Yasheng Group - FORM 10-Q - August 13, 2010

Attached files

file	filename
EX-32.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 - Yasheng Group	exhibit_32-1.htm
EX-31.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECURITIES EXCHANGE ACT OF 1934 RULE 13A-14(A) OR 15D-14(A) - Yasheng Group	exhibit_31-2.htm
EX-32.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 - Yasheng Group	exhibit_32-2.htm
EX-31.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECURITIES EXCHANGE ACT OF 1934 RULE 13A-14(A) OR 15D-14(A) - Yasheng Group	exhibit_31-1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2010

o TRANSITION REPORT PURSUANT TO SECITON 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ___________________

Commission File Number: 000-27557

YaSheng Group

(Exact name of registrant as specified in its charter)

California		33-0788293
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

805 Veterans Blvd., Suite 228, Redwood City, CA	94063
(Address of Principal Executive Offices)	(Zip Code)

(650) 363-8345

(Registrant's telephone number, including area code)

Indicate by check mark whether the Registrant (l) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

x Yes o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

o Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	o		Accelerated filer	o

Non-accelerated filer	o	(Do not check if smaller reporting company)	Smaller reporting company	x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

o Yes x No

State issuer’s revenues for its most recent fiscal year (12/31/09). $ 739,630,043.

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity, as of a specified dated within the past 60 days. We are a smaller reporting company as determined pursuant to Rule 12b-2 of the Securities and Exchange Act of 1934 and Regulation S-K thereunder because the public float of our common stock is less than $75 million.

(APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

o Yes o No

(APPLICABLE ONLY TO CORPORATE REGISTRANTS)

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date. 155,097,355 (12-31-09).

YASHENG GROUP

TABLE OF CONTENTS


PART I	FINANCIAL INFORMATION

Item 1	Condensed Consolidated Financial Statements (unaudited)		4

		Auditor Review Report	4

		Condensed Consolidated Balance Sheets	5

		Condensed Consolidated Statements of Income	6

		Condensed Consolidated Statements of Cash Flows	7

		Notes to Condensed Consolidated Financial Statements	8

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations		14

Item 3	Quantitative and Qualitative Disclosures about Market Risk		18

Item 4	Controls and Procedures		19

PART II	OTHER INFORMATION

Item 1	Legal Proceedings		20

Item 1A	Risk Factors		20

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds		20

Item 3	Defaults Upon Senior Securities		20

Item 4	Submission of Matters to a Vote of Security Holders		20

Item 5	Other Information		20

Item 6	Exhibits		20

Signatures			21

PART I FINANCIAL INFORMATION

Item 1. Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders Yasheng Group

Redwood City, California

We have reviewed the accompanying condensed consolidated balance sheet of Yasheng Group and subsidiaries (the “Corporation”) as of June 30, 2010, and the related condensed consolidated statements of income, stockholders’ equity, and cash flows for the three-month periods ended June 30, 2010 and 2009. These interim financial statements are the responsibility of the Corporation’s management.

We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to such condensed consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Yasheng Group and subsidiaries as of December 31, 2009, and the related consolidated statements of income, stockholders’ equity, and cash flows for the year then ended and in our report dated February 26, 2010 we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2009 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/S/ Gansu Hongxin CPA

Lanzou, China

July 16, 2010

PART I.

Item 1. Financial Statements

YASHENG GROUP

CONDENSED CONSOLIDATED BALANCE SHEETS

	June 30		December 31,
	2010		2009
	(Unaudited)		(Audited)
ASSETS
Current assets
Cash and cash equivalents	$	7,673,982	$	8,010,017
Accounts receivable		75,135,727		71,216,566
Inventories		82,670,355		75,332,668
Prepaid and other current assets		4,461,833		4,673,279

Total current assets		169,941,897		159,232,530

Equity and other investments		189,169		190,402

Property, plant and equipment, net		397,100,343		393,776,831
Construction in progress		6,218,085		5,446,595
Intangible assets, net		969,671,075		958,065,063
Other long term assets		240,383,738		232,711,379

Total assets	$	1,783,504,307	$	1,749,422,800

LIABILITIES AND STOCKHOLDERS’ EQUITY

Accounts payable and accrued expenses	$	51,874,965	$	55,031,294
Short term loans		17,670,706		19,606,983
VAT payable		1,076,865		1,142,638
Current portion of long term debt		8,648,694		9,796,158
Other current liabilities		1,172,222		1,170,455

Total current liabilities		80,443,452		86,747,529

Long term debt		2,950,598		3,220,335
Long term payable		46,420,364		51,643,382

Total liabilities		129,814,413		141,611,245

Stockholders’ equity:
Common stock, No par
800,000,000 shares authorized
155,097,355 shares issued and outstanding		155,097,355		155,097,355
Accumulated other comprehensive income		249,304,106		240,383,631
Retained earnings		1,249,288,433		1,212,330,569

Total stockholders’ equity		1,653,689,894		1,607,811,555

Total liabilities & stockholders' equity	$	1,783,504,307	$	1,749,422,800

The accompanying notes are an integral part of these condensed consolidated financial statements.

