Yanglin Soybean 10Q 2010 Q1 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 March 31, 2010

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

For the transition period from _______ to _______

Commission file number 000-52127

YANGLIN SOYBEAN, INC.

(Exact name of registrant as specified in its charter)

Nevada	20-4136884
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

99 Fan Rong Street, Jixian County, Heilongjiang 155900 P.R. China

(Address of principal executive offices)

Registrant’s telephone number, including area code: (86) 469-467-8077

(Former Name, Former Address And Former Fiscal Year, If Changed Since Last Report)

Indicate by check mark whether the registrant (1) 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. Yes x No o

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). Yes o No o

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 definitions of “accelerated filer”, “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o	Accelerated filer o
Non-accelerated filer o	Smaller Reporting Company x
(Do not check if a Smaller Reporting Company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

As of May 13, 2010, the Company had 20,465,119 shares of Common Stock, $0.001 par value per share, outstanding.

Yanglin Soybean, Inc.

INDEX

			Page
Special Cautionary Notice Regarding Forward-Looking Statements			3

Part I — Financial Information			4

	Item 1.	Financial Statements	4

	(a)	Consolidated Balance Sheets as of March 31, 2010 (unaudited) and December 31, 2009	5

	(b)	Consolidated Statements of Operations and Other Comprehensive Income for the three months ended March 31, 2010 and 2009 (as restated) (unaudited)	6

	(c)	Consolidated Statement of Changes in Stockholders’ Equity for the three months ended March 31, 2010 (unaudited)	7

	(d)	Consolidated Statements of Cash Flows for the three months ended March 31, 2010 and 2009 (as restated) (unaudited)	8

	(e)	Notes to Consolidated Financial Statements (unaudited)	9

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	53

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	66

	Item 4.	Controls and Procedures	66

Part II — Other Information			69

	Item 1	Legal Proceedings	69

	Item 1A.	Risk Factors	69

	Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	69

	Item 3	Defaults upon Senior Securities	69

	Item 4	(Removed and Reserved)	69

	Item 5	Other Information	69

	Item 6.	Exhibits	69

	Signatures		70

PART 1-FINANCIAL INFORMATION

ITEM 1-FINANCIAL STATEMENTS

YANGLIN SOYBEAN INC.

CONSOLIDATED BALANCE SHEETS

AS AT MARCH 31, 2010, AND DECEMBER 31, 2009

(Stated in US Dollars)

	March 31, 2010			December 31, 2009
	(unaudited)
ASSETS
Current assets
Cash	$	38,023,416		$	34,811,611
Cash-restricted		1,684,683			1,740,605
Trade receivables, net		332			332
Inventories		5,119,851			8,356,345
Advances to suppliers		12,453			12,451
Prepaid VAT and other taxes		4,906,136			4,917,250
Other receivables and prepaid expenses		135,649			108,200
Total current assets		49,882,520			49,946,794

Property, plant and equipment, net		26,583,922			27,297,365
Assets held for sale		570,501			570,409
Intangible assets, net		4,362,786			4,415,908
TOTAL ASSETS	$	81,399,729		$	82,230,476

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Short-term bank loans	$	20,479,513		$	20,476,218
Loans from related parties – current		52,906			53,676
Accounts payable		6,632			20,866
Other payables		828,777			824,424
Customers deposits		1,769,438			1,395,524
Accrued liabilities		595,519			635,474
Total current liabilities		23,732,785			23,406,182

Long-term liabilities
Loan from related parties – non-current		288,219			314,191
Warrant liability		22,452,127			27,573,698
TOTAL LIABILITIES		46,473,131			51,294,071

STOCKHOLDERS' EQUITY
Convertible preferred stock:
Series A $0.001 par value, 50,000,000 shares authorized; 9,534,883 shares issued and outstanding		9,535			9,535
Series B $0.001 par value, 10,000,000 shares authorized; no shares issued and outstanding		-			-
Common stock:
$0.001 par value, 100,000,000 shares authorized; 20,465,119 shares issued and outstanding		20,465			20,465
Additional paid-in capital		27,909,875			27,899,749
Statutory reserves		5,628,636			5,628,636
Accumulated deficit		(5,982,379	)	(9,953,046		)
Accumulated other comprehensive income		7,340,466			7,331,066
Total stockholders’ equity		34,926,598			30,936,405
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	81,399,729		$	82,230,476

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

YANGLIN SOYBEAN INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME FOR THE THREE MONTHS ENDED MARCH 31, 2010, AND 2009, AS RESTATED (UNAUDITED)

(Stated in US Dollars)

	2010			2009
				(As restated)
Net sales	$	34,082,815		$	43,032,326
Cost of sales		(34,066,192	)		(44,174,348	)
Gross profit (loss)		16,623			(1,142,022	)

Operating Expenses
Selling expenses		(64,776	)		(69,246	)
General and administrative expenses		(850,042	)		(1,018,180	)
Total operating expenses		(914,818	)		(1,087,426	)
Loss from operations		(898,195	)		(2,229,448	)
Interest expense		(278,612	)		(93,505	)
Interest income		26,253			71,725
Other (expenses) income		(350	)		29
Changes in fair value of warrants		5,121,571			27,114,955
Income before income taxes and other comprehensive income		3,970,667			24,863,756
Income tax		-			-
Net income		3,970,667			24,863,756
Foreign currency translation adjustment		9,400			90,645
Other comprehensive income	$	3,980,067		$	24,954,401
Earnings per share
Basic	$	0.19		$	1.24
Diluted	$	0.13		$	0.63

Weighted average shares outstanding
Basic		20,465,119			20,000,003
Diluted		30,445,616			39,177,594

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

YANGLIN SOYBEAN INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED MARCH 31, 2010 (UNAUDITED)

(Stated in US Dollars)

	Preferred stock												(Accumulated			Accumulated
	Series A				Common stock				Additional				deficit)			other
	Number of shares		Amount		Number of shares		Amount		paid-in capital		Statutory reserves		retained earnings			comprehensive income		Total

Balance, December 31, 2009		9,534,883	$	9,535		20,465,119	$	20,465	$	27,899,749	$	5,628,636	$	(9,953,046	)	$	7,331,066	$	30,936,405
Net income														3,970,667					3,970,667
Share-based compensation expense										10,126									10,126
Foreign currency translation adjustment																	9,400		9,400
Balance, March 31, 2010		9,534,883	$	9,535		20,465,119	$	20,465	$	27,909,875	$	5,628,636	$	(5,982,379	)	$	7,340,466	$	34,926,598

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

YANGLIN SOYBEAN INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2010, AND 2009 (AS RESTATED) (UNAUDITED)

(Stated in US Dollars)

	2010			2009
	(unaudited)			(as restated)
Cash flows from operating activities
Net income	$	3,970,667		$	24,863,756
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation		717,843			983,446
Amortization		53,833			54,420
Share-based compensation expense		10,126			-
Bad debt expense		218			-
Loss on disposal of property, plant and equipment		-			229,912
Change in fair value of warrants		(5,121,571	)		(27,114,955	)
Changes in operating assets and liabilities:
Inventories		3,237,871			(2,408,856	)
Advances to suppliers		1,216			3,204,941
Prepaid VAT and other taxes		11,905			(1,061,674	)
Other receivables		(28,866	)		71,730
Accounts payable		(14,238	)		(9,308	)
Other payables		4,221			156,368
Customers deposits		373,693			44,546
Accrued liabilities		(40,036	)		29,631

Net cash provided by (used in) operating activities		3,176,882			(956,043	)

Cash flows from investing activities
Purchase of property, plant and equipment		-			(197,424	)

Net cash used in investing activities		-			(197,424	)

Cash flows from financing activities
Proceeds from short-term bank loans	-			6,572,615
Cash - restricted		56,158			-
Principal payments for short-term bank loans		-			(2,620,045	)
Principal payments for loans from related parties		(26,801	)		(22,876	)
Net cash flows provided by financing activities		29,357			3,929,694

Net increase in cash		3,206,239			2,776,227
Effect of foreign currency translation on cash		5,566			38,535
Cash- beginning of period		34,811,611			30,365,413
Cash- end of period	$	38,023,416		$	33,180,175

Supplementary cash flow information:
Interest paid	$	278,612		$	93,505

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

YANGLIN SOYBEAN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009 (AS RESTATED)

(UNAUDITED)

(Stated in US Dollars)

1.	ORGANIZATION, PRINCIPAL ACTIVITIES AND BASIS OF PRESENTATION

Yanglin Soybean, Inc. (the “Company”) was incorporated in the State of Nevada on May 26, 1921. Prior to October 3, 2007, the Company had only nominal operations and assets. On October 3, 2007, the Company executed a reverse-merger with Faith Winner Investments Limited (“Faith Winner (BVI)”) by an exchange of shares and the Company issued 18,500,000 common shares at $0.001 par value in exchange for all Faith Winner (BVI) shares. As a result of the share exchange, Faith Winner (BVI) became a wholly-owned subsidiary of the Company. The exchange transaction was accounted for as a reverse acquisition in accordance with Accounting Standards Codification 805 “Business Combinations”. The reverse-merger also included an equity financing of $21,500,000 by the issuance of 9,999,999 Series A Convertible Preferred Stock at $2.15 per share to ten accredited investors.

The Company is in the business of manufacturing, distributing and selling of non-genetically modified soybean products, including soybean oil, salad oil, soybean meal, etc., throughout the Province of Heilongjiang and other parts of People's Republic of China ("PRC"). The Company conducts its operations through the following subsidiaries: (a) a wholly-owned subsidiary in the British Virgin Islands: Faith Winner (BVI), (b) a wholly-owned subsidiary of Faith Winner (BVI) located in the PRC: Faith Winner (Jixian) Agriculture Development Company (“WFOE”) and (c) an entity located in the PRC: Yanglin Soybean Group Co., Ltd. (“Yanglin”), which is controlled by the Company through contractual arrangements with WFOE, as if Yanglin were a wholly-owned subsidiary of the Company.

The Company, its subsidiaries and Yanglin are collectively referred to as “the Group”.

Faith Winner (BVI) and WFOE have entered into a series of agreements respectively with Yanglin and as a result of such agreements WFOE gained control of all of Yanglin’s assets, management and business as if Yanglin were a wholly-owned subsidiary of WFOE. These agreements included a loan agreement, a consigned management agreement, two consignment agreements of equity interests, an exclusive purchase option agreement, a registered trademark transfer contract and a trademark licensing agreement. The consignment agreements were entered into on September 1, 2007, and the other agreements were all signed on September 24, 2007. The exclusive purchase option agreement and the consigned management agreement were amended as of April 3, 2009. As described by the amendment, the exercise price of the exclusive purchase option shall be $17,000,000, or such greater amount as required by the then applicable Chinese law and regulations. If WFOE elects to purchase the Equity Interests held by Shulin Liu and Huanqin Ding (collectively “the Shareholders”), all of the consideration net tax (the “ Consideration of Equity Transfer ” ) obtained by the Shareholders shall be used to repay Yanglin. If WFOE elects to purchase the assets of Yanglin, Yanglin shall use all of the consideration net tax (the “ Consideration of Assets Transfer ” ) to repay WFOE. To the extent that the Consideration of Equity Transfer or Assets Transfer is greater than $17,000,000 as required by the then applicable law or for any other reasons, the excess shall be paid by Yanglin to WFOE as interest on the loan made under the Loan Agreement dated September 24, 2007 between WFOE and Yanglin.

YANGLIN SOYBEAN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009 (AS RESTATED)

(UNAUDITED)

(Stated in US Dollars)

1.	ORGANIZATION, PRINCIPAL ACTIVITIES AND BASIS OF PRESENTATION (Continued)

Pursuant to the above-mentioned agreements, WFOE made a loan (“the Loan”) of $17 million on October 10, 2007 and it was utilized by Yanglin for working capital needs. In return, the Company obtained management control and an exclusive right to acquire all of the equity of Yanglin. The rights of existing shareholders of Yanglin were assigned by the consignment of equity interests to Faith Winner (BVI). The exclusive purchase agreement and the loan agreement restrict both Yanglin and its shareholders from significant decisions including but not limited to any amendments of articles of association or rules of Yanglin, any change in registered capital, any transfer, mortgage or disposal of Yanglin’s assets or income in a way that would affect WFOE’s security interest, entering any material contract (exceeding RMB5 million in value) and distributing any dividends to the shareholders. Pursuant to the consigned management agreement between WFOE and Yanglin, Yanglin agreed to entrust the business operations of Yanglin and its management to WFOE until WFOE formally acquires all equity or substantially all the assets of Yanglin. Under the consigned management agreement as amended on April 3, 2009, WFOE will provide financial, technical and human resources management services to Yanglin which will enable WFOE to control Yanglin's operations, assets and cash flows. In turn, WFOE will be entitled to a management fee equal to 5% of Yanglin’s annual net sales on a yearly basis.

