|
NOTE 14 -
DUE TO SHAREHOLDERS
As of
December 31, 2008 and 2007, the Company has $160,106 and $2,507,371 in loans
from shareholders, respectively. These loans are short term in nature, unsecured
and non-interest bearing. Also, at December 31, 2008 and 2007, the Company has
$0 and $12,153 of long-term, unsecured and non-interest bearing loans from
shareholders.
NOTE 15 –
DUE TO RELATED PARTY
As of
December 31, 2008, due to related party was $192,741 and represented the payment
Yongye Nongfeng made on behalf of the Company for professional fees and research
& development fees. The amounts are unsecured and non-interest bearing, and
has no defined payment terms.
NOTE 16 -
STATUTORY RESERVE
The
Company is required to allocate at least 10% of its after tax profits as
determined under generally accepted accounting principal in the PRC to a
statutory surplus reserve until the reserve balance reaches 50% of their
registered capital. For the year ended December 31, 2008 and 2007, the Company
made appropriations to this statutory reserve of $79,412 and $435,855,
respectively. The accumulated balance of the statutory reserve at the Company as
of December 31, 2008 and 2007 were $560,041 and $480,629,
respectively.
NOTE 17 -
LOSS FROM INVENTORY OBSOLESCENCE
During
the year ended December 31, 2008, the Company identified a portion of the
finished goods in amount of $1,865,867 obsolete due to expiration of useful
period and wrote them off to operating expense.
18
NOTE 18 –
GAIN FROM INTANGIBLE ASSETS DISPOSAL
Pursuant
to Sino-Foreign cooperative joint venture contract, to form a cooperative joint
venture, Yongye Nongfeng, entered by the Company and ASO in November 2007, the
Company invested two patents internally developed by the Company with agreed
value of $100,000 and received 10% of the equity interests in Yongye
Nongfeng. On January 4, 2008, the Company contributed the patents to Yongye
Nongfeng and completed the incorporation process and established Yongye
Nongfeng. The appreciation in fair value of the patents at disposal by appraisal
was 138,777.
NOTE 19 –
RELATED PARTY TRANSACTIONS AND BALANCES
As of
December 31, 2008, the Company, a 0.6% shareholder of Yongye Nongfeng, sold 100%
of its products to Yongye Nongfeng for $43,511,510 as of the year ended
December 31, 2008. According to the contract, the Company sold to Yongye
Nongfeng at a fixed price of RMB 350 per case for plant products and RMB 120 per
case for animal products. Yongye Nongfeng then sold to third parties at
average prices of RMB730 per case for plant products and RMB240 per case for
animal products.
As of
December 31, 2008, accounts receivable from Yongye Nongfeng is $46,739 and
represents the receivable generated in selling inventory to Yongye Nongfeng; due
to related party is $192,741 and represents the payment Yongye Nongfeng made on
behalf of the Company for professional fees and research & development fees.
The amounts are unsecured and non-interest bearing, and has no defined payment
terms.
As of
December 31, 2008, the Company borrowed $160,106 from Ms. Yin’s (Mr. Zishen Wu’s
wife) company. The amounts were unsecured and non-interest bearing, and were
repaid in full before December 31, 2008. Additionally, the Company lent $389,012
to Inner Mongolia Huimin Biotechnology Co., Ltd, a company 10% owned by the
Company’s director Mr. Gao, for its working capital. As of December 31, 2007,
the Company has borrowed $2,507,371 from shareholders. These loans were short
term in nature, unsecured and non-interest bearing. Also, at December 31, 2007
the Company has $12,153 of long-term, unsecured and non-interest bearing loans
from shareholders.
During
the year ended December 31, 2008, Yongye Nongfeng and the Company entered into
two lease-exchange arrangements related to the land-use right, buildings and
equipment of the 2,000TPA and 8,000TPA facilities. On June 1, 2008, Yongye
Nongfeng entered into a land lease agreement to lease 74,153 square meters of
land from the Company for a term beginning June 1, 2008 and ending May 31, 2009.
On September 28, 2008, the Company entered into a building lease agreement with
Yongye Nongfeng to lease a building of 3,967 square meters and the 8,000 TPA
production equipment for a term beginning September 28, 2008 and ending
September 27, 2009. The estimated value of rentals of land lease and the
combination of buildings and equipment were not materially different. Therefore,
pursuant to the agreements, both Yongye Nongfeng and the Company did not charge
lease fees to each other. Additionally, management determined that the rental
income to be received by the Company and the rental expense to be paid by the
Company were not material to the Company’s 2008 results of operations and
therefore have not been included.
NOTE 20 –
CONCENTRATIONS AND CREDIT RISKS
As of
December 31, 2008 and 2007, the Company had a credit risk exposure of cash and
restricted cash of approximately $737,898 and $376,002, respectively that is
uninsured by the government authority. To limit exposure to credit risk relating
to deposits, the Company primarily places cash deposits only with large
financial institution in the PRC with acceptable credit rating.
19
One major
customer accounted for 100% of sales for the year ended December 31, 2008 with
total sales of $43,511,510. Five major customers accounted for 85% and one major
customer accounted for 36% of the net revenue for the years ended December 31,
2007. Total sales to these customers were $11,211,185 for the years ended
December 31, 2007.
The
Company had four major vendors who provided over 92% and 73% of the Company raw
materials for the years ended December 31, 2008 and 2007. Total purchases from
these vendors were $41,794,533 and $11,088,687 respectively for the years ended
December 31, 2008 and 2007.
The
Company’s operations are carried out in the PRC. Accordingly, the Company’s
business, financial condition and results of operations may be influenced by the
political, economic and legal environments in the PRC as well as by the general
state of the PRC’s economy. The Company’s business may be influenced by changes
in governmental policies with respect to laws and regulations, anti-inflationary
measures, currency conversion and remittance abroad, and rates and methods of
taxation, among other things.
NOTE 21-
RECLASSIFICATION
The
balance of cash and cash equivalent as of December 31, 2007, in which $274,200
has been reclassified into restricted cash for mortgage loan
repayment.
NOTE 22-
SUBSEQUENT EVENTS
The
Company has evaluated subsequent events through December 21, 2009, the date the
unaudited carve out interim financial statements as of and for the nine months
ended September 30, 2009 included elsewhere in this filing were issued and
has disclosed such items in this footnote as follow:
On March
15, 2009, an equipment lease agreement was entered into in which the Company
would lease a set of production equipment from Yongye Nongfeng from March 15,
2009 to May 31, 2009. On June 1, 2009, this lease agreement was
terminated.
In March
2009, in connection with the Yongye Nonfeng Restructuring, the Company sold to
Yongye Nongfeng production equipment, vehicle and office equipment for
approximately $577,000, $351,000 and $12,000, respectively, which represent the
estimated fair value of the assets based on an appraisal by independent
appraisers. On June 1, 2009, Yongye Nongfeng obtained the approval from the
Ministry of Agricultural for the fertilizer license to produce fulvic acid
based products, to be held under its name, which was previously held in the name
of the Company. In addition, on June 1, 2009, the Company sold to Yongye
Nongfeng all of the inventories relating to fulvic acid based products for
$12,258,000 in cash and the Company ceased the manufacturing and sales of the
products since then. Yongye Nongfeng terminated the Agreement (see note 1) in
July 2009.
In March
2009, the Company invested $1,488,139 (RMB10,200,000) to set up a subsidiary,
Hubei Longshangxing Xinnongcun Fuwu Youxiangongsi, and owns a 51% equity
interest in it.