YASHENG GROUP

CONDENDSED CONSOLIDATED STATEMENTS OF INCOME

AND COMPREHENSIVE INCOME

(Unaudited)

	Three Months Ended June 30				Six Months Ended June 30
	2010		2009		2010		2009

Net sales	$	191,285,442	$	190,121,081	$	359,605,031	$	358,199,169

Cost of goods sold		170,163,891		169,131,460		320,040,013		318,796,963

Gross profit		21,121,551		20,989,622		39,565,018		39,402,205

Operating expenses:
Sales and marketing		325,437		322,755		650,680		647,517
General and administrative		799,640		791,792		1,573,465		1,564,207
Total operating expenses		1,125,077		1,114,547		2,224,145		2,211,723

Operating income		19,996,474		19,875,075		37,340,873		37,190,482

Interest expense		600,326		613,205		1,223,339		1,235,499

Other income		423,735		425,240		840,329		841,143

Net income	$	19,819,883	$	19,687,110	$	36,957,863	$	36,796,126

Basic and Diluted Earnings Per Share	$	0.13	$	0.13	$	0.24	$	0.24
Weighted average number of shares		155,097,355		155,097,355		155,097,355		155,097,355



Net Income	$	19,819,883	$	19,687,110	$	36,957,863	$	36,796,126
Other Comprehensive Income:
Foreign currency translation adjustment		11,473,800		904,054		8,920,475		613,607
Total Comprehensive Income	$	31,293,683	$	20,591,164	$	45,878,338	$	37,409,733


The accompanying notes are an integral part of these condensed consolidated financial statements.

YASHENG GROUP

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Six Months Ended June 30
Cash flow from operating activities:	2010			2009
Operating activities:
Net income	$	36,957,863		$	36,796,126

Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		4,347,084			10,658,442
Allowance for doubtful accounts		185,293			312,076
Others		(5,506,676	)		(6,120,630	)
Changes in assets and liabilities:
Accounts receivable		(3,713,286	)		(6,254,023	)
Inventories		(6,923,912	)		(4,115,253	)
Prepaid and other current assets		237,114			148,212
Accounts payable		(3,457,353	)		(10,361,668	)
Tax payable		(72,050	)		(27,789	)
Accrued expenses and other current liabilities		(5,906	)		(47,453	)
Net cash provided by operating activities		22,048,172			20,988,041

Investing activities:
Purchase of fixed assets		(18,987,153	)		(5,185,400	)
Investments		2,278			7
Net cash used in investing activities		(18,984,875	)		(5,185,393	)

Financing activities:
Increase (decrease) in debt		(3,532,667	)		(15,686,746	)
Net cash used in financing activities		(3,532,667	)		(15,686,746	)

Effect of exchange rate change on cash and cash equivalents		133,334			13,131

Net increase (decrease) in cash and cash equivalents		(336,036	)		129,033

Cash and cash equivalents at beginning of period		8,010,017			7,880,338
Cash and cash equivalents at end of period	$	7,673,982		$	8,009,371

Supplemental disclosures:
Cash paid for interest	$	1,223,338		$	1,235,499
Cash paid for income taxes		-			-

The accompanying notes are an integral part of these condensed consolidated financial statements.

YASHENG GROUP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.	Basis of Presentation, Organization and Business

The accompanying unaudited condensed consolidated financial statement (statements) have been prepared in accordance with generally accepted accounting principles for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation have been included.

Operating results for the period are not necessarily indicative of the results that may be expected for the full year. These statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in Yasheng Group's Form 10-K. The statements are prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). This basis differs from that used in the statutory accounts of the Company, which were prepared in accordance with the accounting principles and relevant financial regulations applicable to enterprises in the People's Republic of China (“PRC”). All necessary adjustments have been made to present the financial statements in accordance with US GAAP.

Yasheng Group (“The Company”) is a California corporation with primary operations in China. The Company produces and markets high-quality farming and sideline products including livestock and poultry. It also designs, develops and markets new technologies related to agriculture.

Product offerings include 30+ major agriculture goods under 6 major product categories which include: field crops: cotton, corns, barley, wheat, flax, alfalfa; vegetables: onions, potatoes, beet, and peas; fruit trees: apples, pears, apricots; specialty crops: hops, wolfberries, cumin, liquorices; seeds: black melon seeds, sunflower seeds, corn seeds, flax seeds; poultry: eggs.

Yasheng sells its products through an extensive nationwide sales and distribution network covering 16 provinces and over 100 cities in China. Products are also sold directly to food processors as well as processed internally by the company and then resold to supermarkets or other distributors, or further processed for retail food distribution. The Company also sells many of its products fresh within Gansu province as well as nationally to food processors and distributors, or directly to supermarkets. Customers are based primarily in China and include national and international leading companies. Products are also sold as feed for livestock, ingredients for Chinese traditional medicines as well as other important ingredients in the food industry.

