UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM 10-K




(Mark
One)




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




For the
fiscal year ended December 31, 2009




or




 ̈
            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
            
            (I.R.S. Employerof incorporation or organization)
            
            Identification No.)





NO.
99 FANRONG STREET, JIXIAN COUNTY


SHUANG
YA SHAN CITY


HEILONGJIANG
PROVINCE


People’s
Republic of China, 155900


(Address
of Principal Executive Offices)




86-469-4693000


(Registrant’s
Telephone Number, Including Area Code)





Securities registered pursuant to
Section 12(b) of the Act: None




Securities registered pursuant to
Section 12(g) of the Act:  Common Stock, par value
$0.001




Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.


Yes  ̈ No þ





Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.


Yes  ̈ No þ





Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Sections 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 þ No  ̈




Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the
best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.  ̈




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





Large accelerated filer  ̈
            Accelerated filer  ̈Non-accelerated filer  ̈
            Smaller
      Reporting Company þ(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 Act):


Yes  ̈ No þ





The
aggregate market value of the 1,401,003 shares of voting and non-voting
common equity stock held by non-affiliates of the registrant was
$4,203,009 as of June 30, 2009, the last business day of the registrant’s
most recently completed second fiscal quarter, based on the last sale price of
the registrant’s common stock on such date of $3.00 per share, as reported
by The Over-The-Counter Bulletin Board.





As
of April 12, 2010, there are 20,465,119 shares of common stock
outstanding.













YANGLIN
SOYBEAN, INC.


(A
Nevada Corporation)





TABLE
OF CONTENTS




PagePART
      IItem 1
                                
                                Business
                                
                                
                                3Item 1A
                                
                                Risk
      Factors
                                
                                
                                14Item 2
                                
                                Properties
                                
                                
                                25Item 3
                                
                                Legal
      Proceedings
                                
                                
                                27PART IIItem 4
                                
                                Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
                                
                                
                                27Item 5
                                
                                Selected
      Financial Data
                                
                                
                                28Item 6
                                
                                Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operation
                                
                                
                                28Item 7
                                
                                Financial
      Statements and Supplementary Data
                                
                                
                                39Item 8
                                
                                Changes
      in and Disagreements With Accountants on Accounting and Financial
      Disclosure
                                
                                
                                40Item 8A(T)
                                
                                Controls
      and Procedures
                                
                                
                                40Item 8B
                                
                                Other
      Information
                                
                                
                                41PART IIIItem 9
                                
                                Directors,
      Executive Officers and Corporate Governance
                                
                                
                                41Item 10
                                
                                Executive
      Compensation
                                
                                
                                45Item 11
                                
                                Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
                                
                                
                                47Item 12
                                
                                Certain
      Relationships and Related Transactions, and Director
      Independence
                                
                                
                                50Item 13
                                
                                Principal
      Accounting Fees and Services
                                
                                
                                50PART IVItem 14
                                
                                Exhibits
      and Financial Statement Schedules
                                
                                
                                51




2




PART I





Item 1.
Business




Organizational
History





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 whereby the
Company issued 18,500,000 common shares at $0.001 par value in exchange for all
Faith Winner (BVI) shares.





Faith
Winner (BVI) formed Faith Winner (Jixian) Agriculture Development Company
(“Faith Winner (Jixian)” or “WFOE”), which entered into a series of agreements
with Heilongjiang Yanglin Soybean Group Co., Ltd. (“Yanglin”). As a result of
entering the agreements, WFOE gained control of all of Yanglin’s assets,
management and business as if Yanglin were a wholly-owned subsidiary of WFOE.
However, one of the shareholders of the Company is Winner State BVI, which is
100% owned by Mr. Shulin Liu and his wife, Mrs. Huanqin Ding, has effective
control over Faith Winner (BVI) and WFOE as our subsidiaries, because it,
beneficially owns approximately 91% of our common stock. These contractual
arrangements 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 Agreement was 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.





Pursuant
to those agreements, WFOE made a loan of $17 million intended to satisfy
Yanglin’s working capital needs in the future (the “Loan”). In return, WFOE
obtained the management control of Yanglin and an exclusive right to acquire all
of the equity of Yanglin. The rights of existing shareholders of Yanglin are
assigned by the consignment of equity interests to WFOE. 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 the Company, 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
US$731,294 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, it will be entitled to an annual management fee equal to 5% of
Yanglin’s annual net sales.




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 the laws and regulations of the People’s Republic of
China (“PRC”) 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
annual net sales. The licensing fee and the management fee aforesaid – total of
6% of 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.




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 contributed to Yanglin and used to satisfy the repayment of the Loan, that
is, any amount of money received by Yanglin’s shareholders shall be paid back to
WFOE as the repayment of Loan on behalf of Yanglin. Therefore, the
actual consideration of acquisition of the direct investment in Yanglin is
exactly the amount of the Loan. Under such contractual arrangements, all of
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.


3




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 above mentioned agreements, WFOE is deemed
to control Yanglin as a Variable Interest Entity as required by Accounting
Standards Codification(“ASC”)810 (revised December 2003)
Consolidation of Variable Interest Entities. 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 10 accredited
investors.





The
Company, through its subsidiaries and Yanglin, (hereinafter, collectively
referred to as the “Group”), is now in the business of manufacturing,
distribution, and selling of non-genetically modified soybean products,
including soybean oil, soybean salad oil, and soybean meal,  throughout
Heilongjiang Province and other parts of the PRC.





The
contractual agreements were utilized instead of a direct acquisition of
Yanglin’s assets because current PRC law which took effect on September 8, 2006
does not specifically establish the approval procedures and detailed
implementation regulations for a non-PRC entity’s equity to be used as
consideration to acquire a PRC entity's equity or assets. This makes it highly
uncertain, if not impossible, for a non-PRC entity to use its equity to acquire
a PRC entity. If acquisition of a PRC entity using foreign equity were possible,
we could have acquired 100% of the common stock of Yanglin by paying the price
of $17 million with any excess treated as interest pursuant to amendment to
exclusive purchase option agreement dated April 3, 2009. While PRC law does
allow for the purchase of equity interests in (or assets of) a PRC entity by a
non-PRC entity for cash, the purchase price must be based on the appraised value
of such equity (or assets). Because we presently do not have sufficient cash to
pay the estimated full value of all of the assets of Yanglin, we, through WFOE,
purchased the maximum amount of assets possible with the net proceeds of the
private placement on October 7, 2007, and leased from Yanglin the remainder of
the assets used in Yanglin’s business.




Restatement of Previously Issued
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 it committed to transfer to
the Company’s Series A Preferred stockholders as a result of its failure to list
on a National Stock Exchange by December 31, 2008 (Note 15). The Company has now
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 expense,
income before income taxes, net income, comprehensive income, basic earnings per
share, diluted earnings per share, additional paid in capital and retained
earnings as of and for the year ended December 31, 2008.
 
 The
effect of the restatement on specific amounts provided in the consolidated
financial statements is as follows:
 
 As
      of December 31, 2008Consolidated
      Balance Sheet
                  
                  As
      previouslyreported
                  
                  
                  As
      restatedAdditional
      paid-in capital
                  
                  $
                  38,389,635
                  
                  
                  $
                  42,869,635Retained
      earnings
                  
                  
                  21,664,524
                  
                  
                  
                  17,184,524
   For
      the year ended December 31, 2008Consolidated
      Statements of Operations and Comprehensive Income
                  
                  As
      previouslyreported
                  
                  
                  As
      restatedStock
      exchange listing expense
                  
                  $
                  -
                  
                  
                  $
                  (4,480,000
                  )Income
      before income taxes
                  
                  
                  14,380,466
                  
                  
                  
                  9,900,466Net
      income
                  
                  
                  14,380,466
                  
                  
                  
                  9,900,466Comprehensive
      income
                  
                  
                  18,183,680
                  
                  
                  
                  13,703,680Earnings
      per share:
                  
                  $
                  0.72
                  
                  
                  $
                  0.50Basic
                  
                  $
                  0.38
                  
                  
                  $
                  0.26Diluted
 
 For
      the year ended December 31, 2008Consolidated
      Statements of Cash Flows
                              
                              As
      previouslyreported
                              
                              
                              As
      restatedCash
      flows from operating activities:Net
      income
                              
                              $
                              14,380,466
                              
                              
                              $
                              9,900,466Adjustments
      to reconcile net income to net cash provided by operating
      activities:Stock
      exchange listing expense
                              
                              
                              -
                              
                              
                              
                              4,480,000Net
      cash provided by operating activities
                              
                              
                              30,834,483
                              
                              
                              
                              30,834,483Supplemental
      disclosure of non-cash investing activities:Contribution
      from majority shareholder to settle stock exchange listing
      expense
                              
                              $
                              -
                              
                              
                              $
                              4,480,000
  Our
Industry





We are a
leading non-genetically modified (non-GM) soybean processor in the PRC. We
currently manufacture soybean oil in bulk and soybean meal, which are sold
throughout PRC to our customers directly or through distributors. Most of our
customers (approximately 80%) are located in Northern PRC.





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 soy oil, textured protein and defatted soybean
powder.  Production of squeezed oil has already begun. Powdered
soybean oil is now in trial production phase and we are now adjusting the
formula and techniques according to customer requirements and feedback. We are
producing concentrated soy protein in small quantities of commercial grade
product to customers in order to solicit feedback, so we can adjust the
specifications of the product to satisfy the specific needs of the
customers. Defatted soy powder and textured protein may be launched at a
later date, depending on trends in the market and the specific product
economics.




The
Soybean Processing Industry





Soybean
processing is a traditional industry. Typically, soybeans are ground and refined
into soybean oil and protein meal, which in turn are processed into refined
oils, animal feed, proteins and more value-added products such as foods,
pharmaceuticals and cosmetics.





(i) Soybean
Oil and Soybean Salad Oil





Soybean
oil is obtained by the extraction of oil from soybean seeds. Soybean oil
contains various vitamins, minerals and unsaturated fatty acids which are
essential to the well-being of the human body. It is an important ingredient in
products such as salad dressings, margarine, paint and medicines. The price,
adaptability and performance of soybean oil make it appropriate for a broad
range of food, chemical and medical manufacturing applications. Soybean oil
refers to Grade IV oil, as compared to the more refined salad oil. Both oils are
for human consumption.





(ii) Soybean Meal





Soybean
meal is manufactured by grinding soybean flakes which remain after removal of
most of the oil from soybeans by a solvent or mechanical extraction process.
Soybean meal is an important raw material used in the animal feed and farming
industry due to its high protein content, low fat composition and edible
characteristics. Given the PRC’s closer proximity to customers in Asia, there is
a growing demand for PRC produced soybean meal from countries such as Korea and
Japan. This in turn has led to an increase in demand for our soybean meal
products.




4





Growth
in the Soybean Industry





Soybean
is a major source of vegetable edible oil and protein. There has been continuous
growth in the world’s production and consumption of soybean. As soybean oil
consumption in the PRC has been rapidly increasing, the PRC has imported soybean
oil from other countries, such as Argentina, Brazil and the USA.





Major
Oilseeds: World Supply and Distribution (Commodity View)


Million
Metric Tons




2005/06
                                                                  
                                                                  
                                                                  
                                                                  2006/07
                                                                  
                                                                  
                                                                  
                                                                  2007/08
                                                                  
                                                                  
                                                                  
                                                                  2008/09
                                                                  
                                                                  
                                                                  Feb
                                                                    2009/10
                                                                  
                                                                  
                                                                  Mar
                                                                    2009/10ProductionOilseed,
      Copra
                                                                  
                                                                  
                                                                  5.60
                                                                  
                                                                  
                                                                  
                                                                  5.27
                                                                  
                                                                  
                                                                  
                                                                  5.72
                                                                  
                                                                  
                                                                  
                                                                  5.88
                                                                  
                                                                  
                                                                  
                                                                  5.88
                                                                  
                                                                  
                                                                  
                                                                  5.88Oilseed,
      Cottonseed
                                                                  
                                                                  
                                                                  43.47
                                                                  
                                                                  
                                                                  
                                                                  46.00
                                                                  
                                                                  
                                                                  
                                                                  45.91
                                                                  
                                                                  
                                                                  
                                                                  41.25
                                                                  
                                                                  
                                                                  
                                                                  39.80
                                                                  
                                                                  
                                                                  
                                                                  39.52Oilseed,
      Palm Kernel
                                                                  
                                                                  
                                                                  9.97
                                                                  
                                                                  
                                                                  
                                                                  10.18
                                                                  
                                                                  
                                                                  
                                                                  11.10
                                                                  
                                                                  
                                                                  
                                                                  11.86
                                                                  
                                                                  
                                                                  
                                                                  12.02
                                                                  
                                                                  
                                                                  
                                                                  12.42Oilseed,
      Peanut
                                                                  
                                                                  
                                                                  33.22
                                                                  
                                                                  
                                                                  
                                                                  30.72
                                                                  
                                                                  
                                                                  
                                                                  32.39
                                                                  
                                                                  
                                                                  
                                                                  34.15
                                                                  
                                                                  
                                                                  
                                                                  30.81
                                                                  
                                                                  
                                                                  
                                                                  31.40Oilseed,
      Rapeseed
                                                                  
                                                                  
                                                                  48.50
                                                                  
                                                                  
                                                                  
                                                                  45.09
                                                                  
                                                                  
                                                                  
                                                                  48.52
                                                                  
                                                                  
                                                                  
                                                                  58.21
                                                                  
                                                                  
                                                                  
                                                                  59.46
                                                                  
                                                                  
                                                                  
                                                                  59.58Oilseed,
      Soybean
                                                                  
                                                                  
                                                                  220.67
                                                                  
                                                                  
                                                                  
                                                                  237.12
                                                                  
                                                                  
                                                                  
                                                                  221.14
                                                                  
                                                                  
                                                                  
                                                                  210.90
                                                                  
                                                                  
                                                                  
                                                                  255.02
                                                                  
                                                                  
                                                                  
                                                                  255.91Oilseed,
      Sunflower seed
                                                                  
                                                                  
                                                                  30.04
                                                                  
                                                                  
                                                                  
                                                                  29.80
                                                                  
                                                                  
                                                                  
                                                                  27.02
                                                                  
                                                                  
                                                                  
                                                                  33.32
                                                                  
                                                                  
                                                                  
                                                                  30.75
                                                                  
                                                                  
                                                                  
                                                                  30.59Total
                                                                  
                                                                  
                                                                  391.45
                                                                  
                                                                  
                                                                  
                                                                  404.18
                                                                  
                                                                  
                                                                  
                                                                  391.79
                                                                  
                                                                  
                                                                  
                                                                  395.57
                                                                  
                                                                  
                                                                  
                                                                  433.73
                                                                  
                                                                  
                                                                  
                                                                  435.30ImportsOilseed,
      Copra
                                                                  
                                                                  
                                                                  0.07
                                                                  
                                                                  
                                                                  
                                                                  0.09
                                                                  
                                                                  
                                                                  
                                                                  0.11
                                                                  
                                                                  
                                                                  
                                                                  0.10
                                                                  
                                                                  
                                                                  
                                                                  0.10
                                                                  
                                                                  
                                                                  
                                                                  0.10Oilseed,
      Cottonseed
                                                                  
                                                                  
                                                                  1.10
                                                                  
                                                                  
                                                                  
                                                                  0.84
                                                                  
                                                                  
                                                                  
                                                                  0.75
                                                                  
                                                                  
                                                                  
                                                                  0.55
                                                                  
                                                                  
                                                                  
                                                                  0.63
                                                                  
                                                                  
                                                                  
                                                                  0.63Oilseed,
      Palm Kernel
                                                                  
                                                                  
                                                                  0.15
                                                                  
                                                                  
                                                                  
                                                                  0.13
                                                                  
                                                                  
                                                                  
                                                                  0.14
                                                                  
                                                                  
                                                                  
                                                                  0.13
                                                                  
                                                                  
                                                                  
                                                                  0.13
                                                                  
                                                                  
                                                                  
                                                                  0.13Oilseed,
      Peanut
                                                                  
                                                                  
                                                                  1.94
                                                                  
                                                                  
                                                                  
                                                                  1.98
                                                                  
                                                                  
                                                                  
                                                                  2.07
                                                                  
                                                                  
                                                                  
                                                                  1.93
                                                                  
                                                                  
                                                                  
                                                                  1.92
                                                                  
                                                                  
                                                                  
                                                                  1.92Oilseed,
      Rapeseed
                                                                  
                                                                  
                                                                  6.68
                                                                  
                                                                  
                                                                  
                                                                  7.01
                                                                  
                                                                  
                                                                  
                                                                  7.56
                                                                  
                                                                  
                                                                  
                                                                  12.13
                                                                  
                                                                  
                                                                  
                                                                  9.77
                                                                  
                                                                  
                                                                  
                                                                  9.87Oilseed,
      Soybean
                                                                  
                                                                  
                                                                  64.13
                                                                  
                                                                  
                                                                  
                                                                  69.06
                                                                  
                                                                  
                                                                  
                                                                  78.12
                                                                  
                                                                  
                                                                  
                                                                  77.20
                                                                  
                                                                  
                                                                  
                                                                  79.58
                                                                  
                                                                  
                                                                  
                                                                  79.78Oilseed,
      Sunflower seed
                                                                  
                                                                  
                                                                  1.39
                                                                  
                                                                  
                                                                  
                                                                  1.75
                                                                  
                                                                  
                                                                  
                                                                  1.25
                                                                  
                                                                  
                                                                  
                                                                  1.81
                                                                  
                                                                  
                                                                  
                                                                  1.68
                                                                  
                                                                  
                                                                  
                                                                  1.77Total
                                                                  
                                                                  
                                                                  75.45
                                                                  
                                                                  
                                                                  
                                                                  80.86
                                                                  
                                                                  
                                                                  
                                                                  89.99
                                                                  
                                                                  
                                                                  
                                                                  93.83
                                                                  
                                                                  
                                                                  
                                                                  93.80
                                                                  
                                                                  
                                                                  
                                                                  94.20ExportsOilseed,
      Copra
                                                                  
                                                                  
                                                                  0.10
                                                                  
                                                                  
                                                                  
                                                                  0.13
                                                                  
                                                                  
                                                                  
                                                                  0.13
                                                                  
                                                                  
                                                                  
                                                                  0.11
                                                                  
                                                                  
                                                                  
                                                                  0.12
                                                                  
                                                                  
                                                                  
                                                                  0.12Oilseed,
      Cottonseed
                                                                  
                                                                  
                                                                  0.96
                                                                  
                                                                  
                                                                  
                                                                  0.84
                                                                  
                                                                  
                                                                  
                                                                  0.84
                                                                  
                                                                  
                                                                  
                                                                  0.54
                                                                  
                                                                  
                                                                  
                                                                  0.54
                                                                  
                                                                  
                                                                  
                                                                  0.56Oilseed,
      Palm Kernel
                                                                  
                                                                  
                                                                  0.18
                                                                  
                                                                  
                                                                  
                                                                  0.15
                                                                  
                                                                  
                                                                  
                                                                  0.10
                                                                  
                                                                  
                                                                  
                                                                  0.15
                                                                  
                                                                  
                                                                  
                                                                  0.15
                                                                  
                                                                  
                                                                  
                                                                  0.15Oilseed,
      Peanut
                                                                  
                                                                  
                                                                  2.25
                                                                  
                                                                  
                                                                  
                                                                  2.43
                                                                  
                                                                  
                                                                  
                                                                  2.37
                                                                  
                                                                  
                                                                  
                                                                  2.24
                                                                  
                                                                  
                                                                  
                                                                  2.11
                                                                  
                                                                  
                                                                  
                                                                  2.10Oilseed,
      Rapeseed
                                                                  
                                                                  
                                                                  6.98
                                                                  
                                                                  
                                                                  
                                                                  6.63
                                                                  
                                                                  
                                                                  
                                                                  8.13
                                                                  
                                                                  
                                                                  
                                                                  12.01
                                                                  
                                                                  
                                                                  
                                                                  10.12
                                                                  
                                                                  
                                                                  
                                                                  10.24Oilseed,
      Soybean
                                                                  
                                                                  
                                                                  63.80
                                                                  
                                                                  
                                                                  
                                                                  71.32
                                                                  
                                                                  
                                                                  
                                                                  79.59
                                                                  
                                                                  
                                                                  
                                                                  76.94
                                                                  
                                                                  
                                                                  
                                                                  81.39
                                                                  
                                                                  
                                                                  
                                                                  81.18Oilseed,
      Sunflower seed
                                                                  
                                                                  
                                                                  1.52
                                                                  
                                                                  
                                                                  
                                                                  1.88
                                                                  
                                                                  
                                                                  
                                                                  1.41
                                                                  
                                                                  
                                                                  
                                                                  2.20
                                                                  
                                                                  
                                                                  
                                                                  1.83
                                                                  
                                                                  
                                                                  
                                                                  1.90Total
                                                                  
                                                                  
                                                                  75.79
                                                                  
                                                                  
                                                                  
                                                                  83.37
                                                                  
                                                                  
                                                                  
                                                                  92.57
                                                                  
                                                                  
                                                                  
                                                                  94.19
                                                                  
                                                                  
                                                                  
                                                                  96.26
                                                                  
                                                                  
                                                                  
                                                                  96.25CrushOilseed,
      Copra
                                                                  
                                                                  
                                                                  5.57
                                                                  
                                                                  
                                                                  
                                                                  5.16
                                                                  
                                                                  
                                                                  
                                                                  5.66
                                                                  
                                                                  
                                                                  
                                                                  5.81
                                                                  
                                                                  
                                                                  
                                                                  5.88
                                                                  
                                                                  
                                                                  
                                                                  5.88Oilseed,
      Cottonseed
                                                                  
                                                                  
                                                                  32.06
                                                                  
                                                                  
                                                                  
                                                                  33.70
                                                                  
                                                                  
                                                                  
                                                                  34.37
                                                                  
                                                                  
                                                                  
                                                                  32.00
                                                                  
                                                                  
                                                                  
                                                                  31.08
                                                                  
                                                                  
                                                                  
                                                                  30.69Oilseed,
      Palm Kernel
                                                                  
                                                                  
                                                                  9.90
                                                                  
                                                                  
                                                                  
                                                                  10.04
                                                                  
                                                                  
                                                                  
                                                                  11.01
                                                                  
                                                                  
                                                                  
                                                                  11.69
                                                                  
                                                                  
                                                                  
                                                                  11.97
                                                                  
                                                                  
                                                                  
                                                                  12.37Oilseed,
      Peanut
                                                                  
                                                                  
                                                                  15.41
                                                                  
                                                                  
                                                                  
                                                                  14.05
                                                                  
                                                                  
                                                                  
                                                                  15.16
                                                                  
                                                                  
                                                                  
                                                                  15.42
                                                                  
                                                                  
                                                                  
                                                                  13.86
                                                                  
                                                                  
                                                                  
                                                                  14.16Oilseed,
      Rapeseed
                                                                  
                                                                  
                                                                  44.62
                                                                  
                                                                  
                                                                  
                                                                  43.62
                                                                  
                                                                  
                                                                  
                                                                  46.65
                                                                  
                                                                  
                                                                  
                                                                  52.00
                                                                  
                                                                  
                                                                  
                                                                  56.16
                                                                  
                                                                  
                                                                  
                                                                  56.48Oilseed,
      Soybean
                                                                  
                                                                  
                                                                  185.19
                                                                  
                                                                  
                                                                  
                                                                  195.66
                                                                  
                                                                  
                                                                  
                                                                  201.87
                                                                  
                                                                  
                                                                  
                                                                  193.90
                                                                  
                                                                  
                                                                  
                                                                  204.22
                                                                  
                                                                  
                                                                  
                                                                  204.95Oilseed,
      Sunflower seed
                                                                  
                                                                  
                                                                  26.01
                                                                  
                                                                  
                                                                  