In June
2009, the Company developed a new nutrient product for plant insufflations
(aeration) and started to manufacture and sell it.
In
September 2009, Yongye Nongfeng purchased production buildings in the amount of
$1,442,750 from the Company. In October 2009, Yongye Nongfeng acquired the
land use right related to the manufacturing plant buildings from the Company by
$2,307,144 and 4.5% of its equity interest. And in October 2009, ASO transferred
4.5% of its equity interest in Yongye Nongfeng to the Company and the Company
became 5% owner of Yongye Nongfeng.
20
SHENGMINGSU
OPERATION OF INNER MONGOLIA YONGYE BIOTECHNOLOGY COMPANY, LTD.
BALANCE
SHEETS
Carve
Out F/S
|
||||
September 30,
2009
|
||||
(Unaudited)
|
||||
ASSETS
|
||||
CURRENT
ASSETS
|
||||
Cash
and cash equivalents
|
$ | 707,547 | ||
Restricted
cash for mortgage loan repayment
|
292,500 | |||
Accounts
receivable, net - related party
|
5,424,246 | |||
Due
from related parties
|
2,423,346 | |||
Advances
to suppliers
|
6,108,943 | |||
Other
receivables, net
|
1,526,032 | |||
Total
Current Assets
|
16,482,614 | |||
INVESTMENT
UNDER COST METHOD
|
141,307 | |||
INTANGIBLES,
NET
|
129,961 | |||
$ | 16,753,882 | |||
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
||||
CURRENT
LIABILITIES
|
||||
Accounts
payable and accrued expenses
|
$ | 8,210,723 | ||
Due
to shareholders
|
335,995 | |||
Other
taxes payable
|
915,115 | |||
Other
payables
|
149,470 | |||
Total
Current Liabilities
|
9,611,303 | |||
SHAREHOLDERS'
EQUITY
|
||||
Capital
contribution
|
185,885 | |||
Retained
earnings
|
5,744,504 | |||
Statutory
reserve
|
624,249 | |||
Accumulated
other comprehensive income
|
587,941 | |||
Total
Shareholders' Equity
|
7,142,579 | |||
$ | 16,753,882 |
See notes
to unaudited financial statements
21
SHENGMINGSU
OPERATION OF INNER MONGOLIA YONGYE BIOTECHNOLOGY COMPANY, LTD.
UNAUDITED
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
Carve Out F/S
|
||||||||
For
the nine
months
ended
September
30,
2009
|
For
the nine
months
ended
September
30,
2008
|
|||||||
SALES –
RELATED PARTY
|
$ | 16,872,858 | $ | 23,653,852 | ||||
COST
OF GOODS SOLD
|
15,820,391 | 22,097,934 | ||||||
GROSS
PROFIT
|
1,052,467 | 1,555,918 | ||||||
SELLING,
GENERAL AND ADMINISTRATIVE EXPENSES
|
195,338 | 273,931 | ||||||
LOSS
FROM INVENTORY OBSOLESCENCE
|
- | 833,752 | ||||||
195,338 | 1,107,683 | |||||||
INCOME
FROM OPERATIONS
|
857,129 | 448,235 | ||||||
OTHER
INCOME (EXPENSES)
|
||||||||
Interest
expense
|
(198,141 | ) | (259,186 | ) | ||||
Loss
from disposal of property, plant and equipment
|
(16,909 | ) | - | |||||
Gain
from intangible asset disposal
|
- | 138,052 | ||||||
Other
expense
|
- | (43,338 | ) | |||||
(215,050 | ) | (164,472 | ) | |||||
INCOME
BEFORE PROVISION FOR INCOME TAX
|
642,079 | 283,763 | ||||||
PROVISION
FOR INCOME TAX
|
- | - | ||||||
NET
INCOME
|
642,079 | 283,763 | ||||||
OTHER
COMPREHENSIVE INCOME
|
||||||||
Foreign
currency translation fluctuation
|
10,105 | 342,292 | ||||||
COMPREHENSIVE
INCOME
|
$ | 652,184 | $ | 626,055 |
See notes
to unaudited financial statements
22
SHENGMINGSU
OPERATION OF INNER MONGOLIA YONGYE BIOTECHNOLOGY COMPANY, LTD.
UNAUDITED
STATEMENTS OF CASH FLOWS
Carve
Out F/S
|
||||||
For
the nine
months
ended
September
30,
2009
|
For
the nine
months
ended
September
30,
2008
|
|||||
CASH
FLOWS FROM OPERATING ACTIVITIES
|
||||||
Net
income
|
$
|
642,079
|
$
|
283,763
|
||
Adjustments
to reconcile net income to net cash provided by
|
||||||
operating
activities:
|
||||||
Depreciation
and amortization
|
26,084
|
98,714
|
||||
Loss
on disposal of property, plant and equipment
|
16,909
|
-
|
||||
Gain
on disposal of intangible assets
|
-
|
(138,051)
|
||||
Bad
debt expense
|
-
|
(48,428)
|
||||
Changes
in current assets and current liabilities:
|
||||||
Accounts
receivable – related parties
|
(5,373,536)
|
1,747,787
|
||||
Inventory
|
5,988,947
|
(6,595,487)
|
||||
Due
from related parties
|
(780,631)
|
674,242
|
||||
Other
receivables
|
(1,236,217)
|
(26,728)
|
||||
Advances
to suppliers
|
(4,736,063)
|
(928,824)
|
||||
Accounts
payable and accrued expenses
|
7,931,114
|
8,506,689
|
||||
Advance
from customer
|
-
|
934,827
|
||||
Other
taxes payable
|
52,239
|
(119,036)
|
||||
Due
to related party
|
-
|
188,757
|
||||
Other
payables
|
120,399
|
(37,686)
|
||||
Net
Cash Provided by Operating Activities
|
2,651,324
|
4,540,539
|
||||
CASH
FLOWS FROM INVESTING ACTIVITIES
|
||||||
Disposal
of property, plant and equipment
|
940,956
|
-
|
||||
Net
Cash Provided by Investing Activities
|
940,956
|
-
|
||||
CASH
FLOWS FROM FINANCING ACTIVITIES
|
||||||
Proceeds
from short-term bank loans
|
-
|
7,858,423
|
||||
Repayment
of short-term bank loans
|
(3,507,485)
|
(7,858,423)
|
||||
(Repayment)
proceeds from shareholders loans
|
175,374
|
(2,516,346)
|
||||
Repayment
of long-term loans
|
-
|
(12,666)
|
||||
Net
Cash Used in Financing Activities
|
(3,332,111)
|
(2,529,012)
|
||||
EFFECT
OF FOREIGN CURRENCY TRANSLATION ON CASH AND CASH
EQUIVALENTS
|
1,272
|
48,700
|
||||
NET
INCREASE IN CASH AND CASH EQUIVALENTS
|
261,441
|
2,060,227
|
||||
CASH
AND CASH EQUIVALENTS — BEGINNING OF THE PERIOD
|
446,106
|
101,802
|
||||
CASH
AND CASH EQUIVALENTS - END OF THE PERIOD
|
$
|
707,547
|
2,162,029
|
|||
Supplemental
cash flow information:
|
||||||
Cash
paid for income taxes
|
$
|
-
|
$
|
-
|
||
Cash
paid for interest expense
|
$
|
200,666
|
$
|
274,681
|
||
Noncash
investing and financing activities:
|
||||||
During
the nine months ended September 30, 2008, the Company contributed two
patents with fair value of $138,052 to Yongye Nongfeng (see
note1).
|
See notes
to unaudited financial statements
23
SHENGMINGSU
OPERATION OF INNER MONGOLIA YONGYE BIOTECHNOLOGY COMPANY, LTD.