2.	Summary of Significant Accounting Policies

(a)	Accounting standards

The consolidated financial statements have been prepared on a historical cost basis to reflect the financial position and results of operations of the Company in accordance with accounting principles generally accepted in the United States of America.

(b)	Fiscal year

The Company’s fiscal year ends on the 31st of December of each calendar year.

(c)	Consolidation

The consolidated financial statements include the accounts of the Company and its subsidiaries. All material intercompany balances and transactions have been eliminated.

(d)	Use of estimates

The Company’s discussion and analysis of its financial condition and results of operations are based upon its consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

(e)	Revenue recognition

The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable, and collectability is reasonably assured.

YASHENG GROUP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

2.	Summary of Significant Accounting Policies - continued

(f)	Cost of goods sold

Direct and indirect productions costs are recorded in Cost of goods sold including shipping and handling for products sold such as outward freight, purchasing, and receiving.

(g)	Cash and cash equivalents

Cash and cash equivalents include cash on hand, demand deposits held by banks, and securities with maturities of three months or less. The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. Cash equivalents are composed primarily of investments in money market accounts stated at cost, which approximates fair value.

(h)	Inventories

Inventories are recorded using the weighted average method and are valued at the lower of cost or market.

(i)	Accounts receivable, net

The carrying amount of accounts receivable is reduced by a valuation allowance that reflects the Company’s best estimate of the amounts that will not be collected. In addition to reviewing delinquent accounts receivable, the Company considers many factors in estimating its general allowance, including aging analysis, historical bad debt records, customer credit analysis and any specific known troubled accounts.

(j)	Property, plant and equipment

Property, plant and equipment are carried at cost less accumulated depreciation and amortization. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the assets. Amortization of leasehold improvements is calculated on a straight-line basis over the life of the asset or the term of the lease, whichever is shorter. Major renewals and betterments are capitalized and depreciated; maintenance and repairs that do not extend the life of the respective assets are charged to expense as incurred. Upon disposal of assets, the cost and related accumulated depreciation are removed from the accounts and any gain or loss is included in income. Depreciation related to property and equipment used in production is reported in cost of sales. Property and equipment are depreciated over their estimated useful lives as follows:

Buildings and improvements

20 - 40 years

Farming facilities

10 years

Machinery and equipment

7 years

Transportation and other facilities

3 years

Long-term assets of the Company are reviewed annually to assess whether the carrying value has become impaired, according to the guidelines established in Statement of Accounting Standards (SFAS) No. 144, "Accounting for the Impairment of Disposal of Long-Lived Assets." The Company also evaluates the periods of amortization to determine whether subsequent events and circumstances warrant revised estimates of useful lives. No impairment of assets was recorded in the periods reported.

	June 30, 2010			December 31, 2009

Buildings and improvements	$	91,662,983		$	92,735,509
Farming facilities		83,605,572			84,494,131
Machinery and equipment		11,791,621			10,934,251
Transportation		265,699,945			269,793,603
Total		452,760,121			457,957,494
Less: Accumulated Depreciation and amortization		(55,659,778	)		(64,180,663	)
Net	$	397,100,343		$	393,776,831

(k)	Intangible assets

Intangible assets consist of land use rights and are recorded at cost. Under PRC’s current property rights regime, use rights for specified periods (e.g., 40 to 70 years) can be obtained from the state through the up-front payment of land use fees. The fees are determined by the location, type and density of the proposed development. This separation of land ownership and use rights allows the trading of land use rights while maintaining state ownership of land. The Company has over 250,000 acres of arable land that are utilized for grazing, cultivation, and reclamation, of which 50,000 acres are under cultivation using the latest scientific technologies to produce a wide variety of agricultural products.

YASHENG GROUP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

2.	Summary of Significant Accounting Policies - continued

(l)	Impairment of long-lived assets

The carrying amounts of long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is evaluated by a comparison of the carrying amount of assets to future undiscounted net cash flows expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amounts of the assets exceed the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less cost to sell.

(m)	Investments

Investments consist primarily of less than 20% equity positions in non-marketable securities and are recorded at lower of cost or market.

(n)	Foreign currency translation

The accompanying financial statements are presented in United States (US) dollars. The functional currency is the Renminbi (RMB). The financial statements are translated into US dollars from RMB at year-end exchange rates for assets and liabilities, and weighed average exchange rates for revenues and expenses. Capital accounts are translated at their historical exchange rates when the capital transactions occurred.

Gains and losses resulting from foreign currency translation are recorded in a separate component of shareholders’ equity. Foreign currency translation adjustments are included in accumulated other comprehensive income in the consolidated statements of shareholders’ equity for the years presented.

RMB is not freely convertible into the currency of other nations. All such exchange transactions must take place through authorized institutions. There is no guarantee the RMB amounts could have been, or could be, converted into US dollars at rates used in translation.