                                                                  26.09
                                                                  
                                                                  
                                                                  
                                                                  24.12
                                                                  
                                                                  
                                                                  
                                                                  28.61
                                                                  
                                                                  
                                                                  
                                                                  27.67
                                                                  
                                                                  
                                                                  
                                                                  27.72Total
                                                                  
                                                                  
                                                                  318.76
                                                                  
                                                                  
                                                                  
                                                                  328.31
                                                                  
                                                                  
                                                                  
                                                                  338.85
                                                                  
                                                                  
                                                                  
                                                                  339.43
                                                                  
                                                                  
                                                                  
                                                                  350.84
                                                                  
                                                                  
                                                                  
                                                                  352.25Ending
      StocksOilseed,
      Copra
                                                                  
                                                                  
                                                                  0.05
                                                                  
                                                                  
                                                                  
                                                                  0.10
                                                                  
                                                                  
                                                                  
                                                                  0.11
                                                                  
                                                                  
                                                                  
                                                                  0.14
                                                                  
                                                                  
                                                                  
                                                                  0.09
                                                                  
                                                                  
                                                                  
                                                                  0.09Oilseed,
      Cottonseed
                                                                  
                                                                  
                                                                  1.34
                                                                  
                                                                  
                                                                  
                                                                  1.33
                                                                  
                                                                  
                                                                  
                                                                  1.22
                                                                  
                                                                  
                                                                  
                                                                  0.80
                                                                  
                                                                  
                                                                  
                                                                  0.76
                                                                  
                                                                  
                                                                  
                                                                  0.76Oilseed,
      Palm Kernel
                                                                  
                                                                  
                                                                  0.15
                                                                  
                                                                  
                                                                  
                                                                  0.18
                                                                  
                                                                  
                                                                  
                                                                  0.20
                                                                  
                                                                  
                                                                  
                                                                  0.24
                                                                  
                                                                  
                                                                  
                                                                  0.16
                                                                  
                                                                  
                                                                  
                                                                  0.16Oilseed,
      Peanut
                                                                  
                                                                  
                                                                  1.86
                                                                  
                                                                  
                                                                  
                                                                  1.29
                                                                  
                                                                  
                                                                  
                                                                  1.08
                                                                  
                                                                  
                                                                  
                                                                  1.54
                                                                  
                                                                  
                                                                  
                                                                  1.18
                                                                  
                                                                  
                                                                  
                                                                  1.19Oilseed,
      Rapeseed
                                                                  
                                                                  
                                                                  5.51
                                                                  
                                                                  
                                                                  
                                                                  4.66
                                                                  
                                                                  
                                                                  
                                                                  3.55
                                                                  
                                                                  
                                                                  
                                                                  7.11
                                                                  
                                                                  
                                                                  
                                                                  7.03
                                                                  
                                                                  
                                                                  
                                                                  6.82Oilseed,
      Soybean
                                                                  
                                                                  
                                                                  53.24
                                                                  
                                                                  
                                                                  
                                                                  62.96
                                                                  
                                                                  
                                                                  
                                                                  52.96
                                                                  
                                                                  
                                                                  
                                                                  42.02
                                                                  
                                                                  
                                                                  
                                                                  59.73
                                                                  
                                                                  
                                                                  
                                                                  60.67Oilseed,
      Sunflower seed
                                                                  
                                                                  
                                                                  2.52
                                                                  
                                                                  
                                                                  
                                                                  2.75
                                                                  
                                                                  
                                                                  
                                                                  2.55
                                                                  
                                                                  
                                                                  
                                                                  3.09
                                                                  
                                                                  
                                                                  
                                                                  2.00
                                                                  
                                                                  
                                                                  
                                                                  2.11Total
                                                                  
                                                                  
                                                                  64.65
                                                                  
                                                                  
                                                                  
                                                                  73.27
                                                                  
                                                                  
                                                                  
                                                                  61.67
                                                                  
                                                                  
                                                                  
                                                                  54.94
                                                                  
                                                                  
                                                                  
                                                                  70.95
                                                                  
                                                                  
                                                                  
                                                                  71.80







Totals
may not add due to rounding


Source:
USDA


5





It can be
seen from the above chart that the soybean industry has seen a trend of
sustained growth since 2005/06, as the global production, import and export
volumes of soybean have been growing steadily. We believe that the soybean
industry in the PRC has significant potential for further growth and we believe
Yanglin is well positioned to take advantage of such growth. Soybeans are
grown for their oil and protein and are used to manufacture various products
including soybean oil and soybean meal.





Non-Genetically
Modified Soybean Products





Genetically
modified soybean plants are widespread in the world’s leading soybean producing
countries (such as Brazil, Argentina and the United States) and genetically
modified soybeans comprise a very large proportion of the world’s soybean
production. Conversely, most of the soybean food products exported from the PRC
are primarily made from non-genetically modified soybeans that are cultivated
and grown in the PRC.




We
believe that a growing number of consumers prefer their food products to be made
from non-genetically modified raw materials, including soybean based products.
Such non-genetically modified soybean products are perceived to be “green” and
hence more desirable to certain classes of consumers than genetically modified
soybean products, especially with respect to soy protein and other
value-added soybean products. Furthermore, we believe that as a result of the
increasing affluence and sophistication of the consumers in the PRC, European
Union and Japan, they have also become more aware of potential health issues
arising from the consumption of genetically modified soybean products and are
willing to pay a premium for non-genetically modified soybean
products.





As a
producer of non-genetically modified soybean products, we believe that we are
well positioned to take advantage of such growth.





Government
Support for the Soybean Industry





In
addition, there has been strong government support for the development of our
industry. In recent years, the PRC government has sought to differentiate
soybean exports from the PRC from other international exporters of soybeans such
as the United States and Brazil. Specifically, the PRC government has taken
measures to promote industries and enterprises, such as our business operations,
that produce non-genetically modified soybean food products. In 2003, the PRC
Ministry of Agriculture announced a plan to develop the PRC’s northeastern
region (including Heilongjiang Province where Yanglin is located) into the
world’s largest non-genetically modified soybean production centre for
export.


6





In
addition, the Heilongjiang provincial government has introduced a number of
measures to develop its organic farming industry such as improving its local
agriculture infrastructure and promoting the development of large industrial
groups that produce green and organic food products. Over the past five years,
Heilongjiang's green food industry has grown significantly and has become an
important growth sector in Heilongjiang’s burgeoning economy. Furthermore, we
believe that the proportion of “deep-processed” soybean food products produced
by the PRC will increase and is expected to grow significantly, particularly
with the completion of the PRC’s largest non-genetically modified soybean
deep-processing base by 2010.  The
deep-processed products are the sub-group of value-added products which are
mostly soybean products based on soy protein such as concentrated soy protein,
powdered soy oil, textured soy protein and defatted soy
powder.





We
believe that these various government initiatives at the national and local
levels will have a positive impact on the further development of our business
operations.





Our
Competitive Advantages





We
believe that we have several competitive advantages:




·
              Our
      products have favorable brand-name recognition due to their superior
      quality and our proven track record in the
  industry;
 
 ·
              We are strategically located to
      access cheaper and more stable soybean supplies. Jixian County, where the
      company is headquartered, is in the heart of the Three Rivers Plains, a
      major soybean production area, and Yanglin has established long-term
      relationships with the local farmers and
  suppliers;
 
 ·
              We have an extensive sales
      network covering most areas of the PRC and have negotiated better
      arrangements with distributors to save costs and to promote higher
      efficiency;
 
 ·
              We believe that our business is
      better managed and our operations are more efficient compared to many
      larger state-owned soybean
processors.
 
 ·
              We believe that we do not face
      direct competition from international conglomerates such as Archer Daniels
      Midlands and Cargill as they produce predominantly genetically modified
      soybean products in coastal areas, whereas Yanglin produces
      non-genetically modified soybean products which appeals to more
      health-conscious customers and our sales are mostly in inland areas of
      Northern PRC; and
 
 ·
              Both our management and workers
      are skilled and experienced in the soybean industry. Many of them have
      worked in the industry for more than 20
  years.
  Our
Strategy





Increase
Our Sources of Supply




Though
negatively affected by recent global economic crisis, due to the still
increasing overall market demand for soybean products, we expect our business
to grow steadily in the next few years. We believe that, in the long term,
our need for soybean supply may increase. In order to enlarge the supply base of
our raw materials, we intend to expand our access to soybean cultivation areas
through the development of further supply arrangements with other private and
state-owned farms, farmers and vendors within Heilongjiang Province. Currently,
we have access to soybeans produced in approximately 164,745 acres of farmland
and we plan to increase our access in the next few years in other locations by
adding more soybean farmers and through other arrangements.





Expand
Capacity by Building New Plants or through Acquisitions





We
believe that the demand for soybean products is growing over the long term.
Consequently, we plan to increase our capacity when the market situation
recovers from the difficulties created by a series of factors, including but not
limited to, the global economic crisis, the large import volume of soybean and
the policies of the PRC government. We intend to expand our production
facilities by acquiring or renting additional factories. We expect that this
expansion will allow us to increase our current annual soybean processing
capacity to over 1 million tons of soybeans or higher over the next few
years.


7





Expansion
of our Sales Network




We
currently sell a higher volume of products in Northern PRC than in any other
parts of PRC and currently do not have many sales offices in the Southern PRC.
We plan to expand our sales and marketing network by establishing more sales
offices within the PRC. In addition, we plan to expand sales of our products,
especially value-added products, through distributors
internationally.





Expansion of our
Product Line





We
believe that value-added soybean products will yield higher profit margins for
our operations. We have expanded our product lines to acquire the capability to
produce the following value-added soybean products:





(i) Powdered Soybean
Oil





Powdered
soybean oil is manufactured by processing soybean oil and soybean salad oil
together with corn syrup and other raw materials. Powdered soybean oil not only
retains the nutritional value of liquid soybean oil, but also has a long shelf
life and can be easily packaged and transported. In addition, powdered soybean
oil can be used as a cheap substitute for milk or powdered milk because it can
be easily dissolved or mixed with other ingredients in water to produce a
mixture that has a strong fragrance similar to that of milk, as well as
containing beneficial proteins and minerals.





(ii) Textured Protein





Textured
protein products are manufactured from soy protein. Textured protein products
are hydrated in the production process and accordingly have a symmetrical,
consistent and smooth texture and specific structure. Textured protein can be
added to food products to impart a taste that is similar to that of meat.
Therefore, textured protein can be used as a food substitute for beef and pork.
In addition, textured protein contains anti-oxygenation ingredients that could
prolong the shelf-life of certain food products.





(iii) Defatted Soybean
Powder





Defatted
soybean powder is manufactured from specially-extracted soy meal and has a high
protein content (higher than 50 percent). Defatted soybean powder can be added
to fish, noodles, meat, dairy products and candy to improve the quality and
taste of food. Further, defatted soybean powder can prolong shelf life and
reduce cost.





(iv) Squeezed Oil





Squeezed
oil is made by extracting crude soybean oil from selected soybeans through
traditional methods of refining and hydration in order to remove the acids in
the oil. Squeezed oil is readily absorbed by the human body and contains no
cholesterol. It possesses vitamins such as A, D, and E, as well as other
nutrients which have been shown to help growth, improve immunity and prevent
hypertension and arteriosclerosis.





(v) Concentrated Soy
Protein





Concentrated
soy protein has a high protein content of up to 98% and contains no cholesterol.
Concentrated soy protein can be used as an ingredient in food products to
improve their texture and nutritional value. Concentrated soy protein is used as
an ingredient in a wide range of food products, including nutritional
supplements, seafood, processed meats, frozen food, nutritional beverages, cream
soups, sauces and snacks.





Our
Current Products





Our
current products include the following:





Product
                                                      
                                                      Use
                                                      
                                                      Major Customers
                                                      
                                                      2009 Sales Volume (tons)Soybean Oil
                                                      
                                                      Cooking
                                                      
                                                      Hou
      Xinglin, Yingkou Bohai Oil Industries Co. Ltd.
                                                      
                                                      
                                                      49,969Salad Oil
                                                      
                                                      Cooking
                                                      
                                                      Yingkou
      Bohai Oil Industries Co. Ltd., Gu Changchun
                                                      
                                                      
                                                      8,739Soybean Meal
                                                      
                                                      Animal Feed
                                                      
                                                      Jilin
      Zhuoyue Animal Feed Factory
                                                      
                                                      
                                                      261,613Squeezed
      Oil
                                                      
                                                      Cooking
                                                      
                                                      Tongliao
      Hongzhan Animal Feed Factory
                                                      
                                                      
                                                      970Concentrated
      Soy Protein
                                                      
                                                      Food
      additive
                                                      
                                                      Cui
      Yan
                                                      
                                                      
                                                      1,514Low-temperature
      soy meal
                                                      
                                                      Raw
      material for processing into food additive and others
                                                      
                                                      Tian
      Zhuang
                                                      
                                                      
                                                      12,278




8





We
sell our products under the “Yanglin” brand name to various geographic regions
of the PRC through our various distribution channels (see “Sales and Marketing” below) and directly to our
customers primarily within the PRC market. In the fiscal year ending 2009,
we processed approximately 357,400 tons of soybeans and generated total revenues
amounting to approximately $161.6 million with net operating loss amounting to
$14.3 million. A breakdown of our 2009 sales volume reveals that soybean meal
occupied a major share of about 78%, soybean oil 15%, salad oil 3%, and
low-temperature soy meal approximately 4%.





Our
Major Suppliers of Soybeans





Maintaining
a stable supply of raw materials (soybeans) is one of the key components for our
success. We purchase all of our soybean supplies from various farmers in the
Heilongjiang province. We have established and maintained good relationships
with these farmers.





The
following is a list of our top ten major suppliers of soybeans for the year
ended December 31, 2009:





Supplier
                      
                      Amount
                        Purchased
                        (in US$)
                      
                      
                      % of
                        Total
                        Purchases
                        (%)Jiang
      Minghui
                      
                      
                      10,416,784
                      
                      
                      
                      6.2%Duan
      Xufeng
                      
                      
                      8,449,517
                      
                      
                      
                      5.0%Chi
      Cuie
                      
                      
                      7,559,093
                      
                      
                      
                      4.5%Chen
      Li
                      
                      
                      7,511,549
                      
                      
                      
                      4.5%Wang
      Li
                      
                      
                      7,226,444
                      
                      
                      
                      4.3%Tang
      Lijun
                      
                      
                      6,963,058
                      
                      
                      
                      4.2%Bai
      Liping
                      
                      
                      6,909,720
                      
                      
                      
                      4.1%Bian
      Chaofen
                      
                      
                      6,103,448
                      
                      
                      
                      3.6%Zhang
      Zhongbao
                      
                      
                      6,032,630
                      
                      
                      
                      3.6%Mei
      Fangtao
                      
                      
                      6,015,345
                      
                      
                      
                      3.6%




Note: the amounts are converted from
RMB value using the yearly average rate of 2009, 1USD =6.8409 RMB.





Our top
ten suppliers together made up an aggregate of 43.6% of our total supply of
soybeans, but our biggest supplier only supplied about 6.2% of our total supply.
We believe this diversification of supply is beneficial to us as it increases
our purchasing power and prevents us from being over-reliant on any single
supplier.





We
have implemented unique arrangements with soybean suppliers. Through our
affiliate company, Heilongjiang Yanglin Group Seed Co. Ltd., “Yanglin Seed
Co.”which is wholly owned and managed by Mr. Shulin Liu, our chief executive
officer.




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, enjoy a stable supply of soybeans
that meet our high quality standards.


To
further ensure a consistent supply of soybeans and to increase its volume, we
intend to enter into similar supply agreements with other soybean farmers in the
PRC.





The
Supplier of “Yanglin” Soybean Seeds





Heilongjiang
Yanglin Group Seed Co., Ltd has developed several strains of non-genetically
modified soybean seeds (collectively, “Yanglin” seeds”). The Yanglin “East Nong
42” and the “Black Nong 44” boast high protein and fat content. It has also
developed the high oil content “Yang 02-01”, “Yang 03-02” and “Yang 03-03”
soybean seeds, the high protein content “Yang 03-656” soybean seeds and the high
protein and high yielding “Yang 03-149” soybean seeds.





A brief
summary of the characteristics of each strain of soybean seed is set forth
below:




Soybean
                        
                        Oil Content
                        
                        Protein Content
                        
                        Status of Development“East Nong 42”
                        
                        19.33%
                        
                        45% - 46.4%
                        
                        Completed“Black Nong 44”
                        
                        21.56% -22.61%
                        
                        38.56% -46.69%
                        
                        Completed“Yang 02-01” (high oil)
                        
                        22.3%-22.6%
                        
                        37.8%-40.2%
                        
                        Received
      governmental approval“Yang 03-02” (high oil)
                        
                        21.9%-22.7%
                        
                        37.2%-41.5%
                        
                        In
      trial phase“Yang 03-03” (high protein)
                        
                        21.7%-22.1%
                        
                        38.4%-45.9%
                        
                        In
      trial phase“Yang 03-656” (high protein)
                        
                        19.8%-20.6%
                        
                        39.7%-45.3%
                        
                        In
      trial phase“Yang 03-149” (high protein)
                        
                        20.3%-21.9%
                        
                        41.5%-44.7%
                        
                        In
      trail
phase




9


Major
Customers





Our
customers are primarily distributors of soybean oil and soybean meal, with some
of them being soybean food processors and animal feed manufacturers. The
following is a list of our top ten major customers for fiscal year 2009. All of
our major customers are located in the PRC.





Customers
                          
                          Type of Product
                          
                          Fiscal 2009 Sales
                            (USD)
                          
                          
                          % of Total Sales
                            (%)Gu
      Changchun
                          
                          Soybean Meal
                          
                          
                          5,744,646
                          
                          
                          
                          3.55%Yingkou Bohai
      Grease Industrial Co. Ltd.
                          
                          Soybean Oil
                          
                          
                          5,645,464
                          
                          
                          
                          3.49%Tian
      Zhuang
                          
                          Soybean Meal
                          
                          
                          5,091,004
                          
                          
                          
                          3.15%Zhao
      San
                          
                          Soybean Meal
                          
                          
                          4,965,551
                          
                          
                          
                          3.07%Chi
      Feng
                          
                          Soybean Meal
                          
                          
                          4,607,756
                          
                          
                          
                          2.85%Duan
      Jiahe
                          
                          Soybean Oil
                          
                          
                          4,537,948
                          
                          
                          
                          2.81%Cui
      Yan
                          
                          Soybean Meal
                          
                          
                          4,481,043
                          
                          
                          
                          2.77%Cui
      Hengquan
                          
                          Soybean Meal
                          
                          
                          4,399,938
                          
                          
                          
                          2.72%Tongliao
      Hongzhan Animal Feed Factory
                          
                          Soybean Meal
                          
                          
                          4,284,917
                          
                          
                          
                          2.65%Huang
      Zujian
                          
                          Soybean Oil
                          
                          
                          4,267,934
                          
                          
                          
                          2.64%





Note:
the amounts are converted from RMB value using the yearly average rate of 2009,
1USD = 6.8409 RMB





Our sales
are widely diversified among our customers. Our largest customer accounts for
only 3.55% of our total sales in the year 2009 while our top ten customers
accounted for about 29.71% of our net sales in the year 2009. As such, we are
not dependent on any single customer and have accordingly maintained our
bargaining power in relation to our customers. Holding such a diversified
customer base, we have mitigated the commercial risk and associated impact of
the loss of sales from any single customer. As we begin to expand our product
offering to include value-added soybean products, our customer base will change
to include more industrial users and some retail consumers.




Sales
of Products by Type and Locations





The
following table shows the breakdown of sales volume of main products by customer
type for the year 2009.




Salad Oil
                                      
                                      
                                      Grade IV
                                        Soybean Oil
                                      
                                      
                                      Soybean Meal
                                      
                                      
                                      Low Temperature
                                        Soybean Meal
                                      
                                      
                                      Squeezed Oil
                                      
                                      
                                      Concentrated
                                        Soy ProteinType
                                      
                                      Volume
                                        (Tons)
                                      
                                      
                                      %
                                      
                                      
                                      Volume
                                        (Tons)
                                      
                                      
                                      %
                                      
                                      
                                      Volume
                                        (Tons)
                                      
                                      
                                      %
                                      
                                      
                                      Volume
                                        (Tons)
                                      
                                      
                                      %
                                      
                                      
                                      Volume
                                        (Tons)
                                      
                                      
                                      %
                                      
                                      
                                      Volume
                                        (Tons)
                                      
                                      
                                      %Distributor
                                      
                                      
                                      8,303
                                      
                                      
                                      
                                      95
                                      
                                      
                                      
                                      44,972
                                      
                                      
                                      
                                      90
                                      
                                      
                                      
                                      222,371
                                      
                                      
                                      
                                      85
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      971
                                      
                                      
                                      
                                      100
                                      
                                      
                                      
                                      750
                                      
                                      
                                      
                                      50Food
      Manufacturer
                                      
                                      
                                      437
                                      
                                      
                                      
                                      5
                                      
                                      
                                      
                                      4,997
                                      
                                      
                                      
                                      10
                                      
                                      
                                      
                                      13,081
                                      
                                      
                                      
                                      5
                                      
                                      
                                      
                                      12,279
                                      
                                      
                                      
                                      100
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      420
                                      
                                      
                                      
                                      28Animal
      Feed Manufacturer
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      26,161
                                      
                                      
                                      
                                      10
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      345
                                      
                                      
                                      
                                      22Total
                                      
                                      
                                      8,740
                                      
                                      
                                      
                                      100
                                      
                                      
                                      
                                      49,969
                                      
                                      
                                      
                                      100
                                      
                                      
                                      
                                      261,613
                                      
                                      
                                      
                                      100
                                      
                                      
                                      
                                      12,279
                                      
                                      
                                      
                                      100
                                      
                                      
                                      
                                      971
                                      
                                      
                                      
                                      100
                                      
                                      
                                      
                                      1,515
                                      
                                      
                                      
                                      100




All our
sales are primarily made to customers within the PRC, although some of our
products may be exported by some of the distributors to countries such as Japan,
Korea, and Russia. The geographical distribution of the sales volume
and revenue of our main products in the PRC for the year 2009 is shown
below.