NOTES TO
UNAUDITED FINANCIAL STATEMENTS
FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 2009
NOTE 1 -
ORGANIZATION AND DESCRIPTION OF BUSINESS
Inner
Mongolia Yongye Biotechnology Company., Ltd. (the “Company” or “Inner
Mongolia Yongye”) was formed on September 16, 2003, under the corporate laws of
the People’s Republic of China (“PRC”). Its primary business is to research,
manufacture, and sell fulvic acid based liquid and powder nutrient compounds for
plant and animal feed used in the agriculture industry (the “Shengmingsu
Operation”). During year ending December 31, 2009, it developed a new nutrient
product for plant insufflations and started to manufacture and sell it. The
Company is located in the City of Huhhot, Inner Mongolia Autonomous Region., the
People’s Republic of China (‘PRC”). Mr. Zishen Wu, Chief Executive Officer,
President and Chairman of the Company, owns a controlling 91.67% of the equity
interest in the Company.
In
November 2007, the Company and Asia Standard Oil (“ASO”) a Hong Kong investment
holding company 100% owned by Yongye International, Inc., entered into a
Sino-Foreign cooperative joint venture contract (the “Contract”) to form a
cooperative joint venture, Yongye Nongfeng Biotechnology Co. Ltd (“Yongye
Nongfeng”), pursuant to which, the Company and ASO were to own 10% and 90% of
the equity interests in Yongye Nongfeng, respectively. On January 4, 2008, the
incorporation and establishment of Yongye Nongfeng was approved by the Inner
Mongolia Department of Commerce and the Inner Mongolia Administration for
Industry and Commerce. The commercial scope of business of Yongye Nongfeng is
the distribution and sale of selected products. The period of the
cooperative joint venture is ten years and may be extended by a written
application submitted to the relevant government authority for approval no less
than six months prior to the expiration of the cooperative joint
venture.
In May
2008, upon the agreement among the Company, ASO and Yongye Nongfeng, the
ownership of Yongye Nongfeng was revised, pursuant to which the Company and ASO
became 0.5% and 99.5% equity interest owner of Yongye Nongfeng, respectively.
ASO fully injected its share of the capital into Yongye Nongfeng on May 31,
2009. The Company and ASO were 0.5% and 99.5% owners of Yongye Nongfeng as of
September 30, 2009.
In
January 2008, Yongye Nongfeng entered into an agreement (the “Agreement”) with
the Company, pursuant to which Yongye Nongfeng agreed to purchase finished goods
products that are to be manufactured by the Company at a fixed price of RMB 350
per case for fulvic acid plant based products and RMB 120 per case for fulvic
acid animal based products. Before signing the Agreement, the Company
sold the finished goods to third parties at an average price of RMB780 per case
for plant products and RMB270 per case for animal products during the year ended
December 31, 2007. The term of the Agreement was for the period from January 15,
2008 to January 14, 2013. Pursuant to the Agreement, Yongye Nongfeng was able to
terminate the agreement by giving one month notice to the Company. Yongye
Nongfeng sold the finished goods to third parties at an average price of RMB730
per case for plant products and RMB240 per case for animal
products.
Yongye
Nongfeng and the Company also entered into certain lease-exchange arrangements
related to land-use rights, buildings and equipment (see Note 18).
24
In March
2009, in connection with the Yongye Nonfeng Restructuring, Yongye Nongfeng
purchased production equipment, vehicle and office equipment from the Company
for $940,531, which represent the estimated fair value of the assets based on an
appraisal by independent appraisers. On June 1, 2009, Yongye Nongfeng
obtained the approval from the Ministry of Agricultural for the fertilizer
license to produce fulvic acid based products, to be held under its name,
which was previously held in the name of the Company. In addition, on June 1,
2009, Yongye Nongfeng purchased all of the inventories of the Company relating
to fulvic acid based products for $12,258,000 in cash and the Company ceased the
manufacturing and sales of the products since then. Yongye Nongfeng terminated
the Agreement in July 2009. In September 2009, Yongye Nongfeng
purchased production buildings in the amount of $1,443,489 from the
Company.
In March
2009, the Company invested $1,488,139 (RMB10,200,000) to set up a subsidiary
Hubei Longshangxing Xinnongcun Fuwu Youxiangongsi and owns 51% equity interest
of it. In June 2009, the Company developed a new nutrient product for plant
insufflations (aeration) and started to manufacture and sell it. The set-up of
new subsidiary and development of new product are not included in the Company’s
“Shengmingsu Operation”. After the addition of the operation of the new
subsidiary and new product, revenue from Shengmingsu Operation accounted for
less than 50% of the Company for nine months ended September 30, 2009.
Therefore, carve out financial statements were prepared for the Shengmingsu
Operation for the nine months ended September 30, 2009. The carve out
financial statements were substantially the same with the actual financial
statement of the Company for the nine months ended September 30, 2008 since the
Shengmingsu Operation accounted for 100% of the Company’s business during the
period, but were presented as such for comparative period
purposes.
NOTE 2 -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF
PRESENTATION
The
unaudited carve out financial statements have been prepared to reflect the
financial position, results of operations and cash flows of the Company’s
Shengmingsu operation, which was acquired by Yongye Nongfeng in October
2009.
The
accompanying unaudited carve out financial statements as of September 30, 2009
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions of Rule 8-03 of
Regulation S-X applicable to smaller reporting companies. In the opinion of
management, the accompanying unaudited carve out interim financial statements
include all adjustments considered necessary to ensure the financial statements
are not misleading. Management has evaluated subsequent events through December
21, 2009, which was the date the unaudited carve out interim financial
statements as of and for the nine months ended September 30, 2009 were
issued.
25
The
unaudited carve out interim financial statements should be read in conjunction
with the Company's audited consolidated financial statements and notes thereto
for the year ended December 31, 2008 that are included in this 8-K/A filed with
the Securities and Exchange Commission.
RECENTLY
ISSUED ACCOUNTING PRONOUNCEMENTS
In
June 2009, the Financial Accounting Standards Board (“FASB”) issued SFAS
No. 168, “The FASB Accounting Standards Codification and the Hierarchy of
Generally Accepted Accounting Principles” (“SFAS No. 168”). SFAS
No. 168 establishes the FASB Accounting Standards Codification (the
“Codification”) as the source of authoritative accounting principles recognized
by the FASB to be applied by nongovernmental entities in the preparation of
financial statements in conformity with U.S. GAAP. Rules and interpretive
releases of the Securities and Exchange Commission under the authority of the
federal securities law are also sources of GAAP for SEC registrants. The
Codification does not change current U.S. GAAP, but is intended to simplify user
access to all authoritative U.S. GAAP by providing all the authoritative
literature related to a particular topic in one place. This statement will have
no impact on the Company’s consolidated financial statements, but it will change
the referencing of authoritative accounting literature to conform to the
Codification.
In
September 2006, the FASB issued Statement No. 157, “Fair Value Measurement”
(SFAS No. 157). Effective July 1, 2009, this standard was incorporated into
the Financial Accounting Standards Board Accounting Standard Codification (ASC)
Section 820, Fair Value Measurements and Disclosures (FASB ASC 820). FASB
ASC 820 does not require new fair value measurements, but provides guidance on
applying fair value and expands required
disclosures. FASB ASC 820 is effective for the Company beginning
in fiscal 2008, for fair value measurements of financial assets and financial
liabilities and for fair value measurements of nonfinancial items that are
recognized or disclosed at fair value in the financial statements on a recurring
basis, and is effective beginning in fiscal 2009, for fair value measurements of
nonfinancial assets and nonfinancial liabilities that are recognized or
disclosed at fair value in the financial statements on a nonrecurring basis. The
adoption of FASB ASC 820 is not expected to have a material impact on the
Company's results of operations, cash flows or financial positions.