(o)	Income taxes

As an agricultural enterprise, the Company and all of its agricultural subsidiaries are exempted from enterprise income taxes with approval from the Gansu Provincial Bureau of Local Taxation. The only non-agricultural subsidiary, Baiyin Cement Plant, has suffered net loss for the years shown and therefore has no applicable taxable income. Because of the uncertainty of future profits, no deferred tax assets have been set up at this time.

(p)	Earnings per share

Basic earnings per share are computed using the weighted average number of common shares outstanding during the year. Diluted earnings per share are computed using the weighted average number of common and, if dilutive, potential common shares outstanding during the year. The Company has no potentially dilutive shares for the periods shown.

(q)	Economic and Political Risks

The Company faces a number of risks and challenges as a result of having primary operations and markets in the PRC. Changing political climates in the PRC could have a significant effect on the Company's business.

(r)	Advertising expense

The Company records advertising expenses in the period incurred.

(s)	Comprehensive income

Comprehensive income is defined as the change in equity of a company during a period from transactions and other events and circumstances excluding transactions resulting from investments from owners and distributions to owners. Accumulated other comprehensive income, as presented on the accompanying consolidated balance sheets, consists of mainly the cumulative foreign currency translation adjustment.

(t)	Value added tax (VAT)

Value added tax is a consumption tax levied on value added. While the standard VAT rate in PRC is 17%, the Company's agricultural subsidiaries enjoy a reduced VAT rate of 4%.

YASHENG GROUP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

2.	Summary of Significant Accounting Policies - continued

(u)	RECENTLY ISSUED ACCOUNTING STANDARDS

In June 2009, the Financial Accounting Standards Board (“FASB”) established the FASB Accounting Standards Codification (the “Codification” or “ASC”) as the source of authoritative accounting principles in the preparation of financial statements in conformity with U.S. GAAP. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under authority of federal securities laws are also sources of authoritative U.S. GAAP for SEC registrants. The Codification superseded all existing non-SEC accounting and reporting standards, with limited exceptions to allow recently issued standards to be incorporated into the Codification. All other non-grandfathered, non-SEC accounting literature not included in the Codification became non-authoritative. After the September 15, 2009 effective date of the Codification, all new FASB standards will be in the form of Accounting Standards Updates (“ASU”), which will update the Codification, provide background information about the guidance and provide the basis for conclusions on the changes to the Codification. The Codification was not intended to change U.S. GAAP and did not affect the company’s accounting methods, but it did change the way the accounting standards are organized and presented, particularly in descriptions of significant accounting policies.

New accounting standards that could significantly affect the company’s Consolidated Financial Statements are summarized as follows and are not anticipated to have a material effect on the Company’s results of operations.

Date Issued	Description	Effective Date for the Company	Impact
January 2010	Clarified accounting requirements for the deconsolidation of a subsidiary or a group of assets and expanded the related disclosure. Deconsolidation occurs when the parent ceases to have a controlling interest and any resulting gain or loss is calculated as the fair value of the consideration received plus the fair value of any retained interest less the carrying value.	Retrospectively, beginning January 1, 2010.	None.
January 2010	Expanded disclosures for fair value measurements	Prospectively, beginning January 1, 2010.	Will expand disclosure.
January 2010	Expanded disclosures for Level 3 fair value measurements to include purchases, sales, issuances and settlements.	Prospectively, beginning January 1, 2011.	Will expand disclosure.
June 2009	Amended the evaluation criteria to identify the primary beneficiary of a variable interest entity and required ongoing reassessments of whether the company is the primary beneficiary.	Prospectively, beginning January 1, 2010.	None.
May 2009	Created standards of accounting and disclosure for events that occur after the balance sheet date but before financial statements are issued.	Prospectively, beginning June 30, 2009.	Expanded disclosure.
April 2009	Created new accounting standards for the initial recognition and measurement, subsequent measurement and accounting, and disclosure of contingent assets and contingent liabilities assumed in a business combination.	Prospectively, beginning January 1, 2009.	None.
December 2008	Expanded annual disclosure of plan assets of a defined benefit pension or other postretirement plan, including fair value disclosures.	Prospectively, beginning December 31, 2009.	Was not material.
November 2008	Clarified the accounting for certain transactions and impairment considerations involving equity-method investments.	Prospectively, beginning January 1, 2009.	Was not material.
June 2008	Created new accounting standards for determining whether an option or warrant on an entity’s own shares, such as in the company’s Convertible Notes, is eligible for equity classification.	Prospectively, beginning January 1, 2009.	None.

YASHENG GROUP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3.	Inventories

The major classes of inventory: raw materials, packaging materials, products in process, finished goods, stocks, low-value consumable goods, materials in transit as well as others.

The following is a breakdown of the major categories of inventories.