10





Salad Oil
                        
                        
                        Grade IV
                          Soybean Oil
                        
                        
                        Soybean Meal
                        
                        
                        Low Temperature
                          Soybean Meal
                        
                        
                        Squeezed Oil
                        
                        
                        Concentrated Soy
                          ProteinProvince
                        
                        Volume
                          (Tons)
                        
                        
                        Revenue
                          (USD)
                        
                        
                        Volume
                          (Tons)
                        
                        
                        Revenue
                          (USD)
                        
                        
                        Volume
                          (Tons)
                        
                        
                        Revenue
                          (USD)
                        
                        
                        Volume
                          (Tons)
                        
                        
                        Revenue
                          (USD)
                        
                        
                        Volume
                          (Tons)
                        
                        
                        Revenue
                          (USD)
                        
                        
                        Volume
                          (Tons)
                        
                        
                        Revenue
                          (USD)Heilongjiang
                        
                        
                        7,429
                        
                        
                        
                        6,848,490
                        
                        
                        
                        29,981
                        
                        
                        
                        25,804,940
                        
                        
                        
                        65,403
                        
                        
                        
                        25,402,156
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        650
                        
                        
                        
                        4,932,287
                        
                        
                        
                        152
                        
                        
                        
                        1,065,654Jilin
                        
                        
                        874
                        
                        
                        
                        805,705
                        
                        
                        
                        14,990
                        
                        
                        
                        12,902,039
                        
                        
                        
                        26,161
                        
                        
                        
                        10,160,785
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        231
                        
                        
                        
                        1,752,859Liaoning
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        3,999
                        
                        
                        
                        3,441,978
                        
                        
                        
                        78,484
                        
                        
                        
                        30,482,743
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        90
                        
                        
                        
                        682,932Inner
      Mongolia
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        26,461
                        
                        
                        
                        10,277,303Beijing
                        
                        
                        437
                        
                        
                        
                        402,852
                        
                        
                        
                        999
                        
                        
                        
                        859,849
                        
                        
                        
                        5,232
                        
                        
                        
                        2,032,079Tianjin
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        5,310
                        
                        
                        
                        2,062,374Shandong
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        2,600
                        
                        
                        
                        1,009,825
                        
                        
                        
                        2,401
                        
                        
                        
                        8,466,452
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        761
                        
                        
                        
                        5,335,283Shanxi
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        7,850
                        
                        
                        
                        3,048,896Henan
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        7,964
                        
                        
                        
                        3,093,173
                        
                        
                        
                        2,450
                        
                        
                        
                        8,639,237
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        152
                        
                        
                        
                        1,065,654Sha’anxi
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        5,345
                        
                        
                        
                        2,075,968Gansu
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        5,056
                        
                        
                        
                        1,963,722
                        
                        
                        
                        1,228
                        
                        
                        
                        4,330,197
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        450
                        
                        
                        
                        3,154,898Guangxi
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        2,460
                        
                        
                        
                        955,450
                        
                        
                        
                        6,200
                        
                        
                        
                        21,862,558Sichuan
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        10,900
                        
                        
                        
                        4,233,499Hebei
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        12,387
                        
                        
                        
                        4,811,041





Note:
the amounts are converted from RMB value using the yearly average rate of 2009,
1USD = 6.8409 RMB.





Our
Competitors





Our
competitors are the non-genetically modified soybean processors operating in the
PRC. Our main competitor is Heilongjiang 93 Oil and Fat Co., Ltd., an integrated
state-owned enterprise which is located in the provinces of Heilongjiang, Dalian
and Tianjin. The rest of our competitors are smaller state-owned
enterprises.




Position
                        
                        Company
                        
                        Estimated Annual
                          Non-GM
                          Production Capacity
                          (in Tons)
                        
                        
                        Estimated
                          Market Share1
                        
                        Heilongjiang
      Jiushan 93 Group (SOE)
                        
                        
                        600,000
                        
                        
                        
                        6.7%2
                        
                        Yanglin
      Soybean Group, Ltd
                        
                        
                        520,000
                        
                        
                        
                        5.0%3
                        
                        Shandong
      Gaotang Lanshan Group (SOE)
                        
                        
                        200,000
                        
                        
                        
                        2.2%4
                        
                        Henan
      Xuchang Vegetable Oil Company (SOE)
                        
                        
                        100,000
                        
                        
                        
                        1.1%5
                        
                        Qitaihe
      City Nature Oil Company
                        
                        
                        100,000
                        
                        
                        
                        1.1%6
                        
                        Shandong
      Guanxian Vegetable Oil Company
                        
                        
                        100,000
                        
                        
                        
                        1.1%7
                        
                        Jiamusi
      Zhenda Company
                        
                        
                        90,000
                        
                        
                        
                        1.0%





Source:
Information from respective companies' websites and Yanglin
estimates





Generally,
we do not compete with companies that are engaged primarily in the manufacturing
of genetically modified soybean products, especially international agriculture
conglomerates. Currently, most major producers of genetically modified soybean
products are state-owned enterprises and joint ventures of global agriculture
companies. Their operations are mostly located in the coastal cities in Southern
PRC, which enables them to conveniently import genetically modified soybean from
the U.S., Brazil, Argentina and other countries in bulk volume at acceptable
prices. The market for their products is also mainly in the southern parts of
PRC. Meanwhile our supply sources, production facilities and customers are
mostly in Northern PRC, where there is abundant supply of non-genetically
modified soybean. Generally speaking, there is a geographical division between
the market for genetically modified soybean products and that for
non-genetically modified soybean products. Thus, we generally do not have direct
competition with our genetically modified counterparts.





Sales
and Marketing





Apart
from our high product quality, our marketing efforts have also contributed to
our success in the PRC markets. Currently, our main method of selling our
products is direct marketing, supplemented with indirect marketing. Given that
we are located in the Heilongjiang province, we are in close proximity to our
suppliers and customers and, thus, are able to communicate with them directly
(as opposed to going through the Dalian Commodities Exchange).





We
have sales offices in cooperation with distributors in many cities in the PRC
with approximately 40 independent general distributors spread over approximately
27 provinces. These provinces include locations in the northeastern,
northwestern and southern regions of the PRC. Furthermore, we have a dedicated
in-house sales team with 10 salespersons. Their duties include monitoring the
soybean industry, collecting market and price information, developing and
managing distributors, providing recommendations for our marketing and sales
strategy, pricing policies, and filling sales orders.





The
following map illustrates the geographical coverage of our sales and
distribution network within the PRC:


11











In
addition to our direct marketing efforts in the PRC, and as part of our
international expansion plans, we plan to appoint sales agents in North America,
Europe, Russia, Japan, Korea and other countries in Southeast Asia in the
future.





Advertising




We
advertise our products through various forms of media, including billboards
alongside highways. We are now building our own business website at the domain
name www.yanglin.com.cn.





In
addition, our marketing team develops and maintains a unified and distinctive
image throughout all of our corporate publicity materials, including our
corporate billboard advertisements, media publicity and corporate
branding.





Publicity





We hold
an annual conference with distributors and potential customers to promote our
products. We regularly attend exhibitions in different regions to market our
products. We plan to maintain and strengthen our existing customer
relations through symposiums, guided tours of the company and direct
correspondences that provide further information of our product offering. We
will also strengthen communications with the relevant government departments in
order to keep abreast of new policies and guidelines. This will enable us to
adapt quickly to any changes, better seize business opportunities and develop
new markets.





Delivery
of Products




Approximately
70% of our products are transported to our customers by railways, thanks to our
easy access to the PRC railroad network (see “Our Competitive Advantages”).
The costs of transportation are borne by our customers and are pre-paid in
advance ahead of delivery of the products. The remainder of our products is
collected by our customers at our facilities.


12





Pricing
and Terms




Prices of
our products are determined based on the daily spot market price, which is
determined by the average of ex-works prices of local producers and the
quotation on commodities exchanges. Usually all of our customers are
required to pay us the full retail price in cash in advance of delivery of their
ordered products. Credit terms will only be granted to long-term customers,
usually large distributors. Long-term customers constitute almost 90% of our
customers in total, and we, if it’s permitted by the circumstances, offer
certain favorable treatments to them, including the priority in fulfilling
orders, guarantee of railway delivery capacity, etc. Since we are paid with
cash in advance most of the time, there are almost no accounts
receivables.





The
current prices for our products, as of December 31, 2009 are (including
value-added tax (“VAT”)):




Products
                    
                    Price
                      (USD/ton)Soybean oil
      (Grade IV)
                    
                    $
                    1,119Salad
      oil
                    
                    $
                    1,192Soybean
      meal
                    
                    $
                    474Low
      temperature soybean meal
                    
                    $
                    655Squeezed
      soybean oil
                    
                    $
                    1,346Concentrated
      soybean protein
                    
                    $
                    1,357





Note:
the amounts are converted from RMB value using the year end rate of 2009, 1USD =
6.8372 RMB.




For the
past three years, the price of soybean meal has been in the range of $285 per
metric ton to $680 per metric ton (converted at the above mentioned foreign
exchange rate 1US$ = 6.8372 RMB; the same rate is used hereinafter). By
comparison, the price range of soybean oil has been in the range of $936 per
metric ton to $2,545 per metric ton, while the price range of salad oil was from
$1,009 per metric ton to $2,633 per metric ton. The prices of our products are
determined by taking into account the costs of labor as well as the seasonality
of demand in the soybean market. Traditionally, the prices of our raw materials
are usually lowest during the soybean harvest period between October and
December, as the supply is most abundant then. Our prices then usually peak from
January to February because of the large demand during the New Year and Spring
Festival holidays.




Intellectual
Property





Yanglin
has registered the following trademarks in the PRC, which are currently
used for all of our products:




Trademark
                                      
                                      Country of
                                        Registration
                                      
                                      Class
                                      
                                      
                                      Registration
                                        Number
                                      
                                      Date of
                                        Registration
                                      
                                      Validity Period“Yanglin”logo
                                      
                                      PRC
                                      
                                      
                                      29
                                      
                                      
                                      
                                      1587278
                                      
                                      June 14, 2001
                                      
                                      From June
      14, 2001 to June 13, 2011“Yanglin”logo
                                      
                                      PRC
                                      
                                      
                                      31
                                      
                                      
                                      
                                      1586742
                                      
                                      June
      14, 2001
                                      
                                      From
      June 14, 2001 to June 13,
2011


Class 29
is for meat, fish, poultry and game; meat extracts, preserved, dried and cooked
fruits and vegetables; jellies, jams, fruit sauces; eggs, milk and milk
products; edible oils and fats. Class 31 is for agricultural, horticultural and
forestry products and grains not included in other classes; live animals, fresh
fruits and vegetables; seeds, natural plants and flowers; foodstuffs for
animals, malt.





Employees





Currently
we have 472 employees, most of whom are involved in production and
operations.





The
functional breakdown of our full-time employees as of December
31, 2008 and 2009 was:





FY2008
                  
                  
                  FY2009Production
      and operations
                  
                  
                  291
                  
                  
                  
                  291Sales
                  
                  
                  10
                  
                  
                  
                  10Management
                  
                  
                  171
                  
                  
                  
                  171Total
      number of employees
                  
                  
                  472
                  
                  
                  
                  472




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 that full time employees who have passed the probation
period are entitled to such benefits.





We have a
system of periodic performance reviews that are conducted
annually.


13





Insurance





We have
the following major insurance policies:





Description of Policy
                                
                                Term
                                
                                Coverage ($)
                                
                                
                                Premium ($)
                                
                                InsuredChina
      People’s Property
                                
                                July
      11,
                                
                                
                                463,497
                                
                                
                                
                                13,686
                                
                                BoilersInsurance
      Co. Ltd.,
                                
                                2009
      toPQZA200923050600000002
                                
                                July
      10,2010





Note:
the amounts in the column Coverage are converted from RMB value using the year
end rate of 2009, 1USD = 6.8372 RMB, and those in the column Premium are
converted from RMB value using the yearly average rate of 2009, 1USD = 6.8409
RMB.





Government
Regulations





We are
subject to various government regulations, such as Food Sanitation Law,
Environment Protection Law and Fire Prevention Law, and to national standards
for food issued by the national Food and Drug Administration. We have obtained
the Sanitation Admission certificate from the local Sanitation Bureau as well as
the industrial production permit, and our facilities are regularly inspected by
local authorities.




In
addition, we have been issued an ISO 9001-2000 Certificate by the Beijing
Zhongjing Kehuan Quality Authorization Co. Ltd and a Certificate of Class A
Green Food by the PRC Center of Development of Green Food.





Environmental
Compliance





We are
subject to the PRC environmental laws, rules and regulations governing our type
of manufacturing facility. We have complied with the prescribed standard of
environmental protection as evidenced by a certificate issued by the Jixian
Environment Protection Bureau dated February, 2007.





The
treatment of our waste water is subject to the PRC Environment Protection Law.
Our process of treating waste water meets the strict requirement of this
law.




Item
1A. Risk Factors





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, 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 face
special risks for doing business in the PRC. We face the risk of changes in the
policies of the PRC government, the risk of recent PRC regulations restricting
the establishment of offshore companies by PRC residents, the risk of
ineffective contractual control of Yanglin, the risk of uncertain legal
environment in the PRC, the risk of substantial influence by the PRC government
over the manner we conduct our business activities, the risk of inflation in the
PRC, the risk of restrictions on currency exchange, the risk of fluctuation of
Renminbi exchange rate, the risk of distribution our assets upon liquidation,
the risk of being treated as a resident enterprise for PRC tax purposes, the
risk of limited business insurance coverage, and the risk of future outbreaks of
SARS and Avian Flu in the PRC.





In
addition to other matters identified or described by us from time to time in
filings with the SEC, there are several important factors that could cause our
future results to differ materially from historical results or trends, results
anticipated or planned by us, or results that are reflected from time to time in
any forward-looking statement. Some of these important factors, but not
necessarily all important factors, include the following:


14





Risks
Related To Our Business





Our raw
material supply is vulnerable tonatural
disasters, which could severely disrupt the normal operation of our business and
therefore adversely affect our business.





As
soybeans are our main raw materials and most of our soybeans are grown in and
obtained from farmers in the Heilongjiang Province, natural disasters such as
drought, earthquakes, floods, and heavy rains in Heilongjiang may lead to a
shortage in our supply of soybeans and result in soybean price increases, and
consequently adversely affect our operations.





Our
efforts to manufacture
value-added products may not be successful.





In order
to grow our business and achieve higher profit margins, we have begun to
construct new plants and add new equipment to manufacture value-added products
such as squeezed oil, concentrated soy protein, textured protein, powdered
soy oil, etc. If the consumers do not accept our new products, the market for
such products has not fully developed, or we do not have experienced sales
personnel to market such products, we may not achieve the result as we expect
and our business operation and financial conditions may be adversely
affected.





Soybean prices fluctuate
greatly. This may adversely affect our operations.





As a
commodity, soybeans are subject to the price fluctuation of the commodity market
in the PRC and indirectly to the international commodity market. For
example, the soybean price went up from RMB 2.16 per 500 grams at the beginning
of 2008 to RMB2.75 per 500 grams at the beginning of March 2008, then to RMB
2.70 per 500 grams in early July 2008 and went down to RMB 1.65 per 500 grams at
the end of 2008, due to both the shortage in soybean supply caused by a severe
drought in 2007 and farmers’ cutting growing areas of soybeans brought by the
continuously low price level by the end of 2006.  While in 2009, the
soybean price fluctuated from RMB 1.67 per 500 grams at the beginning of the
year, to RMB 1.87 per 500 grams at the end of the year. If the soybean price
increases significantly, we may have a problem caused by increased demand on
working capital to satisfy the raw materials needs of our
operations.





Our
full capacity may be reached soon. Our growth may be impacted if we could
not expand our capacity in the near future.





The
designed capacity of our facilities is 520,000 tons per year and the maximum
utilization rate for our industry is approximately 90%. We processed 420,000
tons of soybean in 2008 and we processed about 357,400 tons in 2009.We will soon
need additional capacity to grow our business. If we are not able to build or
acquire new facilities in near future, the growth of our business maybe
adversely affected.





We do not have long-term
soybean supply contracts, which could have a material adverse effect on
us.





Currently,
we source about 70% of our raw materials from farmers with whom we have a long
term relationship and about 30% from intermediaries who purchase directly from
other farmers. However, we do not have long term contracts with the farmers or
the intermediaries. All current supply contracts with the soybean farmers are
one-year contracts without fixed prices. Therefore, we may not be able to
control supply risks. Any significant fluctuation in price of our raw materials
could have a material adverse effect on the manufacturing cost of our
products.





We have
tried to mitigate the risks by paying attractive premium to those farmers who
will purchase “Yanglin” soybean seeds, cultivate and plant them and then sell
the soybeans to us in order to guarantee our soybean supplies. However, if our
competitors also pay premium or even pay higher premium to attract the
suppliers, we may lose our advantage in purchasing price and lose some of the
soybean supplies.





The soybean price is largely
beyond our control in addition to natural disaster or supply
competition.





The
soybean price may also be affected by other factors in addition to natural
disaster or supply competition, such as global commodity price increase,
government control or suppliers’ financial difficulties. We may have limited
options in the short-term for alternative supply if our suppliers fail for any
reason, including suppliers’ business failure or financial difficulties to
continue the supply of raw materials. Moreover, identifying and accessing
alternative sources may increase our costs. Although raw materials are generally
available and we have not experienced any raw material shortage in the past, we
cannot assure that the necessary materials will continue to be available to us
at prices currently in effect or acceptable to us.


15





Some of our land may be
reclaimed by
the government and this may materially impact our
operations.





Most land
in the PRC is state-owned and land use rights may be granted, transferred,
leased or allocated. Allocated land use rights are generally provided by the
government for an indefinite period (usually to state-owned entities) and cannot
be pledged, mortgaged, leased, or transferred by the user. As the same time,
allocated land can be reclaimed by the government at any time. The land occupied
by our Factory No. 1 and No. 2 are allocated land and accordingly subject to the
risk of being reclaimed. We are in the process of applying to change the
type of the land use rights over Factory No. 2 to “transferred”. Although
the risk being reclaimed is very small because the government is encouraging the
growth of our industry and the market economy system in general, and
because the government will continue to support our business, we cannot
guarantee the land will not be reclaimed in the future.





We may lose our advantages
if there is emergence ofnew production technologies
for other competitors.





Our
business is dependent on our ability to utilize current technologies to produce
high quality products with low cost. Currently, we employ advanced technologies
now available in our manufacturing process. However, newer and better
manufacturing technologies may emerge. If we are unable to adapt the production
processes to newer and more efficient manufacturing technologies that may be
used by our competitors to manufacture products that are of higher quality or at
a lower cost, we may lose market share and our financial performance may be
adversely affected because we do not have the financial resources to build new
facilities using such new technologies.




Our manufacturing process is
highly dangerous,which could cause adverse
effects on our operation.




In our
manufacturing process, we use highly inflammable and explosive chemical
solutions. Therefore, fires and explosions could occur, which could cause delay
in our production, damages to our facilities and injuries to our
workers.





We
receive a significant portion of our revenues from alimitednumber
of customers. Our business will be harmed if our main customers reduce their
orders from us.





Our
customers mainly comprise approximately 40 distributors of soybean oil and other
soybean products, as well as soybean food product and animal feed manufacturers.
Although our sales are widely diversified among our customers and our largest
customer accounts for only 3.6% of our total sales, our top ten customers
accounted for about 30% of our net sales in the year 2009. Dependence on a few
customers could make it difficult to negotiate attractive prices for our
products and could expose us to the risk of substantial losses if a single
dominant customer ceases purchasing. If we lose any customers and are unable to
replace them with other customers that would purchase a similar amount of our
products, our revenues and net income would decline considerably.




Our product delivery is
dependent upon the efficiencyof the rail system and any
disruption in the services or increase in transportation costs will have a
material adverse impact on our operations.





Approximately
70% of our products are transported to our customers by rail. We are largely
dependent upon the efficiency of the PRC’s rail system and network to deliver
our products. Any disruption of their service will largely impact our ability to
fulfill our orders on a timely basis and recognize revenue. Also any increase in
transportation costs may deter our customers and lead them to source products
from other nearby suppliers, thus negatively affecting our sales.





Potential environmental
liability could have a material adverse effect on our operations and financial
condition.





To the
knowledge of management, we have complied with the prescribed standard of
environment protection as evidenced by a certificate issued by the government.
Although it has not been alleged by government officials that we have violated
any current environmental regulations, we cannot assure that the government will
not amend the current environmental protection laws and regulations. Our
business and operating results may be materially and adversely affected if we
were to be held liable for violating existing environmental regulations or
if we were to increase expenditures to comply with environmental regulations
affecting our operations.





Inadequate funding for our
capital expenditure may affect our growth strategy and
profitability.




Our
continued growth depends upon our ability to raise capital from outside sources.
To maintain our profitability, we should increase the efficiency and achieve
economies of scale in production of those low-margin products, and at the same
time to develop those high-margin profit products. Adequate funding is needed to
expand the production scale or develop new products. However, adequate funding
is dependent upon a number of factors, including but without limitation the
nation’s or the world’s economy, our business condition, the financial
environment as well as the relevant legal environment. If we are unable to
obtain sufficient financing, our growth and profitability may be adversely
limited.


16





The sales
price fluctuation for our products is periodic, which could affect on our
financial results.





The
prices of our products vary seasonably, among others, by the change of soybean
supply and demand. Usually, our prices are lowest during the soybean harvest
time between October and December and on the peak from January to February
because of the New Year and Spring Festival. However, the price also subject to
other conditions. As a result, we believe that period-to-period comparisons of
our historical results of businesses are not necessarily meaningful and that you
should not rely on them as an indication for future performance. It is also
possible that our quarterly results of operations may be below the expectations
of public market analysts and investors.




Risks
Related To Our Management and Internal Control




Our
internal control over financial reporting and our disclosure controls and
procedures have been ineffective, and failure to improve them could lead to
future errors in our financial statements that could require a restatement or
untimely filings, which could cause investors to lose confidence in our reported
financial information, and a decline in our stock price.




We are
constantly striving to establish and improve our business management and
internal control over financial reporting to forecast, budget and allocate our
funds. However, as a PRC company that has recently become a US public company,
we face difficulties  in hiring and retaining a sufficient number of
qualified employees to achieve and maintain an effective system of internal
control over financial reporting in a short period of time.




In
connection with the preparation and audit of our 2009 financial statements and
notes, it was discovered that the Company had improperly classified warrants
pursuant to FASB ASC Topic 815 “Derivatives and Hedging” (“ASC
815”).  As a result of the reclassification, the Company recognized a
$59.4 million income for the year ended December 31,
2009.




Because
of the above-referenced deficiencies and weaknesses in our disclosure controls
and procedures and internal control over financial reporting, we may be unable
to comply with the Sarbanes-Oxley Act’s internal controls requirements, and
therefore may not be able to obtain the independent auditor certifications that
the Sarbanes-Oxley Act requires publicly-traded companies to
obtain.  As a result of any deficiencies and weaknesses, we may
experience difficulty in collecting financial data and preparing financial
statements, books of account and corporate records, and instituting business
practices that meet international standards, failure of which may prevent us
from accurately reporting our financial results or detecting and preventing
fraud.





We depend on key personnel
for our business operations, whose discontinuance could incur our high
replacement cost.





Our
future success depends substantially on the continued services of our executive
officers, especially Mr. Shulin Liu, our chairman and chief executive officer,
Mr. Zongtai Guo, chief operating officer, and Mr. Shaocheng Xu, chief financial
officer. If one or more of our key executive officers are unable or unwilling to
continue in their present positions, we may not be able to replace them readily,
if at all. Therefore, our business may be severely disrupted, and we may
incur additional expenses and take additional time to recruit and retain new
officers.




We may not be able to
effectively protect our proprietary rights, which could harm our business and
competitive position.




Our
success depends, in part, on our ability to protect our proprietary rights. At
present, we have registered the trademarks for “Yanglin” logo in the PRC which
are currently used for all our products. We cannot assure you that we will be
able to effectively protect our trademarks in the future. Currently,
implementation of PRC intellectual property-related laws has historically been
lacking, primarily because of ambiguities in the PRC laws and difficulties in
enforcement. Accordingly, intellectual property rights and confidentiality
protections in the PRC may not be as effective as in the United States
or other developed countries. Policing unauthorized use of proprietary
technology is difficult and expensive, and we might need to resort to litigation
to enforce our rights or defend us, or to determine the enforceability,
scope and validity of our proprietary rights or those of others. Such litigation
may require significant expenditure of cash and management efforts and could
harm our business, financial condition and results of operations. An adverse
determination in any such litigation will impair our intellectual property
rights and may harm our business, competitive position, business prospects and
reputation.




We may be exposed to
intellectual property infringement and other claimsby third parties, which, if
successful, could cause us to pay significant damage awards and incur other
costs.