Under the Registered Trademark Transfer Agreement, Yanglin agreed to transfer to WFOE all of its rights in connection with the two trademarks, including without limitation the title of the trademarks and right to license (the “Transferred Trademark”) for a purchase price of $1,000,000, which is subject to a purchase price adjustment based on the minimum appraised value on intellectual property (“IP”) rights allowed under PRC laws and regulations for such transfer. Under the Trademark Licensing Agreement, WFOE agreed to grant an exclusive license to Yanglin, for a term of 10 years, to use the Transferred Trademark for an annual licensing fee equal to 1% of Yanglin’s net sales of that year. The license fee and the management fee aforesaid – a total of 6% of the annual net sales of Yanglin – entitled by WFOE are designed to approximate Yanglin’s annual net profit. If the licensing and management fees entitled by WFOE exceed the net income after tax of Yanglin, Yanglin should not be obligated to pay WFOE any shortfall. In the event that the net income after tax is greater than the licensing and management fees entitled by WFOE, Yanglin should maintain any excess on its books and should not distribute any of such excess as a dividend in any manner to its shareholders until WFOE exercises its exclusive purchase option pursuant to the Exclusive Purchase Option Agreement dated September 24, 2007 between Yanglin and WFOE and as amended on April 3, 2009.

YANGLIN SOYBEAN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009 (AS RESTATED)

(UNAUDITED)

(Stated in US Dollars)

1.	ORGANIZATION, PRINCIPAL ACTIVITIES AND BASIS OF PRESENTATION (Continued)

According to the exclusive purchase option agreement, WFOE has the exclusive purchase option to purchase all or part of Yanglin’s shareholders’ equity interest in Yanglin when and as permitted under PRC laws and regulations and no other party has the right to purchase any equity from the shareholders of Yanglin. The agreement provides that, unless otherwise required under PRC laws and regulations, the consideration for the equity transfer or the asset transfer under the agreement will be $17 million or such greater amount as required by the then applicable PRC law and regulations (the “Option Price”). Under the loan agreement and the exclusive purchase option agreement, the money received as the Option Price by the shareholders of Yanglin upon execution of the option shall be used to satisfy the repayment of the Loan. Therefore, the actual consideration of the investment in Yanglin is exactly the amount of the Loan. Under such contractual arrangements, all of the assets and equity including any residual profits of Yanglin are totally controlled by WFOE and will be formally captured upon exercise of the exclusive purchase option.

The loan of $17 million to Yanglin is considered as an investment in Yanglin by the Company through a series of contractual arrangements by way of the Loan. As a result of entering into the aforementioned agreements, WFOE should be deemed to control Yanglin as a Variable Interest Entity. The creditors of Yanglin do not have recourse to the Company’s other assets.

The accompanying unaudited consolidated financial statements were prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they may not include all of the information and footnotes required by GAAP for complete consolidated financial statements. All adjustments that are, in the opinion of management, of a normal recurring nature and are necessary for a fair presentation of the consolidated financial statements have been included. Nevertheless, these financial statements should be read in conjunction with the Company’s audited consolidated financial statements contained in its Annual Report on Form 10-K for the year ended December 31, 2009 as filed with the Securities and Exchange Commission on April 15, 2010. The results of operations for the three months ended March 31, 2010, are not necessarily indicative of the results that may be expected for the entire fiscal year or any other interim period.

The Company’s common stock is listed on the Over-the-counter Bulletin Board (“OTCBB”) market and traded under the symbol “YSYB”.

YANGLIN SOYBEAN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009 (AS RESTATED)

(UNAUDITED)

(Stated in US Dollars)

GENERAL

(a)	Restatement of the 2008 Annual Consolidated Financial Statements and 2009 Quarterly Consolidated Financial Statements

The Company has restated its consolidated financial statements as of and for the year ended December 31, 2008 to record the shares its major shareholder, Winner State Investments Limited, committed to transfer to the Company’s Series A Preferred stockholders as a result of failure to list on a National Stock Exchange by December 31, 2008. The Company determined that in accordance with ASC 450 Accounting for Contingencies, the expense should be recorded during the year ended December 31, 2008 as the Company failed the listing requirement and incurred the expense on December 31, 2008. The Company has accounted for this as a contribution of capital and recorded an expense in the amount of $4,480,000 due to the share payment being made by the majority shareholder. Such shares were valued based on the closing market price on December 31, 2008.

Accordingly, changes have been made to the applicable line items associated with additional paid in capital and retained earnings in the 2009 financial statements. Opening retained earnings at January 1, 2009 was decreased by $4.48 million, while additional paid in capital was increased by $4.48 million.

Effective January 1, 2009, we adopted the provisions of FASB ASC Topic 815, "Derivatives and Hedging" ("ASC 815") (previously ElTF 07-5, "Determining Whether an Instrument (or an Embedded Feature) is Indexed to an Entity's Own Stock"). As a result of adopting ASC 815, warrants to purchase the Company's common stock previously treated as equity pursuant to the derivative treatment exemption were no longer afforded equity treatment as there was a down-round protection (full-ratchet down round protection). As a result, the warrants are not considered indexed to the Company's own stock, and as such, all future changes in the fair value of these warrants will be recognized currently in earnings until such time as the warrants are exercised or expire.

On January 1, 2009, the Company recorded as a cumulative effect adjustment by decreasing additional paid-in capital by $15,003,941 and decreasing the beginning balance of retained earnings by $72,047,158, and recording $87,051,099 as a warrant liability to recognize the fair value of such warrants on January 1, 2009. The fair value of the warrants was $27,573,698 on December 31, 2009 and $22,452,127 and $59,936,144 on March 31, 2010 and 2009, respectively. The Company recognized $5,121,571 and $27,114,955 as non-cash income from the change in fair value of warrants for the three months ended March 31, 2010, and 2009 respectively.

YANGLIN SOYBEAN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009 (AS RESTATED)

(UNAUDITED)

(Stated in US Dollars)

2.	GENERAL (Continued)

The effect of the restatement on specific amounts provided in the consolidated financial statements is as follows:

	As of March 31, 2009
Consolidated Balance Sheet	As previously reported		As restated

Warrant liability	$	-	$	59,936,144
Additional paid-in capital		38,389,635		27,865,694
Retained earnings (accumulated deficit)		19,413,325		(29,998,878	)

	For the Three Months Ended March 31, 2009
Consolidated Statement of Operations and Other Comprehensive Income	As previously reported			As restated

Changes in fair value of warrants	$	-		$	27,114,955
(Loss) income from operations before income taxes		(2,251,199	)		24,863,756
Net (loss) income		(2,251,199	)		24,863,756
Other comprehensive (loss) income		(2,160,554	)		24,954,401
(Loss) earnings per share:
Basic	$	(0.11	)	$	1.24
Diluted	$	(0.06	)	$	0.63

	For the Three Months Ended March 31, 2009
Consolidated Statement of Cash Flows	As previously reported			As restated

Net (loss)/income	$	(2,251,199	)	$	24,863,756
Change in fair value of warrants		-		$	(27,114,955)

YANGLIN SOYBEAN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009 (AS RESTATED)

(UNAUDITED)

(Stated in US Dollars)

2.	GENERAL (Continued)

	As of and For the Three Months Ended March 31, 2009
Consolidated Statement of Changes in Stockholders’ Equity	As previously reported			As restated

Net (loss) income	$	(2,251,199	)	$	24,863,756
Additional paid-in capital	$	38,389,635		$	27,865,694
Retained earnings (accumulated deficit)		19,413,325			(29,998,878	)

YANGLIN SOYBEAN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009 (AS RESTATED)

(UNAUDITED)

(Stated in US Dollars)

(b)	Accounting hierarchy

On September 30, 2009, the Company adopted changes issued by the Financial Accounting Standards Board (“FASB”) to the authoritative hierarchy of GAAP. These changes establish the FASB Accounting Standards Codification (“ASC”) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with GAAP. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. The FASB will no longer issue new standards in the form of Statements, FASB Staff Positions (“FSP”), or Emerging Issues Task Force Abstracts; instead the FASB will issue Accounting Standards Updates (“ASUs”). ASUs will not be authoritative in their own right as they will only serve to update the ASC. These changes and the ASC itself do not change GAAP. Other than the manner in which new accounting guidance is referenced, the adoption of these changes had no impact on the Company’s consolidated financial statements.

YANGLIN SOYBEAN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009 (AS RESTATED)

(UNAUDITED)

(Stated in US Dollars)

2.	GENERAL (Continued)

(c)	Principles of consolidation

The share exchange transaction as disclosed in Note 1 has been accounted for as a recapitalization of Yanglin Soybean Inc. where the Company (the legal acquirer) is considered the accounting acquiree and Faith Winner (BVI) (the legal acquiree) is considered the accounting acquirer. As a result of this transaction, the Company is deemed to be a continuation of the business of Faith Winner (BVI). The historical stockholders’ equity of the accounting acquirer prior to the share exchange has been retroactively restated as if the share exchange transaction occurred as of the beginning of the first period presented.

The unaudited consolidated financial statements include the accounts of the Company and the following subsidiaries, as well as Yanglin, a variable interest entity of which WFOE is the primary beneficiary as defined by ASC 810 “Consolidation of Variable Interest Entities.” All intercompany transactions and accounts have been eliminated in consolidation.

Name of Company	Place of incorporation	Attributable interest

Faith Winner Investments Ltd	British Virgin Islands		100	%

Faith Winner (Jixian) Agriculture Development Company	PRC		100	%

Heilongjiang Yanglin Soybean Group Co. Ltd*	PRC		100	%

*Deemed variable interest entity

YANGLIN SOYBEAN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009 (AS RESTATED)

(UNAUDITED)

(Stated in US Dollars)

2.	GENERAL (Continued)

(d)	Use of estimates

The preparation of the financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Items subject to such estimates and assumptions include the carrying value and estimated useful lives of long-lived assets; valuation allowances for receivables; valuation of warrant liabilities; inventory and deferred tax assets. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may differ from those estimates. Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the unaudited consolidated financial statements in the period they are determined to be necessary.

(e)	Economic and political risks

The Group’s operations are conducted in the PRC. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environment in the PRC, and by the general state of the PRC economy.

The Group’s operations in the PRC are subject to special considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environment and foreign currency exchange. The Group’s results may be adversely affected by changes in the political and social conditions in the PRC, and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion, remittances abroad, and rates and methods of taxation, among other things.

YANGLIN SOYBEAN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009 (AS RESTATED)

(UNAUDITED)

(Stated in US Dollars)

2.	GENERAL (Continued)

(f)	Intangible assets

Intangible assets include land use rights and railway use rights.

Land use rights are stated at cost less accumulated amortization. Amortization is provided over the respective useful lives, using the straight-line method. Estimated useful lives range from 22 to 50 years.

Railway use rights are stated at cost less accumulated amortization. Amortization is provided over the respective useful lives, using the straight-line method. Estimated useful life is 10 years.

(g)	Property, plant and equipment

Property, plant and equipment are carried at cost less accumulated depreciation. Depreciation is provided over their estimated useful lives, using the straight-line method. Estimated useful lives of the property, plant and equipment are as follows:

Buildings		10 - 35 years
Machinery and equipment		3.5 - 30 years
Office equipment		4 - 20 years
Motor vehicles		6 - 10 years

The costs and related accumulated depreciation of assets sold or otherwise retired are eliminated from the accounts and any gain or loss is included in the consolidated statement of operations and other comprehensive income. The cost of maintenance and repairs is charged to operations when incurred, whereas significant renewals and betterments are capitalized.

(h)	Accounting for the impairment of assets held for sale

The assets held for sale by the Group are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of assets may not be recoverable. It is reasonably possible that these assets could become impaired as a result of changes in technologies or situation in the industry. Determination of recoverability of assets to be held and used is done by comparing the carrying amount of an asset to the future net undiscounted cash flows to be generated by the asset.

YANGLIN SOYBEAN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009 (AS RESTATED)

(UNAUDITED)

(Stated in US Dollars)

2.	GENERAL (Continued)

If such assets are considered to be impaired, the impairment losses to be recognized are measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets held for sale are reported at the lower of the carrying amount or fair value less estimated costs of disposal.

(i)	Inventories

Inventories consist of finished goods and raw materials, and are stated at the lower of cost or market value. The cost of inventories is measured using the weighted average method. Finished goods are comprised of direct materials, direct labor and an appropriate proportion of production overheads.

(j)	Trade receivables

Trade receivables are recognized and carried at the original invoice amount less an allowance for any uncollectible amounts. An allowance for doubtful accounts is maintained for all customers after considering a variety of factors, including the length of time past due, significant one-time events and the company’s historical experience.

The Group writes off trade receivable against its allowance after reasonable collection efforts have been made and the accounts are deemed uncollectible.

(k)	Customer Deposits

Customer deposits represent advance payments from customers prior to the delivery of goods. The Company requires full payment from customers prior to delivery. Customer deposits are recognized in revenue upon delivery of goods.