	June 30,2010		December 31, 2009

Raw material	$	15,980,664	$	14,910,866
Finished Goods		43,161,882		39,620,483
Low-value consumable goods		10,950,443		10,167,090
Packaging material		7,616,628		6,964,229
Supplies and other		4,960,738		3,670,000
Total	$	82,670,355	$	75,332,668

4.	Other long term assets

The Company invests every year in windbreaks and sand-breaks to provide shelterbelts for many of the farms located near the Gobi Desert. These investments are recorded as other long term assets.

5.	China contribution plan

The Company’s subsidiaries in China participate in a government-mandated multi-employer defined contribution plan pursuant to which certain retirement, medical and other welfare benefits are provided to employees. Chinese labor regulations require the Company’s subsidiaries to pay to the local labor bureau a monthly contribution at a stated contribution rate based on the monthly basic compensation of qualified employees. The relevant local labor bureau is responsible for meeting all retirement benefit obligations; the Company has no further commitments beyond its monthly contribution.

6.	Profit appropriation

Pursuant to the laws applicable to China’s Foreign Investment Enterprises, each of the Company’s subsidiaries in China allow make appropriations from its after-tax profit to non-distributable reserve funds as determined by the Board of Directors. These reserve funds include a (i) general reserve, (ii) enterprise expansion fund and (iii) staff bonus and welfare fund. The general reserve fund requires annual appropriations of 10% of after-tax profit (as determined under PRC GAAP) until these reserves equal 50% of the amount of paid-in capital; the other fund appropriations are at the Company’s discretion. Payment to the statutory general reserve fund is at the Company discretion. Allocations to these statutory reserve funds can only be used for specific purposes and are not transferable to us in the form of loans, advances or cash dividends.

7.	Concentration of risks

The operations of the Company are substantially located in the PRC and accordingly, investing in the shares of the Company is subject to among others, the PRC’s political, economic and legal risks.

8.	Income taxes

The Company and all of its agricultural subsidiaries are exempt from income taxes in the PRC. The Company has not filed an income tax return in the US.

Debt

The Company obtains secured lending from the banks using two types of arrangements, collateral and guarantee. Collateral are loans secured against the assets of the Yasheng Group, while guarantee are loans provided with the guarantee from a third party.

10.	Employee benefit plans

The Company provides the following benefits for all employees:

A. Employee Welfare Fund: An amount equal to 14% of payroll is set aside by the Company for standard employee benefits. This fund is managed and controlled by the Company. All required payments current.

B. Open Policy Pension: The Company pays to national and community insurance agents an amount equal to 20% of payroll. This insurance continues to cover the employee subsequent to retirement.

YASHENG GROUP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

10.	Employee benefit plans - continued

C. Unemployment Insurance: The Company pays to the national employment administrative entities an amount equal to 1% of payroll. Any dismissed employee thereby receives a specified amount of family-support funds for a designated period.

D. Housing Surplus Reserve: The Company pays to the national housing fund administrative entities an amount equal to 10% of payroll for deposit into the employees' future housing allowance accounts.

The aforesaid items are for employee's benefits and should be accounted for as the Company's expenses.

11.	Operating leases

The Company has no operating leases for the periods shown.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

The following is a discussion of our financial condition, results of operations, liquidity and capital resources. This discussion should be read in conjunction with our audited financial statements and the notes thereto included elsewhere in this Form 10-Q and with our annual report for the year ended December 31, 2009

Some of the statements under "Description of Business," "Risk Factors," "Management's Discussion and Analysis or Plan of Operation," and elsewhere in this Report and in the Company's periodic filings with the Securities and Exchange Commission constitute forward-looking statements. These statements involve known and unknown risks, significant uncertainties and other factors what may cause actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward- looking statements. Such factors include, among other things, those listed under "Risk Factors" and elsewhere in this Report.

In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "could," "intends," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential" or "continue" or the negative of such terms or other comparable terminology.

The forward-looking statements herein are based on current expectations that involve a number of risks and uncertainties. Such forward-looking statements are based on assumptions that the Company will obtain or have access to adequate financing for each successive phase of its growth, that there will be no material adverse competitive or technological change in condition of the Company's business, that the Company's President and other significant employees will remain employed as such by the Company, and that there will be no material adverse change in the Company's operations, business or governmental regulation affecting the Company. The foregoing assumptions are based on judgments with respect to, among other things, further economic, competitive and market conditions, and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the Company's control.

Although management believes that the expectations reflected in the forward-looking statements are reasonable, management cannot guarantee future results, levels of activity, performance or achievements. Moreover, neither management nor any other persons assumes responsibility for the accuracy and completeness of such statements.