While we
believe that the technology we use is not protected by any patent or
intellectual property rights, we face the risk of being the subject of
intellectual property infringement claims. The validity and scope of claims
relating to the manufacturing of soybean products may involve complex technical,
legal and factual questions and analysis and, therefore, may be highly
uncertain. The defense and prosecution of intellectual property suits,
patent opposition proceedings and related legal and administrative proceedings
can be both costly and time consuming and may significantly divert the efforts
and resources of our technical and management personnel. An adverse
determination in any such litigation or proceedings to which we may become a
party could subject us to significant liability, including damage awards to
third parties, require us to seek licenses from third parties, to pay ongoing
royalties, or to redesign our products or subject us to injunctions preventing
the manufacture and sale of our products. Protracted litigation could also
result in our customers or potential customers deferring or limiting their
purchase or use of our products until resolution of such litigation. Further, we
do not have adequate product liability insurance coverage against defective
products as our products are manufactured according to fairly basic formulas.
Any disputes so far have been resolved through friendly negotiations. There is
no guarantee that we will not be involved in any legal proceedings should such
negotiations fail one day.


17





Risks
Related to Our Expansion





We give no assurances that
any plans for future expansion will be implemented or that theywill be
successful.





While we
have expansion plans, which include manufacturing “deep-processed” and refined
soybean products, expanding our production lines and expanding our sales, there
is no guarantee that such plans will be implemented or that they will be
successful. These plans are subject to, among other things, the feasibility to
meet the challenges we face, our ability to arrange for sufficient funding for
more manufacturing facilities and the increasing working capital and the ability
to hire qualified and capable employees to carry out these expansion
plans.





Our personnel may not
effectively support our growth and therefore impeding the expansion
plan.





We
currently have sufficient experienced and skilled employees for our business
operations. But if our business and markets grow and develop, it will be
necessary for us to expand our operation in an orderly fashion, which will put
added pressure on our management and operational infrastructure. We may not have
the requisite experience to manage and operate a larger, more modern
manufacturing plant and bigger production lines. In addition, we may face
challenges in product offerings and in integrating acquired businesses. These
events would increase demands on our existing management, workforce and
facilities. Failure to satisfy these increased demands could interrupt or
adversely affect our operations and cause production backlogs, longer product
development time frames and administrative inefficiencies.





We may not able to increase
our sources for
soybean supply. As a result, we may not support our plan to increase
production.





In order
to increase our raw material supplies, we intend to expand our soybean supply
area through development of additional farmland soybean agreements, which in
turn will be accomplished through contract negotiations with private farmers and
cooperation with state-owned farms. However, it is difficult to obtain access to
farmlands from private farmers or state-owned farms. If we cannot expand the
soybean supply area, we may not be able to increase the supplies of the soybean
and our plan to increase soybean production.




We may have difficulty to
expand our sales network in domestic market or to explore new overseas
market.




We intend
to intensify our marketing efforts in the PRC by expanding existing sales and
marketing network coverage to reach more areas by establishing more sales
offices within the PRC and maybe in other countries such as Singapore, Malaysia,
Canada and the United States. However, overseas consumers may not accept the
value of non-generically modified soybean products and would not like to pay the
premium for it. It also may be difficult to expand the sales channels in the
PRC’s markets if we are unable to advertise our products through various forms
of media. But the advertising in commercial magazines, popular newspapers or
over the internet will enhance our sales costs.





Our acquisition plan may not
succeed, which will adversely affect our overall expansion
plan.





We plan
to expand our production facilities through the acquisition of approximately 3
to 4 additional factories, which can increase our current annual soybean
production capacity up to about 1.5 million tons of soybeans over the next 3
years, if the market situation improves in the future. However, it will be
difficult for us to negotiate the acquisition with those factories, who may
bargain for higher acquisition prices. Additionally, the acquisition will be
submitted to the government for approval. That process may increase the risk of
the acquisition failure or increase our acquisition cost, which decreases the
value of the acquisition. If our acquisition plan fails, it will block our
overall expansion plan.





Risks
Related To Our Industry





Disruptions in the capital
and credit markets related to the current national
and worldwide financial crisis, which may continue indefinitely or intensify,
could adversely affect our results of operations, cash flows and financial
condition, or those of our customers and suppliers.




The
current disruptions in the capital and credit markets may continue indefinitely
or intensify, and adversely impact our results of operations, cash flows and
financial condition, or those of our customers and suppliers. Disruptions in the
capital and credit markets as a result of uncertainty, changing or increased
regulation, reduced alternatives or failures of significant financial
institutions could adversely affect our access to liquidity needed to conduct or
expand our businesses or conduct acquisitions or make other discretionary
investments, as well as our ability to effectively hedge our currency or
interest rate. Such disruptions may also adversely impact the capital needs of
our customers and suppliers, which, in turn, could adversely affect our results
of operations, cash flows and financial condition.


18





The
PRC’s
commitments to the World Trade Organization may intensify
competition.





In
connection with its accession to the World Trade Organization, the PRC made many
commitments including opening its markets to foreign products, allowing foreign
companies to conduct distribution business and reducing customs duties. Foreign
manufacturers may begin to manufacture non-genetically modified soybean products
and ship their products or establish manufacturing facilities in the PRC.
Competition from foreign companies may reduce profit margins and hence our
business results would suffer.





If the substitute products
for soybean oil increase, we may lose our market share of soybean oil
market.





Substitute
products for soybean oil, such as vegetable oil of peanut and palm oil could
increase the intensity of competition faced by us. With the appearance of
substitute products for soybean oil, consumers have more choices. Part of
consumers may prefer vegetable oil. As a result, we may lose our market
share of soybean oil market.





If we are not able tobecompetitive inthenon-genetically modified
soybean product business, we may not achieve sufficient product
revenues.





At
present, we are the largest and most integrated private non-genetically modified
soybean producer in the PRC. Our products compete with a multitude of products
developed, manufactured and marketed by others and we expect competition from
new market entrants in the future. Our current competitors are the other
domestic non-genetically modified soybean companies and global manufacturers who
may enter the non-genetically modified soybean business. Although currently we
view ourselves in a favorable position, we may not remain competitive if
existing or future competing products may provide better quality, greater
utility, lower cost or other benefits from their intended uses than our
products, or may offer comparable performance at lower cost. If our products
fail to capture and maintain market share, we may not achieve sufficient product
revenues, and our business would suffer.





The inability of the PRC
government to keep the PRC a genetically modified-free soybean zone will remove
our competitive edge and negatively impact our operations.





We
distinguish ourselves from our competitors in that we manufacture and sell
non-genetically modified soybean products. Because the PRC is a non-genetically
modified soybean growing zone, our competitors are not the large, better
capitalized producers of genetically modified soybean products. The PRC has one
of the strictest bio-safety regulations in the world, requiring safety
certificates and labeling of genetically modified products. However, with so
much genetically modified soybeans imported into the country, there is a
question as to whether the PRC is able to keep it a genetically modified-free
soybean zone. If the PRC is unsuccessful in keeping the PRC a genetically
modified-free soybean zone and our soybeans are tainted through pollination, we
will lose our competition edge and this would adversely affect our
operations.





Our failure to comply with
ongoing governmental regulations could hurt our operations and reduce our market
share.





In the
PRC, the food industry is undergoing increasing regulations as environmental
awareness increases. The trend is that the PRC government toughens its
regulations and penalties for violations of environmental regulations. New
regulatory actions are constantly changing our industry. Although we believe we
have complied with applicable government regulations, there is no assurance that
we will be able to do so in the future.




Risks
Related To Doing Business In The PRC





We face the risk that
changes in the policies of the PRC government could have a significant impact
upon the business we may beable to conduct in the PRC
and the profitability of such business.





All of
our business operations are conducted in the PRC. Accordingly, our business,
financial condition, results of operations and prospects are affected
significantly by economic, political and legal developments in the PRC. The PRC
economy differs from the economies of most developed countries in many respects,
including level of government involvement in economic activities, stage of
national development, and control of foreign exchange.


19


While the
PRC economy has grown significantly in the past 20 years, the growth has
been uneven, both geographically and among various sectors of the economy.
Policies of the PRC government can have significant effects on the economic
conditions of the PRC. The PRC government has confirmed that economic
development will follow the model of a market economy. Under this direction, we
believe that the PRC will continue to strengthen its economic and trading
relationships with foreign countries and business development in the PRC will
follow market forces. While we believe that this trend will continue, we cannot
assure you that this will be the case. A change in policies by the PRC
government could adversely affect our interests by, among other factors:
changes in laws, regulations or the interpretation of laws and regulations,
confiscatory taxation, restrictions on currency conversion, imports or sources
of supplies, or the expropriation or nationalization of private enterprises.
Although the PRC government has been pursuing economic reform policies for
more than two decades, we cannot assure you that the government will continue to
pursue such policies or that such policies may not be significantly altered,
especially in the event of a change in leadership, social or political
disruption, or other circumstances affecting the PRC’s political, economic and
social life.





Recent PRC regulations
relating to the establishment of offshore companies by PRC residents may subject
our PRC resident shareholders to personal liability and limit our
ability to inject capital into our PRC subsidiaries, limit our
subsidiaries’ability to distribute
profits to us or otherwise adversely affect us.





The PRC’s
State Administration of Foreign Exchange, or the SAFE, issued a public circular
on October 21, 2005 concerning the acquisition by an offshore company
controlled by PRC residents of onshore assets in the PRC. This circular requires
that (1) a PRC resident shall register with a local branch of the SAFE
before he or she establishes or controls an overseas special purpose vehicle, or
SPV, for the purpose of overseas equity financing (including convertible debt
financing); (2) when a PRC resident contributes the assets of or his or her
equity interests in a domestic enterprise to an SPV, or engages in overseas
financing after contributing assets or equity interests to an SPV, such PRC
resident must register his or her interest in the SPV and any changes in such
interest with a local branch of the SAFE; and (3) when the SPV undergoes a
material change outside of the PRC, such as a change in share capital or merger
or acquisition, the PRC resident shall, within 30 days from the occurrence of
the event that triggers the change, register such change with a local branch of
the SAFE. Furthermore, PRC residents who are shareholders of SPVs established
before November 1, 2005 are required to register with a local branch of the
SAFE before March 31, 2006.





The
beneficial owners of our company who are PRC residents are required to update
their respective registrations with the local branch of the SAFE. However, we
cannot assure you that these beneficial owners will update their registrations
with the local branch of the SAFE in full compliance with the October 2005 SAFE
circular. The failure or inability of beneficial owners of our company who are
resident in the PRC to comply with the registration procedures set forth in the
October 2005 SAFE circular may subject these beneficial owners to fines and
legal sanctions and may also limit our ability to contribute additional
capital into our PRC subsidiaries, limit our PRC subsidiaries’ ability to
distribute dividends to us or otherwise adversely affect our
business.





Contractual arrangements
through which we have established control of Yanglin may not beas effective in providing
operational control as direct ownership. If Yanglin fails to perform its
obligations under these contractual arrangements, we may have to legally enforce
such arrangements and our business, financial condition and results of
operations may be materially and
adversely affected if these arrangements cannot be enforced.





We rely
on contractual arrangements with Yanglin and its shareholders for operating our
business. These contractual arrangements may not be as effective in providing us
with control over Yanglin as direct ownership.





Under the
current contractual arrangements, as a legal matter, if Yanglin fails to perform
its obligations under these contractual arrangements, we may have to
(i) incur substantial costs and resources to enforce such arrangements, and
(ii) rely on legal remedies under PRC law, which we cannot be sure would be
effective.





These
contractual arrangements are governed by PRC law and provide for the resolution
of disputes through either arbitration or litigation in the PRC. Accordingly,
these contracts would be interpreted in accordance with PRC law and any disputes
would be resolved in accordance with PRC legal procedures. If Yanglin fails to
perform its obligations under these contractual arrangements, we may have to
rely on legal remedies under PRC law, including seeking specific performance or
injunctive relief, and claiming damages, which we cannot be sure would be
effective. In addition, the legal environment in the PRC is not as developed as
in other jurisdictions, such as the United States. As a result, uncertainties in
the PRC legal system could limit our ability to enforce these contractual
arrangements. In the event that we are unable to enforce these contractual
arrangements, our business, financial condition and results of operations could
be materially and adversely affected.





Winner
State (BVI), which is 100% owned by our Chief Executive Officer, Mr. Shulin Liu
and his wife Mrs. Huanqin Ding, beneficially owns approximately 91% of our
common stock. Our loan in the amount of approximately $17 million to the
domestic Yanglin Soybean Group Co. Ltd. is callable should Mr. Shulin Liu decide
to sell his and/or his wife’s majority interest in Yanglin. This could cause
disruption in our operations and as a consequence may adversely affect our
financial condition and results of operation.





According
to the Exclusive Purchase Option Agreement, the WFOE has the exclusive purchase
option to the equity and assets of Yanglin, any other party has no right to
purchase any equity from Mr. Shulin Liu and his wife. If Mr. Shulin Liu and his
wife breach the Exclusive Purchase Option Agreement to sell the equity, under
the Loan Agreement, repayment should be made in its entirety or in part, at the
WFOE’s option and upon 10 days written notice. Yanglin may choose two ways to
repay the debt, either (i) in cash, or (ii) by a transfer of equity interests of
Yanglin or all its assets (at the price of $17 million with excess treated as
interests on the loan). If Yanglin chooses to repay the debt in cash, it
may cause disruption in its operations due to lack of the working
capital.


20


Conflict of interest that
exists as a result of Mr. Liu’s role as our chief
executive officer and our majority shareholder, and his role as a
majority
shareholder of Yanglin and therefore Yanglin may not repay the loan which would
cause disruption in our business and adversely affect our financial condition
and result of operations.





Mr.
Shulin Liu with his wife, Mrs. Huanqin Ding, beneficially own approximately 91%
of our common stock through their 100% holding in Winner State (BVI). Mr. Liu is
also our chief executive officer.  Mr. Liu with his wife beneficially
own approximately 90% of Yanglin’s equity interest.  Thus, there is
conflict of interest as a result of Mr. Liu’s role as our chief executive
officer and our majority shareholder, and his role as a majority
shareholder of Yanglin.  As a consequence, Yanglin may not repay the
loan made on September 24, 2007.  Even though we may choose to
foreclose on the equity interests of Yanglin or all its assets and become the
owner of Yanglin  under Article 1 of the Exclusive Purchase Option
Agreement, there is the risk that the equity interests of Yanglin or all its
assets will not be sufficient to repay the loan or that we may not be able to
foreclose on the equity interests of Yanglin or all its assets at all, which
would cause disruption in our business and adversely affect our financial
condition and result of operations.





The approval of
thePRC’sSecurities Regulatory Commission,
or the CSRC, may be required in connection with this Prospectus under a recently
adopted PRC regulation. Any requirement to obtain prior CSRC approval could
delay the effectiveness of this Prospectus and a failure to obtain
this approval, if required,
could have a material adverse effect on the rights of our current and
prospective stockholders, and would adversely affect the value of our common
stock.





On
August 8, 2006, six PRC regulatory agencies, namely, the PRC Ministry of
Commerce, the State Assets Supervision and Administration Commission, or SASAC,
the State Administration for Taxation, the State Administration for Industry and
Commerce, the CSRC and SAFE, jointly adopted the Regulations on Mergers and
Acquisitions of Domestic Enterprises by Foreign Investors, or the New M&A
Rule, which became effective on September 8, 2006. The New M&A Rule
purports to require, among other things, offshore special purpose vehicles, or
SPVs, formed for overseas listing purposes through acquisitions of PRC domestic
companies and directly or indirectly controlled by PRC companies or individuals
to obtain the approval of the CSRC prior to publicly listing their securities on
an overseas stock exchange. The application of their new PRC regulation is
unclear. On December 14, 2006, the CSRC published a notice on its official
website specifying the documents and materials required to be submitted by SPVs
seeking CSRC approval of their overseas listings, or the Related
Clarification.





However,
the CSRC has not promulgated any guidance on the application and acceptance
procedures for these matters. If the CSRC or other PRC regulatory authorities
subsequently determine that we need to obtain the CSRC’s approval for this
offering, we may face sanctions by the CSRC or such other PRC regulatory
authorities. In such event, these regulatory authorities may impose fines and
penalties on our operations in the PRC, limit our operating privileges in the
PRC, require us to divest ourselves of any interests we hold in Yanglin, or take
other actions that could have a material adverse effect on our business,
financial condition, results of operations, the rights of our current and
prospective stockholders, as well as onthe value of our common
stock.





Our business islargely subject to the
uncertain legal environment inthe PRCand your legal protection
could be limited.





The PRC
legal system is a civil law system based on written statutes. Unlike common law
systems, it is a system in which precedents set in earlier legal cases are not
generally used. The overall effect of legislation enacted over the past 20 years
has been to enhance the protections afforded to foreign invested enterprises in
the PRC. However, these laws, regulations and legal requirements are relatively
recent and are evolving rapidly, and their interpretation and enforcement
involves uncertainties. These uncertainties could limit the legal protections
available to foreign investors, such as the right of foreign invested
enterprises to hold licenses and permits such as requisite business licenses. In
addition, all of our executive officers and our directors are residents of the
PRC, and substantially all the assets of these persons are located outside the
U.S. As a result, it could be difficult for investors to affect service of
process in the U.S., or to enforce a judgment obtained in the U.S. against us or
any of these persons.





You may experience
difficulties in effecting service of legal process and enforcing judgments
against us and our managementinthe PRC.





Substantially
all of our assets and our subsidiaries are located in the PRC. In addition,
almost all of our directors and officers reside within the PRC, it may not be
possible to affect service of process within the United States or elsewhere
outside of the PRC upon most of our directors and officers, including with
respect to matters arising under the U.S. federal securities laws or applicable
state securities laws. Moreover, the PRC is not a party to any treaties
providing for reciprocal enforcement of judgments of courts with the United
States or most other western jurisdictions. As a result, recognition and
enforcement in the PRC of judgments of a court in the United States or any other
jurisdictions mentioned above in relation to any matter may be difficult or
impossible. In addition, you will have difficulties in bring an original action
in a PRC court to enforce liabilities against our directors and officers based
upon the U.S. federal securities laws.


21


We may lose control over the
seedcompany if
the PRC government tightens its restriction on foreign entities to control
Chinese seeds developers.





Heilongjiang
Yanglin Group Seed Co. Ltd. (“Yanglin Seeds”) is currently wholly owned by Mr.
Shulin Liu, our Chief Executive Officer, and as a result is an affiliate of the
Group. It develops high quality soybean seeds and provides them to farmers at a
competitive price, and in return the farmers sell their soybeans grown from
Yanglin’s seeds to Yanglin. The PRC government has been restricting foreign
entities from owning Chinese seeds developers, for the reason of national
economic security. If the PRC government further tightens its restriction to
prevent foreign entities from effectively controlling, regardless of the actual
legal form, Chinese seeds developers, then Yanglin, as an entity effectively
controlled by a foreign enterprise, may have to dispose of Yanglin Seeds. This
may harm our ability to maintain high level of loyalty among the farmers and
secure the supply of our raw materials.





The PRC government may
impose material
influence on the market price of our raw materials and force our costs to
increase.





Though
usually the prices of our raw materials, especially soybeans, are determined by
market mechanism, the PRC government may exercise material influence over the
prices through its policies. For example, from late 2008 to June 2009, the PRC
government launched a national strategic reserve purchase of soybeans at a price
that was over 10% higher than normal market price, to support Chinese soybean
farmers and protect their interests, which were negatively affected by large
imports of soybeans at cheaper price. This measure effectively raised the market
price and our costs of sales subsequently, and was a major reason for our
material operational loss in 2009. It is possible that the PRC government may
implement such or similar policies in the future, and as a result, may
materially affect our profitability.





ThePRCgovernment exerts
substantial influence over the manner in which we must conduct our business
activities.





The PRC
only recently has permitted provincial and local economic autonomy and private
economic activities. The PRC government has exercised and continues to exercise
substantial control over virtually every sector of the PRC economy through
regulation and state ownership. Our ability to operate in the PRC may be harmed
by changes in its laws and regulations, including those relating to taxation,
import and export tariffs, environmental regulations, land use rights, property
and other matters. We believe that our operations in the PRC are in material
compliance with all applicable legal and regulatory requirements. However, the
central or local governments of these jurisdictions may impose new, stricter
regulations or interpretations of existing regulations that would require
additional expenditures and efforts on our part to ensure our compliance with
such regulations or interpretations. Accordingly, government actions in the
future, including any decision not to continue to support recent economic
reforms and to return to a more centrally planned economy, or regional or local
variations in the implementation of economic policies, could have a significant
effect on economic conditions in the PRC or particular regions thereof, and
could require us to divest ourselves of any interest we hold in PRC
properties.





Inflation inthe PRCmay inhibit our activity to
conduct business inthe PRC.





In recent
years, the PRC economy has experienced periods of rapid expansion and high rates
of inflation. During the past ten years, the rate of inflation in the PRC has
been as high as 20.7% and as low as -2.2%. These factors have led to the
adoption by the PRC government, from time to time, of various corrective
measures designed to restrict the availability of credit or regulate growth and
contain inflation. While inflation has been more moderate since 1995, high
inflation may in the future cause the PRC government to impose controls on
credit and/or prices, or to take other action, which could inhibit economic
activity in the PRC, and thereby harm the market for our products.





Restrictions on currency
exchange may limit our ability to receive and use our revenues
effectively.





The
majority of our revenues will be settled in Renminbi, and any future
restrictions on currency exchanges may limit our ability to use revenue
generated in Renminbi to distribute dividend or make other payments in U.S.
dollars. Normally the revenue will be reinvested in the PRC. If we distribute
dividend or make other payments in U.S. dollars to the shareholders, PRC
Foreign Investment Companies Laws require us to provide relevant documents such
as tax payment evidence and resolutions of the board of the
directors.  Although the PRC government introduced regulations in 1996
to allow greater convertibility of the Renminbi for current account
transactions, significant restrictions still remain, including primarily the
restriction that foreign-invested enterprises may only buy, sell or remit
foreign currencies after providing valid commercial documents at those banks in
the PRC authorized to conduct foreign exchange business. In addition, conversion
of Renminbi for capital account items, including direct investment and loans, is
subject to governmental approval in the PRC, and companies are required to open
and maintain separate foreign exchange accounts for capital account items. We
cannot be certain that the PRC regulatory authorities will not impose more
stringent restrictions on the convertibility of the Renminbi.


22


The fluctuation of the
Renminbi may
materially and adversely affect your investment.





The value
of our common stock will be affected by the foreign exchange rate between U.S.
dollars and Renminbi, and between those currencies and other currencies in which
our sales may be denominated. For example, to the extent that we need to convert
U.S. dollars into Renminbi for our operational needs and should the Renminbi
appreciate against the U.S. dollar at that time, our financial position, the
business of the company, and the price of our common stock may be harmed. If we
decide to convert our Renminbi into U.S. dollars for the purpose of declaring
dividends on our common stock or for other business purposes and the U.S. dollar
appreciates against the Renminbi, the U.S. dollar equivalent of
our earnings from our subsidiaries in the PRC would be
reduced.





We may not be able to
distribute our assets upon liquidation and dividend payment will be subject to
restrictions underthe PRCforeign exchange
rule.





Our
assets are predominately located inside the PRC. Under the laws governing
foreign investment enterprises in the PRC, dividend distribution and liquidation
are allowed but subject to special procedures under the relevant laws and rules.
Any dividend payment will be subject to the decision of the board of directors
and subject to foreign exchange rules governing such repatriation. Any
liquidation is subject to both the relevant government agency’s approval and
supervision as well the foreign exchange control. The foreign exchange control
authority may or may not approve the repatriation of funds out of the PRC if any
funds left after liquidation.  This may generate additional risk for
our investors in case of liquidation.





We may be treated as a
resident enterprise for PRC tax purposes as the Enterprise Income Tax Law became
effective on January 1, 2008, which may subject us to PRC income tax for any
dividends we receive from our subsidiaries and PRC income tax withholding for
any dividends we pay to our non-PRC shareholders.