YANGLIN SOYBEAN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009 (AS RESTATED)

(UNAUDITED)

(Stated in US Dollars)

2.	GENERAL (Continued)

(l)	Foreign currency translation

The accompanying unaudited consolidated financial statements are presented in United States dollars. The reporting currency of the Group is the U.S. dollar (USD). WFOE and Yanglin use its local currency, Renminbi (RMB), as its functional currency. Results of operations and cash flow are translated at average exchange rates during the period, and assets and liabilities are translated at the end of period exchange rates. Translation adjustments resulting from this process are included in accumulated other comprehensive income in stockholders’ equity. Transaction gains and losses that arise from exchange rate fluctuations from transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.

The PRC government imposes significant exchange restrictions on fund transfers out of the PRC that are not related to business operations. These restrictions have not had a material impact on the Group because it has not engaged in any significant transactions that are subject to the restrictions.

The exchange rates used to translate amounts in RMB into USD for the purposes of preparing the consolidated financial statements were as follows:

	March 31, 2010		December 31, 2009	March 31, 2009
The closing rate at RMB : USD exchange rate		6.8361	6.8542		6.8456
Average three-months ended RMB : USD exchange rate		6.8360			6.8466

The RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions. There is no assurance that the RMB amounts could have been, or could be, converted into USD at the rates used in translation.

YANGLIN SOYBEAN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009 (AS RESTATED)

(UNAUDITED)

(Stated in US Dollars)

2.	GENERAL (Continued)

(m)	Revenue recognition

Revenue is recognized upon the delivery of goods to customers. Revenue is recognized when all of the following criteria are met: Persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the seller’s price to the buyer is fixed or determinable, and collection is reasonably assured.

(n)	Costs of sales

Cost of sales consists primarily of direct material costs, direct labor cost, and applicable overhead costs attributable to the production of products. Permanent write-down of inventory to the lower of cost or market value is also reflected in the cost of revenues. For the three months ended March 31, 2010 and 2009, there were no write-downs of inventories.

(o)	Advertising

The Group expenses all advertising expenses as incurred. Advertising expenses included in selling expenses were both $0 for the three months ended March 31, 2010 and 2009 respectively.

(p)	Shipping and handling

All shipping and handling costs are expensed as incurred and included in selling expense. Total shipping and handling expenses were $16,542 and $22,304 for the three months ended March 31, 2010 and 2009 respectively.

(q)	Stock-Based Compensation

The Company awards stock options and other equity-based instruments to its employees, directors and consultants (collectively “share-based payments”). Compensation cost related to such awards is measured based on the fair value of the instrument on the grant date and is recognized on a straight-line basis over the requisite service period, which generally equals the vesting period. All of the Company’s stock-based compensation is based on grants of equity instruments and no liability awards have been granted.

YANGLIN SOYBEAN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009 (AS RESTATED)

(UNAUDITED)

(Stated in US Dollars)

2.	GENERAL (Continued)

(r)	Pension and Employee Benefits

Full time employees in PRC entities participate in a government mandated multi-employer defined contribution plan pursuant to which certain pension benefits, medical care, unemployment insurance, employee housing fund and other welfare benefits are provided to employees. The PRC labor regulations require the Group to accrue for these benefits based on certain percentages of the employees' salaries. Management believes full time employees who have passed the probation period are entitled to such benefits. The total provisions for employee pension were $37,965 and $25,883 for the three months ended March 31, 2010 and 2009 respectively.

(s)	Income taxes

The Group accounts for income tax using an asset and liability approach and allows for recognition of deferred tax benefits in future years. Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Group is able to realize their benefits, or the future realization is uncertain.

The Group applied the provisions of ASC 740.10, Accounting For Uncertainty In Income Taxes, which provides clarification related to the process associated with accounting for uncertain tax positions recognized in our consolidated financial statements. ASC 740.10 prescribes a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken, or expected to be taken, in a tax return. ASC 740.10 also provides guidance related to, among other things, classification, accounting for interest and penalties associated with tax positions, and disclosure requirements

The Group recognizes accrued interest and penalties related to unrecognized tax benefits in the provision for income taxes in our consolidated statements of operation. The Group’s policy for recording interest and penalties associated with audits is to record such items as a component of income tax expense.

YANGLIN SOYBEAN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009 (AS RESTATED)

(UNAUDITED)

(Stated in US Dollars)

2.	GENERAL (Continued)

(t)	Statutory reserves

Pursuant to the applicable laws in PRC, PRC entities are required to make appropriations to three non-distributable reserve funds, namely the statutory surplus reserve, statutory public welfare fund, and discretionary surplus reserve, based on after-tax net earnings as determined in accordance with the PRC GAAP, after offsetting any prior years’ losses. Appropriation to the statutory surplus reserve should be at least 10% of the after-tax net earnings until the reserve is equal to 50% of the Company's registered capital. Appropriation to the statutory public welfare fund is 5% to 10% of the after-tax net earnings. The statutory public welfare fund is established for the purpose of providing employee facilities and other collective benefits to the employees and is non-distributable other than in liquidation. Beginning from January 1, 2006, enterprises have no further requirements to make the appropriation to the statutory public welfare fund. Discretionary surplus reserve is a prescribed percentage approved by the shareholder. The Group does not make appropriations to the discretionary surplus reserve fund.

As provided in WFOE’s and Yanglin’s Articles of Association, WFOE’s and Yanglin’s net income after taxation can only be distributed as dividends after appropriation has been made for the following:

(i)

Making up cumulative prior years’ losses, if any;

(ii)

Allocations to the “Statutory surplus reserve” of at least 10% of net income after taxation, as determined under PRC accounting rules and regulations, until the fund amounts to 50% of the Company's registered capital, which is restricted for set off against losses, expansion of production and operation or increase in registered capital;

(iii)

Allocations to the discretionary surplus reserve, if any.

The Company established a statutory surplus reserve as well as a statutory public welfare fund and commenced to appropriate 10% and 5%, respectively, of the PRC net income after taxation to these reserves. The amounts included in the statutory reserves consisted of surplus reserve of $3,752,424 and common welfare fund of $1,876,212 as of March 31, 2010 and December 31, 2009 respectively.

YANGLIN SOYBEAN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009 (AS RESTATED)

(UNAUDITED)

(Stated in US Dollars)

2.	GENERAL (Continued)

(u)	Other comprehensive income

Other comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. Among other disclosures, all items that are required to be recognized under current accounting standards as components of comprehensive income are required to be reported in a financial statement that is presented with the same prominence as other financial statements. The Group’s current component of other comprehensive income is the foreign currency translation adjustment.

(v)	Earnings per share

The Company reports earnings per share in accordance with the provisions of FASB ASC 260.10, "Earnings Per Share.” FASB ASC 260.10 requires presentation of basic and diluted earnings per share in conjunction with the disclosure of the methodology used in computing such earnings per share. Basic earnings per share excludes dilution and is computed by dividing income available to common stockholders by the weighted average common shares outstanding during the period. Diluted earnings per share takes into account the potential dilution that could occur if securities or other contracts to issue common stock were exercised and converted into common stock using the treasury method.

(w)	Value-added tax (“VAT”)

Sales represent the involved value of goods, net of a VAT. All of Yanglin’s products that are sold in PRC are subject to a Chinese VAT on the gross sales price. VAT from sales may be offset by VAT paid on purchase of raw materials included in the cost of producing the finished goods.

(x)	Warrant Liability

Effective January 1,2009, we adopted the provisions of FASB ASC Topic 815, "Derivatives and Hedging" ("ASC 815") (previously ElTF 07-5, "Determining Whether an Instrument (or an Embedded Feature) is Indexed to an Entity's Own Stock"). As a result of adopting ASC 815, warrants to purchase the Company's common stock previously treated as equity pursuant to the derivative treatment exemption were no longer afforded equity treatment as there was a down-round protection (full-ratchet down round protection). As a result, the warrants are not considered indexed to the Company's own stock, and as such, all future changes in the fair value of these warrants will be recognized currently in earnings until such time as the warrants are exercised or expire.

YANGLIN SOYBEAN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009 (AS RESTATED)

(UNAUDITED)

(Stated in US Dollars)

2.	GENERAL (Continued)

(y)	Recent accounting pronouncements

In June 2009, the FASB issued ASC810.10, guidance to change financial reporting by enterprises involved with variable interest entities (“VIEs”) which modifies how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. This pronouncement clarifies that the determination of whether a company is required to consolidate an entity is based on, among other things, an entity’s purpose and design and a company’s ability to direct the activities of the entity that most significantly impact the entity’s economic performance. The guidance requires an ongoing reassessment of whether a company is the primary beneficiary of a variable interest entity. This guidance also requires additional disclosures about a company’s involvement in variable interest entities and any significant changes in risk exposure due to that involvement. This guidance is effective for fiscal years beginning after November 15, 2009. This ASC did not have a material impact on the Company’s unaudited consolidated financial statements.

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on our consolidated financial statements upon adoption.

YANGLIN SOYBEAN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009 (AS RESTATED)

(UNAUDITED)

(Stated in US Dollars)

3.	FAIR VALUE

The Company has categorized its assets and liabilities, which are recorded at fair value, based upon the fair value hierarchy specified by FASB ASC 820.

The levels of fair value hierarchy are as follows:

Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access.

Level 2 inputs utilize other-than-quoted prices that are observable, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and inputs such as interest rates and yield curves that are observable at commonly quoted intervals.

Level 3 inputs are unobservable and are typically based on our own assumptions, including situations where there is little, if any, market activity.

The fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties. As of March 31, 2010, the carrying amounts of financial assets and liabilities, such as cash and cash equivalents, accounts receivable, other receivables, short-term bank loans, accounts payable, and other payables, approximate their fair values because of the short maturity of these instruments and market rates of interest available to the Group.

YANGLIN SOYBEAN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009 (AS RESTATED)

(UNAUDITED)

(Stated in US Dollars)

4.	CREDIT RISK AND CUSTOMERS AND SUPPLIERS CONCENTRATIONS

Financial instruments which potentially expose the Group to concentrations of credit risk, is cash and accounts receivable as of March 31, 2010 and December 31, 2009. The Group performs ongoing evaluations of its cash position and credit evaluations of customers to ensure sound collections and minimize credit losses exposure.

CASH- U.S. ACCOUNTS– (RESTRICTED)

As of March 31, 2010 and December 31, 2009, respectively, the Group’s restricted cash of $221,860 and $278,018 was kept in bank accounts in the U.S. Cash accounts at financial institutions in the U.S. may exceed the federal depository insurance coverage limits. In October 2008, the FDIC increased its insurance from $100,000 per depositor to $250,000 and to an unlimited amount for non-interest bearing accounts. The coverage increase, which is temporary, extends through December 31, 2013 and June 30, 2010, respectively. All of the cash held in the U.S. is fully insured. Lastly, there is no unrestricted cash in U.S. accounts.

CASH- PRC ACCOUNTS– (RESTRICTED AND UN-RESTRICTED)

As of March 31, 2010 and December 31, 2009, respectively, the Group’s cash was with banks in the PRC where there is currently no rule or regulation mandated on obligatory insurance of bank accounts.

SALES AND VENDOR CONCENTRATIONS

For the three months ended March 31, 2010 and 2009 respectively, all of the Group’s sales were generated within the PRC. In addition, all accounts receivable as of March 31, 2010 and December 31, 2009 are from entities within the PRC.

For the three months ended March 31, 2010 and 2009 respectively, no customer accounted for 10% or more of the Group’s revenue.

For the three months ended March 31, 2010 and 2009 respectively, no vendor accounted for 10% or more of the Group’s purchases.

YANGLIN SOYBEAN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009 (AS RESTATED)

(UNAUDITED)

(Stated in US Dollars)

5.	CASH-RESTRICTED

Cash-restricted consists of the following at:

	March 31, 2010		December 31, 2009
	(unaudited)

Bank deposits held as collateral for bank loan – PRC	$	1,462,823	$	1,462,587
Bank deposits held in trust account – U.S.		221,860		278,018
Balance at the end of period	$	1,684,683	$	1,740,605

Cash-restricted represents $221,860 and $278,018 as of March 31, 2010 and December 31, 2009, respectively, maintained in a trust account in the United States for the purpose of payment for investor and public relations costs. At March 31, 2010, $1,462,823 was requested by Agricultural Development Bank of China as collateral to guarantee the repayment of the loan of $7,314,112 (RMB50,000,000) from Yanglin.

YANGLIN SOYBEAN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009 (AS RESTATED)

(UNAUDITED)

(Stated in US Dollars)

6.	TRADE RECEIVABLES, NET

Details of trade receivables consist of the following:

	March 31, 2010			December 31, 2009
	(unaudited)

Trade receivables, gross	$	334		$	334
Allowance for doubtful accounts		(2	)		(2	)
Net balance at the end of period	$	332		$	332

An analysis of the allowance for doubtful accounts for the three months ended March 31, 2010 and the year ended December 31, 2009 is as follows:

	March 31, 2010		December 31, 2009
	(unaudited)

Balance at beginning of period/year	$	2	$	1,309
(Reduction) / Addition of bad debt expense		-		(1,307	)
Foreign exchange adjustment		-		-
Balance at the end of period	$	2	$	2

An allowance for doubtful accounts is established when collection of the full amount is no longer probable. Management reviews and adjusts this allowance periodically based on historical experience, the current economic climate as well as its evaluation of the collectability of outstanding accounts. The Group evaluates the credit risks of its customers utilizing historical data and estimations of future performance.