In
December 2007, the FASB issued FASB Statement No. 141(R), Business Combinations, and
FASB Statement No. 160, Noncontrolling Interests in
Consolidated Financial Statements – an amendment to ARB No. 51. In
April 2009, the FASB issued FSP FAS 141(R)-1, Accounting for Assets Acquired and
Liabilities Assumed in a Business Combination That Arise from
Contingencies, which amends and clarifies FASB 141 (R) to address
application issues on initial recognition and measurement, subsequent
measurement and disclosure of assets and liabilities arising from contingencies
in a business combination. Effective July 1, 2009, SFAS No.141(R) and FSP
FAS 141(R)-1 were incorporated into the ASC Section 805, Business
Combinations (FASB ASC 805) and SFAS No.160 was incorporated into the ASC
Section 810, Consolidation (FASB ASC 810). FASB ASC 805 and 810
require most identifiable assets, liabilities, noncontrolling interests, and
goodwill acquired in a business combination to be recorded at “full fair value”
and require noncontrolling interests (previously referred to as minority
interests) to be reported as a component of equity, which changes the accounting
for transactions with noncontrolling interest holders. Both Statements are
effective for periods beginning on or after December 15, 2008, and earlier
adoption is prohibited. FASB ASC 805 will be applied to business combinations
occurring after the effective date. FASB ASC 810 will be applied prospectively
to all noncontrolling interests, including any that arose before the effective
date. The adoption of FASB ASC 805 and FASB ASC 810 has no impact on
the Company’s financial statement.
26
In
March 2008, the FASB issued SFAS No. 161, “Disclosures about
Derivative Instruments and Hedging Activities — an amendment of FASB
Statement No. 133” (“SFAS No. 161”), which required enhanced
disclosures about an entity’s derivative and hedging activities and was intended
to improve the transparency of financial reporting. Effective July 1, 2009,
SFAS No.161 and SFAS No.133 were incorporated into the ASC Section 815,
Derivatives and Hedging (FASB ASC 815). FASB ASC 815 applies to all
derivative instruments, including bifurcated derivative instruments and related
hedging items accounted for under SFAS No. 133 and its related
interpretations. SFAS No. 161 amends and expands the disclosure
requirements of SFAS No. 133 with the intent to provide users of financial
statements with an enhanced understanding of: (i) how and why an
entity uses derivative instruments; (ii) how derivative instruments and
related hedged items are accounted for under SFAS No. 133 and its related
interpretations; and (iii) how derivative instruments and related hedged
items affect an entity’s financial position, financial performance and cash
flows. The provisions of this standard do not require disclosures for
earlier periods presented for comparative purposes at initial adoption FASB
ASC 815 was effective for fiscal years and interim periods beginning after
November 15, 2008. The adoption of FASB ASC 815 is not expected to
have a material impact on the Company's results of operations, cash flows or
financial positions.
In
February 2007, the FASB issued Statement No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities” (FAS 159). The statement, which is
expected to expand fair value measurement, permits entities to choose to measure
many financial instruments and certain others items at fair value. FAS 159 is
effective for the Company beginning in the first quarter of 2009. This
pronouncement should not have a material impact on the Company’s financial
statements.
NOTE
3-ACCOUNTS RECEIVABLE
As of
September 30, 2009, accounts receivable –related parties of $5,424,246 were
receivables from Yongye Nongfeng. These amounts represented the receivable
generated in selling inventories to related party.
A bad
debt provision of $46,469 was reversed for the nine months ended September 30,
2008 as the total amount of the related accounts receivable, which was
previously provided for as of December 31, 2007 was repaid by the customers
during the nine months ended September 30, 2008. No bad debt expense provision
was required for the nine months ended September 30, 2009 and 2008 as management
believes no accounts are uncollectible as of September 30, 2009 and
2008.
NOTE 4-
DUE FROM/TO RELATED PARTIES
As of
September 30, 2009, $2,423,346 due from related parties consisted $1,443,489 due
from Yongye Nongfeng representing the unpaid amount for property acquired by
Yongye Nongfeng from the Company in September 2009, and $979,857 due from Inner
Mongolia Huimin Biotechnology Co., Ltd, a company 10% owned by the Company’s
director Mr. Gao and managed under the same group with the Company, representing
loan for its working capital.
The
amounts are unsecured and non-interest bearing, and has no defined payment
terms.
27
NOTE 5-
ADVANCE TO SUPPLIERS
$6,108,943
of advance to suppliers at September 30, 2009 were payment in advance to
suppliers of the Company’s raw materials. After disposal of Shengmingsu
Operation, the Company is keeping these advances to purchase raw material of new
product from the same suppliers.
NOTE 6-
INVESTMENT UNDER COST METHOD
Investment
under cost method as of September 30, 2009 represented the cost of an equity
investment the Company made in Yongye Nongfeng during the year ended December
31, 2008 measured by fair value of the contributed assets. In November 2007, the
Company and ASO entered into a Sino-Foreign cooperative joint venture contract
to form a cooperative joint venture, the resulting entity was Yongye Nongfeng.
Pursuant to the Agreement, the Company should invest $100,000 in the form of two
patents internally developed by the Company and own 10% of the equity interests
in Yongye Nongfeng. On January 4, 2008, the Company contributed the patents
whose fair value was $141,307 at the date to Yongye Nongfeng, completed the
incorporation process and established Yongye Nongfeng. (See
Note1)
NOTE 7-
PROPERTY AND EQUIPMENT
Depreciation
expense for the nine months ended September 30, 2009 and 2008 were $24,000 and
$94,433, respectively.
During
the nine months ended September 30, 2009, Yongye Nongfeng acquired all of the
Company’s property and equipment by $2,385,121. Loss of $16,909 was resulted
from the disposal of these property and equipment.
NOTE 8-
INTANGIBLE ASSETS
Net
intangible assets at September 30, 2009 were as follows:
Carve
Out
|
||||
September
30,
2009
|
||||
Rights
to use land
|
$
|
138,996
|
||
Less:
accumulated amortization
|
9,035
|
|||
Total
|
$
|
129,961
|
Amortization
expense for the nine months ended September 30, 2009 and 2008 amounted to $2,084
and $4,281, respectively.
NOTE 9 -
ACCOUNTS PAYABLE AND ACCRUED EXPENSES
The
carrying value of accounts payable and accrued expenses approximate fair value
due to the short-term nature of the obligations.
NOTE 10 -
DUE TO SHAREHOLDERS
As of
September 30, 2009, the Company has $335,995 in loans from shareholders,
respectively. These loans are short term in nature, unsecured and non-interest
bearing.
28
NOTE 11 -
STATUTORY RESERVE
The
Company is required to allocate at least 10% of its after tax profits as
determined under generally accepted accounting principal in the PRC to a
statutory surplus reserve until the reserve balance reaches 50% of their
registered capital. For the nine months ended September 30, 2009 and 2008, the
Company made appropriations to this statutory reserve of $64,208 and $28,376,
respectively. The accumulated balance of the statutory reserve at the Company as
of September 30, 2009 were $624,249.
NOTE 12 -
LOSS FROM INVENTORY OBSOLESCENCE
During
the nine months ended September 30, 2008, the Company identified a portion of
the finished goods in amount of $833,752 obsolete due to expiration of useful
period and wrote them off to operating expense.