GENERAL

Yasheng Group (“The Company”) is a California corporation with primary operations in China. The Company designs, develops, manufactures and markets high-quality farming and sideline products including livestock and poultry. It also designs, develops and markets new technologies related to agriculture and genetic biology

RESULTS OF OPERATIONS (unaudited)

	Three Months Ended					Three Months Ended
	June 30, 2010					June 30, 2009
	Dollars		% of Sales			Dollars		% of Sales
	(000's)					(000's)

Net Sales	$	191,285		100.0	%	$	190,121		100.0	%
Costs of Goods Sold		170,164		88.9			169,131		89.0
Gross profit		21,121		11.1			20,990		11.0
Sales and marketing expenses		325		0.2			323		0.2
General and administrative expenses		800		0.4			792		0.4
Interest expense		600		0.3			613		0.3
Other income		424		0.2			425		0.2
Net income	$	19,820		10.4		$	19,687		10.3

The functional currency for the Company is the RMB which is translated into US Dollars for financial reporting purposes. The average exchange rates for the periods presented remained generally unchanged and were 6.8075 RMB to 1 USD for the six months ended June 30, 2010 and 6.8338 RMB to 1 USD for the six months ended June 30, 2009.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued

RESULTS OF OPERATIONS (unaudited) - continued

Net Sales. Sales are generated primarily from our farming operations in China and related side line products. Net sales for the three months ended June 30, 2010 increased $1.2 million or 0.6%, to $191.3 million as compared to $190.1 million for the three months ended June 30, 2009. Net sales for the six months ended June 30, 2010 increased 1.4 million or 0.4%, to $359.6 million as compared to $358.2 million for the six months ended June 30, 2009. The overall increases in Net sales are primarily a result of increased pricing attributable to the general economics in China. As expected business volumes during the off season quarters remained relatively constant in comparison to the comparable prior periods. These comparisons show that the rate of increase our sales have not been as in previous quarters. This is due primarily to the fixed price contracts that we had in place for the first half of 2010. Notwithstanding the market price of our type of products going up, we will not be able to enjoy this increased demand until the later part of the year when we can renew our contracts.

Cost of Goods Sold. Our cost of goods sold consists of the direct production costs such as raw materials, direct labor, overhead and miscellaneous other supplies. Cost of goods sold for the three months ended June 30, 2010 increased 1.0 million or 0.6%, to $170.2 million from $169.1 million for the three months ended June 30, 2009. Cost of goods sold for the six months ended June 30, 2010 increased $1.2 million or 0.4%, to $320.0 million from $318.8 million for the six months ended June 30, 2009. Costs were in line with sales due to continued heightened focus on cost control exercised throughout production. Our production has been adversely affected by heavy snow storms from January through May of this year in northwest China. This has disrupted our planting and as a consequence has increased production costs.

Gross Profit and Gross Margin. Our gross profit for the three months ended June 30, 2010 increased $132,000 or 0.6% to $21.1 million from $21.0 million for the three months ended June 30, 2009. Our gross profit for the six months ended June 30, 2010 increased $163,000 or 0.4%, to $39.6 million from $39.4 million for the six months ended June 30, 2009. Operating margins remained constant due to continued heightened focus on cost control exercised throughout production.

Sales and Marketing Expenses. Our sales and marketing expenses for the three months ended June 30, 2010 remained relatively unchanged at $325,000 as compared to $323,000 for the prior three months ended June 30, 2009. Our sales and marketing expenses for the six months ended June 30, 2010 remained relatively unchanged at $651,000 as compared to $648,000 for the prior six months ended June 30, 2009 due principally to management’s continued heightened focus on controlling costs.

General and Administrative Expenses. Our general and administrative expenses increased marginally by $8,000 or 1.0%, to $800,000 for the three months ended June 30, 2010 as compared to $792,000 for the three months ended June 30, 2009. Our general and administrative expenses increased marginally by $9,000 or 0.5%, to $1.6 million for the six months ended June 30, 2010 as compared to $1.6 million for the six months ended June 30, 2009. General and administrative expenses remained relatively consistent due principally to management’s continued heightened focus on controlling costs.

Interest Expenses and Other Income. Our interest expense of $600,000 and other income of $424,000 for the three months ended June 30, 2010 remained relatively consistent when compared to the three months ended June 30, 2009. Our interest expense of $1.2 million and other income of $840,000 for the six months ended June 30, 2010 remained relatively consistent when compared to the three months ended June 30, 2009.

Liquidity and Capital Resources

As of June 30, 2010, we had cash and cash equivalents of $7.7 million and working capital of $89.5 million. This compared to cash and cash equivalents of $8.0 million and working capital of $72.5 million as of December 31, 2009. The following table provides information about our net cash flows for the operating results presented in this report (amounts in thousands of USD).