YANGLIN SOYBEAN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009 (AS RESTATED)

(UNAUDITED)

(Stated in US Dollars)

7.	INVENTORIES

Inventories consist of the following:

	March 31, 2010		December 31, 2009
	(unaudited)

Finished goods	$	1,066,174	$	2,560,585
Raw materials		4,053,677		5,795,760
Balance at the end of period	$	5,119,851	$	8,356,345

8.	OTHER RECEIVABLES AND PREPAID EXPENSES

Details of other receivables and prepaid expenses consist of the following:

	March 31, 2010		December 31, 2009
	(unaudited)

Advances for materials	$	4,564	$	3,101
Prepayment for customers’ transportation costs		54,427		56,229
Advances for travel		27,176		28,152
Prepaid service fee		14,628		14,626
Other		34,854		6,092
Balance at the end of period	$	135,649	$	108,200

YANGLIN SOYBEAN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009 (AS RESTATED)

(UNAUDITED)

(Stated in US Dollars)

9.	PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of the following:

	March 31, 2010			December 31, 2009
	(unaudited)

Building	$	9,170,555		$	9,169,080
Machinery and equipment		25,715,029			25,710,890
Office equipment		128,212			128,192
Motor vehicles		1,168,496			1,168,308
		36,182,292			36,176,470
Less: accumulated depreciation		(9,598,370	)		(8,879,105	)
Balance at the end of period	$	26,583,922		$	27,297,365

As of March 31, 2010, building with net book value of $1,502,417 and machinery and equipment with net book value of $9,587,548 were pledged as collateral under certain loan arrangements. These loans were primarily obtained for general working capital.

YANGLIN SOYBEAN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009 (AS RESTATED)

(UNAUDITED)

(Stated in US Dollars)

9.	PROPERTY, PLANT AND EQUIPMENT (Continued)

Included in the above balances of property, plant and equipment are assets deemed as temporarily idle by the management comprising of the following:

	March 31, 2010			December 31, 2009
	(unaudited)
Buildings	$	882,914		$	882,772
Machinery and equipment		3,832,595			3,831,978
		4,715,509			4,714,750
Less: accumulated depreciation		(493,520	)		(393,173	)
Net book value	$	4,221,989		$	4,321,577

Depreciation expense is included in the consolidated statement of operations and comprehensive income as follows:

	Three months ended March 31, 2010		Three months ended March 31, 2009
	(unaudited)		(unaudited) (as restated)

Cost of sales	$	288,245	$	593,997
General and administrative expenses		429,598		389,449
Total depreciation expenses	$	717,843	$	983,446

YANGLIN SOYBEAN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009 (AS RESTATED)

(UNAUDITED)

(Stated in US Dollars)

10.	ASSETS HELD FOR SALE

As of December 31, 2009, Yanglin has classified certain manufacturing facilities as held for sale. Assets held for sale consists of the following:

	March 31, 2010		December 31, 2009
	(unaudited)

Building	$	1,339	$	1,339
Machinery and equipment		569,162		569,070
Balance at end of period/year	$	570,501	$	570,409

Management plans to seek a buyer of these assets on the open market. The assets are expected to be sold in 2010.

Assets held for sale are valued at the lower of cost or fair value less costs to sell. Estimates of fair value are based on the proceeds expected to be realized on the sale of the assets. There were no additional impairment charges recorded during the three months ended March 31, 2010.

YANGLIN SOYBEAN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009 (AS RESTATED)

(UNAUDITED)

(Stated in US Dollars)

11.	INTANGIBLE ASSETS

Intangible assets consist of the following:

Amortized intangible assets	January 1, 2010		Accumulated amortization			Foreign currency translation difference		March 31, 2010 (unaudited)
Land use rights	$	4,004,529		(513,462	)		644	$	3,491,711
Railway use rights		1,199,321		(328,439	)		193		871,075
Total amortized intangible assets	$	5,203,850		(841,901	)		837	$	4,362,786

As of March 31, 2010, land use rights with net book value of $1,257,454 were pledged as collateral for certain loans.

Amortization expenses are included in the consolidated statement of operations and comprehensive income as follows:

	Three months ended March 31, 2010		Three months ended March 31, 2009
	(unaudited)		(unaudited) (as restated)

Selling expenses	$	32,665	$	21,805
General and administrative expenses		21,168		32,615
Total amortization expense	$	53,833	$	54,420

YANGLIN SOYBEAN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009 (AS RESTATED)

(UNAUDITED)

(Stated in US Dollars)

11.	INTANGIBLE ASSETS (Continued)

The estimated aggregate amortization expenses for intangible assets for the five succeeding years are as follows:

March 31,
2011	$	215,328
2012		215,328
2013		215,328
2014		215,328
2015		215,328
thereafter		3,286,146
	$	4,362,786

YANGLIN SOYBEAN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009 (AS RESTATED)

(UNAUDITED)

(Stated in US Dollars)

12.	SHORT-TERM BANK LOANS

(A)	Short-term bank loans consist of the following:

	March 31, 2010		December 31, 2009		Collateral
	(unaudited)

Loans from Agricultural Development Bank of China, interest rates at 5.31% per annum, due August 30, 2010	$	7,314,112	$	7,312,935

Loans from Agricultural Development Bank of China, interest rates at 5.31% per annum, due November 5, 2010		5,851,289		5,850,348	Building, machinery and equipment and land use rights

Loans from Agricultural Development Bank of China, interest rates at 5.31% per annum, due July 30, 2010		7,314,112		7,312,935	Restricted cash

Balance at the end of period	$	20,479,513	$	20,476,218

These loans were obtained and used by Yanglin for working capital. Interest expense for the three months ended March 31, 2010 and 2009 were $271,876 and $84,659, respectively.

(B)	Credit lines

As of March 31, 2010, the Group had a credit line facility with the availability to borrow up to $105 million (equivalent to RMB 718 million), with Agricultural Development Bank of China (the “Bank”). On April 25, 2010, the Bank cancelled this credit line, since it was only to be used to purchase soybeans in the season of bulk purchase of agricultural products, and the season was complete. As a result, the Group has no available credit line after that date. The Bank will review the status of the Group and determine if a new credit line will be granted.

YANGLIN SOYBEAN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009 (AS RESTATED)

(UNAUDITED)

(Stated in US Dollars)

13.	OTHER PAYABLES

Other payables consist of the following:

	March 31, 2010		December 31, 2009
	(unaudited)

Due for construction	$	824,523	$	824,424
Others		4,254		-
Balance at the end of period	$	828,777	$	824,424

Due for construction represents the balance due to respective contractors, which consists primarily of retainage payable which is expected to be paid after one year from the time Yanglin accepts the work. The work was accepted in 2009. Yanglin expects to pay the balance in the second quarter of 2010.

14.	RELATED PARTIES TRANSACTIONS

(A)	Loans from related parties consist of the following:

	March 31, 2010			December 31, 2009
	(unaudited)

Loans from certain employees, interest rates at 7.722% and 9.405% per annum respectively, with various installments, due October 28, 2016	$	341,125		$	367,867

Current portion due within one year		(52,906	)		(53,676	)
	$	288,219		$	314,191

These loans were obtained and used by Yanglin for working capital. All of the installments due during the first three months of 2010 were paid on their due dates. Interest expense for the three months ended March 31, 2010 and 2009 were $6,736 and $8,845, respectively.

YANGLIN SOYBEAN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009 (AS RESTATED)

(UNAUDITED)

(Stated in US Dollars)

14.	RELATED PARTIES TRANSACTIONS (Continued)

These loans are between Yanglin, Mr. Shulin Liu, the CEO of Yanglin, and certain employees and officers of Yanglin. Mr. Shulin Liu gifted 12 houses to these employees and officers for their long-term services, and these employees and officers personally obtained mortgage loans from the Industrial and Commercial Bank of The PRC, using these houses as collateral. The employees simultaneously loaned the proceeds to Yanglin to be used as working capital. These employees and officers have been making principal and interest payments on the loans directly to the bank and Yanglin will reimburse them for the full amount at a later date.

The future principal payments under the bank loans are as follows:

For the twelve months ended March 31,
2011	$	52,906
2012		50,570
2013		45,119
2014		48,676
2015		52,514
Thereafter		91,340
Total	$	341,125

(B)	Heilongjiang Yanglin Group Seed Co. Ltd.

Heilongjiang Yanglin Group Seed Co. Ltd. “Yanglin Seed Co.”, which is wholly owned and managed by Mr. Shulin Liu, the Company’s chief executive officer, is an affiliate of the Company. Yanglin Seeds Co. supplies the farmers with “Yanglin” brand soybean seeds which provide higher oil yield. Pursuant to annual intentional supply agreements with the Company, the farmers sell the harvested soybeans to Yanglin. Yanglin Seeds Co. extends favorable commercial terms to these farmers, such as competitive price, for them to purchase “Yanglin” soybean seeds. Meanwhile, Yanglin offers cash-upon-delivery payment terms to the farmers for purchases of the harvested soybeans grown from “Yanglin” soybean seeds. These arrangements ensure that we maintain good relations with our suppliers, and enjoy a stable supply of soybeans that meet our high quality standards. There was no related party transaction or commitment between Yanglin Seed Co. and the Group as of March 31, 2010 and for the three months ended March 31, 2010 and 2009 respectively.

YANGLIN SOYBEAN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009 (AS RESTATED)

(UNAUDITED)

(Stated in US Dollars)

14.	RELATED PARTIES TRANSACTIONS (Continued)

(C)	Stock exchange listing shares contributed by majority shareholder

In connection with the sale of the Series A Convertible Preferred Stock during October 2007, the Company committed to apply to list and have its shares of common stock traded on the Nasdaq Capital Market, the Nasdaq Global Select Market or the Nasdaq Global Market or any successor market thereto (collectively, “Nasdaq”), or the New York Stock Exchange or any successor market thereto (together with Nasdaq, each a “National Stock Exchange”), no later than December 31, 2008. As a result of failing to achieve such listing, the Company’s majority shareholder, Winner State Investments Limited, committed to transfer 1,000,000 shares of common stock in the Company to the purchasers of shares of Series A Convertible Preferred Stock. The Company has accounted for this as a contribution of capital by its majority stockholder and recorded a charge to operations in the amount of $4,480,000 for the year ended December 31, 2008 based on the closing market price of $4.48 per share on December 31, 2008. This charge was the same as the restatement of beginning retained earnings as of January 1, 2009. These shares have not been transferred as at March 31, 2010. We will determine whether the transfer of these shares should be made or waived after the negotiation with our Series A preferred stockholders.

YANGLIN SOYBEAN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009 (AS RESTATED)

(UNAUDITED)

(Stated in US Dollars)

15.	CONVERTIBLE PREFERRED STOCK AND WARRANTS

SERIES A

On October 3, 2007, the Company sold 9,999,999 shares of Series A Preferred Stock and various stock purchase warrants for cash consideration totaling $21.5 million dollars. In addition, in connection with the sale of the Preferred Stock, certain advisors were provided warrants. The number of shares, exercise price and contractual terms eligible to be purchased with the warrants are summarized in the following table:

	Number of warrants
Series of warrant	3/31/2010		12/31/2009		3/31/2009		Exercise price		Contractual term	Expiration Date
Series A		10,000,000		10,000,000		10,000,000	$	2.75	5 years	October 2, 2012
Series B		5,000,000		5,000,000		5,000,000	$	3.50	5 years	October 2, 2012
Series J		0		0		7,801,268	$	2.37	1.5 years	April 3, 2009
Series C		0		0		7,801,268	$	3.03	5 years	April 3, 2009
Series D		0		0		3,900,634	$	3.85	5 years	April 3, 2009
Series E		1,000,000		1,000,000		1,000,000	$	2.58	5 years	October 2, 2012
Series F		500,000		500,000		500,000	$	3.01	5 years	October 2, 2012
Total		16,500,000		16,500,000		36,003,170

On April 3, 2009, series J, C and D warrants expired unexercised.

YANGLIN SOYBEAN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009 (AS RESTATED)

(UNAUDITED)

(Stated in US Dollars)

15.	CONVERTIBLE PREFERRED STOCK AND WARRANTS (Continued)

Series A Convertible Preferred Stock has liquidation rights senior to common stock and to any other class or series of stock issued by the Company not designated as ranking senior to or pari passu with Series A Convertible Preferred Stock. In the event of a liquidation of the Company, holders of Series A Convertible Preferred Stock are entitled to receive a distribution equal to $2.15 per share prior to any distribution to the holders of common stock or any other stock that ranks junior to the Series A Convertible Preferred Shares. Series A Convertible Preferred Stock is entitled to non-cumulative dividends only upon declaration of dividends by the Company. To date, no dividends have been declared or accrued. Series A Convertible Preferred Stock will participate based on their respective “as-if” conversion rates if the Company declares any dividends. Holders of Series A Convertible Preferred Stock also have voting rights required by applicable law and the relevant number of votes shall be equal to the number of shares of Common Stock issuable upon conversion of Series A Convertible Preferred Stock.