NOTE 13 –
GAIN FROM INTANGIBLE ASSETS DISPOSAL
Pursuant
to Sino-Foreign cooperative joint venture contract to form a cooperative joint
venture, Yongye Nongfeng, entered by the Company and ASO in November 2007, the
Company invested two patents internally developed by the Company with agreed
value of $100,000 and received 10% of the equity interests in Yongye Nongfeng.
On January 4, 2008, the Company contributed the patents to Yongye Nongfeng and
finished the incorporation and establishment of Yongye. The appreciation in fair
value of the patents at disposal by appraisal was 138,052.
NOTE 14 –
RELATED PARTY TRANSACTIONS AND BALANCES
As of
September 30, 2009, the Company, a 0.5% shareholder of Yongye Nongfeng, sold
100% of its products of Shengmingsu Operation toYongye Nongfeng with
$16,872,858 and $23,653,852 for the nine months ended September 30, 2009
and 2008. According to the contract, the Company sold to Yongye Nongfeng at
fixed prices of RMB 350 per case for plant products and RMB 120 per case for
animal products. Yongye Nongfeng sold to third parties at average prices of
RMB730 per case for plant products and RMB240 per case for animal products. In
addition, Yongye Nongfeng purchased $21,050,564 raw materials and
work-in-process from the Company for the nine months ended September 30,
2009.
In March
2009, in connection with the Yongye Nonfeng Restructuring, Yongye Nongfeng
purchased production equipment, vehicle and office equipment from the Company
for $940,531, which represent the estimated fair value of the assets based on an
appraisal by independent appraisers. On June 1, 2009, Yongye Nongfeng
obtained the approval from the Ministry of Agricultural for the fertilizer
license to produce fulvic acid based products, to be held under its name,
which was previously held in the name of the Company. In September
2009, Yongye Nongfeng purchased production buildings in the amount of $1,443,489
from the Company.
As of
September 30, 2009, accounts receivable from the Yongye Nongfeng is $5,424,246
and represents the receivable generated in selling inventory to the Yongye
Nongfeng.
As of
September 30, 2009, $2,423,346 due from related parties consisted $1,443,489 due
from Yongye Nongfeng representing the unpaid amount for production buildings
acquired by Yongye Nongfeng from the Company in September 2009, and $979,857 due
from Inner Mongolia Huimin Biotechnology Co., Ltd, a company 10% owned by the
Company’s director Mr. Gao and managed under the same group with the Company,
representing loan for its working capital. The amounts are unsecured and
non-interest bearing, and has no defined payment terms. The amounts are
unsecured and non-interest bearing, and has no defined payment
terms.
29
As of
September 30, 2009, the Company borrowed $335,995 from Ms. Yin (Mr. Zishen Wu’s
wife) company. These loans are short term in nature, unsecured and non-interest
bearing.
During
the year ended December 31, 2008, Yongye Nongfeng and the Company entered into
two lease-exchange arrangements related to the land-use right, buildings and
equipment of the 2,000TPA and 8,000TPA facilities. On June 1, 2008, Yongye
Nongfeng entered into a land lease agreement to lease 74,153 square meters of
land from the Company for a term beginning June 1, 2008 and ending May 31, 2009.
On September 28, 2008, the Company entered into a building lease agreement with
Yongye Nongfeng to lease a building of 3,967 square meters and the 8,000 TPA
production equipment for a term beginning September 28, 2008 and ending
September 27, 2009. On March 15, 2009, an equipment lease agreement was entered
into after Yongye Nongfeng acquired the set of production equipments from the
Company, in which the Company would lease the equipments from Yongye Nongfeng
from March 15, 2009 to May 31, 2009. The estimated value of rentals of
land lease and the combination of buildings and equipment were not materially
different. Therefore, pursuant to the agreements, both Yongye Nongfeng and the
Company did not charge lease fees to each other. Additionally, the rental income
to be received by the Company and the rental expense to be paid are not material
to the Company’s results of operations for the nine months ended September 30,
2009 and 2008, and therefore have not been included. On June 1, 2009, these
lease agreements was terminated.
NOTE
15 – CONCENTRATIONS AND CREDIT RISKS
As of
September 30, 2009, the Company had a credit risk exposure of cash and
restricted cash of approximately $1,000,047 that is uninsured by the government
authority. To limit exposure to credit risk relating to deposits, the Company
primarily places cash deposits only with large financial institution in the PRC
with acceptable credit rating.
One major
customer accounted for 100% Shengmingsu Operation sales for the nine months
ended September 30, 2009 and 2008 with total sales of $16,872,858 and
$23,653,852.
The
Company had four major vendors who provided 99% and 90% of the Company raw
materials for the nine months ended September 30, 2009 and 2008, respectively.
Total purchases from these vendors were $21,321,780 and $27,183,300 for the nine
months ended September 30, 2009 and 2008, respectively.
The
Company’s operations are carried out in the PRC. Accordingly, the Company’s
business, financial condition and results of operations may be influenced by the
political, economic and legal environments in the PRC as well as by the general
state of the PRC’s economy. The Company’s business may be influenced by changes
in governmental policies with respect to laws and regulations, anti-inflationary
measures, currency conversion and remittance abroad, and rates and methods of
taxation, among other things.
NOTE 16-
SUBSEQUENT EVENTS
The
Company has evaluated subsequent events through December 21, 2009, the date the
unaudited carve out interim financial statements as of and for the nine months
ended September 30, 2009 were issued and has disclosed such items in this
footnote as follow:
In
October 2009, Yongye Nongfeng acquired the land use right related to the
manufacturing plant buildings from the Company by $2,307,144 and 4.5% of its
equity interest. And in October 2009, ASO transferred 4.5% of its equity
interest in Yongye Nongfeng to the Company and the Company became 5% owner of
Yongye Nongfeng.
30
YONGYE
INTERNATIONAL, INC.
PROFORMA
FINANCIAL STATEMENTS
(Unaudited)
Basis of
Presentation:
Yongye
International, Inc (the “Company”), through its subsidiary Yongye Nongfeng,
acquired certain productive assets, including equipment, the manufacturing
buildings and right to use land from Inner Mongolia Yongye Biotechnology Co.,
Ltd. (“Inner Mongolia Yongye”). The consideration paid for assets acquired
from Inner Mongolia Yongye (the “Yongye Assets Acquisition”) consisted of cash
of $4.7 million and the transfer of the Company's 4.5% equity interests in
Yongye Nongfeng Biotechnology Company Ltd (“Yongye Nongfeng”). The Company will
account for the Yongye Assets Acquisition as a business combination under ASC
805. Management has determined that this business combination
was closed in October 2009, when all conditions precedent to the closing
were met, including obtaining all the required licenses and permits from the PRC
government to operate the Yongye Assets, obtaining approvals from the PRC
government, and on which the Company legally transferred the equity interest in
Yongye Nongfeng to Inner Mongolia Yongye.
The
accompanying unaudited special-purpose, selected, Pro Forma consolidated
financial statements have been prepared to present the balance sheet of Yongye
International, Inc. as if it would have completed Yongye Asset Acquisition on
September 30, 2009. Also presented are the Income Statements of the Company for
the full year of 2008 and the “stub” period of September 30, 2009 as it would
have existed for those periods assuming the Yongye Asset Acquisition was
completed on January 1, 2008. During the full year of 2008 and the nine months
ended September 30, 2008, the Shengmingsu Operation accounted for 100% of Inner
Mongolia Yongye’s business. These unaudited special-purpose, selected, Pro Forma
consolidated financial statements have been prepared in accordance with U.S.
generally accepted accounting principles on the basis of specific information
and assumptions available at the present time about the Yongye Assets
Acquisition. In presenting this information, certain allocations were applied in
cases where data is not maintained on a business-specific basis within the
Company’s books and records. Therefore, the financial statements may not fully
reflect the financial position or results of operations at this current point in
time because of the assumptions, allocations and estimates used in the process
of preparing them.
