YaSheng 10Q 2009 Q2 Quarterly report

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, 2009

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 (12/31/08). $ 736,213,299.

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 Operations	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		15

Item 3	Quantitive and Qualitative Disclosures about Market Risk		19

Item 4	Controls and Procedures		20

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		21

Item 5	Other Information		21

Item 6	Exhibits		21

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, 2009, and the related condensed consolidated statements of income, stockholders’ equity, and cash flows for the three-month periods ended June 30, 2009 and 2008. 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, 2008, and the related consolidated statements of income, stockholders’ equity, and cash flows for the year then ended and in our report dated March 15, 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, 2008 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

April 25, 2010

YASHENG GROUP
Condensed Consolidated Balance Sheets (unaudited)
(In US Dollars)

	As of
	June 30,		December 31,
	2009		2008
	(unaudited)		(audited)
ASSETS
Current assets:
Cash and cash equivalents		8,009,371		7,880,338
Accounts receivable, net		70,584,129		64,616,646
Inventories		74,500,206		70,357,148
Prepaid and other current assets		4,615,998		4,762,327
		-		-
Total current assets		157,709,704		147,616,459
		-		-
Equity and other investments		190,577		190,509
		-		-
Property, plant and equipment, net		397,547,642		403,954,071
Construction in progress		5,531,400		5,823,620
Intangible assets, net		940,156,580		945,931,378
Other long term assets		231,627,159		224,002,445
		-		-
Total assets		1,732,763,062		1,727,518,481
		-		-
LIABILITIES AND STOCKHOLDERS’ EQUITY		-		-
Current liabilities:		-		-
Accounts payable and accrued expenses		55,586,689		65,925,273
Short term loans		21,505,116		25,761,947
VAT Tax payable		1,178,242		1,205,555
Current portion of long term debt		13,915,559		25,228,661
Other current liabilities		1,321,667		1,365,609
		-		-
Total current liabilities		93,507,272		119,487,044
		-		-
Long term debt		3,484,206		3,579,453
Long term payable		71,078,318		77,168,451
		-		-
Total liabilities		168,069,796		200,234,948
		-		-
Stockholders’ equity:		-		-
Common stock, US$1.00 par value		-		-
800,000,000 shares authorized		-		-
155,097,355 shares issued and outstanding		155,097,355		155,097,355
Accumulated other comprehensive income		239,532,957		238,919,350
Retained earnings		1,170,062,954		1,133,266,828
		-		-
Total stockholders’ equity		1,564,693,266		1,527,283,533
		-		-
Total liabilities & stockholders' equity		1,732,763,062		1,727,518,481

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

YASHENG GROUP
Condensed Consolidated Statements of Operations (unaudited)
(In US Dollars)

	For The Three Months Ended June 30,				For The Six Months Ended June 30,
	2009		2008		2009		2008

Net sales		190,121,081		191,171,949		358,199,169		352,981,681
		-		-		-		-
Cost of goods sold		169,131,460		171,380,335		318,796,963		314,210,257
		-		-		-		-
Gross profit		20,989,622		19,791,614		39,402,205		38,771,425
		-		-		-		-
Operating expenses:		-		-		-		-
Sales and marketing		322,755		204,108		647,517		634,987
General and administrative		791,792		763,803		1,564,207		1,516,866
Total operating expenses		1,114,547		967,911		2,211,723		2,151,853
		-		-		-		-
Operating profit		19,875,075		18,823,702		37,190,482		36,619,571
		-		-		-		-
Interest expense		613,205		585,157		1,235,499		1,215,105
		-		-		-		-
Other income (expense)		425,240		19,896		841,143		813,298
		-		-		-		-
Income before income tax expense		19,687,110		18,258,441		36,796,126		36,217,763
Income tax expense		-		-		-		-

Net income		19,687,110		18,258,441		36,796,126		36,217,763

Basic earnings per share		0.13		0.12		0.24		0.23
Weighted average number of shares		155,097,355		155,097,355		155,097,355		155,097,355

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

YASHENG GROUP
Condensed Consolidated Statements of Cash Flows (unaudited)
(In US Dollars)

	For The Six Months Ended June 30,
	2009			2008

Cash flows from operating activities:
Net income		36,796,126			36,217,763
Adjustments to reconcile net income to net cash provided by operating activities:		-			-
Depreciation and amortization		10,658,442			2,706,785
Allowance for doubtful accounts		312,076			(275,425	)
Others		(6,120,630	)		(7,644,728	)
Changes in assets and liabilities:		-			-
Accounts receivable		(6,254,023	)		5,519,532
Inventories		(4,115,253	)		8,976,835
Prepaid and other current assets		148,212			66,584
Accounts payable		(10,361,668	)		(3,739,102	)
Tax payables		(27,789	)		(22,502	)
Accrued expenses and other current liabilities		(47,453	)		(16,734	)
Net cash provided by operating activities		20,988,041			41,789,007
		-			-
Cash flows from investing activities:		-			-
Purchase of assets		(5,185,400	)		(30,227,932	)
Investments		7			9,622
Net cash used in investing activities		(5,185,393	)		(30,218,310	)
		-			-
Cash flows from financing activities:		-			-
Issuance of common stock		-			-
Dividens paid		-			-
Increase (decrease) in debt		(15,686,746	)		(22,541,886	)
Net cash provided by financing activities		(15,686,746	)		(22,541,886	)
		-			-
Effect of exchange rate change on cash and cash equivalents		13,131			5,513,195
		-			-
Net increase (decrease) in cash and cash equivalents		129,033			(5,457,994	)
		-			-
Cash and cash equivalents at beginning of period		7,880,338			22,474,500
Cash and cash equivalents at end of period		8,009,371			17,016,506