YANGLIN SOYBEAN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009 (AS RESTATED)

(UNAUDITED)

(Stated in US Dollars)

15.	CONVERTIBLE PREFERRED STOCK AND WARRANTS (Continued)

The gross proceeds of the sale were $21.5 million. The proceeds from the sale were allocated to Series A Convertible Preferred Stock, warrants and beneficial conversion features based on the relative fair value of the securities. The value of Series A Convertible Preferred Stock was determined by reference to the market price of the common stock into which it converts, and the fair value of the warrants was calculated using the Black-Scholes model with the following assumptions: expected life of 5 year, expected dividend rate of 0%, volatility of 27% and an interest rate of 4.24%.

The Company recognized a beneficial conversion feature discount on Series A Convertible Preferred Stock at its intrinsic value, which was the fair value of the common stock at the commitment date for Series A Convertible Preferred Stock investment, less the effective conversion price but limited to the $21.5 million of proceeds received from the sale. The Company recognized the $8.0 million beneficial conversion feature as an increase in paid in capital in the accompanying consolidated balance sheet on the date of issuance of Series A Convertible Preferred Stocks since these shares were convertible at the issuance date.

Each share of Series A Convertible Preferred Shares is convertible into one share of Common Stock, subject to standard adjustment provisions as set forth in the Certificate of Designations for our Series A Convertible Preferred Shares,

During the year ended December 31, 2009, 465,116 shares of Series A Convertible Preferred Stock were converted into 465,116 shares of common stock.

In connection to the Series A Convertible Preferred Stock as described above, on October 10, 2007, the Company also issued 1,000,000 Series E warrants at an exercise price of $2.58 per share and 500,000 Series F warrants at an exercise price of $3.01 per share to an investment banker and financial advisor, respectively. These warrants each have a five year term. The fair value of Series E warrants was $532,800 and Series F warrants was $205,452, and was recorded as offering cost of Series A Convertible Preferred Stock transaction.

The fair value of the Series E and F warrants was calculated using the Black-Scholes model with the following assumptions: expected life of 5 year, expected dividend rate of 0%, volatility of 27% and an interest rate of 4.24%.

YANGLIN SOYBEAN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009 (AS RESTATED)

(UNAUDITED)

(Stated in US Dollars)

15.	CONVERTIBLE PREFERRED STOCK AND WARRANTS (Continued)

The agreement also provides that if the Company does not file, or if the registration statements aren’t declared effective throughout the required period, or if the Company ceases to trade on certain exchanges as defined, the Company shall pay damages equal to 1.5% of the amount invested for each calendar month capped at a cumulative damage payment amount of 15%. In connection with the sale of the Series A Convertible Preferred Stock during October 2007, the Company committed to apply to list and have its shares of common stock traded on the Nasdaq Capital Market, the Nasdaq Global Select Market or the Nasdaq Global Market or any successor market thereto (collectively, “Nasdaq”), or the New York Stock Exchange or any successor market thereto (together with Nasdaq, each a “National Stock Exchange”), no later than December 31, 2008. As a result of failing to achieve such listing, the Company’s majority shareholder, Winner State Investments Limited, committed to transfer 1,000,000 shares of common stock in the Company to the purchasers of shares of Series A Convertible Preferred Stock of the Company. The Company has accounted for this as a contribution of capital by its majority stockholder and recorded a charge to operations in the amount of $4,480,000 for the year ended December 31, 2008. Such shares were valued based on the closing market price of $4.48 per share on December 31, 2008.

Pursuant to the Registration Rights Agreement dated as of October 3, 2007 by and among the Company and certain holders (the Holders), the Company agreed to have a registration statement registering certain of the securities of the Holders declared effective with the Securities and Exchange Commission (“SEC”) on or prior to the Effectiveness Date defined in the Registration Rights Agreement, which was December 31, 2008, or pay the liquidated damages.

Although the registration statement was not declared effective as of December 31, 2008, pursuant to a Waiver and Release dated December 31, 2008, the Holders have waived their right to the liquidated damages for the Company’s failure to have the registration statement declared effective on or prior to the Effectiveness date under Registration Rights Agreement.

YANGLIN SOYBEAN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009 (AS RESTATED)

(UNAUDITED)

(Stated in US Dollars)

15.	CONVERTIBLE PREFERRED STOCK AND WARRANTS (Continued)

In exchange for the waiver and release of the liquidated damages, the Company entered into an Agreement dated December 31, 2008 (the Agreement). Under the Agreement, the Company agreed to hire and engage, by February 28, 2009, three (3) independent directors as defined by NASDAQ Rule 4200(a)(15) and who are acceptable to the Holders. Further, the Company shall comply with all of the provisions of NASDAQ Rule 4350 by February 28, 2009. If these requirements are not met, the Company shall pay to each Holder five percent (5%) of its initial investment under the Securities Purchase Agreement by and among the Company and the Holders dated October 3, 2007. On February 27, 2009, the Company signed an addendum to the Agreement with the Holders, which extended the deadline for hiring and engaging three (3) independent directors to March 13, 2009. On March 9, 2009, the Company adopted a form of new Bylaws, appointed three (3) independent directors, established three (3) standing committees under the Board of Directors (audit committee, compensation committee and governance and nominating committee), and approved the articles of the three (3) above mentioned standing committees and the Code of Conduct and Ethics, and thus has been compliant with the provisions of NASDAQ Rule 4350. In addition, the Company agreed to effect and announce, no later than June 30, 2009, a change to the Company’s current independent audit firm and engage a new independent audit firm listed as a Top 10 audit firm according to Public Accounting Report’s 2008 Annual Audit Rankings to audit the 2009 financial statements and review the interim financial statements. The Company has engaged UHY LLP, Inc. as its independent audit firm starting with the quarter ended June 30, 2009.

If these requirements were not met, the Company had to pay to each Holder ten percent (10%) of its initial investment under the Securities Purchase Agreement. Furthermore, the Company and the Holders agreed to extend the required Effectiveness Date of the Company’s Registration Statement filed with the Securities and Exchange Commission to September 30, 2009. The Company has complied with these requirements as of September 30, 2009 and the Registration Statement was declared effective by the SEC on June 29, 2009.

Effective January 1, 2009, the Company adopted the provisions of FASB ASC Topic 815, "Derivatives and Hedging" ("ASC 815") (previously ElTF 07-5, "Determining Whether an instrument (or an Embedded Feature) is Indexed to an Entity's Own Stock"). As a result of adopting ASC 815, warrants to purchase 34,503,170 of the Company's common stock previously treated as equity pursuant to the derivative treatment exemption were no longer afforded equity treatment as there was a down-round protection (full-ratchet down round protection). As a result, the warrants are not considered indexed to the Company's own stock, and as such, all future changes in the fair value of these warrants will be recognized currently in earnings until such time as the warrants are exercised or expire.

YANGLIN SOYBEAN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009 (AS RESTATED)

(UNAUDITED)

(Stated in US Dollars)

15.	CONVERTIBLE PREFERRED STOCK AND WARRANTS (Continued)

As such, effective January 1, 2009, the Company reclassified the fair value of these warrants from equity to liability, as if these warrants were treated as a derivative liability since their issuance in October 2007. On January 1, 2009, the Company recorded as a cumulative effect adjustment by decreasing additional paid-in capital by the amount of $15,003,941 and decreasing the beginning balance of retained earnings by the amount of $72,047,158, and recording $87,051,099 as a warrant liability to recognize the fair value of such warrants on January 1, 2009. The fair value of the warrants was $59,936,144, $22,452,126 and $27,573,698 on March 31, 2009 and 2010 and December 31, 2009, respectively. The Company recognized $5,121,571 and $27,114,955 as income from the change in fair value of warrants for the three months ended March 31, 2010, and 2009, respectively.

The fair value was calculated using the Black-Scholes option pricing model. The assumptions that were used to calculate fair value of the warrants were as follows:

Investor Warrants:	March 31, 2010			March 31, 2009			December 31, 2009

Expected volatility		99.7	%		124.2	%		105	%

Risk free rate		1.6	%		1.15	%		1.7	%

Expected terms		2.51			3.51			2.76

Expected dividend yield		-			-			-

Expected volatility is based on average volatility of historical share trade information. The Company believes this method produces an estimate that is representative of the Company's expectations of future volatility over the expected term of these warrants. The Company has no reason to believe future volatility over the expected remaining life of these warrants is likely to differ materially from historical volatility. The expected life is based on the remaining term of the warrants. The risk-free interest rate is based on U.S. Treasury securities according to the remaining term of the warrants.

SERIES B

Series B Convertible Preferred Stock has par value of $0.001 per share and each share of the Series B Convertible Preferred Shares is convertible into one share of the Common Stock, subject to standard adjustment provisions in the Certificate of Designations for Series B Convertible Preferred Shares.

YANGLIN SOYBEAN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009 (AS RESTATED)

(UNAUDITED)

(Stated in US Dollars)

15.	CONVERTIBLE PREFERRED STOCK AND WARRANTS (Continued)

After the expiration of the Series J Warrants on April 3, 2009, all of the unissued Series B convertible Preferred Shares were cancelled and reverted to the status of authorized but unissued preferred stock, undesignated as to series and subject to reissuance as shares of preferred stock of any one or more series as permitted by the Articles of Incorporation. There were no issued and outstanding shares of Series B Convertible Preferred Shares as of March 31, 2010 and December 31, 2009.

The following table summarizes warrant activity for the three months ended March 31, 2010 and the year ended December 31, 2009:

	Warrants			Weighted-average exercise price		Aggregate Intrinsic Value

Outstanding at December 31, 2008		36,003,170		$	2.95	$	55,064,914
Issued		-			-
Exercised		-			-
Expired		(19,503,170	)		2.93		12,482,029
Outstanding at December 31, 2009		16,500,000			2.97		2,370,000
Issued		-			-
Exercised		-			-
Expired		-			-
Outstanding at March 31, 2010		16,500,000		$	2.97	$	2,370,000

The terms of outstanding warrants as of March 31, 2010 are as follows:

	Warrants outstanding						Warrants exercisable
Range of exercise prices	Number outstanding		Weighted average remaining contractual life (years)		Weighted average exercise price		Number exercisable		Weighted average exercise price

$2.58-$3.50		16,500,000		2.51	$	2.97		16,500,000	$	2.97

YANGLIN SOYBEAN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009 (AS RESTATED)

(UNAUDITED)

(Stated in US Dollars)

16.	STOCK OPTIONS

At the time the Company appointed an independent director, the Company agreed to grant the director, as part of his compensation, 20,000 stock options annually. The stock options will be granted at the end of each quarter with the exercise price being the stock price at the last trading day of the quarter. During the three months ended March 31, 2010, the Company granted 5,000 options to the independent director in connection with his service in the first quarter of 2010. The options have an exercise price of $2.69 per share and are fully vested on the date of grant.

The Company valued the stock options by the Black Scholes model with the following assumptions:

Number of Options Issued	Expected Term		Expected Volatility			Dividend Yield			Risk Free Interest Rate			Grant Date Fair Value

5,000		5		99.65	%		0	%		2.55	%	$	10,126

The following is a summary of the option activity:

	Options		Weighted-average exercise price		Aggregate Intrinsic Value
Outstanding at December 31, 2008		-	$	-	$	-
Issued		15,000		3.02		-
Exercised		-		-		-
Expired		-		-		-
Outstanding at December 31, 2009		15,000		3.02		-
Issued		5,000		2.69		-
Exercised		-		-		-
Expired		-		-		-
Outstanding at March 31, 2010		20,000	$	2.94	$	-

YANGLIN SOYBEAN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009 (AS RESTATED)

(UNAUDITED)

(Stated in US Dollars)

16.	STOCK OPTIONS (Continued)

Following is a summary of the status of options outstanding at March 31, 2010:

	Options outstanding						Options exercisable
Range of exercise prices	Number outstanding		Weighted average remaining contractual life (years)		Weighted average exercise price		Number exercisable		Weighted average exercise price

$2.69-$3.10		20,000		4.625	$	2.94		20,000	$	2.94

For the three months ended March 31, 2010 and 2009, the Company recognized $10,126 and $0 as compensation expense for the stock options granted to the independent director.

YANGLIN SOYBEAN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009 (AS RESTATED)

(UNAUDITED)

(Stated in US Dollars)

17.	EARNINGS PER SHARE

The calculation of the basic and diluted earnings per share attributable to the common stockholders is based on the following data for the three months ended March 31:

	2010		2009
	(unaudited)		(unaudited) (as restated)

Numerator
Earnings:

Earnings for the purpose of basic earnings per share	$	3,970,667	$	24,863,756
Effect of dilutive potential common stock		-		-
Earnings for the purpose of dilutive earnings per share	$	3,970,667	$	24,863,756

Denominator
Number of shares:

Weighted average number of common stock for the purpose of basic earnings per share		20,465,119		20,000,003
Effect of dilutive potential common stock - conversion of convertible preferred stock		9,534,883		9,999,999
Effect of dilutive potential common stock - conversion of warrants and stock options		445,614		9,177,592
Weighted average number of common stock for the purpose of dilutive earnings per share		30,445,616		39,177,594

YANGLIN SOYBEAN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009 (AS RESTATED)

(UNAUDITED)

(Stated in US Dollars)

18.	INCOME TAXES

As of March 31, 2010, the Group had net operating tax losses carried forward of $14,934,143, which includes $395,187 and $14,538,956 in the US and PRC, respectively. Those losses carried forward in the US and PRC will expire between years 2013 and 2029. The Group has established a full valuation allowance against its net deferred tax assets due to the Group’s history of pre-tax losses and the resulting likelihood that the deferred tax assets are not realizable.