In order
to present the true value of this business transaction, these unaudited
special-purpose selected Pro forma consolidated financial statements include the
selected assets, liabilities and expenses related to the business of the
acquired business, Yongye Assets. The pro forma treatment of the consolidated
financial statements is based on a set of assumptions whose goal is to provide
clarity to investors about the impact of this transaction and how it might have
impacted historical financial statements. The purpose of this presentation is to
provide a snapshot of the business on a “what-if basis” to the investor for
decision making purposes.
We have
presented below unaudited selected, pro forma, consolidated financial
information which gives effect to the transfer of Yongye Assets to the Company.
The pro forma information is presented under the purchase method of accounting
and is done so for illustrative purposes only. The pro forma adjustments are
based upon available information and assumptions that we believe are reasonable.
The unaudited pro forma consolidated financial statements do not purport to
represent what the consolidated results of operations or financial position of
the Company would actually have been if the transfer of business had in fact
occurred on the dates that we refer to below, nor do they purport to project the
results of operations or financial position of the Company for any future period
or as of any date, respectively. The unaudited pro forma consolidated financial
statements do not give effect to any restructuring costs or to any
potential cost savings or other operating efficiencies that could result from
this transfer of business.
31
The
following unaudited pro forma consolidated financial information consisting of
the consolidated balance sheet and income statement give effect to the transfer
of business as described above. Such pro forma financial statements were derived
from the audited consolidated financial statements of the Company for the year
ended December 31, 2008 and unaudited consolidated financial statements of the
Company for the nine months ended September 30, 2009. Such Pro forma financial
statements are qualified to the extent that they should be read in conjunction
with the audited consolidated financial statements of the Company for the year
ended December 31, 2008 and unaudited consolidated financial statements of the
Company for the nine months ended September 30, 2009.
32
Yongye
International, Inc.
UNAUDITED
PRO FORMA
CONSOLIDATED
STATEMENT OF OPERATIONS
FOR
THE YEAR ENDED DECEMBER 31, 2008
Shengmingsu
Operation
of
Inner Mongolia
Yongye
Carve Out F/S
|
Yongye
International,
Inc.
|
Pro forma
Adjustments
|
Notes
|
Pro forma
combined
|
||||||||||||||||
SALES
|
$ | 43,511,510 | $ | 48,092,271 | $ | (43,511,510 | ) |
A
|
$ | 48,092,271 | ||||||||||
COST OF
SALES
|
40,139,275 | 23,165,684 | (40,809,153 | ) |
B
|
22,495,806 | ||||||||||||||
GROSS
PROFIT
|
3,372,235 | 24,926,587 | (2,702,357 | ) | 25,596,465 | |||||||||||||||
SELLING
EXPENSES
|
14,979 | 8,665,755 | - | 8,680,734 | ||||||||||||||||
GENERAL
AND ADMINISTRATIVE EXPENSES
|
448,502 | 2,573,017 | 84,556 |
C
|
3,106,075 | |||||||||||||||
LOSS
FROM INVENTORY OBSOLESCENCE
|
1,865,866 | - | - | 1,865,866 | ||||||||||||||||
INCOME
FROM OPERATIONS
|
1,042,888 | 13,687,815 | (2,786,913 | ) | 11,943,790 | |||||||||||||||
OTHER
INCOME/(EXPENSES)
|
||||||||||||||||||||
Interest
expenses
|
(336,796 | ) | (3,135 | ) | - | (339,931 | ) | |||||||||||||
Other
expenses
|
(50,749 | ) | (526,039 | ) | 50,749 |
D
|
(526,039 | ) | ||||||||||||
Change
in fair value of derivative liabilities
|
- | 2,118,797 | - | 2,118,797 | ||||||||||||||||
Gain
from intangible asset disposal
|
138,777 | - | (138,777 | ) |
E
|
- | ||||||||||||||
TOTAL
OTHER INCOME, NET
|
(248,768 | ) | 1,589,623 | (88,028 | ) | 1,252,827 | ||||||||||||||
INCOME
BEFORE PROVISION FOR INCOME TAXES
|
794,120 | 15,277,438 | (2,874,941 | ) | 13,196,617 | |||||||||||||||
PROVISION
FOR INCOME TAXES
|
- | 864,292 | - |
|
F
|
864,292 | ||||||||||||||
NET
INCOME
|
794,120 | 14,413,146 | (2,874,941 | ) |
|
12,332,325 | ||||||||||||||
LESS:
NET INCOME ATTRIBUTABLE TO THE NONCONTROLLING INTEREST
|
- | 1,102,388 | (104,041 | ) |
G
|
998,347 | ||||||||||||||
NET
INCOME ATTRIBUTABLE TO YONGYE INTERNATIONAL, INC.
|
794,120 | 13,310,758 | (2,770,900 | ) | 11,333,978 | |||||||||||||||
Foreign
Currency Translation Adjustment
|
840,882 | 331,100 | (450,606 | ) |
H
|
721,376 | ||||||||||||||
COMPREHENSIVE
INCOME
|
1,635,002 | 14,744,246 | (3,325,547 | ) | 13,053,701 | |||||||||||||||
LESS:
COMPREHENSIVE INCOME ATTRIBUTABLE TO THE NONCONTROLLING
INTERST
|
- | 1,104,043 | (84,527 | ) |
G
|
1,019,516 | ||||||||||||||
COMPREHENSIVE
INCOME ATTRIBUTABLE TO YONGYE BIOTECHNOLOGY INTERNATIONAL,
INC.
|
$ | 1,635,002 | $ | 13,640,203 | $ | (3,241,020 | ) | $ | 12,034,185 | |||||||||||
Net
income per share:
|
||||||||||||||||||||
Basic
|
$ | 0.68 | $ | 0.58 | ||||||||||||||||
Diluted
|
$ | 0.56 | $ | 0.46 | ||||||||||||||||
Weighted
average shares used in computation:
|
||||||||||||||||||||
Basic
|
19,599,054 | 19,599,054 | ||||||||||||||||||
Diluted
|
20,106,433 | 20,106,433 |
33
Yongye
International, Inc.