Supplemental Disclosures:
Cash paid for interest		1,235,499			1,215,105
Cash paid for income taxes

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

YASHENG GROUP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.	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 Yashe ng 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.

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. 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 r esults 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.

(f)	Shipping and handling costs

The Company records outward freight, purchasing and receiving costs in selling expenses; inspection costs and warehousing costs are recorded as general and administrative expenses.

YASHENG GROUP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

2.	Summary of Significant Accounting Policies - continued

(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.

(k)	Intangible assets

Intangible assets consist of mainly land use rights and are recorded at cost. The Company has over 50,000 acres of arable land that are cultivated using the latest scientific technologies to produce a wide variety of agricultural products.

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.

Land use rights are amortized over 70 years using the straight-line method.

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 expenses advertising as 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.

YASHENG GROUP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

2.	Summary of Significant Accounting Policies - continued

(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%.

(u)	Recent Accounting Pronouncements

Statement No. 151 Inventory Costs-an amendment of ARB No. 43, Chapter 4 (Issued 11/04)

This statement amends the guidance in ARB No. 43, Chapter 4, Inventory Pricing, to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). Paragraph 5 of ARB 43, Chapter 4, previously stated that "...under some circumstances, items such as idle facility expense, excessive spoilage, double freight and re-handling costs may be so abnormal ass to require treatment as current period charges...." This Statement requires that those items be recognized as current-period charges regardless of whether they meet the criterion of "so abnormal." In addition, this Statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities.

Statement No. 152 Accounting for Real Estate Time-Sharing Transactions (an amendment of FASB Statements No. 66 and 67)

This Statement amends FASB Statement No. 66, Accounting for Sales of Real Estate, to reference the financial accounting and reporting guidance for real estate time-sharing transactions that is provided in AICPA Statement of Position (SOP) 04-2, Accounting for Real Estate Time-Sharing Transactions.

This Statement also amends FASB Statement No. 67, Accounting for Costs and Initial Rental Operations of Real Estate Projects, states that the guidance for (a) incidental operations and (b) costs incurred to sell real estate projects does not apply to real estate time-sharing transactions. The accounting for those operations and costs is subject to the guidance in SOP 04-2.

Statement No. 153 Exchanges of Non-monetary Assets (an amendment of APB Opinion No. 29)

The guidance in APB Opinion No. 29, Accounting for Non-monetary Transactions, is based on the principle that exchanges of non-monetary assets should be measured based on the fair value of the assets exchanged. The guidance in that Opinion, however, includes certain exceptions to the principle. This Statement amends Opinion 29 to eliminate the exception for non-monetary exchanges of similar productive assts and replaces it with a general exception for exchanges of non-monetary assets that do not have commercial substance. A non-monetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange.

Statement No. 154 - Accounting Changes and Error Corrections (a replacement of APB Opinion No. 20 and FASB Statement No. 3)

This Statement replaces APB Opinion No. 20, Accounting Changes, and FASB Statement No. 3, Reporting Accounting Changes in Interim Financial Statements, and changes the requirements for the accounting for and reporting of a change in accounting principle. This Statement applies to all voluntary changes in accounting principle. It also applies to changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. When a pronouncement includes specific transition provisions, those provisions should be followed.

Statement No. 157 – Fair Value Measurements

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, to clarify how to measure fair value and to expand disclosures about fair value measurements. The expanded disclosures include the extent to which companies measure assets and liabilities at fair value, the information used to measure fair value, and the effect of fair value on earnings and is applicable whenever other standards require (or permit) assets and liabilities to be measured at fair value. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years.

The adoption of this new Statement has not had a material effect on the Company’s current financial position, results or operations, or cash flows.

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 entities 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.

YASHENG GROUP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

2.	Summary of Significant Accounting Policies - continued

(u)	Recent Accounting Pronouncements - continued

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 companies financial statements to the end that a statement user can better evaluate the nature and financial effects of the business combination. The Company will adopt 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. 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 will adopt 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.

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.

As of	6/30/2009
Raw material		15,251,041
Finished goods		40,166,201
Low value consumable goods		9,231,292
Packaging material		6,409,599
Maintenance material		3,442,074
Total		74,500,206

YASHENG GROUP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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 must 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.

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 the following two types of arrangements, collateral and guarantee. Collateral is loans secured against the assets of the Yasheng Group, while guarantee is 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.