The Group has not recorded any income tax provision for the three months ended March 31, 2010, since the Group has estimated that its estimated annual effective income tax rate will be zero.

The Group is not aware of any unrecorded tax liabilities which would impact the Group’s financial position or its results of operations as of March 31, 2010 and December 31, 2009.

YANGLIN SOYBEAN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009 (AS RESTATED)

(UNAUDITED)

(Stated in US Dollars)

19	VARIABLE INTEREST ENTITY

The Company, as a primary beneficiary of Yanglin, consolidates Yanglin, as a Variable Interest Entity (“VIE”), of which we are the primary beneficiary. The liabilities recognized as a result of consolidating a VIE do not represent additional claims on our general assets; rather, they represent claims against the specific assets of the consolidated VIE. Conversely, assets recognized as a result of consolidating a VIE do not represent additional assets that could be used to satisfy claims against our general assets. Reflected in the March 31, 2010 and December 31, 2009 balance sheets are consolidated VIE assets of $81.09 and $81.9 million, respectively, which are comprised mainly of cash, inventory and property and equipment. VIE liabilities mainly consist of short term bank loans and payables for working capital.

20	PARENT-ONLY FINANCIAL STATEMENTS

As mentioned in note 1 to the consolidated financial statements, as a result of entering into the contractual agreements, WFOE is deemed to control Yanglin as a Variable Interest Entity. These agreements may have restrictions on the ability of Yanglin to transfer funds to the Company through inter-company loans, advances and cash dividends which consist of additional paid in capital, statutory reserves and retained earnings of $50,546,992 and $51,548,050 respectively as at March 31, 2010 and December 31, 2009.

The following tables present unconsolidated financial information of the Company only:

Balance Sheets as of March 31, 2010 and December 31, 2009

	2010		2009
	(unaudited)
Cash – restricted	$	221,860	$	278,018
Other prepayment		28,079		1,216
Investments in subsidiaries		57,299,484		58,363,646
Total assets	$	57,549,423	$	58,642,880

Other current liabilities	$	170,698	$	132,777
Warrant liabilities		22,452,127		27,573,698
Total liabilities		22,622,825		27,706,475

Total shareholders’ equity		34,926,598		30,936,405
Total liabilities and shareholders’ equity	$	57,549,423	$	58,642,880

YANGLIN SOYBEAN INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009 (AS RESTATED)

(UNAUDITED)

(Stated in US Dollars)

20	PARENT-ONLY FINANCIAL STATEMENTS (Continued)

Statements of Operations and Other Comprehensive Income for the three months ended March 31,

	2010			2009
	(unaudited)			(unaudited) (as restated)

Investment loss - equity method	$	(1,064,162	)	$	(2,133,692	)
General and administrative expenses		(77,342	)		(26,862	)
Loss from operations before income taxes		(1,141,504	)		(2,160,554	)
Change in fair value of warrants		5,121,571			27,114,955
Income before income taxes		3,980,067			24,954,401
Income taxes		-			-
Net income	$	3,980,067		$	24,954,401

ITEM 2-MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our unaudited consolidated financial statements, and the related footnotes thereto, appearing elsewhere in this report, and in conjunction with management’s discussion and analysis and the audited consolidated financial statements included in our annual report on Form 10-K for the year ended December 31, 2009.

CAUTIONARY STATEMENT REGARDING FUTURE RESULTS,

FORWARD-LOOKING INFORMATION AND CERTAIN IMPORTANT FACTORS

In this report we make, and from time to time we otherwise make, written and oral statements regarding our business and prospects, such as projections of future performance, statements of management’s plans and objectives, forecasts of market trends, and other matters that are forward-looking statements. Statements containing the words or phrases “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimates,” “projects,” “believes,” “expects,” “anticipates,” “intends,” “target,” “goal,” “plans,” “objective,” “should” or similar expressions identify forward-looking statements. Our actual results may differ materially from the results anticipated in these forward-looking statements due to a variety of factors, including, without limitation, as discussed under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this report, as well as other factors, which may appear in documents, reports, filings with the Securities and Exchange Commission, news releases, written or oral presentations made by officers or other representatives made by us to analysts, stockholders, investors, news organizations and others, and discussions with management and other of our representatives.

Our future results, including results related to forward-looking statements, involve a number of risks and uncertainties. No assurance can be given that the results reflected in any forward-looking statements will be achieved. Any forward-looking statement speaks only as of the date on which such statement is made. Our forward-looking statements are based upon assumptions that are sometimes based upon estimates, data, communications and other information from suppliers, government agencies and other sources that may be subject to revision. There are other factors that could cause our future results to differ materially from historical results or trends, results anticipated or planned by us, or which are reflected from time to time in any forward-looking statement.

We qualify all of our forward-looking statements by these cautionary statements. In addition, with respect to all of our forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

Company Overview

We are a leading, comprehensive non-genetically modified (non-GM) soybean processor in People’s Republic of China (“PRC”). We currently manufacture ordinary soybean oil, salad oil and soybean meal in bulk package, along with other products in smaller quantities, which are sold throughout the PRC directly to our customers or through distributors. Approximately 80% of our customers are located in Northern PRC.

Our operating facilities are located in Jixian County, a major soybean production area in Heilongjiang Province, which is the main soybean growing region in the PRC. We maintain healthy, long-term relationships with local farmers and soybean vendors which help to ensure the stability of our supply of raw materials. Farmers deliver soybeans directly to our factories, thus we enjoy savings in transportation and purchasing costs. Our relationship with customers (mostly distributors) are also well established so we are able to require them to pay the full amount in advance, minimizing accounts receivable and supplementing our working capital.

The manufacturing process includes sifting, crushing, heating and pressing soybeans, extracting and separating oil from crushed soybeans, cleansing, hydrating and packaging of oil as well as drying and packaging soybean meal. Our main products include Grade IV soybean oil, salad oil and soybean meal. We broadened our product line to include value-added products such as squeezed oil, low temperature soybean meal and concentrated soy protein, and we plan to produce powdered oil, textured protein and defatted soybean powder. Formal production of squeezed oil has already begun. We are now adjusting the formula and techniques used for powdered oil and we expect to start production within a few months. We are producing concentrated soy protein in small quantities of commercial grade product and making considerable efforts to develop the market for this product. Defatted soy powder and textured protein may be launched at a later date, depending on trends in the market and the specific product economics.

We sell our products under the “Yanglin” brand name to various regions of the PRC through our many distribution channels. In the three months ended March 31, 2010, we generated total revenue of approximately $ 34.1 million with a net loss of $1.2 million, exclusive of a non-cash income of $5.1 million resulting from the change in fair value of warrants, which was not related to our operations.

Our goal is to become the market leader in the PRC’s non-GM soybean industry, and believe that we can accomplish this objective in the near future. We are considering future expansion and acquisition opportunities, with the goal of significantly increasing our processing capacity, but we will only make a definite decision after the market and industrial environments improve materially.

We are also working to improve and strengthen our management and internal control over financial reporting. We engaged Ernst & Young as a consultant on our Sarbanes-Oxley compliance project, and they finished their review of our internal control system over financial reporting in 2008. This project reinforced our ability to protect the interests of the company and its shareholders, while improving management effectiveness and efficiency. The management has been conducting self assessment of the effectiveness of our internal control systems ever since then, and continuously rectifying the weakness and deficiencies found in the process. We also hired outside financial consultants recently to enhance our financial reporting capability.

Current Business Environment and 2010 Outlook

With respect to the overall business trends in 2010 and forward, statistics showed that the global economy recovered gradually from recession since the second half of 2009. The growth rate of PRC’s GDP in the fourth quarter of 2009 was 10.7%, much higher than that of the quarter a year ago, at 6.8%.

We believe that the PRC government still supports the development of the domestic non-GM soybean industry. One measure the government has taken is to grant domestic soybean processors a subsidy of approximately $23 per ton for soybeans purchased from farmers before April 30, 2010 at a government guided price. Though the subsidy will be received by soybean processors no earlier than the end of June 2010, it may help to reduce the effective cost of sales of these enterprises, including us.

However, there are some factors that may impose unfavorable effects on our future operations, including:

●

The expected good harvest of genetically modified soybeans in US and South America in 2010, which may cause an increase in the volume of soybeans imported to the PRC at lower prices.

●

Possible further appreciation of Renminbi against USD in the future, which may also reduce the import price of genetically modified soybeans.

●

The uncertainties in the subsidy and supporting policies of the PRC government regarding the domestic soybean industry.

In response, we will continue to lobby the PRC government to grant further, larger subsidies and issue new supporting policies. Meanwhile, we will continue to take strict cost saving measures and maintain our production at a suitable level. We will actively observe the trends in our industry and in the general economy in order to capitalize any opportunity for our products. Over the long-term, we believe that we are well positioned to benefit from the growth opportunities in the PRC and throughout the world.

Major Performance Factors

Revenue

We derive most of our revenue from the sales of the main products: soybean oil (4th grade), salad oil and soybean meal, and a small portion of our revenue is created by the sales of other products, including concentrated soybean protein, squeezed oil and low temperature soybean meal. The revenue may be affected by the following factors:

Processing capacity of soybean;

Pricing of the products;

Market demand

Processing capacity of soybean. Our current annual processing capacity of soybean is 520,000 metric tons. We processed approximately 357,400 metric tons in the year 2009 and 66,022 metric tons in the first quarter of 2010. Based on these figures, it can be estimated that the current production capacity is sufficient for current demand. Since October 2009, Factory No. 2 has stopped the production of low temperature soybean meal due to the low protein content of the soybeans purchased; this was caused by unfavorable weather in 2009. Factory No. 2 has 120,000 out of the 520,000 tons of the Company’s total annual processing capacity. The production volume of low temperature soybean meal occupied about a 4% share of the total annual production volume in 2009, so it is expected that there will be no significant impact on our total processing and production capacity.

Pricing of the products. In general, our products are priced consistently with market prices, with consideration for cost of sales. However, prices are affected by several factors, including but not limited to: the pricing trends for domestic soybeans, the cost and volume of imported soybeans, temporary sudden changes in supply-demand relationship, and general economic factors and income level of consumers.

Market demand. Revenue growth potential depends on market demand for our products. We believe that high growth potential for our sales revenue exists due to several factors: 1) total market demand for our products exceeds current production levels; 2) our products are recognized as high quality; 3) we maintain excellent relationships with our customers; and, 4) we generally sell almost all of our production volume.

Cost of Sales

Cost of sales generally consists of four major parts: raw materials, labor, production overhead and manufacturing related depreciation. Raw materials refer mainly to soybeans and accounts for over 90% of the cost of sales (COS). Labor cost are relatively low and comprise a very small portion of COS. Production overhead includes auxiliary materials, utility expenses, machinery maintenance costs, inspection costs and other related expenses. Depreciation costs are applied to manufacturing facilities and equipment, such as production lines, steam generators, factory buildings, etc.

Cost of sales is determined primarily by the following factors, either directly or indirectly:

Availability and price of raw materials, especially soybeans;

Operating efficiency of production facilities; and

Government policy or direct purchase.

Availability and price of raw materials, especially soybeans. Raw materials costs account for more than 90% of cost of sales. Soybean is the only major raw material, so its price fluctuation will have a material impact on our cost. The price of soybeans may be affected by a series of factors, including the production volume of soybeans on national and international scale, weather, government policies and soybean transactions on commodity markets. Meanwhile, if there is a shortage in the supply of raw materials, our production facilities will have to operate at less than maximum efficiency. Our processing volume represents a relatively small portion of the total soybean supply of Heilongjiang Province; generally speaking the availability of raw materials is always high. Soybean price has a significant impact on our cost of sales.

Output ratio and operating efficiency of production facilities. Output ratio is the ratio between the input of raw materials (mostly soybeans) and the output of finished products. The more units of finished products we can produce using a single unit of raw material, the higher the output ratio. As labor, production overhead and manufacturing related depreciation expenses are mostly fixed, generally speaking, the more we produce, the lower the unit cost. Our output ratio and operating efficiency are continuously improving, due to the recent purchase and renovation of facilities and equipment, the enhanced competence and proficiency of our staff and the improvement of our management skills.

