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Yongye Biotechnology International Announces Record Third Quarter Results



11/13/2008 9:30:30 AM

BEIJING, Nov. 13 /Xinhua-PRNewswire-FirstCall/ -- Yongye Biotechnology International, Inc. , a leading developer, producer and distributor of nutrients for plants and animals in the People's Republic of China, today announced its financial results for the quarter ended September 30, 2008.

Third Quarter 2008 Results

"Our third quarter sales exceeded our second quarter sales even though the second quarter of each year is typically our strongest quarter. Revenue increased almost six fold in the third quarter of 2008 from the third quarter of 2007, and net income more than doubled over the same period," said Mr. Zishen Wu, Chief Executive Officer of Yongye. "Rapid growth resulted from strong demand for our plant nutrient product which we created through the recent expansion of our distribution network which sells to our branded stores. We produce some of the purest and most bioactive fulvic acid based plant and animal nutrients in China, and our recent success supports our plans to increase our presence in the provinces in which we already are located."

Revenue was $18.2 million in the third quarter of 2008, an increase of 593.4% from $2.6 million in the third quarter of 2007. This significant revenue increase was due mainly to the rapid expansion of the Company's sales network of stores. An additional 575 branded stores were added to the network in the first half of 2008, bringing the total number of stores through which the Company distributed its products in the third quarter to 775. The expanded sales network resulted in a total volume of 182,009 units sold of both plant and animal products in the third quarter of 2008, a 427.6% increase from 34,496 units sold in the third quarter of 2007. The Company's plant nutrient product accounted for 99.9% of sales revenue in the third quarter of 2008.

Gross profit was $8.9 million in the third quarter of 2008, a 456.6% increase from $1.6 million in the third quarter of 2007. Gross margin was 49.0% compared to 61.1% in the third quarter of 2007. Margin declined mostly because of discounts being given to key distributors and the cost of production being higher in 2008 compared to 2007.

Selling, General and Administrative expenses were $3.9 million in the third quarter of 2008, compared to $355,784 in the third quarter of 2007. These expenses as a percentage of sales increased because of expanded advertising, adding new management personnel, and freight costs of $3,408,813 compared to $140,205 in the third quarter of 2007, an increase of $3,268,608, or 2,331%. Freight costs increased dramatically because the Company distributed products to ten provinces in the third quarter of 2008 compared to four provinces in the third quarter of 2007. The predecessor company that existed in 2007 that became Yongye had a cost structure that was similar to Yongye's current cost structure, but on a much smaller scale.

Income from Operations was $5.0 million in the third quarter of 2008, with operating margin of 27.6%, compared to $1.2 million during the third quarter of 2007, with operating margin 47.5%.

Net income grew 283.5% to $4.5 million in the third quarter of 2008, or $0.22 per diluted share, compared to net income of $1.2 million, or $0.10 per diluted share, in the third quarter of 2007.

The diluted weighted average number of shares outstanding increased from 11,444,775 in the third quarter of 2007 to 20,103,760 in the quarter ended September 30, 2008 because additional shares were issued in private placements in April and September 2008.

Nine Months 2008 Results

Net revenue was $45.2 million in the nine months ended September 30, 2008, up 320.3% from $10.8 million for the nine months ended September 30, 2007. Gross profit was $23.5 million with a gross margin of 52.0%, compared to $5.4 million with a gross margin of 50.1% for the nine months ended September 30, 2007. Operating income was $14.8 million with an operating margin of 32.7%, compared to $4.8 million with an operating margin of 44.7% in the nine months ended September 30, 2007. Net income was $12.2 million, or $0.75 per diluted share, compared to $4.5 million, or $0.40 per diluted share, for the nine months ended September 30, 2007.

Financial Condition

On September 30, 2008, cash totaled $6.8 million, compared to $376,002 as of December 31, 2007. The cash balance increased because of increased cash sales, collections of the previous quarter accounts receivable and the private placement that took place in September 2008.

Accounts receivable was $20.7 million as of September 30, 2008, compared to $1.6 million as of December 31, 2007. This large accounts receivable is due in part to the high level of sales throughout the third quarter. Additionally, it is customary in China's agriculture industry to extend credit terms which allow distributors to pay over a longer period of time than what may be usual in other industries. Consequently, the collection cycle for accounts receivable tends to take longer than in other industries. The Company has every reason to believe that its accounts receivable will be paid under the terms extended to its customers through the end of 2008. As of September 30, 2008, Yongye did not have any accounts receivable that were uncollected beyond 180 days.