	Six Months Ended June 30
	2010			2009

Net cash provided by operating activities	$	22,048		$	20,988
Net cash used in investing activities		(18,985	)		(5,185	)
Net cash used in financing activities		(3,532	)		(15,687	)
Effect of foreign currency translation on cash and cash equivalents		133			13
Cash and cash equivalents at beginning of the period		8,010			7,880
Cash and cash equivalents at end of period		7,674			8,009

Net cash provided by operating activities was $22.2 million for the six months ended June 30, 2010 as compared to $21.0 million for the six months ended June 30, 2009. Net cash used in investing activities was 19.0 million for the six months ended June 30, 2010 as compared to $5.2 million for the six months ended June 30, 2009. Net cash used in financing activities was $3.5 million for the six months ended June 30, 2010 compared with $15.7 million for the six months ended June 30, 2009.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued

Liquidity and Capital Resources - continued

We believe our cash on hand and cash flows from operations will meet our expected capital expenditures and working capital needs for the next 12 months. In addition, we may, in the future, require additional cash resources due to changed business conditions, implementation of our strategy to expand our production capacity or other investments or acquisitions we may decide to pursue. If our own financial resources are insufficient to satisfy our capital requirements, we may seek to sell additional equity or debt securities or obtain additional credit facilities. The sale of additional equity securities could result in dilution to our stockholders. The incurrence of indebtedness would result in increased debt service obligations and could require us to agree to operating and financial covenants that would restrict our operations. Financing may not be available in amounts or on terms acceptable to us, if at all. Any failure by us to raise additional funds on terms favorable to us, or at all, could limit our ability to expand our business operations and could harm our overall business prospects.

Off-Balance Sheet Arrangements

As of June 30, 2010 and for the six months then ended, we were not party to transactions, obligations or relationships that could be considered off-balance sheet arrangements and we do not have off balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity or capital expenditures or capital resources that is material to an investor in our securities.

Reclassifications

Certain prior period amounts have been reclassified to conform to current period presentation.

Segments

With the exception of Baiyin Cement Plant, all other subsidiaries of the Company are agricultural enterprises. As the construction materials represent less than one percent of sales, the Company actually has only one segment, that of agriculture. This segment is shown in the Statement of Income.

RECENTLY ISSUED ACCOUNTING STANDARDS

Statement No. 159 – The Fair Value Option for Financial Assets and Financial Liabilities—including an amendment of FASB Statement No. 115

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities—Including an amendment of FASB Statement No. 115. This standard permits an entity to choose to measure many financial instruments and certain other items at fair value. This option is available to all entities. Most of the provisions in FAS 159 are elective; however, an amendment to FAS 115 Accounting for Certain Investments in Debt and Equity Securities applies to all entities with available for sale or trading securities. Some requirements apply differently to entities that do not report net income. SFAS No. 159 is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. Early adoption is permitted as of the beginning of the previous fiscal year provided that the entity makes that choice in the first 120 days of that fiscal year and also elects to apply the provisions of SFAS No. 157 Fair Value Measurements.

Statement No. 141 (revised 2007) – Business Combinations

In December 2007, the FASB revised SFAS No. 141 (revised 2007), Business Combinations. This revision changes the way the minority interest in a company is measured, recorded and reported in the parent company’s financial statements to the end that a statement user can better evaluate the nature and financial effects of the business combination. The Company adopts this statement beginning March 1, 2009.

It is not believed that this will have an impact on the Company’s consolidated financial position, results of operations or cash flows.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued

RECENTLY ISSUED ACCOUNTING STANDARDS - continued

Statement No. 160 – Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51. A noncontrolling interest, sometimes called a minority interest, is the portion of equity in a subsidiary not attributable, directly or indirectly, to a parent. The objective of this Statement is to improve the relevance, comparability, and transparency of the financial information that a reporting entity provides in its consolidated financial statements related to the noncontrolling or minority interest.

The Company adopts this statement beginning March 1, 2009. It is not believed that this will have an impact on the Company’s consolidated financial position, results of operations or cash flows.

Statement No. 161 – Disclosures about Derivative Instruments and Hedging Activities—an amendment to FASB No. 133

In March 2008, the FASB, issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities—an amendment of FASB Statement No. 133. This standard requires companies to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. This Statement is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged.

The Company has not yet adopted the provisions of SFAS No. 161, but does not expect it to have a material impact on its consolidated financial position, results of operations or cash flows.

Statement No. 162 – The Hierarchy of Generally Accepted Accounting Principles

In May 2008, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles. SFAS No. 162 sets forth the level of authority to a given accounting pronouncement or document by category. Where there might be conflicting guidance between two categories, the more authoritative category will prevail. SFAS No. 162 will become effective 60 days after the SEC approves the PCAOB’s amendments to AU Section 411 of the AICPA Professional Standards.

SFAS No. 162 has no effect on the Company’s financial position, statements of operations, or cash flows at this time.

Statement No. 163 – Accounting for Financial Guarantee Insurance Contracts – and interpretation of FASB Statement No. 60

In May 2008, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 163, Accounting for Financial Guarantee Insurance Contracts-and interpretation of FASB Statement No. 60. SFAS No. 163 clarifies how Statement 60 applies to financial guarantee insurance contracts, including the recognition and measurement of premium revenue and claims liabilities. This statement also requires expanded disclosures about financial guarantee insurance contracts. SFAS No. 163 is effective for fiscal years beginning on or after December 15, 2008, and interim periods within those years.