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.

YASHENG GROUP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

11.	Operating leases

The Company has no operating leases for the periods shown.

12.

Segments

With the exception of the Baiyin Cement Plant, all other subsidiaries of the Company are agricultural/food based enterprises. Therefore, the Company has two primary reporting segments: farming and construction materials. Following is selected financial information for each segment:

THREE MONTH COMPARISON
	3 months		3 months
	ended June 30,		ended June 30,
	2009		2008
Construction Materials		1,271,221		1,229,584
Farming		188,949,860,		189,942,365
Total		190,221,081		191,171,949

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, 2008.

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, furth er 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.

ITEM 2.

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

RESULTS OF OPERATIONS

YASHENG GROUP
Condensed Consolidated Statements of Operations (unaudited)
(In US Dollars)

	For The Three Months Ended June 30,				For The Six Months Ended June 30,
	2009		2008		2009		2008

Net sales		190,121,081		191,171,949		358,199,169		352,981,681
		-		-		-		-
Cost of goods sold		169,131,460		171,380,335		318,796,963		314,210,257
		-		-		-		-
Gross profit		20,989,622		19,791,614		39,402,205		38,771,425
		-		-		-		-
Operating expenses:		-		-		-		-
Sales and marketing		322,755		204,108		647,517		634,987
General and administrative		791,792		763,803		1,564,207		1,516,866
Total operating expenses		1,114,547		967,911		2,211,723		2,151,853
		-		-		-		-
Operating profit		19,875,075		18,823,702		37,190,482		36,619,571
		-		-		-		-
Interest expense		613,205		585,157		1,235,499		1,215,105
		-		-		-		-
Other income (expense)		425,240		19,896		841,143		813,298
		-		-		-		-
Income before income tax expense		19,687,110		18,258,441		36,796,126		36,217,763
Income tax expense		-		-		-		-

Net income		19,687,110		18,258,441		36,796,126		36,217,763

Basic earnings per share		0.13		0.12		0.24		0.23
Weighted average number of shares		155,097,355		155,097,355		155,097,355		155,097,355

Comparison of the three months
	Three months				Dollar			Percentage
	ended June 30, 2009		ended June 30, 2008		Change			Change

Sales		190,121,081		191,171,949		(1,050,868	)		(0.5	)%
Costs of Sales		169,131,460		171,380,335		(2,248,876	)		(1.3	)%
Gross Profit		20,989,622		19,791,614		1,198,008			6.1	%
Operating Expenses		1,114,547		967,911		146,635			15.1	%
Interest Expense		613,205		585,157		28,048			4.8	%
Net Income		19,687,110		18,258,441		1,428,669			7.8	%

Comparison of the six months
	Six months				Dollar			Percentage
	ended June 30, 2009		ended June 30, 2008		Change			Change

Sales		358,199,169		352,981,681		5,217,488			1.5	%
Costs of Sales		318,796,963		314,210,257		4,586,707			1.5	%
Gross Profit		39,402,205		38,771,424		630,781			1.6	%
Operating Expenses		2,221,723		2,151,853		59,870			2.8	%
Interest Expense		1,235,499		1,215,105		20,394			1.7	%
Net Income		36,796,126		36,217,763		578,363			1.6	%

ITEM 2.

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

Segments

With the exception of Baiyin Cement Plant, all other subsidiaries of the Company are agricultural enterprises. Therefore, the company has two primary reporting segments: farming and construction materials.

THREE MONTH COMPARISON
	3 months		3 months		Change			%
	Ended June 30,		Ended June 30,					Change
	2009		2008
Construction Materials		1,271,221		1,229,584		41,637			3.4	%
Agriculture/Food		188,949,860		189,942,365		(99,505	)		(.05	)%
Total Sales		190,221,081		191,171,949		(950,868	)		(.05	)%

SIX MONTH COMPARISON
	6 months		6 months		Change			%
	Ended June 30,		Ended June 30,					Change
		2009		2008
Construction Materials		2,399,449		2,296,952		102,498			4.5	%
Agriculture/Food		355,799,720		350,684,730		5,114,990			1.5	%
Total Sales		358,199,169		352,981,682		5,217,487			1.5	%

RECENTLY ISSUED ACCOUNTING STANDARDS

Statement No. 151 Inventory Costs-an amendment of ARB No. 43, Chapter 4 (Issued 11/04)

Statement No. 152 Accounting for Real Estate Time-Sharing Transactions (an amendment of FASB Statements No. 66 and 67)

Statement No. 153 Exchanges of Non-monetary Assets (an amendment of APB Opinion No. 29)

Statement No. 154 - Accounting Changes and Error Corrections (a replacement of APB Opinion No. 20 and FASB Statement No. 3)

Statement No. 157 – Fair Value Measurements

The adoption of this new Statement has not had a material effect on the Company’s current financial position, results or operations, or cash flows.

ITEM 2.

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

RECENTLY ISSUED ACCOUNTING STANDARDS - continued