UNAUDITED
PRO FORMA
CONSOLIDATED
STATEMENT OF OPERATIONS
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2009
Shengmingsu
Operation
of
Inner Mongolia
Yongye
Carve Out F/S
|
Yongye
International,
Inc.
|
Pro forma
Adjustments
|
Notes
|
Pro forma
combined
|
||||||||||||||||
SALES
|
||||||||||||||||||||
External
customers
|
$ | - | $ | 85,766,709 | $ | - | $ | 85,766,709 | ||||||||||||
Related
party
|
16,872,858 | 2,220,083 | (16,872,858 | ) |
A
|
2,220,083 | ||||||||||||||
TOTAL
SALES
|
16,872,858 | 87,986,792 | (16,872,858 | ) | 87,986,792 | |||||||||||||||
COST OF
SALES
|
15,820,391 | 41,274,810 | (16,460,134 | ) |
B
|
40,635,067 | ||||||||||||||
GROSS
PROFIT
|
1,052,467 | 46,711,982 | (412,724 | ) | 47,351,725 | |||||||||||||||
SELLING
EXPENSES
|
219 | 11,715,707 | - | 11,715,926 | ||||||||||||||||
GENERAL
AND ADMINISTRATIVE EXPENSES
|
195,119 | 2,495,797 | 64,527 |
C
|
2,755,443 | |||||||||||||||
RESEARCH
AND DEVELOPMENT EXPENSES
|
- | 1,482,888 | - | 1,482,888 | ||||||||||||||||
INCOME
FROM OPERATIONS
|
857,129 | 31,017,590 | (477,251 | ) | 31,397,468 | |||||||||||||||
OTHER
INCOME/(EXPENSES)
|
||||||||||||||||||||
Interest
expenses
|
(198,141 | ) | (25,538 | ) | - | (223,679 | ) | |||||||||||||
Other
expenses
|
- | 187,330 | - | 187,330 | ||||||||||||||||
Change
in fair value of derivative liabilities
|
- | (20,905,136 | ) | - | (20,905,136 | ) | ||||||||||||||
Loss
from property and equipment disposal
|
(16,909 | ) | - | 16,909 |
I
|
- | ||||||||||||||
TOTAL
OTHER INCOME/(EXPENSES), NET
|
(215,050 | ) | (20,743,344 | ) | 16,909 | (20,941,485 | ) | |||||||||||||
INCOME
BEFORE PROVISION FOR INCOME TAXES
|
642,079 | 10,274,246 | (460,342 | ) | 10,455,983 | |||||||||||||||
PROVISION
FOR INCOME TAXES
|
- | 7,836,270 | 45,434 |
F
|
7,881,704 | |||||||||||||||
NET
INCOME
|
642,079 | 2,437,976 | (505,776 | ) | 2,574,279 | |||||||||||||||
LESS:
NET INCOME ATTRIBUTABLE TO THE NONCONTROLLING INTEREST
|
- | 128,284 | 6,815 |
G
|
135,099 | |||||||||||||||
NET
INCOME ATTRIBUTABLE TO YONGYE INTERNATIONAL, INC.
|
642,079 | 2,309,692 | (512,591 | ) | 2,439,180 | |||||||||||||||
Foreign
Currency Translation Adjustment
|
10,105 | 71,597 | 4,841 |
H
|
86,543 | |||||||||||||||
COMPREHENSIVE
INCOME
|
652,184 | 2,509,573 | (500,935 | ) | 2,660,822 | |||||||||||||||
LESS:
COMPREHENSIVE INCOME ATTRIBUTABLE TO THE NONCONTROLLING
INTERST
|
- | 128,649 | 7,562 |
G
|
136,211 | |||||||||||||||
COMPREHENSIVE
INCOME ATTRIBUTABLE TO YONGYE BIOTECHNOLOGY INTERNATIONAL,
INC.
|
$ | 652,184 | $ | 2,380,924 | $ | (508,497 | ) | $ | 2,524,611 | |||||||||||
Net
income per share:
|
||||||||||||||||||||
Basic
|
$ | 0.08 | $ | 0.08 | ||||||||||||||||
Diluted
|
$ | 0.08 | $ | 0.08 | ||||||||||||||||
Weighted
average shares used in computation:
|
||||||||||||||||||||
Basic
|
29,926,052 | 29,926,052 | ||||||||||||||||||
Diluted
|
29,926,052 | 29,926,052 |
34
Yongye
International, Inc.
UNAUDITED
PRO FORMA
CONSOLIDATED
BALANCE SHEET
AS
OF SEPTEMBER 30, 2009
Shengmingsu Operation of
Inner Mongolia Yongye
Biotechnology
Company,
Ltd
Carve Out F/S
|
Carve out
adjustments
|
Yongye
International,
Inc.
|
Pro forma
Adjustments
|
Notes
|
Pro forma
combined
|
|||||||||||||||||||
CURRENT
ASSETS
|
||||||||||||||||||||||||
Cash
|
$ | 707,547 | $ | (707,547 | ) | $ | 3,508,408 |
J
|
3,508,408 | |||||||||||||||
Restricted
cash for mortgage loan repayment
|
292,500 | (292,500 | ) |
J
|
- | |||||||||||||||||||
Accounts
receivable, net – third parties
|
- | - | 43,349,508 | 43,349,508 | ||||||||||||||||||||
Accounts
receivable, net – related party
|
5,424,246 | - | - | (5,424,246 | ) |
K
|
- | |||||||||||||||||
Inventories
|
- | - | 30,954,407 | 30,954,407 | ||||||||||||||||||||
Advance
payments
|
6,108,943 | (6,108,943 | ) | 305,807 |
J
|
305,807 | ||||||||||||||||||
Due
from a related party
|
2,423,346 | (2,423,346 | ) | - |
J
|
- | ||||||||||||||||||
Prepaid
expenses
|
- | - | 124,040 |
J
|
124,040 | |||||||||||||||||||
Other
receivables
|
1,526,032 | (1,526,032 | ) | 315,051 |
J
|
315,051 | ||||||||||||||||||
Total
Current Assets
|
16,482,614 | (11,058,368 | ) | 78,557,221 | (5,424,246 | ) | 78,557,221 | |||||||||||||||||
INVESTMENT
UNDER COST METHOD
|
141,307 | - | (141,307 | ) |
L
|
|||||||||||||||||||
PROPERTY
AND EQUIPMENT, NET
|
- | - | 8,960,365 | 8,960,365 | ||||||||||||||||||||
INTANGIBLE
ASSETS, NET
|
129,961 | - | 87,712 | 4,058,789 |
M
|
4,276,462 | ||||||||||||||||||
GOODWILL
|
- | - | - | 9,811,394 |
N
|
9,811,394 | ||||||||||||||||||
TOTAL
ASSETS
|
$ | 16,753,882 | $ | 11.058,368 | $ | 87,605,298 | 8,304,630 | 101,605,442 | ||||||||||||||||
CURRENT
LIABILITIES
|
||||||||||||||||||||||||
Long-term
loans - current portion
|
$ | - | $ | - | $ | 211,766 | 211,766 | |||||||||||||||||
Accounts
payable - related party
|
- | - | 5,424,246 | (5,424,246 | ) |
K
|
- | |||||||||||||||||
Accounts
payable - third parties
|
8,201,492 | (2,777,246 | ) | 6,628,883 |
J
|
12,053,129 | ||||||||||||||||||
Income
tax payable
|
- | - | 7,288,478 | 7,288,478 | ||||||||||||||||||||
Other
tax payable
|
915,115 | (915,115 | ) |
J
|
- | |||||||||||||||||||
Advance
from customers
|
- | - | 137,671 | 137,671 | ||||||||||||||||||||
Accrued
expenses
|
9,231 | (9,231 | ) | 2,809,713 |
J
|
2,809,713 | ||||||||||||||||||
Due
to a related party
|
- | - | 1,443,489 | 2,307,144 |
O
|
3,750,633 | ||||||||||||||||||
Due
to shareholders
|
335,995 | (335,995 | ) |
J
|
||||||||||||||||||||
Other
payables
|
149,470 | (149,470 | ) | 906,511 |
J
|
906,511 | ||||||||||||||||||
Derivative
liabilities – fair value of warrants
|
- | - | 22,277,122 | 22,277,122 | ||||||||||||||||||||
Total
Current Liabilities
|
9,611,303 | (4,187,057 | ) | 47,127,879 | (3,117,102 | ) | 49,435,023 | |||||||||||||||||
LONG-TERM
LOANS
|
- | - | 341,554 | 341,554 | ||||||||||||||||||||
EQUITY
|
||||||||||||||||||||||||
Capital
contribution
|
185,885 | (185,885 | ) |
J
|
||||||||||||||||||||
Common
stock
|
- | - | 32,803 | 32,803 | ||||||||||||||||||||
Additional
paid-in capital
|
- | - | 22,749,207 | 22,749,207 | ||||||||||||||||||||
Retained
earnings
|
6,368,753 | (6,368,753 | ) | 15,620,486 |
J
|
15,620,486 | ||||||||||||||||||
Accumulated
other comprehensive income
|
587,941 | (587,941 | ) | 400,677 |
J
|
400,677 | ||||||||||||||||||
Total
Equity of the Company’s Shareholders
|
7,142,579 | (7,142,579 | ) | 38,803,173 | 38,803,173 | |||||||||||||||||||
Noncontrolling
interest
|
- | 271,268 | 1,332,692 | 11,421,732 |
L,P
|
13,025,692 | ||||||||||||||||||
Total
Equity
|
7,142,579 | (6,871,311 | ) | 40,135,865 | 11,421,732 | 51,828,865 | ||||||||||||||||||
TOTAL
LIABILITIES AND EQUITY
|
$ | 16,753,882 | $ | (11,058,368 | ) | $ | 87,605,298 | 8,304,630 | 101,605,442 |
35
NOTES
TO THE PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
1.