Government policy or direct purchase. Usually the price of soybean is determined by market mechanisms; however, government policy may have a significant impact on it. For example, the PRC government conducted a national strategic purchase from late 2008 to June 2009 and effectively raised the purchase price of soybeans in the market by offering a price that was about 10% higher than normal market prices to farmers. At the end of November 2009, the government decided to grant domestic soybean processors a subsidy of approximately $23 per ton if they purchase soybeans from farmers at a government guided price. Such and similar actions of the government may materially affect our cost of sales.

Gross Profit (Loss)

Gross profit (loss) is the result of the combined effects of the following factors: (a) the selling price of our products, (b) the sales volume and the individual profit margin of each product, and (c) the cost of sales. We are a middle stream processor, and the profit margin of middle stream processing is usually relatively stable. Under normal circumstances our gross profit margin has been in the range of 7% to 9%, based on previous experience until 2008.

If exceptional circumstances exist, gross margin may be seriously affected. Due to extremely unfavorable environmental factors, such as the national purchase of soybean by the PRC government at higher than market prices and the low cost imports of soybean at large volumes, we suffered a gross loss in the first quarter of 2009.

In the first quarter of 2010, we managed to achieve a small gross profit as a result of the combination of the following factors: strong demand for our products around the Chinese New Year, reduced pressure on the prices of our products imposed by imported soybeans at relatively high prices and strict cost saving measures.

It should be noted that, in the near future, our profitability may be influenced materially by the following factors, including but not limited to: the expected increase in soybean output of United States and South America in 2010 which may mean more imports to the PRC, the possible appreciation of RMB against USD which may cause imported soybean to be cheaper, the uncertainties in the policies of Chinese government, etc.

Operating Expenses

Operating expenses consist of selling expenses and general & administrative expenses. Operating expenses represent only a small portion of total costs and expenses.

Selling expenses generally include business development expenses, sales meeting expenses, loading and handling, advertising, sales-related staff salaries and welfare expenses, and travel expenses. They are usually relative to sales volume.

General and administrative expenses include the depreciation of office buildings and equipment, office expenses and supplies, and management and administrative salaries, etc. These expenses are typically fixed. General and administrative expenses may increase, as we revise our organizational structure and improve our management systems and internal control system and processes.

Income Tax

We are incorporated in the State of Nevada and Faith Winner (BVI) is incorporated under the laws of the British Virgin Islands. We conduct all our operations under certain contractual arrangements with Yanglin, a PRC company.

Although we are subject to United States taxation, we do not anticipate incurring significant United States income tax liability for the foreseeable future because:

We do not conduct any material business or maintain any branch office in the United States;

The earnings generated from our non-U.S. operating companies are generally eligible for a deferral from United States taxation until such earnings are repatriated to the United States; and,

We believe that we will not generate a significant amount of income inclusions under the income imputation rules applicable to a United States company that owns "controlled foreign corporations" for United States federal income tax purposes.

Therefore, we have made no provision for U.S. federal income taxes or tax benefits on the undistributed earnings and/or losses.

Yanglin, a PRC company, has income tax liabilities in the PRC. PRC enterprise income tax is calculated based on taxable income determined under PRC tax regulations. In accordance with Income Tax Law applicable to domestic companies, we are generally subject to an enterprise income tax rate of 25%.

However, as Yanglin has been recognized as a Key Leading Enterprise in the Industrialization of Agriculture Industry by the PRC’s central government, Yanglin had enjoyed a complete exemption from income taxes until 2009. Our status is reviewed every two years. The latest review of Yanglin’s status of National Key Leading Enterprise in Agriculture has been finished by the government in March 2010, and the status was granted to the Company for the period from January 2010 to June 2012. The Company received this government approval on May 7, 2010. Other than the PRC's central government's award, a review by the local tax authority is also required in order to enjoy a 2010 tax exemption.

The Group had a taxable loss in the first quarter of 2010. Therefore, even if Yanglin does not obtain tax exemption benefit, the group will have no income tax expense in the first quarter of 2010.

Warrant Liability

Effective January 1,2009, we adopted the provisions of FASB ASC Topic 815, "Derivatives and Hedging" ("ASC 815") (previously ElTF 07-5, "Determining Whether an Instrument (or an Embedded Feature) is Indexed to an Entity's Own Stock"). As a result of adopting ASC 815, warrants to purchase the Company's common stock previously treated as equity pursuant to the derivative treatment exemption were no longer afforded equity treatment as there was a down-round protection (full-ratchet down round protection). As a result, the warrants are not considered indexed to the Company's own stock, and as such, all future changes in the fair value of these warrants will be recognized currently in earnings until such time as the warrants are exercised or expire.

Results of Operations

The Three Months Ended March 31, 2010 Compared with the Three Months Ended March 31, 2009

				The three months
	The three months			Ended March 31, 2009
Consolidated Statement of Operations and	Ended March 31, 2010			($)
Comprehensive (Loss) Income	($)			(as restated)

Net Sales	$	34,082,815		$	43,032,326
Cost of sales		(34,066,192	)		(44,174,348	)
Gross profit (loss)		16,623			(1,142,022	)
Selling expenses		(64,776	)		(69,246	)
General and administrative expenses		(850,042	)		(1,018,180	)
Loss from operations		(898,195	)		(2,229,448	)
Interest income		26,253			71,725
Interest expense		(278,612	)		(93,505	)
Other (expenses) income		(350	)		29
Changes in fair value of warrants		5,121,571			27,114,955
Income from operations before income tax		3,970,667			24,863,756
Income tax		-			-
Net income		3,970,667			24,863,756
Foreign currency translation adjustment		9,400			90,645
Comprehensive income	$	3,980,067		$	24,954,401

Net Sales

	For The Three Months Ended Mar. 31,				Period to Period Change
Item	2010 Amount ($)		2009 (as restated) Amount ($)		Amount ($)			%
Soybean meal	$	23,449,685		29,515,153		(6,065,468	)		-20.6	%
Soybean oil		8,809,834		11,594,584		(2,784,750	)		-24.0	%
Salad Oil		1,582,093		1,837,004		(254,911	)		-13.9	%
Squeezed oil		241,202		85,585		155,618			181.8	%
Total Net Sales	$	34,082,815		43,032,326		(8,949,511	)		-20.8	%

The decrease in sales revenue was mainly caused by the reduction in production and sales volume of our major products, resulting from unfavorable situations in economic and industrial environments, though the average selling prices of these products rose over the period. Since the cost of raw materials, mostly soybeans, have a share of above 95% in our total cost of production and sales, so cost of sales usually decreases when production volume does.

The PRC has long imported large volumes of genetically-modified (GM) soybeans from the U.S. and South America, and such import reached new peaks at the end of 2009. The aggregate import volume reached 42.55 million tons in 2009, an increase of 13.7% over that of 2008, while the average monthly volume was 3.55 million tons. During the first three months of 2010, the PRC imported over 11 million tons of soybean. The imported soybeans were usually sold at prices lower than that of domestically produced soybeans, representing a low cost alternative for domestic processors, which previously used domestic soybeans as raw materials. Importation of GM soybeans significantly influenced price levels in the PRC’s domestic market for soybean products.

Meanwhile, the PRC suffered from a reduction in the production volume of soybeans in the harvest season of 2009. The reasons for this reduction were that Chinese farmers reduced the planting area of soybean by about 330,000 hectares and planted more corn in 2009, since corn offered a better economic return than soybean. Additionally, the weather was rainy and overcast during the growing period for soybean, extending the period and reducing unit production volume and quality. As a result, the overall supply volume of soybean decreased.

Due to the combined effect of the above factors, there was a decline in the sales volumes of our products. In the three months ended March 31, 2010, we sold 56,544 tons of soybean meal, 9,221 tons of soybean oil and 1,584 tons of salad oil, representing decreases of 25.9%, 35.3% and 26.1%, respectively over the quarter ended March 31, 2009, when we sold 76,353 tons of soybean meal, 14,246 tons of soybean oil and 2,144 tons of salad oil. The sales volume of squeezed oil increased by 158.2%, from 79 tons to 204 tons over the period. Though the average selling prices of soybean meal, soybean oil, salad oil and squeezed oil in the three months ended March 31, 2010 grew by 7.3%, 17.4%, 16.6% and 9.1% respectively over the prices in the same period a year ago, such price increase could not compensate for the significant decrease in sales volumes. Consequently, there has been a large decrease in sales revenue over the same quarter in 2009.

Cost of Sales and Gross (Loss) Profit

	For The Three Months Ended March 31,												Period to Period Change
							2009			%
	2010			% of Sales			(as restated)			of Sales
Cost of Sales:	Amount ($)			Revenue			Amount ($)			Revenue			Amount ($)			%
Soybean meal	$	(23,568,199	)		100.5	%	$	(30,115,761	)		102.0	%	$	6,547,562			-21.7	%
Soybean oil		(8,692,094	)		98.7	%		(12,088,009	)		104.3	%		3,395,915			-28.1	%
Salad oil		(1,567,736	)		99.1	%		(1,877,330	)		102.2	%		309,594			-16.5	%
Squeezed oil		(238,163	)		98.7	%		(93,248	)		109.0			(144,915	)		155.4	%
Total Cost of Sales	$	(34,066,192	)		99.9	%	$	(44,174,348	)		102.7	%	$	10,108,156			-22.9	%
Gross (Loss) Profit:
Soybean meal	$	(118,514	)		-0.5	%	$	(600,608	)		-2.0	%	$	482,094			80.3	%
Soybean oil		117,740			1.3	%		(493,425	)		-4.3	%		611,165			123.9	%
Salad Oil		14,357			0.9	%		(40,326	)		-2.2	%		54,683			135.6	%
Squeezed oil		3,039			1.3	%		(7,663	)		-9.0	%		10,702			139.7	%
Total Gross Profit (Loss)	$	16,622			0.05	%	$	(1,142,022	)		-2.7	%	$	1,158,644			101.5	%

Our cost of sales for the three months ended March 31, 2010 decreased by $10,108,156 or 22.9% over the three months ended March 31, 2009, as restated, while the ratio of cost as a percentage to net sales value decreased from 102.7% to 99.9% over the period. The decrease in cost of sales was mainly caused by the reduction of processing volume. We recorded a gross profit of $16,622 in the three months ended March 31, 2010, in comparison to a gross loss of $1,142,022 in the three months ended March 31, 2009. Our gross profit margin improved from -2.7% to 0.05% over the same period. The main reason for the changes in gross profit was the increase in the market selling prices of certain of our soybean products.

In the first quarter of 2010, we processed only 66,022 tons of soybean, a decrease of 30.8% from 95,343 tons in the same period a year ago. Meanwhile, the sales volume of our major products experienced material reduction over the period (please refer to the section “Net Sales” above for details). The reason for the decrease was that we voluntarily reduced processing and production volume, in response to the large, cheaper import of soybean and reduced supply of soybean due to farmers’ preference and weather reasons. Meanwhile, we kept implementing strict costing saving measures during the quarter, including reducing the consumption of water and electricity. This also contributed to the reduction of cost of sales.

During the first quarter of 2010, the market prices of our products remained high. The average selling prices were higher than those in the first three months of 2009 (please refer to the section “Net Sales” above for details). Traditionally, the demand for soybean products is strong during the first quarter of the year, especially during the Chinese New Year holiday. Though still lower than that of domestic non-GM soybean, the price of imported soybeans has remained at a relatively high level from late 2009 until the first quarter of 2010, as compared to historical data. For example, the price of soybean imported from US after including import duty was approximately $534 per ton at the end of March 2010, while that at the beginning of January 2010 was approximately $566. In comparison, the price was only approximately $512 per ton at the beginning of October 2009. As a result, the pressure imposed by imported soybean on the prices of soybean products in Chinese market was reduced. The above factors supported higher selling prices of our products and hence the improved gross margin.

Due to the government’s decision to grant domestic soybean processors a subsidy for soybeans purchased from farmers before April 30, 2010 at a government guided price, the effective cost of sales of ours will be reduced. However, the effect of such subsidy on our profitability will not be reflected in our financial results until early in the third quarter of 2010, the time that we expect to receive the subsidy, following government review. We also believe that our profitability may be influenced materially by the following factors, including but not limited to: the expected increase in soybean output of United States and South America in 2010, which may mean more imports to the PRC; the possible appreciation of RMB against USD, which may cause imported soybean to be cheaper; the uncertainties in the policies of Chinese government, etc.

Operating Expenses

	For The Three Months Ended March 31,
							2009						Period to Period
	2010			% of Sales			(as restated)			% of Sales			Change
	Amount ($)			Revenue			Amount ($)			Revenue			Amount ($)		%
Selling Expenses	$	(64,776	)		0.2	%	$	(69,246	)		0.2	%	$	4,470		-6.5	%
General & Administrative Expenses		(850,042	)		2.5	%		(1,018,180	)		2.4	%		168,138		-16.5	%
Total Operating Expenses	$	(914,818	)		2.7	%	$	(1,087,426	)		2.5	%	$	172,608		-15.9	%

Selling expenses for the three months ended March 31, 2010 decreased by 6.5% as compared to the three months ended March 31, 2009, as restated. This decrease was mainly due to the decrease in loading and unloading expenses, which are usually directly related to sales volume. As a percentage of net sales, selling expenses remained stable at 0.2% over the period.