The
Enterprise Income Tax Law provides that enterprises established outside of the
PRC whose “de facto management bodies” are located in the PRC are considered
“resident enterprises” and will generally be subject to the uniform 25.0%
enterprise income tax rate as to their global income, including income we
receive from our subsidiaries. The term “de facto management bodies” is not
defined under the Enterprise Income Tax Law and it is currently unclear in which
situations a non-PRC enterprise’s “de facto management body” is located in the
PRC. All of our management is currently based in the PRC, and if a majority of
the members of our management team continue to be located in the PRC after the
effective date of the Enterprise Income Tax Law, we may be considered a PRC
resident enterprise and therefore subject to PRC enterprise income tax at the
rate of 25% on our worldwide income, which will include any dividend income we
receive from our subsidiaries. If we are required under the Enterprise Income
Tax Law to pay income tax for any dividends we receive from our subsidiaries,
our revenues could decrease significantly.





We have limited business
insurance coverage inthe PRC, which could harm our
business.





We are
exposed to many risks, including equipment failures, natural disasters,
industrial accidents, power outages, and other business interruptions. We do not
carry business interruption insurance and as a result, we may be required to pay
for financial and other losses, damages and liabilities, including those caused
by natural disasters and other events beyond our control, out of our own funds,
which could have a material adverse effect on our business, financial condition
and results of operations.





Our
property and equipment insurance does not cover the full value of our property
and equipment, which leaves us with exposure in the event of loss or damage to
our properties or claims filed against us. We currently do not carry any
product liability or other similar insurance. We cannot assure you that we would
not face liability in the event of the failure of any of our products. This
is particularly true given our plan to significantly expand our sales into
international markets, like the United States, where product liability claims
are more prevalent.





Except
for property and automobile insurance, we do not have other insurance such as
business liability or disruption insurance coverage for our operations in the
PRC. We do not maintain a reserve fund for warranty or defective products
claims. Our costs could substantially increase if we experience a
significant number of warranty claims. We have not established any reserve funds
for potential warranty claims since historically we have experienced few
warranty claims for our products so that the costs associated with our warranty
claims have been low. If we experience an increase in warranty claims
significantly, it would have a material adverse effect on our financial
condition and results of operations.





Any future outbreak of
severe acute respiratory syndrome or avian influenza inthe PRC, or similar adverse public
health developments, may severely disrupt our business and
operations.





A renewed
outbreak of severe acute respiratory syndrome, the Avian Flu or another
widespread public health problem in the PRC, where all of our manufacturing
facilities are located and where all of our revenues are derived from, could
have a negative effect on our operations. In addition, there have been confirmed
human cases of avian influenza in PRC, Vietnam, Iraq, Thailand, Indonesia,
Turkey, Cambodia and other countries which have proven fatal in some instances.
If such an outbreak or any other similar epidemic were to spread in the PRC,
where our operations are located, it may adversely affect our business and
operating results. Such an outbreak could have an impact on our operations as a
result of quarantines or closures of our manufacturing facilities or the retail
outlets, which would severely disrupt our operations, the sickness or death of
our key officers and employees, and a general slowdown in the PRC
economy.


23


Risks
Related To The Market For Our Stock





Our Common Stocks subject to
price volatility and may result in losses for investors.





The stock
market has experienced significant price and volume fluctuations that have
particularly affected the trading prices of equity securities of many companies
that have business operations exclusively in the PRC. These fluctuations have
often been unrelated or disproportionate to the operating performance of many of
these companies. Any negative change in the public’s perception of these
companies could decrease our stock price regardless of our operating results.
The market price of our common stock has been and may continue to be volatile.
We expect our stock price to be subject to fluctuations as a result of a variety
of factors, including factors beyond our control.





These
factors include without limitation actual or anticipated variations in our
quarterly operating results, announcements of technological innovations or new
products or services by us or our competitors, announcements relating to
strategic relationships or acquisitions, additions or terminations of coverage
of our common stock by securities analysts, statements by securities analysts
regarding us or our industry, conditions or trends in the our industry, and
changes in the economic performance and/or market valuations of other soybean
product companies.





The
prices at which our common stock trades will affect our ability to raise
capital, which may have an adverse affect on our ability to fund our
operations.





Our common stock may be
considered to be a “penny stock”and, as such, the market
for our common stock may be further limited by certain SEC rules applicable to
penny stocks.





To the
extent the price of our common stock remains below $5.00 per share or we have
net tangible assets of $2,000,000 or less, our common shares will be subject to
certain “penny stock” rules promulgated by the SEC. Those rules impose certain
sales practice requirements on brokers who sell penny stock to persons other
than established customers and accredited investors (generally institutions with
assets in excess of $5,000,000 or individuals with net worth in excess of
$1,000,000). For transactions covered by the penny stock rules, the broker must
make a special suitability determination for the purchaser and receive the
purchaser’s written consent to the transaction prior to the sale. Furthermore,
the penny stock rules generally require, among other things, that brokers
engaged in secondary trading of penny stocks provide customers with written
disclosure documents, monthly statements of the market value of penny stocks,
disclosure of the bid and asked prices, disclosure of the compensation to the
brokerage firm, and disclosure of the sales person working for the
brokerage firm. These rules and regulations adversely affect the ability of
brokers to sell our common shares and limit the liquidity of our
securities.





We do not intend to pay cash
dividends in the foreseeable future.





We do not
anticipate paying any cash dividends in the foreseeable future. We currently
intend to retain all available funds and any future earnings for use in the
operation and expansion of our business. In addition, the terms of any future
debt or credit facility may preclude us from paying any dividends. As a result,
capital appreciation, if any, of our common stock will be your sole source of
potential gain in your investment for the foreseeable future.





Our chief executive officer
could exert significant influence over our significant corporate decisions and
may act in a manner that advances his best interests and not necessarily those
of other stockholders.





Our Chief
Executive Officer, Mr. Shulin Liu and his wife Mrs. Huanqin Ding, beneficially
own approximately 91% of our common stock through their 100% holding in
Winner State (BVI). As a result, Mr. Liu may be able to influence
significantly the outcome of all matters requiring stockholder approval,
including the election and removal of directors and any merger, consolidation,
or sale of all or substantially all of our assets and he may act in a manner
that advances his best interests and not necessarily those of other
stockholders, including investors in this offering, by, among other things:
delaying, deferring or preventing a change in control of us; entrenching our
management and/or our board of directors; impeding a merger, consolidation,
takeover or other business combination involving us; discouraging a potential
acquirer from making a tender offer or otherwise attempting to obtain control of
us; or causing us to enter into transactions or agreements that are not in the
best interests of all stockholders.


24





There is currently a very
limited trading market for our common stock.





Our
common stock is quoted on the over-the-counter Bulletin Board. However, our bid
and asked quotations have not regularly appeared on the OTC Bulletin Board for
any consistent period of time. There is no established trading market for our
common stock and our common stock may never be included for trading on any stock
exchange or through any other quotation system (including, without limitation,
the NASDAQ Stock Market). You may not be able to sell your shares due to the
absence of a trading market.





We will incur increased
costs as a result of changes inlaws and regulations
relating to corporate governance matters.





As a
public reporting company, we will need to comply with the Sarbanes-Oxley Act of
2002 and the related rules and regulations adopted by the SEC, including
expanded disclosures, accelerated reporting requirements and more complex
accounting rules. Compliance with Section 404 of the Sarbanes-Oxley Act of 2002
and other requirements will increase our costs and require additional management
resources. Additionally, these laws and regulations could make it more difficult
or more costly for us to obtain certain types of insurance, including director
and officer liability insurance, and we may be forced to accept reduced policy
limits and coverage or incur substantially higher costs to obtain the same or
similar coverage. The impact of these events could also make it more difficult
for us to attract and retain qualified persons to serve on our board of
directors, our board committees or as executive officers. We are presently
evaluating and monitoring developments with respect to these laws and
regulations and cannot predict or estimate the amount or timing of additional
costs we may incur to respond to their requirements.





We may not be able to
achieve and maintain an effective system of internal control over financial
reporting, a failure which may prevent us from accurately reporting our
financial results or detecting and preventing fraud.





We will
be subject to reporting obligations under the U.S. securities law, and have
been required to prepare a management report on our internal control over
financial reporting containing our management’s assessment of the effectiveness
of our internal control over financial reporting. Our management may conclude
that our internal control over our financial reporting is not effective.
Moreover, even if our management concludes that our internal control over
financial reporting is effective our independent registered public accounting
firm may still decline to attest to the effectiveness or may issue a report that
is qualified if it is not satisfied with our controls or the level at which our
controls are documented, designed, operated or reviewed, or if it interprets the
relevant requirements differently from us. Our reporting obligations as a public
company will place a significant strain on our management, operational and
financial resources and systems for the foreseeable future.





We may require additional
capital, which may not be available on commercially reasonable terms, or at
all.





A capital
raise through the sale of equity securities may result in dilution to our
shareholders. The incurrence of indebtedness would result in increased debt
service obligations and could result in operating and financing covenants that
would restrict our operations. Financing may be unavailable in amounts or on
terms acceptable to us, or at all. Failure to obtain such additional capital
could have an adverse impact on our business strategies and growth
prospects.





Our future capital raising
and the conversion of our outstandingshares of preferred stock
and warrants may dilute our shareholders’equities.





If we
need to obtain external financing, our capital raise could require us to sell
additional equity or debt securities or obtain credit facilities. The sale of
additional equity or equity-linked securities could result in additional
dilution to our then existing shareholders. In addition the conversion of
outstanding shares of preferred stock and exercise of warrants into common stock
may dilute our then existing shareholders’ equities. Certain registration
rights have been granted to holders of the preferred stock and warrants.
Pursuant to the registration rights agreement, certain holders of the preferred
stock and warrants have the demand rights to require us to register
the shares common stock held by these holders. Therefore, as our existing
shareholders, your share equities may be diluted upon the conversion of
outstanding shares of preferred stock, exercise of warrants and sale of common
stock pursuant to the registration rights agreement.





ITEM
2. Properties





We own
and operate three soybean production factories in Jixian County in Heilongjiang
Province. Our factories have a combined annual soybean processing capacity of
520,000 tons.





Factory
No.1 manufactures squeezed soybean oil, Grade IV soybean oil and soybean meal.
Factory No. 2 manufactures concentrated soy protein and low-temperature
soybean meal. Our newest facility, Factory No.3, which was built in 2005,
manufactures Grade IV soybean oil, soybean meal and salad oil. Our new, high end
products, including defatted soy powder, and textured protein, may be
manufactured in Factory No. 2, depending on market situation. Powdered soy oil
will be produced in Factory No. 3.





The
following tables indicate the land area and annual production capacity of our
production facilities:


25





ProductionFacility
                          
                          Area
                          
                          
                          CapacityFactory
      No. 1
                          
                          
                          27,000 m2
                          
                          
                          
                          100,000Factory
      No. 2
                          
                          
                          43,572 m2
                          
                          
                          
                          120,000Factory
      No. 3
                          
                          
                          45,596 m2
                          
                          
                          
                          300,000




Annual
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  AnnualProduction
                                  
                                  Actual
                                  
                                  
                                  
                                  
                                  
                                  Production
                                  
                                  
                                  ActualCapacity for
                                  
                                  Output for
                                  
                                  
                                  
                                  
                                  
                                  Capacity for
                                  
                                  
                                  Output for2008
                                  
                                  2008
                                  
                                  
                                  Utilization
                                  
                                  
                                  2009
                                  
                                  
                                  2009
                                  
                                  
                                  Utilization(Tons)
                                  
                                  (Tons)
                                  
                                  
                                  Rate for 2008
                                  
                                  
                                  (Tons)
                                  
                                  
                                  (Tons)
                                  
                                  
                                  Rate for 2009520,000
                                  
                                  
                                  420,000
                                  
                                  
                                  
                                  81
                                  %
                                  
                                  
                                  520,000
                                  
                                  
                                  
                                  357,400
                                  
                                  
                                  
                                  69
                                  %





Note: The annual production
capacity is based on 3 shifts (8 hours per shift) a day for 300 days a
year.





We purchased the land use rights for
the 45,596 m2of land of Factory No. 3. The land use
rights for Factory No. 1 and No. 2 are allocated by the local government at
minimal cost.





Our
machinery and equipment for soybean processing includes conveyor belt, sifting
machines, dyers; steamer, crushers; flaking machines, extractors; distillers;
packaging machines; containers, etc. Our machinery has been kept in good
conditions and is covered with property insurance.





All land
in the PRC is owned by the government and cannot be sold to any individual or
entity. Instead, the government grants or allocates landholders a “land use
right.” There are four methods to acquire land use rights:




·
              grant
      of the right to use land;
  ·
              assignment
      of the right to use land;
  ·
              lease of the right to use land;
      and
  ·
              allocated
      land use rights.




In
comparison with Western common law concepts, granted land use rights are similar
to life estates and allocated land use rights are in some way similar to
leaseholds.





Granted
land use rights are provided by the PRC government in exchange for a grant fee,
and carry the rights to pledge, mortgage, lease, and transfer within the term of
the grant. Land is granted for a fixed term - generally 70 years for residential
use, 50 years for industrial use, and 40 years for commercial and other use. The
term is renewable in theory. Unlike the usual case in Western nations, granted
land must be used for the specific purpose for which it was
granted.





Allocated
land use rights are generally provided by the PRC government for an indefinite
period (usually to state-owned entities) and cannot be pledged, mortgaged,
leased, or transferred by the user. Furthermore, allocated land can be reclaimed
by the government at any time. Allocated land use rights may be converted into
granted land use rights upon the payment of a grant fee to the
government.





In
addition to the abovementioned land use rights, Yanglin has the following leased
land use right:





Area (square
                                      
                                      
                                      Total
      Rental Fee
                                      
                                      Construction
                                      
                                      Term andLessor
                                      
                                      Location
                                      
                                      meters)
                                      
                                      
                                      (USD)
                                      
                                      on Land
                                      
                                      ExpirationJixian Industrial Company
                                      
                                      Jixian County Hedong 
      District
                                      
                                      
                                      27,000
                                      
                                      
                                      
                                      1,301,785
                                      
                                      Workshop,
      warehouse
                                      
                                      December 4,
      2001 - December 3, 2051Hongtai
      Oil Factory
                                      
                                      Jixian
      County, Shuangfu Road East
                                      
                                      
                                      43,572.1
                                      
                                      
                                      
                                      1,140,243
                                      
                                      Workshop,
      warehouse
                                      
                                      November
      1, 2006 – October 30, 2056Jixian
      County
                                        Government
                                      
                                      Jixian
      County
                                      
                                      
                                      45,596
                                      
                                      
                                      
                                      1,372,385
                                      
                                      Workshop,
      warehouse
                                      
                                      September
      6, 2005 – September 5, 2055Wansheng
      Village
                                        Commission
                                      
                                      Wansheng
      Village Oil Pump Station West, Daoban Dong Qiang
                                      
                                      
                                      3,844.6
                                      
                                      
                                      
                                      14,626
                                      
                                      Farmland
                                      
                                      October
      19, 2003 - October 18, 2053Wansheng
      Village
                                        Commission
                                      
                                      Hatong
      Expressway North, Wansheng Village
                                      
                                      
                                      16,643.7
                                      
                                      
                                      
                                      14,606
                                      
                                      Farmland
                                      
                                      April
      1, 2004 – December 31, 2028Mr.Liu
      Fengyu,
                                        Ms. Tian
      Shubai
                                      
                                      Jian
      San Jiang Administration Daxing Farm 24 Group Nan.
                                      
                                      
                                      1,000,000
                                      
                                      
                                      
                                      160,885
                                      
                                      Farmland
                                      
                                      January
      1, 2005 - December 31, 2026


26





We have
embarked on the process to convert the allotted land use rights for Factory No.
1, Factory No. 2, Wansheng Village and Jiansan Farm into granted land use
rights. The conversion will involve a payment of a “transfer fee” to the Jixian
County Land Bureau.





Yanglin
also owns the following buildings, comprising Factory No. 3:





Area (squareLocation
                                                
                                                meters)
                                                
                                                Nature of building
                                                
                                                Function
                                                
                                                CertificateBei No.4, Nongfeng
                                                  Village
      (Factory No. 3)
                                                
                                                
                                                1658.46
                                                
                                                Private
      Asset
                                                
                                                Office, garage
                                                
                                                Ji
      Fang Quan ZhengFanrong
      Zi No. 00033652Bei
      No.4, Nongfeng
                                                  Village
      ( Factory No. 3)
                                                
                                                
                                                9224.93
                                                
                                                Private
      Asset
                                                
                                                Workshop
                                                
                                                Ji
      Fang Quan ZhengFanrong
      Zi No. 00036015Factory
      No. 3
                                                
                                                
                                                1401.47
                                                
                                                Private
      Asset
                                                
                                                Boiler
      room
                                                
                                                Ji
      Fang Quan ZhengFanrong
      Zi No. 00033653





During
the year ended December 31, 2009, the Group reviewed the idle production
facility of Factory No. 1 for impairment and identified certain assets to be
technologically outdated and thereby indicating a reduction in value.
 Based on management’s assessment, the Group recognized a pre-tax
impairment charge totaling $584,718 for the year ended December 31,
2009. Additionally, the assets, at net book value of $570,409 at
December 31, 2009, have been reclassified as assets held for sale.
Management plans to seek a buyer of these assets as they are no longer required
for production and sell them to the highest bidder. We expect to dispose of
these assets during 2010 and believe the assets are carried at the net
realizable value.





Item
3. Legal Proceedings





To our
knowledge, there are no pending material legal proceedings to which we or our
properties are subject to. From time to time, we may be also involved in
litigation arising in the normal course of our business.




PART
II





Item
4. Market For Registrant’s Common Equity, Related Shareholder Matters, And
Issuer Purchases Of Equity Securities





Our stock
is currently quoted on the Over the Counter (OTC) Bulletin Board and our trading
symbol is "YSYB.OB”. There has never been any established public market for
shares of our Common Stock.





The
following table sets forth for the period indicated the prices of the Common
Stock in the over-the-counter market, as reported and summarized by the OTC
Bulletin Board. Such prices are based on inter-dealer bid and asked prices,
without markup, markdown, commissions, or adjustments and may not represent
actual transactions.


27





HIGH
                          
                          
                          LOW2009Fourth
      Quarter
                          
                          $
                          3.25
                          
                          
                          $
                          1.50Third
      Quarter
                          
                          $
                          3.50
                          
                          
                          $
                          2.75Second
      Quarter
                          
                          $
                          4.90
                          
                          
                          $
                          3.00First
      Quarter
                          
                          $
                          5.00
                          
                          
                          $
                          3.002008Fourth
      Quarter
                          
                          $
                          5.25
                          
                          
                          $
                          2.50Third
      Quarter
                          
                          $
                          5.50
                          
                          
                          $
                          4.90Second
      Quarter
                          
                          $
                          5.50
                          
                          
                          $
                          1.25First
      Quarter
                          
                          $
                          5.00
                          
                          
                          $
                          1.05







Shareholders





As of
April 12, 2010, we have 20,465,119 shares of Common Stock issued and outstanding
held by 305 holders of record (not including beneficial owners who hold shares
at broker/dealers in “street name”) and 9,534,883 shares of Series A
Preferred Stock issued and outstanding held by approximately 10 shareholders. We
have authorized and issued 9,999,999 Series A Preferred Stock and
authorized 10,000,000 Series B Preferred Stock, but have not issued any Series B
Preferred Stock.





Dividend
Policy





Our
board of directors has not declared a dividend on our Common Stock during the
last two fiscal years and we do not anticipate the payments of dividends in the
near future, as we intend to reinvest our profits to grow operations. We rely on
dividends from Yanglin for our funds and PRC regulations may limit the amount of
funds distributed to us from Yanglin, which will affect our ability to declare
any dividends.





Repurchases
of Equity Securities





No
repurchases of our common stock were made during the fourth quarter of the
fiscal year covered by this report.




Recent
Sales of Unregistered Securities
 
 None.
 
 Performance
Graph
 
 Not
applicable to smaller reporting companies.




Item
5.   Selected Financial Data





As a
smaller reporting company, we are not required to provide the information called
for by Item 5 of Form 10-K.





Item
6. Management’s Discussion and Analysis of Financial Condition and Results of
Operation





The
following discussion of our financial condition and results of operations should
be read in conjunction with our consolidated financial statements and the notes
to those financial statements appearing elsewhere in this Form 10-K. This
discussion contains forward-looking statements that involve significant risks
and uncertainties. As a result of many factors, such as those set forth under
"Forward Looking Statements" and "Item 1A. Risk Factors" and elsewhere in this
Form 10-K, our actual results may differ materially from those anticipated in
these forward-looking statements.




The
Company has restated its consolidated financial statements as of and for the
year ended December 31, 2008 to record the shares the majority shareholder
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
(Note 15). The Company has now 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. 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 expense, net
income, comprehensive income, basic earnings per share, diluted earnings per
share, additional paid in capital and retained earnings as of and for the year
ended December 31, 2008.


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, 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.


28





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 soy oil, textured protein and defatted soybean
powder.  Production of squeezed oil has already begun. Powdered
soybean oil is now in trial production phase and we are now adjusting the
formula and techniques according to customer requirements and feedback. We are
producing concentrated soy protein in small quantities of commercial grade
product to customers in order to solicit feedback, so we can adjust the
specifications of the product to satisfy the specific needs of the customers.
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 year ended December 31, 2009, we
generated total revenue of approximately $161.6 million with a net operating
loss of $14.3 million.





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.





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
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 that it
decided to grant domestic soybean processors a subsidy of approximately
$23 per ton, for soybeans purchased from farmers before April 30, 2010 at a
government guide price. Though the subsidy will only be received by soybean
processors after April 2010, it may help to improve the profitability of these
enterprises, including us.





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


●
            The
      expected good harvest of genetically modified soybeans in US and South
      America in 2010, which may cause even larger import volume to the PRC, at
      lower price.


●
            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 3 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;
      and
 ·
              Market
    demand.


29





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.
Production capacity is sufficient for current demand. From October 2009 to
February 2010, Factory No. 2 stopped the production of low temperature soybean
meal due to the low protein content of the soybeans purchased. As Factory No. 2
has 120,000 tons of annual processing capacity, out of the total of 520,000 tons
of the Company, and the production of this product, the production volume of
which occupied a share of about 4% of the total annual production volume,
stopped for only 3 months in 2009, so there was 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
mechanism, 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, which was about 10% higher over normal
market price, to farmers. Such and similar actions of the government,
granting various forms of subsidies to farmers, may materially increase our
cost of sales.




Gross
(Loss) Profit





Gross
(loss) profit 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. As 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 from 7% to 9%, based on previous experience until 2008.
However, 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 price,
and the low cost imports of soybean at large volume, we have suffered a gross
loss in the year ended December 31, 2009 (please refer to the discussion on
results of operations below for details).


30





Operating
Expenses





Operating
expenses consist of selling expenses and general & administrative expenses.
Generally speaking, operating expenses occupy 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 cover 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, and the next review has been postponed by
the government until the end of the first quarter of 2010, which is for
evaluating the tax status of 2010 and 2011. Other
than the PRC's central government's award, a review by the local tax authority
is also required in order to enjoy year 2009 tax exemption.






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




Year
Ended December 31, 2009 Compared with Year Ended December 31, 2008








The
following table shows the operating results for the years ended December 31,
2009 and December 31, 2008.