|
Significant Accounting
Policies
|
Upon
consummation of the acquisition, the Company reviewed Inner Mongolia Yongye’s
accounting policies. As a result of that review, the Company may identify
differences between the accounting policies of the two companies that, when
conformed, could have a material impact on the combined financial statements. At
this time, the Company is not aware of any differences that would have a
material impact on the combined financial statements. The unaudited pro forma
combined financial statements do not assume any differences in accounting
policies.
In
September 2006, the FASB issued Statement No. 157, “Fair Value Measurement”
(SFAS No. 157). Effective July 1, 2009, this standard was incorporated into
the Financial Accounting Standards Board Accounting Standard Codification (ASC)
Section 820, Fair Value Measurements and Disclosures (FASB ASC 820). FASB
ASC 820 does not require new fair value measurements, but provides guidance on
applying fair value and expands required
disclosures. FASB ASC 820 is effective for the Company beginning
in fiscal 2008, for fair value measurements of financial assets and financial
liabilities and for fair value measurements of nonfinancial items that are
recognized or disclosed at fair value in the financial statements on a recurring
basis, and is effective beginning in fiscal 2009, for fair value measurements of
nonfinancial assets and nonfinancial liabilities that are recognized or
disclosed at fair value in the financial statements on a nonrecurring basis. The
Company’s fair value measurement required under FASB ASC 820 is
included in the unaudited pro forma consolidated financial
statements.
In
December 2007, the FASB issued FASB Statement No. 141(R), Business Combinations, and
FASB Statement No. 160, Noncontrolling Interests in
Consolidated Financial Statements – an amendment to ARB No. 51. In
April 2009, the FASB issued FSP FAS 141(R)-1, Accounting for Assets Acquired and
Liabilities Assumed in a Business Combination That Arise from
Contingencies, which amends and clarifies FASB 141 (R) to address
application issues on initial recognition and measurement, subsequent
measurement and disclosure of assets and liabilities arising from contingencies
in a business combination. Effective July 1, 2009, SFAS No.141(R) and FSP
FAS 141(R)-1 were incorporated into the ASC Section 805, Business
Combinations (FASB ASC 805) and SFAS No.160 was incorporated into the ASC
Section 810, Consolidation (FASB ASC 810). FASB ASC 805 and 810
require most identifiable assets, liabilities, noncontrolling interests, and
goodwill acquired in a business combination to be recorded at “full fair value”
and require noncontrolling interests (previously referred to as minority
interests) to be reported as a component of equity, which changes the accounting
for transactions with noncontrolling interest holders. Both Statements are
effective for periods beginning on or after December 15, 2008, and earlier
adoption is prohibited. FASB ASC 805 will be applied to business combinations
occurring after the effective date. FASB ASC 810 will be applied prospectively
to all noncontrolling interests, including any that arose before the effective
date. The adoption of FASB ASC 805 and FASB ASC 810 has been
included in the unaudited pro forma consolidated financial
statements.
|
2.
|
Consideration
|
The
following is a preliminary estimate of consideration to be transferred to effect
the acquisition of Yongye Assets:
Estimated Fair
Value
|
||||
Cash
|
$ | 4,692,265 | ||
4.5%
Equity Interest in Yongye Nongfeng
|
11,693,000 | |||
Total
Consideration
|
$ | 16,385,265 |
36
|
3.
|
Carve
Out/Pro Forma Adjustments
|
For
purposes of determining the pro forma effect of the Yongye Assets Acquisition to
the Company’s statements of operations for the year ended December 31, 2008 and
the period ended September 30, 2009, the adjustments below have been
made.
A.
|
Eliminates the sales Inner
Mongolia Yongye made to the Company as stated in the cooperative
agreement.
|
B.
|
Adjust the Company's fixed cost
at RMB350 per case for plant product and RMB120 per case for animal
product to Inner Mongolia Yongye’s actual unit
cost.
|
C.
|
Reflect the increased
amortization due to the appreciation of right land use in fair value than
original cost to Inner Mongolia
Yongye.
|
D.
|
Eliminate Inner Mongolia Yongye’s
charity donations which is unrelated to Shengmingsu
Operation.
|
|
E.
|
Eliminate Inner Mongolia Yongye’s
gain from appreciation in the fair value of intangibles it invested to
Yongye Nongfeng.
|
|
F.
|
No adjustment in provision for
income tax made for the year ended December 31, 2008 since Yongye Nongfeng
paid income tax as 1.25% of gross revenue during the year. Income tax
expenses impact was reflected for the nine months ended September 30, 2009
as 25% of net adjustment impact on income before provision for income
tax.
|
G.
|
Reflect the impact on net income
attributable to noncontrolling interest determined by Inner Mongolia
Yongye’s 5% equity interest percentage in Yongye Nongfeng during the
period.
|
H.
|
Reflect the foreign currency
translation adjustment generated by the assets
acquired.
|
|
I.
|
Eliminate Inner Mongolia Yongye’s
loss from the property and equipment it sold to Yongye
Nongfeng.
|
|
J.
|
Carve out Inner Mongolia Yongye’s
items not acquired by Yongye
Nongfeng.
|
K.
|
Eliminate inter-company balances
between Inner Mongolia Yongye and Yongye
Nongfeng.
|
|
L.
|
Adjust Inner Mongolia Yongye’s
investment in Yongye Nongfeng to noncontrolling
interest.
|
M.
|
Reflect the fair value of land
use right acquired by Yongye Nongfeng from Inner Mongolia
Yongye.
|
N.
|
Reflect the goodwill recognized
in the Yongye Assets Acquisition, which is determined by purchase price
allocation method:
|
Estimated Fair Value
|
||||
Total
Consideration
|
16,385,265 | |||
Less:
Assets acquired
|
||||
Property
and equipments
|
(2,385,121 | ) | ||
Right
to use land
|
(4,188,750 | ) | ||
Total
value of assets acquired
|
(6,573,871 | ) | ||
Goodwill
|
9,811,394 |
O.
|
Reflect unpaid cash consideration
to Inner Mongolia Yongye.
|
|
P.
|
Reflect 4.5% of Yongye Nongfeng’s
equity interest transferred to Inner Mongolia
Yongye.
|
37