General and administrative expenses for the three months ended March 31, 2010 decreased by 16.5% over the three months ended March 31, 2009, as restated. This was the result of the strict cost saving measures we have been taking, and reduction of expenses for items such as travel, business entertainment and consumption of water and electricity for management purposes, as well as professional expenses related to listing in the U.S. As a percentage of net sales, general and administrative expenses rose from 2.4% for the first quarter of 2009 to 2.5% for the first quarter of 2010, as there was a decrease in the amount of total net sales over the period.

As compared to the first quarter of 2009, total operating expenses decreased by 15.9% in the first quarter of 2010, and the percentage of net sales increased from 2.5% to 2.7%.

Net Income

	For The Three Months Ended March 31,
							2009					Period to Period
	2010			% of Sales			(as restated)			%of Sales		Change
	Amount ($)			Revenue			Amount ($)			Revenue		Amount ($)			%
Loss from operations	$	(898,195	)		-2.6	%	$	(2,229,448	)	-5.2	%	$	1,331,253			-59.7	%
Interest expenses		(278,612	)		0.8	%		(93,505	)	0.2	%		(185,107	)		198.0	%
Interest income		26,253			0.1	%		71,725		0.2	%		(45,472	)		-63.4	%
Other (expense) income		(350	)		0.0	%		29		0.0	%		(379	)		-1306.9	%
Changes in fair value of warrants		5,121,571			15.0	%		27,114,955		63.0	%		(21,993,384	)		-81.1	%
Income tax		-			-			-		-			-			-
Net income	$	3,970,667			11.7	%	$	24,863,756		57.8	%	$	(20,893,089	)		-84.0	%

Loss from operations was primarily due to aforementioned reasons in the sections “Net Sales” and “Cost of Sales and Gross Profit” above. For the first quarter of 2010, we generated a slight gross profit, and a loss after deducting selling and general and administrative expenses. Consequently, operating margin improved from negative 5.2% to negative 2.6%.

Interest expenses increased by 198.0% from the three months ended March 31, 2009, as restated, to the three months ended March 31, 2010. As a percentage of net sales, interest expense was 0.8% for the first quarter of 2010, as compared to 0.2% for the same period in 2009. The changes were mainly caused by a material increase in bank borrowings. The balance of bank borrowings on March 31, 2010 almost doubled on that on March 31, 2009. This was used to satisfy increased working capital needs. Interest income fell by 63.4% for the same period.

Effective January 1, 2009, we adopted the provisions of FASB ASC Topic 815, "Derivatives and Hedging" ("ASC 815"). As a result of adopting ASC 815, we recorded non-cash income of $27,114,955 for the first quarter of 2009, as restated, and $5,121,571 for the first quarter of 2010, resulting from the change in fair value of warrants issued to investors in conjunction with the Company’s Series A Convertible Preferred Stock in October 2007. The accounting treatment of the warrants resulted from an anti-dilution provision to the warrant holders.

Since Yanglin has been recognized as a “Key Leading Enterprise” in the industrialization of the agriculture industry by the Chinese government, Yanglin has qualified for a complete exemption from income taxes through 2009. This status is usually reviewed every two years, according to a government order. The latest review of Yanglin’s status of National Key Leading Enterprise in Agriculture has been finished by the government in March 2010, and the status was granted to the Company for the period from January 2010 to June 2012. The Company received this government approval on May 7, 2010. Other than the PRC's central government's award, a review by the local tax authority is also required in order to enjoy a 2010 tax exemption.

Net income, after including the abovementioned non-cash income from the change in fair value of warrants, decreased by 84.0% from the three months ended March 31, 2009, as restated, to the three months ended March 31, 2010. During the same period, net profit margin fell from 57.8% to 11.7%.

Earnings Per Share

	For The Three Months Ended March 31,
	2010		2009
	Unaudited		Unaudited As restated
Net Income for Basic Earnings Per Share	$	3,970,667	$	24,863,756
Basic Weighted Average Number of Shares		20,465,119		20,000,003
Net Income per Share – Basic	$	0.19	$	1.24
Net Income for Diluted Earnings Per Share	$	3,970,667	$	24,863,756
Diluted Weighted Average Number of Shares		30,445,616		39,177,594
Net Income per Share – Diluted	$	0.13	$	0.63

Basic and diluted earnings per share (EPS) for the quarter ended March 31, 2010, were $0.19 and $0.13, compared to $1.24 and $0.63 for the same quarter last year, as restated.

Liquidity and Capital Resources

Generally, we finance our business with cash flow from operations and short-term bank loans. Working capital is current assets less current liabilities, and our operational cash demand consists mainly of raw materials purchases, salaries, production overhead (auxiliary materials, utilities, etc.) and financing expenses, of which raw materials (soybean) purchases comprise the majority.

Because we usually pay cash to our suppliers upon purchase of soybeans, there is a higher than normal need for cash around harvest season. Under normal circumstances, our pattern of operations is as follows: (i) we will keep a large cash reserve until early October, the harvest time, and take short-term loans from banks at that time, (ii) we will build up a substantial inventory of soybeans so that for the period through the end of the year and for the following quarter or even the following half year, we will have sufficient raw materials to maintain operations and convert finished products to cash, and (iii) we will repay the short-term loans by the end of June or July the following year.

Currently we have a rank AA credit rating granted by the Agricultural Development Bank (the “Bank”). As at March 31, 2010, the Group had an additional credit line facility with the availability to borrow up to $105 million (equivalent to RMB 718 million) from the Bank. On April 25, 2010, the Bank cancelled this credit line, since it was only to be used to purchase soybeans in the season of bulk purchase of agricultural products, and the season was complete. As a result, the Group has no available credit line after that date. The Bank will review the status of the Group and determine if a new credit line will be granted.

Our operational cash requirements may be influenced by many factors, including the fluctuation of raw material prices, cash flow, competition, relationships with suppliers or customers, availability of credit facilities and financing alternatives. Under the current operational level, we can satisfy this demand with short-term loans from the Bank and our own cash reserves, within the next twelve months.

Cash Flows for the Three Months Ended March 31, 2010 Compared with the Three Months Ended March 31, 2009

Operating Activities

Cash provided by operating activities for the three months ended March 31, 2010 was $3,176,882, while cash used in operating activities for the three months ended March 31, 2009, as restated, was $956,043. The change was mainly a result of a material reduction in the balance of inventories in the first quarter of 2010.

During the first quarter of 2010, we managed to reduce the balance of our inventories by $3,237,871, mainly because we materially reduced the purchasing volume of soybean and hence the cost of raw materials stored in our warehouse. We also increased the balance of customer deposits by $373,693. As a comparison, during the first quarter of 2009, we increased the balance of inventories by $2,408,856 and the balance of prepaid VAT by $1,061,674.

Our cash flows are stable, as we sell primarily on a cash basis, with negligible trade receivables. We usually sell our products a few days after they are produced.

Investing Activities

Net cash used in investing activities for the three months ended March 31, 2010 was nil, compared to $197,424 for the three months ended March 31, 2009. We did not purchase or build any non-current assets during the first quarter of 2010.

Financing Activities

Net cash provided by financing activities was $29,357 for the three months ended March 31, 2010, compared to net cash provided by financing activities of $3,929,694 for the three months ended March 31, 2009. Net cash provided in the first quarter of 2010 included the payment using cash restricted and the repayment of the principals of the long-term loans from related parties, and no new borrowings were made during this period. In the first quarter of 2009, we received cash of $6,572,615 from new bank loans and paid $2,642,921 of the principals of the long-term loans from related parties.

Loans

We had short-term bank loans of $20,479,513 on March 31, 2010, as compared to $20,476,218 on December 31, 2009. These loans are used to satisfy working capital needs.

The balance of our long-term bank loan from related parties, including the portion payable within one year, was approximately $341,125 on March 31, 2010, compared to $367,867 on December 31, 2009. The change was caused by repayment of the principal, and we did not borrow any additional funds during the first quarter of 2010.

Commitments and Contingencies

We have no future cash commitments or contingent liabilities as of March 31, 2010.

Critical Accounting Policies and Estimates

There have been no material changes to the Company’s Critical Accounting Policies and Assumption filed in the Company’s 2009 Annual Report on Form 10-K.

Economic and Political Risks

The Group’s operations are conducted in the PRC. Accordingly, the Group’s business, financial condition and results of operations may be influenced by the political, economic and legal environment in the PRC, and by the general state of the PRC economy, so the Group’s operations are subject to special considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environment and foreign currency exchange. The Group’s results may be adversely affected by changes in the political and social conditions in the PRC, and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion, remittances abroad, and rates and methods of taxation, among other things.

Recent Accounting Pronouncements

In June 2009, the FASB issued ASC810.10, guidance to change financial reporting by enterprises involved with variable interest entities (“VIEs”) which modifies how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. This pronouncement clarifies that the determination of whether a company is required to consolidate an entity is based on, among other things, an entity’s purpose and design and a company’s ability to direct the activities of the entity that most significantly impact the entity’s economic performance. The guidance requires an ongoing reassessment of whether a company is the primary beneficiary of a variable interest entity. This guidance also requires additional disclosures about a company’s involvement in variable interest entities and any significant changes in risk exposure due to that involvement. This guidance is effective for fiscal years beginning after November 15, 2009. The adoption did not have a material impact on the Company’s unaudited consolidated financial statements.

Contractual Obligations and Off-Balance Sheet Arrangements

Contractual Obligations

We have certain fixed contractual obligations and commitments that include future estimated payments. Changes in our business needs, cancellation provisions, changing interest rates, and other factors may result in actual payments differing from the estimates. We cannot provide certainty regarding the timing and amounts of payments. We have presented below a summary of the most significant assumptions used in our determination of amounts presented in the tables, in order to assist in the review of this information within the context of our consolidated financial position, results of operations, and cash flows.

The following tables summarize our contractual obligations as of March 31, 2010, and the effect these obligations are expected to have on our liquidity and cash flows in future periods.

	Payments due by period
Contractual obligations	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Long-Term Debt Obligations	$	341,125	$	52,906	$	95,689	$	101,190	$	91,340
Capital Lease Obligations		-		-		-		-		-
Operating Lease Obligations		-		-		-		-		-
Purchase Obligations		-		-		-		-		-

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

ITEM 3—QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not required.

ITEM 4—CONTROLS AND PROCEDURES

a. Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act, our management has carried out an evaluation, with the participation and under the supervision of our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2010.

Disclosure controls and procedures refer to controls and other procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Securities Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating and implementing possible controls and procedures.

Management conducted its evaluation of disclosure controls and procedures under the supervision of our chief executive officer and our chief financial officer. Based upon, and as of the date of this evaluation, our chief executive officer and chief financial officer concluded that, as of March 31, 2010, our disclosure controls and procedures were not effective due to the material weaknesses and significant deficiencies in our internal control over financial reporting described below.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act. The Company’s internal control system over financial reporting is a process designed under the supervision of the Company's Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the consolidated financial statements in accordance with United States generally accepted accounting principles (“U.S. GAAP”). Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of our financial reporting.

Our internal control over financial reporting was not effective as a result of the following identified material weaknesses:

The Company does not maintain personnel with a sufficient level of accounting knowledge, experience and training in the selection and application of US GAAP and related SEC disclosure requirements.

The Company does not have an accounting policy manual based on US GAAP.

Both control deficiencies could result in material misstatements of significant accounts and disclosures that would result in a material misstatement to our interim or annual consolidated financial statements that would not be prevented or detected. Accordingly, the management has determined that these control deficiencies constitute material weaknesses.

Remediation Initiative and Progress

To remediate the situation, we need the help of competent professional accounting advisors, and we have engaged an accounting consulting firm to help with the preparation of the Company’s consolidated financial statements and deliver training to our own accounting staff on the selection and application of US GAAP and related SEC disclosure requirements. Meanwhile, the management has decided that we will draft the accounting manual using our own staff and enlisting the help from professional advisors.

There will be significant costs involved for engaging professional accounting advisors; studying and researching U.S. GAAP; drafting, revising and approving our accounting manual; and training and educating our accounting staff with the knowledge of U.S.GAAP.

b. Changes in Internal Controls over Financial Reporting

During the quarter ended March 31, 2010, there was no other change in our internal controls over financial reporting, except as described above, that has materially affected, or that is reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None

ITEM 1A—RISK FACTORS

Not required.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. (REMOVED AND RESERVED)

None.

ITEM 5. OTHER INFORMATION.

None.

ITEM 6. EXHIBITS

31.1	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32	Certification Pursuant to 18 U.S.C. Section 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 duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	Yanglin Soybean, Inc.

Date: May 14, 2010	By:	/s/ SHULIN LIU
		Shulin Liu
		Chief Executive Officer
		(Principal Executive Officer)

	Yanglin Soybean, Inc.

Date: May 14, 2010	By:	/s/ SHAOCHENG XU
		Shaocheng Xu
		Chief Financial Officer
		(Principal Financial and Accounting Officer)

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Yanglin Soybean (YSYB) Inactive 10-Q2010 Q1 Quarterly report

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