SFAS No. 163 has no effect on the Company’s financial position, statements of operations, or cash flows at this time.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued

APPLICATION OF CRITICAL ACCOUNTING POLICIES

Our financial statements and accompanying notes are prepared in accordance with US GAAP. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. These estimates and assumptions are affected by management’s application of accounting policies. Critical accounting policies for us are revenue recognition and foreign currency translation.

The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sale price is fixed or determinable, and collectability is reasonably assured. Most of the sales occur within the PR China.

The accompanying financial statements are presented in United States (US) dollars. The functional currency is the Renminbi (RMB). The financial statements are translated into US dollars from RMB at year-end exchange rates for assets and liabilities, and weighted average exchange rates for revenues and expenses. Capital accounts are translated at their historical exchange rates when the capital transactions occurred.

RMB is not freely convertible into the currency of other nations. All such exchange transactions must take place through authorized institutions. There is no guarantee that RMB amounts could have been, or could be, converted into US dollars at rates used in translation.

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

Our international sales accounted for very little of our net sales from 2006 through 2007. As a result, we have exposure to foreign exchange risk with respect to a minor portion of our sales. Fluctuations in exchange rates, particularly in the U.S. dollar to yuan (RMB) exchange rate, do not affect materially affect our gross and net profit margins even though they could result in foreign exchange and operating losses.

Our primary foreign currency exposures are transaction, cash flow and translation:

Transaction Exposure: We have certain asset and liabilities, primarily receivables, investments and accounts payable that are denominated in currencies other than the relevant entity's functional currency. In certain circumstances, changes in the functional currency value of these assets and liabilities create fluctuations in our reported consolidated financial position, results of operations and cash flows. We may enter into foreign exchange forward contracts or other instruments to minimize the short-term foreign currency fluctuations on such assets and liabilities. The gains and losses on the foreign forward contracts offset the transaction gains and losses on certain foreign currency receivables, investments and payables recognized in earnings.

Cash Flow Exposure: We have forecasted future cash flows, including revenues and expenses, denominated in currencies other than the relevant entity's functional currency. Our primary cash flow exposures include future customer collections and vendor payments.

Earnings Translation Exposure: Fluctuations in foreign currency exchange rates do not create volatility in our reported results of operations because we are required to consolidate the financial statement of all of our subsidiaries and most of our sales are in China. We decide to purchase forward exchange contracts or other instruments to offset the impact of currency fluctuations. Such contracts would be marked-to-market on a monthly basis and any unrealized gain or loss would be reported in interest and other income, net. We do not edge translation exposure at this time but may do so in the future.

Item 3.

Quantitative and Qualitative Disclosures about Market Risk - continued

Interest Rate Risk

We are exposed to interest rate risk because some of our distributors and other vendees depend on debt financing to purchase our products and some of our subsidiaries depend on debt financing to construct facilities and to improve the farms. Although the useful life of our farm products is short, our distributors and vendees still have to pay the entire cost of their purchases at the time of shipment. As a result, many of our distributors and vendees rely on debt financing to fund their up-front cash flow needs and expenditures. An increase in interest rates could make it difficult for our distributors and vendee to secure the financings necessary to purchase, hold and resell our products, and thus lower and postpone demand for our products and reduce our net sales.

Commodity Risk

We are exposed to price risks associated with raw material purchases and sales into the domestic and foreign commodities markets.

Item 4.

Controls and Procedures.

Changsheng Zhou and HaiYun Zhuang, our Chief Executive Officer and Chief Financial Officer, respectively, have concluded that our disclosure controls and procedures are appropriate and effective. They have evaluated these controls and procedures as of the date of this report on Form 10-Q. There were no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Our management, including our Chief Executive Officer and Chief Financial Officer, believes that our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving their objectives and are effective at the reasonable assurance level. However, our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost effective control system, misstatements due to error or fraud may occur and not be detected.

PART II

Item 1.

Legal Proceedings

The Company is not presently a party to any legal actions.

Item 1A.

Risk Factors

See Item 3 in part above and the Company’s 10-K for the year ended December 31, 2009

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

None

Item 3.

Defaults Upon Senior Securities

None

Item 4.

Submission of Matters to Vote of Security Holders

None

Item 5.

Other Information

None

Item 6.

Exhibits

Exhibit No.	Description
31.1	Certification of Chief Executive Officer Pursuant to Securities Exchange Act of 1934 Rule 13a-14(a) or 15d-14(a)

31.2	Certification of Chief Financial Officer Pursuant to Securities Exchange Act of 1934 Rule 13a-14(a) or 15d-14(a)
32.1	Certification of Chief Executive Officer Pursuant to 18 U.S.C. 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of Chief Financial Officer Pursuant to 18 U.S.C. 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Dated: July 24, 2010

YASHENG GROUP

By:/s/Changsheng Zhou

Changsheng Zhou

Chief Executive Officer

/s/ Haiyun Zhuang

Haiyun Zhuang

Chief Financial Officer

Yasheng Group - FORM 10-Q - August 13, 2010

Attached files

Yasheng Group Reports