As of September 30, 2008, the Company had total assets of $35.6 million, compared to $23.1 million as of December 31, 2007. Working capital was $28.4 million, total current liabilities were $3.7 million and the Company had $204,962 in long term liabilities. Stockholders' equity totaled $30.5 million as of September 30, 2008, compared to $12.9 million at the end of 2007. Illustrating differences between Yongye Nongfeng and the predecessor company it spun off from in 2008, changes in working capital over the nine month period ended September 30, 2008 were primarily due to a decrease in inventory of $7,791,256, reflecting Yongye Nongfeng's current business model of purchasing only finished goods as inventory, an increase in cash of $6,471,556 due mostly to two financings, increased sales capability, and a large accounts receivable increase of $19,048,258 because of greater sales volume.

Key Events and Changes

In September, the Company closed a private placement financing through which the Company issued 6,073,006 shares of its common stock for gross proceeds of approximately $9.4 million. The proceeds from this placement are being used to pay for the Company's recently opened production facility and for organizational restructuring.

As described in its September Financing Disclosure Schedule, Yongye acquired its predecessor company's manufacturing equipment and will acquire remaining land use rights, buildings, equipment and permits which currently belong to its predecessor and outsourced manufacturing partner Inner Mongolia Yongye once the predecessor and manufacturing partner are ready to transfer their fertilizer manufacturing license to Yongye Nongfeng. This will enable Yongye Nongfeng to centralize and better manage the Company's product research and development, manufacturing, marketing and distribution. The Company hopes to become a more tightly integrated business with greater control over product quality and intellectual property.

In October, the Company opened a new production facility in Hohhot, Inner Mongolia. This new facility added 8,000 metric tons of production capacity per year. Yongye expects the new facility to reach an annual average utilization rate of 60% for 2009. The new facility brings the Company's total production capacity to 10,000 metric tons per year.

Business Outlook

"China's government recently announced that land reform will take place through which farmers will be allowed to sell or trade their land rights. We expect this reform to lead to larger and better managed farms, which should increase demand for our products," said Mr. Wu. "China's government also recently announced a major economic stimulus program that includes rural development. Details of what will take place are not yet available, but should have the effect of raising rural incomes and increasing demand for higher quality food products."

We look forward to utilizing our new increased production capacity to meet growing demand for our products. We plan to continue growing by deepening the penetration of our distribution and sales network, and eventually broadening our geographic market coverage. We also plan to increase our ability to provide technical assistance to our customers and help them achieve the best possible results through use of our products," stated Mr. Wu. "As part of the private placement financing that took place in April 2008, we entered into a 'make good' agreement that set a target of a minimum of $10.3 million in net income for fiscal year 2008. I am pleased to report that we have exceeded our make good target as of the third quarter of 2008. We expect to achieve 2009 make good targets of $44 million in revenue and $15.2 million in net income."

Conference Call

The Company will host a conference call at 08:00 a.m. Eastern time on Thursday, November 13, 2008 to discuss its third quarter 2008 results.

To participate in the live conference call, please dial the following number five to ten minutes prior to the scheduled conference call time: +1- 888-482-0024. International callers should dial +1-617-801-9702. The conference pass code is 544 101 83.

For those who are unable to participate in the conference call at the time of the call, a replay will be available for fourteen days after the call is held. To access the replay, please dial +1-888-286-8010. International callers should dial +1-617-801-6888. The replay pass code is 746 062 47.

About Yongye Biotechnology International, Inc.

Yongye Biotechnology International, Inc., headquartered in Beijing, is engaged in the development, distribution and sales of fulvic acid based nutrients for plants and animals. The Company's patent pending processes and proprietary formulas allow it to create products which increase crop yields and improve the health of livestock. Its sole operating subsidiary, Yongye Nongfeng Biotechnology Company, Ltd., is located in Inner Mongolia. The Company sells its products through distributors and directly to farmers located in ten provinces throughout China.

Safe Harbor Statement

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

CONTACT: Mr. Larry Gilmore-VP of Corporate Strategy, Yongye Biotechnology
International, Inc., +1-818-390-1272, or larry.gilmore@gmail.com; Or Mr.
Crocker Coulson, President of CCG Investor Relations, Inc., +1-646-213-1915
(New York), or crocker.coulson@ccgir.com

Web site: http://www.ccgir.com/


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