The year ended
                      
                      
                      The year endedDecember 31,
                      
                      
                      December 31,2009
                      
                      
                      2008Consolidated Statement of Operations
                      
                      ($)
                      
                      
                      ($)(As
      restated)(audited)
                      
                      
                      (audited)Sales
      revenue, net
                      
                      
                      161,633,950
                      
                      
                      
                      250,728,674Cost
      of sales
                      
                      
                      (171,588,089
                      )
                      
                      
                      (229,838,842
                      )Gross
      (loss) profit
                      
                      
                      (9,954,139
                      )
                      
                      
                      20,889,832Selling
      expenses
                      
                      
                      (247,301
                      )
                      
                      
                      (249,812
                      )General
      and administrative expenses
                      
                      
                      (3,314,592
                      )
                      
                      
                      (5,552,223
                      )Impairment
      loss of long-lived assets
                      
                      
                      (584,718
                      )
                      
                      
                      -(Loss)
      on disposal of property, plant and equipment
                      
                      
                      (230,104
                      )
                      
                      
                      (31,113
                      )(Loss)
      income from operations
                      
                      
                      (14,330,854
                      )
                      
                      
                      15,056,684Interest
      expense
                      
                      
                      (481,626
                      )
                      
                      
                      (822,355
                      )Interest
      income
                      
                      
                      233,110
                      
                      
                      
                      145,340Stock
      exchange listing expense
                      
                      
                      -
                      
                      
                      
                      (4,480,000
                      )Change
      in fair value of warrants
                      
                      
                      59,477,401
                      
                      
                      
                      -Other
      income, net
                      
                      
                      11,557
                      
                      
                      
                      797Income
      before income taxes
                      
                      
                      44,909,588
                      
                      
                      
                      9,900,466Income
      tax
                      
                      
                      -
                      
                      
                      
                      -Net
      income
                      
                      
                      44,909,588
                      
                      
                      
                      9,900,466Foreign
      currency translation adjustment
                      
                      
                      172,382
                      
                      
                      
                      3,803,214Comprehensive
      income
                      
                      
                      45,081,970
                      
                      
                      
                      13,703,680


31





Net
Sales





For The Year Ended December 31,
                          
                          
                          Period to Period ChangeItem
                          
                          2009 ($)
                          
                          
                          2008 ($)(As
      restated)
                          
                          
                          ($)
                          
                          
                          %Soybean
      meal
                          
                          
                          101,609,014
                          
                          
                          
                          154,526,888
                          
                          
                          
                          (52,917,874
                          )
                          
                          
                          -34.2
                          %Soybean
      oil
                          
                          
                          43,008,806
                          
                          
                          
                          70,374,106
                          
                          
                          
                          (27,365,300
                          )
                          
                          
                          -38.9
                          %Salad
      Oil
                          
                          
                          8,057,047
                          
                          
                          
                          25,827,680
                          
                          
                          
                          (17,770,633
                          )
                          
                          
                          -68.8
                          %Squeezed
      oil
                          
                          
                          1,077,066
                          
                          
                          
                          -
                          
                          
                          
                          1,077,066
                          
                          
                          
                          -Soy
      protein concentrates
                          
                          
                          1,552,650
                          
                          
                          
                          -
                          
                          
                          
                          1,552,650
                          
                          
                          
                          -Low-temp
      soy meal
                          
                          
                          6,329,367
                          
                          
                          
                          -
                          
                          
                          
                          6,329,367
                          
                          
                          
                          -Total
      Net Sales
                          
                          
                          161,633,950
                          
                          
                          
                          250,728,674
                          
                          
                          
                          (89,094,724
                          )
                          
                          
                          -35.5
                          %





Net sales
were $161,633,950 for the year ended December 31, 2009, a decrease of
$89,094,724 or 35.5% from $250,728,674 for the year ended December 31, 2008. An
analysis by product shows that the revenue of soybean meal, soybean oil and
salad oil dropped period over period at rates of 34.2%, 38.9% and 68.8%,
respectively. This was mainly due to the decrease in selling prices and sales
volume of our products, resulting from unfavorable changes in economic and
industrial environments, and large imports of Genetically-Modified (GM)
soybeans.





The PRC
was severely impacted by the global economic crisis in late 2008. The index of
commodity selling prices remained stable or suffered a drop for most of the
categories of commodities, including food. According to data provided by the PRC
State Statistics Agency, from February 2009 to July 2009, the index of retail
prices of food, as compared to the same month a year before, was below 100, and
for the remaining part of the year, it was only slightly over 100, the highest
point being 105.7 in December 2009. This trend had a suppressive effect on
the selling prices of our products, and the demand for soybean products was also
negatively affected by economic difficulties.





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





The above factors have made it difficult for domestic processors
to sell their products, and caused a decline in the selling prices of our
products and sales volumes. In the year 2009, the average selling prices of
soybean meal, soybean oil and salad oil decreased by 15.1%, 35.4% and
36.8% respectively over the prices in the year 2008. Meanwhile, in the year
ended December 31, 2009, we sold 261,613 tons of soybean meal, 49,969 tons of
soybean oil and 8,739 tons of salad oil, scoring negative growth rates of
-22.5%, -5.4% and -50.6%, respectively over the year ended December 31, 2008
when we sold 337,660 tons of soybean meal, 52,842 tons of soybean oil and 17,707
tons of salad oil. Consequently, there has been a large decrease in sales
revenue over the same period.


32





Cost
of Sales and Gross Profit





For The Year Ended December 31,
                                                
                                                
                                                Period to Period2009
                                                
                                                
                                                % of Sales
                                                
                                                
                                                2008(As
      restated)
                                                
                                                
                                                %of Sales
                                                
                                                
                                                Change($)
                                                
                                                
                                                Revenue
                                                
                                                
                                                ($)
                                                
                                                
                                                Revenue
                                                
                                                
                                                ($)
                                                
                                                
                                                %Soybean
      meal
                                                
                                                
                                                (107,526,472
                                                )
                                                
                                                
                                                105.8
                                                %
                                                
                                                
                                                (141,924,170
                                                )
                                                
                                                
                                                91.8
                                                %
                                                
                                                
                                                34,397,698
                                                
                                                
                                                
                                                -24.2
                                                %Soybean
      oil
                                                
                                                
                                                (45,624,063
                                                )
                                                
                                                
                                                106.1
                                                %
                                                
                                                
                                                (64,571,952
                                                )
                                                
                                                
                                                91.8
                                                %
                                                
                                                
                                                18,947,889
                                                
                                                
                                                
                                                -29.3
                                                %Salad
      Oil
                                                
                                                
                                                (8,445,044
                                                )
                                                
                                                
                                                104.8
                                                %
                                                
                                                
                                                (23,342,720
                                                )
                                                
                                                
                                                90.4
                                                %
                                                
                                                
                                                14,897,676
                                                
                                                
                                                
                                                -63.8
                                                %Squeezed
      oil
                                                
                                                
                                                (1,177,013
                                                )
                                                
                                                
                                                109.3
                                                %
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                (1,177,013
                                                )
                                                
                                                
                                                -Soy
      protein concentrates
                                                
                                                
                                                (1,760,367
                                                )
                                                
                                                
                                                113.4
                                                %
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                (1,760,367
                                                )
                                                
                                                
                                                -Low-temp
      soy meal
                                                
                                                
                                                (7,055,130
                                                )
                                                
                                                
                                                111.5
                                                %
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                (7,055,130
                                                )
                                                
                                                
                                                -Cost
      of Sales
                                                
                                                
                                                (171,588,089
                                                )
                                                
                                                
                                                106.2
                                                %
                                                
                                                
                                                (229,838,842
                                                )
                                                
                                                
                                                91.7
                                                %
                                                
                                                
                                                58,250,753
                                                
                                                
                                                
                                                -25.3
                                                %Soybean
      meal
                                                
                                                
                                                (5,917,458
                                                )
                                                
                                                
                                                -5.8
                                                %
                                                
                                                
                                                12,602,718
                                                
                                                
                                                
                                                8.2
                                                %
                                                
                                                
                                                (18,520,176
                                                )
                                                
                                                
                                                -147.0
                                                %Soybean
      oil
                                                
                                                
                                                (2,615,257
                                                )
                                                
                                                
                                                -6.1
                                                %
                                                
                                                
                                                5,802,154
                                                
                                                
                                                
                                                8.2
                                                %
                                                
                                                
                                                (8,417,411
                                                )
                                                
                                                
                                                -145.1
                                                %Salad
      Oil
                                                
                                                
                                                (387,997
                                                )
                                                
                                                
                                                -4.8
                                                %
                                                
                                                
                                                2,484,960
                                                
                                                
                                                
                                                9.6
                                                %
                                                
                                                
                                                (2,872,957
                                                )
                                                
                                                
                                                -115.6
                                                %Squeezed
      oil
                                                
                                                
                                                (99,947
                                                )
                                                
                                                
                                                -9.3
                                                %
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                (99,947
                                                )
                                                
                                                
                                                -Soy
      protein concentrates
                                                
                                                
                                                (207,717
                                                )
                                                
                                                
                                                -13.4
                                                %
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                (207,717
                                                )
                                                
                                                
                                                -Low-temp
      soy meal
                                                
                                                
                                                (725,763
                                                )
                                                
                                                
                                                -11.5
                                                %
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                (725,763
                                                )
                                                
                                                
                                                -Gross
      Profit
                                                
                                                
                                                (9,954,139
                                                )
                                                
                                                
                                                -6.2
                                                %
                                                
                                                
                                                20,889,832
                                                
                                                
                                                
                                                8.3
                                                %
                                                
                                                
                                                (30,843,971
                                                )
                                                
                                                
                                                -147.7
                                                %





Our cost
of sales for the year ended December 31, 2009 decreased by
$58,250,753 or 25.3% as compared to the year ended December 31, 2008, from
$229,838,842 to $171,588,089, while the ratio of cost as a percentage to
net sales increased from 91.7% to 106.2% over the same period. We recorded a
gross loss of $9,954,139 in the year ended December, 2009, in comparison to a
gross profit of $20,889,832 in the year ended December 31, 2008, and our gross
profit margin dropped from 8.3% to -6.2% over the same period. The main reasons
for the changes in gross profit were the negative impact of imported soybeans
and the national strategic reserves purchase conducted by the PRC
government.





The
importation of soybeans from the US and South America has effectively kept the
prices in the PRC’s domestic market for soybean products at low levels, as the
products made from GM imported beans can be sold at much lower prices than their
domestic equivalents (please refer to the section “Net Sales” above for
details).





In
response to the negative effect on the PRC soybean farmers of large levels of
imports at low prices, the PRC government launched a national strategic reserve
purchase in late 2008, especially in Heilongjiang, in order to maintain prices
of domestic non-GM soybeans and to protect the interests of domestic farmers. By
the time it ended the reserve purchases at the end of June 2009, the government
had purchased over 6 million tons, representing a considerable portion of total
production volume of soybeans. The government offered the farmers a price over
10% higher than the normal market price in our local area, thus forcing our cost
of raw materials to rise significantly.





The above
environmental factors negatively affected our gross profit margin from both cost
and sales price perspectives, creating a gross loss. To counter the current
difficulties, we have undertaken a series of measures, including purchasing
soybeans with higher water content (which may be cheaper), implementing strict
cost-saving policies, lowering production capacity utilization ratio, granting
many employees temporary non-paid vacations, etc.





Based
on our current knowledge, we expect the situation to improve in the following
months, because it’s highly unlikely that the PRC government will implement the
kind of national purchase as mentioned above in 2010 and the
beyond. Because the government has failed in its attempts to sell the
soybean inventories it built up in the national purchase launched in late 2008,
through a series of auctions, it’s reasonable to say there are great restraints
on the government’s intention, ability and resources to conduct further
purchase. Also, thanks to the lobbying efforts of the domestic soybean industry,
the government has decided to grant domestic soybean processors a subsidy for
soybeans purchased from farmers before April 30, 2010 at a government guide
price; this measure may help to alleviate the problem. However, the effects
of these factors may be offset by the following factors, including but not
limited to: the reduction in production volume of the PRC domestic soybean due
to unfavorable weather, the increase in soybean output of United States and
South America, which may mean more imports to the PRC, the change in the
exchange rate between RMB and USD, etc.


33





Operating
Expenses




For The Year Ended December 31,
                              
                              
                              Period to Period2009
                              
                              
                              % of Sales
                              
                              
                              2008
                                (As restated)
                              
                              
                              % of Sales
                              
                              
                              Change($)
                              
                              
                              Revenue
                              
                              
                              ($)
                              
                              
                              Revenue
                              
                              
                              ($)
                              
                              
                              %Selling
      Expenses
                              
                              
                              (247,301
                              )
                              
                              
                              0.2
                              %
                              
                              
                              (249,812
                              )
                              
                              
                              0.1
                              %
                              
                              
                              (2,511
                              )
                              
                              
                              -1.0
                              %General
      & Administrative Expenses
                              
                              
                              (3,314,592
                              )
                              
                              
                              2.1
                              %
                              
                              
                              (5,552,223
                              )
                              
                              
                              2.2
                              %
                              
                              
                              (2,237,631
                              )
                              
                              
                              -40.3
                              %Impairment
      loss of long-lived assets
                              
                              
                              (584,718
                              )
                              
                              
                              0.4
                              %
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -Loss
      on disposal of property, plant and equipment
                              
                              
                              (230,104
                              )
                              
                              
                              0.1
                              %
                              
                              
                              (31,113
                              )
                              
                              
                              0.0
                              %
                              
                              
                              198,991
                              
                              
                              
                              639.6
                              %Total
      Operating Expenses
                              
                              
                              (4,376,715
                              )
                              
                              
                              2.7
                              %
                              
                              
                              (5,833,148
                              )
                              
                              
                              2.3
                              %
                              
                              
                              (1,456,433
                              )
                              
                              
                              -25.0
                              %





Selling
expenses for the year ended December 31, 2009 decreased by $2,511 or 1.0% as
compared to the year ended December 31, 2008. This decrease was mainly due to
the decrease in loading expense in relation to the reduction in sales volume,
and the cost saving measures taken in areas including travel, sales meetings,
and business entertainment. As a percentage of net sales revenue, selling
expenses were 0.2%.





General
and administrative expenses for the year ended December 31, 2009 decreased
by $2,237,631 or 40.3% over the year ended December 31, 2008. Though
there were material savings in items such as business entertainment and travel,
other expenses, including depreciation expenses and the expenses related to
listing in the US, comprised mostly of fees paid to auditors, legal counsel and
independent directors, increased materially. As a percentage of net sales,
general and administrative expenses decreased from 2.2% for the year ended
December 31, 2008 to 2.1% for the year ended December 31, 2009.





During
the year ended December 31, 2009, we determined that the salad oil
production line in Plant 1 of to be technologically outdated. Management plans
to sell these assets in 2010. Therefore, these assets have been reclassified to
assets held for sale at the net realizable value, $570,409. The impairment
charge related to assets held for sales is $584,718 for the year ended December
31, 2009.





Income
from Operations and Net Income





For The Year Ended December 31,
                              
                              
                              Period to Period2009
                              
                              
                              % of Sales
                              
                              
                              2008
                                (As restated)
                              
                              
                              %of Sales
                              
                              
                              Change($)
                              
                              
                              Revenue
                              
                              
                              ($)
                              
                              
                              Revenue
                              
                              
                              ($)
                              
                              
                              %(Loss) Income
      from operations
                              
                              
                              (14,330,854
                              )
                              
                              
                              -8.9
                              %
                              
                              
                              15,056,684
                              
                              
                              
                              6.0
                              %
                              
                              
                              (29,387,538
                              )
                              
                              
                              -195.2
                              %Stock
      exchange listing expense
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              (4,480,000
                              )
                              
                              
                              -1.8
                              %
                              
                              
                              4,480,000
                              
                              
                              
                              -100
                              %Interest
      expense
                              
                              
                              (481,626
                              )
                              
                              
                              -0.3
                              %
                              
                              
                              (822,355
                              )
                              
                              
                              -0.3
                              %
                              
                              
                              340,729
                              
                              
                              
                              -41.4
                              %Interest
      income
                              
                              
                              233,110
                              
                              
                              
                              0.1
                              %
                              
                              
                              145,340
                              
                              
                              
                              0.1
                              %
                              
                              
                              87,770
                              
                              
                              
                              60.4
                              %Other
      income
                              
                              
                              11,557
                              
                              
                              
                              0.0
                              %
                              
                              
                              797
                              
                              
                              
                              0.0
                              %
                              
                              
                              10,760
                              
                              
                              
                              1350.1
                              %Changes
      in fair value of warrants
                              
                              
                              59,477,401
                              
                              
                              
                              36.8
                              %
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              59,477,401
                              
                              
                              
                              100
                              %Income
      tax
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -Net
      income
                              
                              
                              44,909,588
                              
                              
                              
                              27.8
                              %
                              
                              
                              9,900,466
                              
                              
                              
                              3.9
                              %
                              
                              
                              35,009,122
                              
                              
                              
                              353.6
                              %





Income
from operations decreased by 195.2% or $29,387,538, to a loss of $14,330,854 for
the year ended December 31, 2009, as compared to a profit of $15,056,684 for the
year ended December 31, 2008. The loss was primarily due to aforementioned
reasons for the decrease in sales revenue and drop in gross margin (please refer
to the sections “Net Sales” and “Cost of Sales and Gross Profit” above).
Consequently, operating margin fell from 6.0% to negative 8.9%.




Stock
exchange listing expense represents the charge for failure to list on a
National Stock Exchange is related to the sale of the Series A 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. The Company’s financial
statement for 2008 has been restated as a result of this contribution of shares
to settle stock exchange listing expense.





Interest
expenses decreased by 41.4% from the year ended December 31, 2008 to the year
ended December 31, 2009. As a percentage of net sales, interest expense was only
0.3% for both the year ended December 31, 2009 and the year ended December 31,
2008. The changes were mainly caused by a decline in the weighted average
balance of bank borrowings, due to reduced working capital needs, and the
reduction in interest rates of bank loans. Interest income increased by
60.4%, because we had a larger bank deposit balance for much of 2009 as
compared to the same time in 2008, due to our reduction in purchase volume of
raw materials.




In
2009, we incurred non-cash income of $59.4 million 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 PRC government, Yanglin had
enjoyed a complete exemption from income taxes until 2009. This status is
usually reviewed every two years, and according to a government order, the next
review has been postponed to the end of the first quarter of 2010 for tax
exemption statuts of 2010 and 2011. For year 2009’s tax exemption, a
review by the local tax authority is also required. However, without income tax
exemption benefit, the Group still has no income tax expense in 2009 due to net
taxable operating loss.




Net
income increased by 353.6% from $9,900,466 in 2008 to $44,909,588 in 2009.
Excluding the stock exchange listing expense in 2008 and income from change in
fair value of warrants described above, net income before these two items
decreased from $14,380,466 in 2008 to a loss of $14,567,813 in 2009. Gross
margin decreased from 8.3% in 2008 to negative 6.2% in 2009.
 34





Earnings
Per Share





Year Ended December 31,2009
                    
                    
                    2008Audited
                    
                    
                    Audited(As
      restated)Net
      Income for Basic Earnings Per Share
                    
                    $
                    44,909,588
                    
                    
                    $
                    9,900,466Basic
      Weighted Average Number of Shares
                    
                    
                    20,178,404
                    
                    
                    
                    20,000,003Net
      Income per Share – Basic
                    
                    
                    2.23
                    
                    
                    
                    0.50Net
      Income for Diluted Earnings Per Share
                    
                    
                    44,909,588
                    
                    
                    
                    9,900,466Diluted
      Weighted Average Number of Shares
                    
                    
                    31,643,348
                    
                    
                    
                    37,757,827Net
      Income per Share – Diluted
                    
                    
                    1.42
                    
                    
                    
                    0.26





Basic
and diluted earnings per share (EPS) for the year ended December 31, 2009, were
$2.23 and $1.42, compared to $0.50 and $0.26 for the year ended December
31, 2008, as restated.





Liquidity and Capital
Resources





Generally,
we finance our business with cash flow from operations and short-term bank loans
and we use shareholders’ equity investments and retained earnings to meet
capital expenditures.





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. Our pattern of
operations is as follows: (i) we will keep a large cash reserve until early
October, which is 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 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 credit line of up to RMB 718 million, or about USD 105 million, based
on our credit rating of AA, granted by the Agricultural Development Bank. We
believe that this will be sufficient for our future working capital needs at
current operation and capacity levels, for the next twelve months.





The
material terms of the credit line are:


1.
            The
      term of the credit line is one
year.


2.
            Circumstances
      under which the funds can be borrowed: The funds provided by this credit
      line can only be used to purchase
  soybean crops.


3.
            Additional
      approvals that may be required: When Yanglin applies to actually borrow
      the funds, the bank confirms the conditions and/or circumstances of the
      loan, and reports to the appropriate higher level within the bank to
      verify, examine and approve such applications, before actually releasing
      any funds to Yanglin under the maximum credit
  line.


4.
            The
      interest rate is 6.93%, subject to adjustment. When the People’s Bank of
      China adjusts the interest rate of loans, the bank has the right and
      discretion to adjust the interest rate of loans
    accordingly.


5.
            Whether
      the loans would be secured by Yanglin’s assets: The loans would be secured
      by Yanglin’s assets, i.e., building, machinery and land use
      rights.


6.
            Other
      material terms are: Secured loan shall have preference over credit
      loan; The Company shall purchase insurance for pledged assets, with
      the bank having first priority.





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 and the availability of credit facilities and financing
alternatives. Under the current operation level, we can satisfy this demand by
short-term loan from banks, under the credit line of USD 20.5 million and our
own cash reserves, within the next twelve months.





The
Year Ended December 31, 2009 Compared with the Year Ended December 31,
2008





Operating
Activities





Cash
used in operating activities for the year ended December 31, 2009 was
$7,906,192, while cash provided by operating activities for the year ended
December 31, 2008 was $30,834,483. The difference was a result of many factors,
the most important of which was a net operating loss (excluding income from
changes in fair value of warrants), along with an increase in the value of
inventories, mostly raw materials, due to the rise in soybean price (please
refer to the section “Cost of Sales and Gross Profit” above), and an increase in
the balance of prepaid VAT and other taxes, though we did reduce the
advances to suppliers by $10.6 million.


35





We
incurred a net loss from operations (excluding income resulting from changes in
fair value of warrants amounting to $59.4 million) during the year ended
December 31, 2009. At the end of 2008, the PRC government conducted a national
strategic reserve purchase of soybeans, which was designed to uphold the price
of domestically produced non-GM soybeans (please refer to the section “Net
Sales” and “Cost of Sales and Gross Profit” above). The designated purchase
price was over 10% higher than normal market prices, thus forcing market prices
to rise. Consequently, though total purchase volume of soybean was reduced by
over 27,000 tons, the total cost of raw material inventories was significantly
greater, by $4.4 million, resulting in an increase of almost $4.0 million in the
balance of prepaid VAT, which was in proportion to the purchase price of
soybeans.





As a
major measure to improve our cash flows status, we reduced the cash paid as
advances to suppliers by $10.6 million.





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





Investing
Activities





Net cash
used in investing activities for the year ended December 31, 2009 was $87,420,
compared to $4,182,921 for the year ended December 31, 2008. The major reason
for this change was that we completed the majority of our construction projects,
including the renovation of Plant 2, and made a total payment of $4,176,943 for
the projects by the end of 2008.





Financing
Activities





Net cash
provided by financing activities was $12,361,992 for the year ended December 31,
2009, compared to net cash used in financing activities of $6,351,610 for the
year ended December 31, 2008. The amount of net cash provided for the year
ended December 31, 2009 includes $27 million of new bank loans for working
capital needs, $13.3 million of repayment for bank loans and an increase of
about $1.26 million in restricted cash mainly used as collateral to guarantee
the repayment of bank loans.





Loans





We had
short-term bank loans of $20,476,218 at December 31, 2009, as compared to
$6,711,214 at December 31, 2008. These loans are used to satisfy working capital
needs, mainly related to the purchase of raw materials.





The
balance of our long-term bank loan from related parties, including the portion
payable within one year, was approximately $367,867 on December 31, 2009,
compared to $489,827 on December 31, 2008. The change was caused by
repayment of the principal; we did not borrow any additional long-term loan
during the year of 2009.





Commitments
and Contingencies





We have
no future cash commitments or contingent liabilities as at December 31,
2009.





Critical Accounting Policies
and Estimates





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 Securities and
Exchange Commission (“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.





The
preparation of our audited consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to exercise its judgment. We exercise considerable judgment
with respect to establishing sound accounting policies and in making estimates
and assumptions that affect the reported amounts of our assets and
liabilities, our recognition of revenues and expenses, and disclosure of
commitments and contingencies at the date of the financial
statements.


36





On an
ongoing basis, we evaluate our estimates and judgments. Areas in which we
exercise significant judgment include, but are not necessarily limited to, the
estimated useful lives for amortizable intangible assets and property, plant and
equipment, and fair value of warrants granted in connection with various
financing transactions in circumstances where the use of that accounting method
is deemed to be appropriate. The long-lived assets held and used 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 situations related to 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. 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 to be
disposed of are reported at the lower of the carrying amount or fair value less
estimated costs of disposal.





We base
our estimates and judgments on a variety of factors including our historical
experience, knowledge of our business and industry, current and expected
economic conditions, the attributes of our services and products and the
regulatory environment. We periodically re-evaluate our estimates and
assumptions with respect to these judgments and modify our approach when
circumstances indicate that modifications are necessary.





While we
believe that the factors we evaluate provide us with a meaningful basis for
establishing and applying sound accounting policies, we cannot guarantee that
the results will always be accurate. Since the determination of these estimates
requires the exercise of judgment, actual results could differ from such
estimates.





During
the year ended December 31, 2009, there were no material changes to these
policies.





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.





Inventories





We apply
the weighted average method to measure the cost of inventories on a monthly
basis to compensate for the frequent fluctuation in soybean prices.





Impairment
of Property and Equipment





We
analyze our assets for impairment when events or circumstances occur that
indicate the carrying value may not be recoverable. We consider a property to be
impaired when the sum of future undiscounted cash flows during our remaining
estimated holding period is less than the carrying value of the asset. For
impaired assets, we record an impairment charge equal to the excess of the
property’s carrying value over its fair value.




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.
  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.
 Recent
Accounting Pronouncements




In April
2009, the FASB issued ASC 820.10, Determining Fair Value When the Volume and
Level of Activity for the Asset or Liability Have Significantly Decreased and
Identifying Transactions That Are Not Orderly. ASC 820.10 provides additional
guidance for estimating fair value when the volume and level of activity for the
asset or liability have significantly decreased and also includes guidance on
identifying circumstances that indicate a transaction is not orderly for fair
value measurements. ASC 820.10 shall be applied prospectively with retrospective
application not permitted. This ASC shall be effective for interim and
annual periods ending after June 15, 2009, with early adoption permitted
for periods ending after March 15, 2009. An entity early adopting this ASC
820.10 must also early adopt ASC 320.10, Recognition and Presentation of
Other-Than-Temporary Impairments. Additionally, if an entity elects to early
adopt either ASC 825.10, Interim Disclosures about Fair Value of Financial
Instruments or ASC 320.10, it must also elect to early adopt ASC 820.10. The
adoption of ASC 820.10 did not have a material impact on the Company’s
consolidated financial statements.


37





In April
2009, the FASB issued ASC 805, Accounting for Assets Acquired and Liabilities
Assumed in a Business Combination That Arise from Contingencies. ASC 805
addresses the initial recognition, measurement and subsequent accounting for
assets and liabilities arising from contingencies in a business combination, and
requires that such assets acquired or liabilities assumed be initially
recognized at fair value at the acquisition date if fair value can be determined
during the measurement period. If the acquisition-date fair value cannot be
determined, the asset acquired or liability assumed arising from a contingency
is recognized only if certain criteria are met. This FASB Staff Positions
(“FSP”) also requires that a systematic and rational basis for subsequently
measuring and accounting for the assets or liabilities be developed depending on
their nature. This ASC is effective for assets or liabilities arising from
contingencies in business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period beginning on or after
December 15, 2008. The Company does not anticipate that the adoption of this
statement will have a material impact on its consolidated financial statements,
absent any material business combinations.





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 Company does not anticipate that the adoption
of this statement will have a material impact on the Company’s consolidated
financial statements.





In August
2009, the FASB issued ASU No. 2009-05, Measuring Liabilities at Fair Value. ASU
2009-05 amended ASC 820, Fair Value Measurements. Specifically, ASU 2009-05
provides clarification that in circumstances in which a quoted price in an
active market for the identical liability is not available, a reporting entity
is required to measure fair value using one or more of the following methods: 1)
a valuation technique that uses a) the quoted price of the identical
liability when traded as an asset or b) quoted prices for similar liabilities or
similar liabilities when traded as assets and/or 2) a valuation technique that
is consistent with the principles of ASC 820 (e.g. an income approach or market
approach). ASU 2009-05 also clarifies that when estimating the fair value of a
liability, a reporting entity is not required to adjust to include inputs
relating to the existence of transfer restrictions on that liability. The
Company does not anticipate that the adoption of this statement will have a
material impact on its 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.





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 December 31, 2009,
and the effect these obligations are expected to have on our liquidity and cash
flows in future periods.





Payments due by periodContractual
                          obligations
                        
                        Total
                        
                        
                        Less
                          than 1
                          year
                        
                        
                        1-3 years
                        
                        
                        3-5 years
                        
                        
                        More
                          than 5
                          yearsLong-Term
      Debt Obligations
                        
                        $
                        367,867
                        
                        
                        $
                        53,676
                        
                        
                        $
                        101,510
                        
                        
                        $
                        103,539
                        
                        
                        $
                        109,142Capital
      Lease Obligations
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -Operating
      Lease Obligations
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -Purchase
      Obligations
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -





Off-Balance
Sheet Arrangements





We do not
have any off-balance sheet arrangements.


38





Risk
Factors





Interest
Rate Risk





Our
exposure to interest rate risk primarily relates to the interest income
generated by excess cash invested in demand deposits. We have not used
derivative financial instruments in our investment portfolio in order to reduce
interest rate risk. Interest earning instruments carry a degree of interest rate
risk. We have not been exposed nor do we anticipate being exposed to
material risks due to changes in interest rates.





Foreign
Currency Risk





Our
business is operated in the PRC, and its value is effectively denominated in
Renminbi. The fluctuation of foreign exchange rate between U.S. dollars and
Renminbi could affect the value of our common stock. Our revenues and expenses
are primarily denominated in Renminbi, and so our exposure to foreign exchange
risks should generally be limited. We do not have material monetary assets and
liabilities denominated in U.S. dollars, although to the extent that we do in
the future, the fluctuation of foreign exchange rate would affect the value of
these monetary assets and liabilities denominated in U.S. dollars. Generally,
appreciation of Renminbi against U.S. dollars will devaluate the assets and
liabilities denominated in U.S. dollar, while devaluation of Renminbi again U.S.
dollars will appreciate the assets and liabilities denominated in U.S. dollar.
In the PRC, very limited hedging transactions are available to reduce our
exposure to exchange rate fluctuations. To date, we have not entered into any
hedging transactions in an effort to reduce our exposure to foreign currency
exchange risk. While we may decide to enter into hedging transactions in the
future, the availability and effectiveness of these hedges may be limited and we
may not be able to successfully hedge our exposure at all.





The
conversion of RMB into foreign currencies, including U.S. dollars, has been
based on rates set by the People’s Bank of China. On July 21, 2005, the PRC
government changed its decade-old policy of pegging the value of the RMB to the
U.S. dollar. Under the new policy, the RMB is permitted to fluctuate within a
narrow and managed band against a basket of certain foreign currencies. This
change in policy has resulted in an appreciation of the RMB against the U.S.
dollar by approximately 6% during 2007 and approximately 12% since the change of
the policy to the end of 2007. While the international reaction to the RMB
revaluation has generally been positive, there remains significant international
pressure on the PRC government to adopt an even more flexible currency policy,
which could result in a further and more significant appreciation of the RMB
against the U.S. dollar. We use the U.S. dollar as the reporting currency
for our financial statements. Fluctuations in exchange rates, primarily those
involving the U.S. dollar, may affect our costs and operating margins as well as
our net income reported in U.S. dollars. For example, to the extent that we need
to convert U.S. dollars into RMB for our operations, appreciation of the RMB
against the U.S. dollar would have an adverse effect on the RMB amount we
receive from the conversion. Assuming we had converted the U.S. dollar
denominated cash balance equivalent to US$34,811,611 as of December 31,
2009 into RMB at the exchange rate of US$1.00 for RMB6.8282, the respective
People’s Bank of China rates as of December 31, 2009, this cash balance would
have been RMB237.7 million. Assuming a further 10% appreciation of the RMB
against the U.S. dollar, this cash balance would have decreased to RMB216.1
million as of December 31, 2009. Conversely, if we decide to convert our RMB
into U.S. dollars for the purpose of making payments for dividends for business
purposes, appreciation of the U.S. dollar against the RMB would have a negative
effect on the U.S. dollar amount available to us.





Commodity
Price Risk





We
engage in manufacturing of non-genetically modified soybean-based products in
the PRC. Our main raw materials are commodities. Our exposure to commodity price
risk is directly related to fluctuations of PRC domestic market and indirectly
related to that of international market. For
example, the soybean price in our local area went up from RMB 2.16 per 500 grams
at the beginning of 2008 to RMB 2.75 per 500 grams in early March 2008. It
then dropped gradually over the next few months, but rose back to RMB 2.70 per
500 grams in early July 2008, and again went down to RMB 1.65 per 500 grams at
the end of 2008. While in 2009, the soybean price fluctuated from RMB 1.67 per
500 grams at the beginning of the year, to RMB 1.87 per 500 grams at the end of
the year. To date, we have not entered into any hedging transactions in an
effort to reduce our exposure to commodity price risk.


Item
7. Financial Statements and Supplementary Data





Please
refer to Item 15 “Exhibits and Financial Statement Schedules” of this
report.


39




Item
8.  Changes In and Disagreements with Accountants On Accounting and
Financial Disclosure





There are
no such reportable events as required by Item 304(b) of Regulation
S-K.





Item
8A(T). Controls and Procedures





(a)
            Management’s Report on 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 December 31, 2009.





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 December 31, 2009, 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.





(b)
            Management’s Report on Internal Control over
      Financial Reporting





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:


A)
              In
      connection with the preparation and audit of our 2009 financial statements
      and notes, we discovered certain deficiencies in our internal
      controls that were considered to be material weaknesses. These
      deficiencies related to our financial closing procedures and errors in
      classification of warrants and the restatement of the 2008 financial
      statement for the stock listing expense. After discussions between
      management and our audit committee, we concluded that the Company had
      improperly classified warrants pursuant to FASB ASC Topic 815 “Derivatives
      and Hedging”) (“ASC 815”). As a result of the reclassification and the
      change in the fair value of these warrants, the Company recognized a $59.4
      million in other income for the change in the fair value of warrants for
      the year ended December 31, 2009. The Company also recorded a 2008 stock
      listing expense in the amount of
  $4,480,000.


B)
            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.





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





As a
result of the reclassification, on April 12, 2010, management and audit
committee made a determination that the Company’s financial statements in each
of its quarterly reports filed in 2009 could not be relied on and it will
restate the Company’s financial statement for each of the quarterly reports it
filed in 2009. The Company filed a current Report on Form 8-K disclosing these
determinations under Item 4.02 of Form 8-K concurrent with the filing of this
Annual report.




Management’s
Remediation Initiatives and Interim Measures





To
remediate the situation, we need the help of competent professional accounting
advisors, and we have engaged SEC Audit Prep, 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 first, and
enlist the help from professional advisors later, if we find it
necessary.




40




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.




(c)
Changes in Internal Controls over Financial Reporting





During the
year ended December 31, 2009, 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.




Signature
                      
                      Title/s/ Shulin Liu
                      
                      Chief
      Executive OfficerShulin
      Liu
                      
                      Chairman
      of the Board/s/ Shaocheng Xu
                      
                      Chief
      Financial OfficerShaocheng
      Xu




Item
8B. Other Information





None.





PART
III





Item
9. Directors, Executive Officers and Corporate Governance


Our
Directors and Executive Officers





We have
provided below certain information about our executive officers and directors.
Our directors serve one-year terms or until their successors are elected
Officers serve at the discretion of the board of directors.





Name
                        
                        Age
                        
                        Position
                        
                        Director
      SinceShulin
      Liu
                        
                        47
                        
                        Chief
      Executive Officer/Director
                        
                        July
      2001Shaocheng
      Xu
                        
                        36
                        
                        Chief
      Financial OfficerYang
      Miao (1)
                        
                        39
                        
                        Director
                        
                        August
      2006Zongtai
      Guo
                        
                        53
                        
                        Director
      and Chief Operating Officer
                        
                        March
      2006Albert
      McLelland (2)(3)(4)
                        
                        50
                        
                        Director
                        
                        March
      2009Michael
      Marks (2)(3)(4)
                        
                        38
                        
                        Director
                        
                        March
      2009Xiao
      Feng (2)(3)(4)
                        
                        52
                        
                        Director
                        
                        March
      2009Yulin
      Liu
                        
                        51
                        
                        President
      and General Manager of Heilongjiang Yanglin Soybean Group Co.
      LtdShuhua
      Xia
                        
                        56
                        
                        Accounting
      Supervisor of Heilongjiang Yanglin Soybean Group Co. Ltd





(1) Mr.
Yang Miao resigned from his position as a director of the Company on March 13,
2009.


(2)
Serves as a member of the Audit Committee.


(3)
Serves as a member of the Compensation Committee.


(4)
Serves as a member of the Nominating and Corporate Governance
Committee.





The
following is a summary of the biographical information of our directors and
officers:





Shulin Liu, is founder,
Chairman and Chief Executive Officer of Yanglin. Mr. Liu is involved in
Yanglin’s overall management and is responsible for establishing strategic
directions. From 2002 to present, Mr. Liu has been the Chief Executive Officer,
Chairman and Director of Yanglin when its name was changed. From 2001 to
2002, he jointly established Jixian County Golden Land Oil Company Limited
(predecessor to Yanglin) with Ms. Huanqin Ding and Mr. Shulin Liu and had been
the Chief Executive Officer, Chairman and a Director. From 1996-2000, he was
manager of Jinxian County Longfu Food & Oil Trade Co. Ltd., Xiwang Feed
Company, Jixian County Tianlin Food & Oil Co. Ltd in Jixian County. From
1992 to 1996, Mr. Liu was appointed General Manger of Jixian Construction
Material Food and Oil Trading Company. Prior to that, from 1983-1992, Mr. Liu
assumed the positions of supervisor at the Shuangyashan Jixian County Land
Authority, supervisor of the Minerals Resources Management Station, and manager
of Labor Service Company of Land Bureau of Jixian County. From 1980 to 1983, Mr.
Liu worked as a government officer in Shuangyashan Jixian County, Fuli Town. Mr.
Liu holds a Master degree in Enterprise Management from Heilongjiang
University.





Shaocheng Xu, was appointed as
Yanglin’s Chief Financial Officer in March 2007. Previously, he worked as a
financial consultant in Dow Jones Business Consultants, Inc. from August 2006 to
March 2007 and as the Internal Control Supervisor at Citigroup Asia Pacific
Operations Center from July 2005 to August 2006. From September 2004 to July
2005, he was studying for a Master of Professional Accounting at Shanghai
University of Finance and Economics. From September 2001 to August September
2004, he was the corporate management coordinator for United Automotive
Electronics Systems Co., Ltd. From August 1999 to September 2001, he worked as a
senior customer services representative in Shanghai Eastern Rohm and Haas Corp.
From July 1997 to August 1999, he was the Manager Assistant in Shanghai Foreign
Aviation Corp. Mr. Xu received his Bachelor of Arts in English from Foreign
Affairs College of China in 1997. He has acquired the degree of Master of
Professional Accounting (MPAcc), and will also soon be qualified as a
Professional Accountant with the Association of Chartered Certified Accountants
(ACCA) of the United Kingdom.




41




Zongtai Guo,joined Yanglin as its
Vice President and Chief Operating Officer in 2006. Mr. Guo is responsible for
sales and operations and assists Mr. Shulin Liu, Yanglin’s Chief Executive
Officer, in the strategic planning and the development of Yanglin. Prior to
joining Yanglin, Mr. Guo was the Vice President of Qingdao Haoke Family Products
Company (daily housekeeping products company, such as soap and detergent)between
2004 and 2005.From 2001 to 2004, he was an Assistant Manager at
Heilongjiang Sanjiang Food Company (manufacturing soybean products). He also
worked in Shanghai Yikun Food Company as its General Manager from 1999 to 2001.
From 1994 to 1999, Mr. Guo worked in various companies such as Hainan
Longhua Company, China Xingnan Company and Heilongjiang Eight One Farm
University as their Finance Manager. He graduated from Bayi Agriculture
Development University of Heilongjiang Province with a degree in Enterprise
Management and became a qualified accountant in the PRC in 1993.





Mr. Albert McLelland was
appointed as independent director since March 2009. He has been senior managing
director of AmPac Strategic Capital LLC (AmPac) since 2003. He is also a founder
and managing director of AmPac-TDJ LLC. Prior to founding AmPac, Albert was
responsible for cross-border transactions practice of PricewaterhouseCoopers’
(PwC) Financial Advisory Services. Albert possesses extensive investment and
merchant banking experience. He has built two Asian based financial service
firms in 1980-1990’s. He also ran corporate finance at CEF Taiwan Limited.
Albert began his investment banking career at Shearson Lehman underwriting bond
issues. Albert holds an MBA degree from the University of Chicago and a Master
of International Affairs from Columbia University. He did his undergraduate
studies at the University of South Florida and also studied Mandarin at the
National Normal University in Taiwan.





Mr. Michael Marks has
served as independent director since March 2009. Until December 2007 he was a
managing director and principal of Sonnenblick Goldman Asia Pacific Limited.
Until July 2009, Mr. Marks was the President and Director of Middle Kingdom
Alliance Corp., a Special Purpose Acquisition Corporation, which invested
in and merged with Pypo Digital Company Limited.  Mr. Marks continues
to serve as a director of the board of the newly merged company, Funtalk China
Holdings Limited (NASDAQ: FTLK). Mr. Marks is currently audit committee chairman
and independent director of China Yida Holding, Co. (NASDAQ: CNYD) and Shengkai
Innovation, Inc. (NYSE AMEX: SHE). Previously, Mr. Marks served as a director of
Horwath Asia Pacific from January 2002 to December 2005 and was the Chief
Executive Officer and Director at B2Gglobe (Pty) Limited from May 2001 to
December 2002. Mr. Marks received both Bachelors and Masters Degrees in Commerce
from the University of the Witwatersrand in Johannesburg, South Africa in 1994
and 1997, respectively, and also received a Bachelor’s Degree in Psychology from
the University of South Africa in 1998. In 1997, Mr. Marks qualified as a
Chartered Accountant in South Africa, and in 1999 as a Fellow of the Association
of International Accountants in the United Kingdom.





Mr. Xiao Feng was
appointed as independent director since March 2009. He has served as the
President of Soybean Research & Development Center of Heilongjiang Province
since November 2005.  He has also been the Vice President of
Northeastern Agriculture University since September 2007.  He was the
section chief for Development and Planning in Science & Technology division
of Heilongjiang Provincial government from March 1998 to November
2005.  He obtained his Medical Doctor’s degree from Harbin Medical
University in 1983.





Yulin Liu, was appointed
Yanglin’s President and General Manager in March 2007. He is responsible for
Yanglin’s day-to-day operations. Mr. Liu has a strong background in financial
management. He worked as chief internal auditor of the Central Bank of Ji Xian
County between 1986 and 1989. He was the vice president of Industrial and
Commercial Bank of China, Ji Xian County between 1989 and 2001. From January
2002 to May 2005, he was the President of Industrial and Commercial Bank of
China, Jianshan Branch and from May 2005 to February 2007, he was President of
Industrial and Commercial Bank of China, Dianchang Branch. Mr. Liu graduated
from Harbin Senior Finance College, majoring in Finance.





Shuhua Xia, joined Yanglin as
Chief Accountant in 2003. Ms. Xia is primarily responsible for Yanglin’s
accounting and financial operations as well as its reporting requirements. Prior
to joining Yanglin, Ms. Xia was the Finance Manager of Jixian Drying Tobacco
Leaf Factory from 1991-2002. She also held various positions in Jixian Steel and
Iron Factory including Finance Manager from 1986 to 1990, and Finance Supervisor
from 1970 to 1983. Between 1983 and 1986, Ms. Xia pursued and obtained a Junior
College degree from Jiamusi Engineering College.





There are
no family relationships among our directors and executive officers except that
Yulin Liu is the first cousin of Shulin Liu. There is no arrangement or
understanding between or among our executive officers and directors pursuant to
which any director or officer was or is to be selected as a director or officer,
and there is no arrangement, plan or understanding as to whether non-management
shareholders will exercise their voting rights to continue to elect the current
board of directors.




42




Board
Leadership Structure




The Board
of Directors believes that Mr. Liu’s service as both Director and Chief
Executive Officer is in the best interest of the Company and its stockholders.
Mr. Liu possesses detailed and in-depth knowledge of the issues, opportunities
and challenges facing the Company and its business and is thus best
positioned to develop agendas that ensure that the Board’s time and attention
are focused on the most critical matters. His combined role enables decisive
leadership, ensures clear accountability, and enhances the Company’s ability to
communicate its message and strategy clearly and consistently to the Company’s
shareholders, employees, customers and suppliers.





Involvement
in Certain Legal Proceedings





Our
directors and executive officers have not, during the past ten
years:





●
            had any bankruptcy petition foiled by or against
      any business of which was a general partner or executive officer, either
      at the time of the bankruptcy or within two years prior to that
      time,





●
            been convicted in a criminal
      proceeding and is not subject to a pending criminal
      proceeding,





●
            been subject to any order,
      judgment or decree, not subsequently reversed, suspended or vacated, of
      any court of competent jurisdiction, permanently or temporarily enjoining,
      barring, suspending or otherwise limiting his involvement in any type of business, securities,
      futures, commodities or banking activities;
  or





●
            been found by a court of
      competent jurisdiction (in a civil action), the Securities Exchange
      Commission or the Commodity Futures Trading Commission to have violated a
      federal or state
      securities or commodities law, and the judgment has not been reversed,
      suspended or vacated.





Board
of Directors





Director
Qualifications





We seek
directors with established strong professional reputations and experience in
areas relevant to the strategy and operations of our businesses.  We
also seek directors who possess the qualities of integrity and candor, who have
strong analytical skills and who are willing to engage management and each other
in a constructive and collaborative fashion.  We also seek directors
who have the ability and commitment to devote significant time and energy to
service on the Board and its committees.  We believe that all of our
directors meet the foregoing qualifications.




Certain
of our directors have strong technological backgrounds that are relevant to our
industry.  Certain of our directors have backgrounds in accounting,
public company reporting, compliance and management.  We believe that
the backgrounds and skills of our directors bring a diverse range of
perspectives to the Board.




Meetings
of the Board of Directors and Committees





The Board
of Directors held 1meeting during 2009. The Audit
Committee held 4 meetings in 2009. The Compensation
Committee held no meetings in 2009. The Nominating and Corporate Governance
Committee held no meetings in 2009. Each director is expected to attend
meetings of our Board of Directors and meetings of committees of our Board of
Directors of which he is a member, and to spend the time necessary to properly
discharge his respective duties and responsibilities. No director attended less
than 75% of the meetings of any committee of which the director was a
member.





Board
Committees





The Board
has an Audit Committee, a Compensation Committee and a Nominating and Corporate
Governance Committee. . The Board created the three committees and adopted
charters for all of such committees on March 9, 2009. The Board has determined
that Messrs McLelland, Marks and Feng are independent directors within the
meaning of NASDAQ Listing Rule 5605(a)(2). Accordingly, all of the members of
the Audit Committee are independent within the meaning of NASDAQ Listing Rule
5605(a)(2). The Audit Committee has at least one member, Mr. Albert McLelland,
who meets the definition of a “financial expert” under SEC rules and whom the
Board has determined to be “independent”.





Audit
Committee





The
Audit Committee is currently comprised of Messrs. Albert McLelland, Xiao Feng
and Michael Marks with Mr. Albert McLelland as the chairman, each of whom are
“independent” as that term is defined by SEC rules and under the NASDAQ listing
standards. The Audit Committee is directly responsible for the appointment,
retention, compensation and oversight of the work of any registered public
accounting firm employed by the Company (including resolution of disagreements
between management and the accounting firm regarding financial reporting) for
the purpose of preparing or issuing an audit report or related work or
performing other audit, review or other services. The Audit Committee has the
ultimate authority and responsibility to evaluate and, where appropriate,
replace the independent registered public accounting firm. The Audit Committee
has the authority to review and approve transactions between the Company and its
directors, officers and affiliates.




43




REPORT
OF THE AUDIT COMMITTEE




The role
of the Audit Committee is to assist the Board of Directors in its oversight of
the Company’s financial reporting process. As set forth in the Audit Committee
charter, management of the Company is responsible for the preparation,
presentation and integrity of the Company’s financial statements, accounting and
financial reporting principles and internal controls and procedures designed to
assure compliance with accounting standards and applicable laws and regulations.
The independent auditors are responsible for auditing the Company’s financial
statements and expressing an opinion as to their conformity with generally
accepted accounting principles.





In the
performance of this oversight function, the Audit Committee has reviewed and
discussed the audited consolidated financial statements for the fiscal year
ended December 31, 2009 with management, and has discussed with the independent
auditors the matters required to be discussed by Statement of Auditing Standards
No. 61, Communication with Audit Committee, as currently in effect. The Audit
Committee has received the written disclosures and the letter from the
independent auditors required by Independence Standards Board Standard No. 1,
Independence Discussions with Audit Committees, as currently in effect, and has
discussed with the independent auditors the independent auditors’ independence;
and based on the review and discussions referred above, the Audit Committee
recommended to the Board of Directors that the audited consolidated financial
statements be included in the Company’s Annual Report on Form 10-K for the
fiscal year ended December 31, 2009 for filing with the SEC.




The
members of the Audit Committee are not professionally engaged in the practice of
auditing or accounting, are not experts in the fields of accounting or auditing,
including in respect of auditor independence. Members of the Committee rely
without independent verification on the information provided to them and on the
representations made by management and the independent accountants. Accordingly,
the Audit Committee’s oversight does not provide an independent basis to
determine that management has maintained appropriate accounting and financial
reporting principles or appropriate internal control and procedures designed to
assure compliance with accounting standards and applicable laws and regulations.
Furthermore, the Audit Committee’s consideration and discussions referred to
above do not assure that the audit of the Company’s consolidated financial
statements has been carried out in accordance with generally accepted accounting
principles or that the Company’s auditors are in fact
“independent”.




Based
upon the reports, review and discussions described in this report, and subject
to the limitations on the role and responsibilities of the Committee referred to
above and in the Charter, the Committee recommended to the Board that the
audited consolidated financial statements be included in the Company’s Annual
Report on Form 10-K for the year ended December 31, 2009, be filed with the
Securities and Exchange Commission.




THE
AUDIT COMMITTEE




Albert
McLelland (Chairman)


Xiao
Feng


Michael
Marks





Compensation
Committee





The
Compensation Committee is responsible for the administration of all salary,
bonus and incentive compensation plans for our officers and key employees. The
members of the Compensation Committee are Messrs. Michael Marks, Albert
McLelland and Xiao Feng, with Mr. Marks as the chairman. All of whom are
“independent” directors.





Nominating
and Corporate Governance Committee





The
Nominating and Corporate Governance Committee is responsible for preparing the
list of candidates to fill the expiring terms of directors on our Board of
Directors. The committee submits the list of candidates to the Board of
Directors who determines which candidates will be nominated to serve on the
Board of Directors. The nominees are then submitted for election at the annual
meeting of stockholders. The committee also submits to the entire Board of
Directors, a list of candidates to fill any interim vacancies on the Board of
Directors resulting from the departure of a member of the Board of Directors for
any reason prior to the expiration of his term. In recommending candidates for
the Board of Directors, the committee keeps in mind the functions of this
body.




44




The
committee considers various criteria, including the ability of the individual to
meet SEC and NASDAQ “independence” requirements, general business experience,
general financial experience, knowledge of the company’s industry (including
past industry experience), education, and demonstrated character and judgment.
The committee will consider director candidates recommended by a stockholder if
the stockholder mails timely notice to the secretary of the Company at its
principal offices, which notice includes (i) the name, age and business address
of such nominee, (ii) the principal occupation of such nominee, (iii) a brief
statement as to such nominee’s qualifications, (iv) a statement that such
nominee consents to his or her nomination and will serve as a director if
elected, (v) whether such nominee meets the definition of an “independent”
director under the SEC rules and under NASDAQ listing standards and (vi) the
name, address, class and number of shares of company stock held by the
nominating stockholder.





Any
person nominated by a stockholder for election to the Board of Directors will be
evaluated based on the same criteria as all other nominees. The committee also
oversees our adherence to our corporate governance standards. The members of the
committee are Messrs. Xiao Feng, Michael Marks and Albert McLelland, with Xiao
Feng as the chairman.





The Board
had 3 meetings during last fiscal year.  All members attended at least
75% of the meetings.





Section
16(a) Beneficial Ownership Reporting Compliance





Section
16(a) of the Exchange Act requires our executive officers, directors and
beneficial owners of more than ten percent (10%) to report their beneficial
ownership of equity interests in the company to the SEC. Their initial reports
are required to be filed using the SEC's Form 3, and they are required to report
subsequent purchases, sales, and other changes using the SEC's Form 4, which
must be filed within two business days of most transactions. Officers,
directors, and persons owning more than 10% of our capital shares are required
by SEC regulations to furnish us with copies of all of reports they file
pursuant to Section 16(a).





According
to our records, Michael Marks, Xiao Feng and Albert McLelland did not
filed their form 3’s in a timely manner. Mr. Marks and Mr. McLelland
subsequently filed their Form 3s on March 30, 2009 and March 26, 2009,
respectively.




Code
of Ethics





On March
9, 2009, we adopted a Code of Business Conduct and Ethics (as defined in Item
406 of Regulation S-K) that applies to our principal executive, financial and
accounting officers. Our Code of
Business Conduct and Ethicsis available on our website atwww.yanglinsoybean.com.Yanglin Soybean, Inc. will
provide a copy of its Code of Business Conduct and Ethics, without charge, to
any person that requests it. Requests should be addressed in writing to Mr. Bode
Xu, Chief Financial Officer, #99 Fanrong Street, Jixian, Shuan Ya Shan City,
Heilongjiang Province, 155900, People’s Republic of China.




Item
10 Executive Compensation





The
Company’s executive compensation program is designed to pay key management
personnel competitive remuneration based on the authority, responsibility and
accountability of the position held by the individual.





The
following is a summary of the compensation paid by the company to its executive
officers for years ended December 31, 2009, 2008, and 2007. No other
executive officers received compensation in excess of $100,000 for the years of
2009, 2008 and 2007. We did not engage in any benchmarking of compensation to
set the compensation to our executive officers.





Compensation
Table





Name
      & Principal Position
                                                
                                                Year
                                                
                                                Salary
                                                  (1)
                                                
                                                Bonus
                                                
                                                Non-Equity
                                                  Incentive
                                                  Plan
                                                  Compensation
                                                
                                                All
      other
                                                  Compensation
                                                
                                                TotalShulin
      Liu
                                                
                                                2009
                                                
                                                $
                                                35,083
                                                
                                                0
                                                
                                                
                                                0
                                                
                                                0
                                                
                                                $
                                                35,083(President
      and Chief Executive Officer )
                                                
                                                2008
                                                
                                                $
                                                34,472
                                                
                                                0
                                                
                                                
                                                0
                                                
                                                0
                                                
                                                $
                                                34,4722007
                                                
                                                $
                                                31,508
                                                
                                                0
                                                
                                                
                                                0
                                                
                                                0
                                                
                                                $
                                                31,508Shaocheng
      Xu
                                                
                                                2009
                                                
                                                $
                                                21,050
                                                
                                                0
                                                
                                                
                                                0
                                                
                                                0
                                                
                                                $
                                                21,050(Chief
      Financial Officer )(2)
                                                
                                                2008
                                                
                                                $
                                                20,683
                                                
                                                0
                                                
                                                
                                                0
                                                
                                                0
                                                
                                                $
                                                20,6832007
                                                
                                                $
                                                18,905
                                                
                                                0
                                                
                                                
                                                0
                                                
                                                0
                                                
                                                $
                                                18,905Zongtai
      Guo
                                                
                                                2009
                                                
                                                $
                                                26,312
                                                
                                                0
                                                
                                                
                                                0
                                                
                                                0
                                                
                                                $
                                                26,312(Chief
      Operational Officer )
                                                
                                                2008
                                                
                                                $
                                                25,854
                                                
                                                0
                                                
                                                
                                                0
                                                
                                                0
                                                
                                                $
                                                25,8542007
                                                
                                                $
                                                23,631
                                                
                                                0
                                                
                                                
                                                0
                                                
                                                0
                                                
                                                $
                                                23,631Yulin
      Liu
                                                
                                                2009
                                                
                                                $
                                                26,312
                                                
                                                0
                                                
                                                
                                                0
                                                
                                                0
                                                
                                                $
                                                26,312(President
      and General Manager of
                                                
                                                2008
                                                
                                                $
                                                25,854
                                                
                                                0
                                                
                                                
                                                0
                                                
                                                0
                                                
                                                $
                                                25,854Heilongjiang
      Yanglin Soybean Group Co. Ltd)(3)
                                                
                                                2007
                                                
                                                $
                                                23,631
                                                
                                                0
                                                
                                                
                                                0
                                                
                                                0
                                                
                                                $
                                                23,631




45




(1)
            The relevant exchange
      rates fortheyears 2009, 2008 and 2007 are $1
      to RMB6.8409, $1 to RMB 6.8347, and $1 to
  RMB7.6172.





(2)
            Shaocheng Xu, was appointed as
      Yanglin’s Chief Financial Officer in
      March 2007.





(3)
            Yulin Liu, was appointedasYanglin’s President and General Manager
      inMarch 2007 and is
      the first cousin of Mr. Shulin
Liu.





Material
Terms of Employment





Each of
the executive officers has signed a three-year employment contract with Yanglin
effective September 2007 until September 2010. In addition to their salary
compensation, the executive officers are entitled to social insurance benefits
according to PRC laws and regulations.





Termination
of Employment





Yanglin
can terminate the employment contract with the executive officers with immediate
effect without any prior notice under the following circumstances: serious
violation of Yanglin’s rules and disciplines by the executive officers, serious
dereliction of duties by the executive officers; executive officers being
prosecuted under the PRC criminal law.





Yanglin
can terminate the employment contract with the executive officers with 30 days’
prior written notice under the following circumstances: unfit to perform for the
jobs or any new jobs after non-work-related injury; unfit to perform for the
jobs despite additional training; unable to reach an agreement regarding the
employment between the executive officers and Yanglin due to major change of
circumstances.





Compensation
Discussion & Analysis





Yanglin
strives to provide its named executive officers (as defined in Item 402 of
Regulation S-K) with a competitive base salary that is in-line with their roles
and responsibilities.





It is not
uncommon for PRC corporations in that locality to have base salaries as the sole
and only form of compensation. The base salary level is established and reviewed
based on the level of responsibilities, the experience and tenure of the
individual and the current and potential contributions of the individual. The
base salary is compared to the list of similar positions within comparable peer
companies and with consideration of the executive’s relative experience in his
or her position.  Base salaries are reviewed periodically and at the
time of promotion or other changes in responsibilities.





We plan
to implement a more comprehensive compensation program, which takes into account
other elements of compensation, including without limitation, short and long
term compensation, cash and non-cash, and other equity-based compensation such
as stock options. Such compensation program shall be comparative to our peers in
the industry and aimed to retain and attract talented individuals.





Our
Compensation Committee comprising predominantly of independent directors will
oversee the compensation of our named executive officers.





Grants
of Plan-Based Awards





The
Company currently does not have any award plans. No options were granted to any
named executive officers in 2009. Although the Company does not have any stock
option plans, it did grant certain stock options to one of its directors
pursuant to a contractual arrangement.





Outstanding
Equity Awards at Fiscal Year End





The
Company currently does not have an equity compensation plan. No options or
shares of stock were granted to any named executive officers in
2009.





Option
Exercises and Stock Vested





No
options were exercised and no shares of stock were vested in 2009.




46




Pension
Benefits





The
Company does not have any pension plans for its executive officers.





Nonqualified
Deferred Compensation





There was
no nonqualified deferred compensation for the Company’s executive officers in
2009.





Potential
Payment Upon Termination or Change in Control





The
Company currently does not have payment arrangements for its executive officers
upon termination or change in control.





Compensation
of Directors




The
following director compensation disclosure reflects all compensation awarded to,
earned by or paid to the directors below for the year ended December 31,
2009.
 
 DIRECTOR COMPENSATION
      TABLEName
                                    
                                    Year
                                    
                                    Fees
                                      Earned
                                      or
                                      Paid
      in
                                      Cash
                                      ($)
                                    
                                    
                                    Stock
                                      Awards
                                      ($)
                                    
                                    
                                    Option
                                      Awards
                                      ($)
                                    
                                    
                                    Non-Equity
                                      Incentive
      Plan
                                      Compensation
                                      ($)
                                    
                                    
                                    Nonqualified
                                      Deferred
                                      Compensation
                                      Earnings
                                      ($)
                                    
                                    
                                    All
      Other
                                      Compensation
                                      ($)
                                    
                                    
                                    Total
                                      ($)Shulin
      Liu
                                    
                                    2009
                                    
                                    
                                    35,083
                                    
                                    
                                    
                                    0
                                    
                                    
                                    
                                    0
                                    
                                    
                                    
                                    0
                                    
                                    
                                    
                                    0
                                    
                                    
                                    
                                    0
                                    
                                    
                                    
                                    35,083Yang
      Miao (1)
                                    
                                    2009
                                    
                                    
                                    0
                                    
                                    
                                    
                                    0
                                    
                                    
                                    
                                    0
                                    
                                    
                                    
                                    0
                                    
                                    
                                    
                                    0
                                    
                                    
                                    
                                    0
                                    
                                    
                                    
                                    0Zongtai
      Guo
                                    
                                    2009
                                    
                                    
                                    26,312
                                    
                                    
                                    
                                    0
                                    
                                    
                                    
                                    0
                                    
                                    
                                    
                                    0
                                    
                                    
                                    
                                    0
                                    
                                    
                                    
                                    0
                                    
                                    
                                    
                                    26,312Albert
      McLelland
                                    
                                    2009
                                    
                                    
                                    55,000
                                    
                                    
                                    
                                    0
                                    
                                    
                                    
                                    0
                                    
                                    
                                    
                                    0
                                    
                                    
                                    
                                    0
                                    
                                    
                                    
                                    0
                                    
                                    
                                    
                                    55,000Michael
      Marks
                                    
                                    2009
                                    
                                    
                                    35,000
                                    
                                    
                                    
                                    0
                                    
                                    
                                    
                                    34,055
                                    
                                    
                                    
                                    0
                                    
                                    
                                    
                                    0
                                    
                                    
                                    
                                    0
                                    
                                    
                                    
                                    69,055Xiao
      Feng
                                    
                                    2009
                                    
                                    
                                    1,462
                                    
                                    
                                    
                                    0
                                    
                                    
                                    
                                    0
                                    
                                    
                                    
                                    0
                                    
                                    
                                    
                                    0
                                    
                                    
                                    
                                    0
                                    
                                    
                                    
                                    1,462
 
 (1)
Mr. Miao resigned from his position as director of the Company on March 13,
2009.


We have
no formal or informal arrangements or agreements to compensate our
non-independent directors for services they provide as directors. We have
implemented a compensation program for our independent directors, which includes
such elements as an annual retainer, and stock options. The details of such
compensation program is as follows: Mr. Albert McLelland, a cash retainer of
$55,000 annually; Mr. Michael Marks, a cash retainer of $35,000 plus 20,000
stock options annually (15,000 stock options granted in 2009), and the
terms of the stock options are that they 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; Mr. Xiao Feng, a cash retainer of $1,462 annually.





The
non-independent directors for Yanglin are not compensated for their services as
directors as of the date of this report.





Item
11. Security Ownership Of Certain Beneficial Owners And Management And Related
Shareholders Matters





The
following table sets forth certain information with respect to the beneficial
ownership of our voting securities following the closing of the Share Exchange
Agreement and the Series A Convertible Preferred Stock Purchase Agreement by (i)
any person or group owning more than 5% of each class of voting securities, (ii)
each director, (iii) our chief executive officer and our top three most highly
compensated officers and (iv) all executive officers and directors as a group as
of April 12, 2010.




47




Name and Address of Beneficial Owner
              
              Amount and Nature of
                Beneficial Ownership (1)
              
              
              Percentage of Class (1)Series A
              
              
              Common StockOwner of More than 5% of
      ClassVision
      Opportunity Master Fund Ltd
                20
      West 55th
      Street, 5th
      Floor,
                New
      York, NY 10019-5373
              
              
              2,872,073
              
              
              
              
              
              
              28.7
              %Vision
      Capital Advantage Fund L.P.
                20
      West 55th
      Street, 5th
      Floor,
                New
      York, NY 10019-5373 (7)
              
              
              848,857
              
              
              
              
              
              
              8.5
              %Sansar
      Capital Special Opportunity Master
                Fund,
      LP (Cayman Master)
                Walkers
      SPV Ltd.
                Walkers
      House
                Mary
      Street 908GT
                Georgetown,
      Grand Cayman
                Cayman
      Islands
              
              
              2,767,442
              
              
              
              
              
              
              27.7
              %Vicis
      Capital Master Fund
                126
      East 56th
      Streey, 7th
      Floor,
                New
      York, NY 10019-5373
              
              
              2,093,023
              
              
              
              
              
              
              20.9
              %Vision
      Opportunity Master Fund Ltd
                20
      West 55th
      Street, 5th
      Floor,
                New
      York, NY 10019-5373 (6)
              
              
              
              
              
              
              7,585,414
              (2)
              
              
              27.5
              %Vision
      Capital Advantage Fund L.P.
                20
      West 55th
      Street, 5th
      Floor,
                New
      York, NY 10019-5373 (6) (7)
              
              
              
              
              
              
              2,241,911
              (2)
              
              
              10.1
              %Sansar
      Capital Special Opportunity Master
                Fund,
      LP (Cayman Master) (6)
              
              
              
              
              
              
              6,918,605
              (2)
              
              
              25.7
              %Vicis
      Capital Master Fund
                126
      East 56th
      Street, 7th
      Floor,
                New
      York, NY 10019-5373 (6)
              
              
              
              
              
              
              5,232,558
              (2)
              
              
              20.7
              %Winner
      State Investments Limited
                No.
      99, Fanrong Street, Jixian Town,
                Heilongjiang,
      the People’s Republic of China.
              
              
              
              
              
              
              18,200,000
              (3)(4)
              
              
              91.0
              %Directors and Executive
      OfficersShulin
      Liu
                99
      Fanrong Street, Jixian County,
                Heilongjiang
      Province, People’s Republic of China 155900
              
              
              
              
              
              
              9,100,000
              (4)
              
              
              45.5
              %Glenn
      A. Little (5)
                211
      West Wall,
                Midland,
      TX 79701
              
              
              
              
              
              
              399,000
              
              
              
              2.0
              %All Directors and Executive
      Officers
              
              
              
              
              
              
              9,499,000
              
              
              
              47.5
              %
  48
  (1)
              On
      October 3, 2007, we entered and consummated a Series A Preferred Agreement
      for the sale of a total of 10,000,000 shares of our newly designated
      Series A Preferred Shares for the purchase price of $2.15 per share. Each
      entity’s number of Series A Preferred Shares were determined by dividing
      the amount of Purchase Price (as defined in the Series A Preferred
      Agreement) paid by such entity by the $2.15 per share price. Each share of
      Series A Preferred Stock is convertible into one share of our Common
      Stock. In determining the percent of preferred stock owned by a person or
      entity on March 30, 2010, (a) the numerator is the number of shares of the
      class beneficially owned by such person or entity, and (b) the denominator
      is the total shares of that class outstanding on March 30, 2010. Unless
      otherwise stated, each beneficial owner has sole power to vote and dispose
      of its shares.
  In
addition, in determining the percent of common stock owned by a person or entity
on December 31, 2009, (a) the numerator is the number of shares of the class
beneficially owned by such person and includes shares which the beneficial owner
may acquire within 60 days upon conversion or exercise of a derivative security,
and (b) the denominator is the sum of (i) the shares of that class outstanding
on December 31, 2009 (20,465,020 shares of Common Stock) and (ii) the total
number of shares that the beneficial owner may acquire upon conversion or
exercise of a derivative security within such 60 day period. Unless otherwise
stated, each beneficial owner has sole power to vote and dispose of the
shares.
  (2)
              Each
      Series A Preferred Share is convertible, at the option of the holder, into
      one share of our Common Stock. Accordingly, in total, the Series A
      Preferred Shares are convertible into 10,000,000 shares of our Common
      Stock. The share number of Common Stock is determined by assuming
      conversion of all Series A Preferred Shares, exercise of all warrants by
      the parties and then add all the numbers together, we would have the
      shares of our Common Stock for such parties. For example, for Vision
      Opportunity Master Fund Ltd, if we add up all the numbers from different
      columns of the footnote 6 table below, we would have 7,585,414 shares of
      Common Stock.
 
 Pursuant
to the Series A Preferred Agreement, the Purchasers shall also be issued (i)
Series A Warrants to purchase the number of shares of our Common Stock equal to
one hundred percent (100%) of the number of shares of Common Stock issuable upon
conversion of the Series A Preferred Shares purchased by each Purchaser and (ii)
Series B Warrants to purchase the number of shares of Common Stock equal to
fifty percent (50%) of the number of shares of Common Stock issuable upon
conversion of the Series A Preferred Shares purchased by each
Purchaser.
  Also,
each Purchaser who purchases not less than $4 million worth of Series A
Preferred shall also be issued (i) a Series J Warrant, to purchase such number
of our newly designated Series B Preferred Shares, par value $0.001 per share,
(ii) a Series C Warrant to purchase the number of shares of Common Stock equal
to one hundred percent (100%) of the number of Series B Preferred Shares
purchased by such Purchaser pursuant to the Series J Warrant, and (z) a Series D
Warrant to purchase the number of shares of Common Stock equal to fifty percent
(50%) of the number of Series B Preferred Shares purchased by such Purchasers
pursuant to the Series J Warrant (Series J Warrants expired on April 2, 2009;
Series C and D Warrants were conditioned on the exercise of Series J Warrants
and therefore, also expired).
 
 Pursuant
to Section 3.27 of the Series A Preferred Agreement, at no time may a Purchaser
of preferred shares convert their preferred shares into shares of our Common
Stock if the number of shares of Common Stock to be issued pursuant to such
conversion would exceed, when aggregated with all other shares of Common Stock
beneficially owned by such Purchaser at such time, the number of shares of
Common Stock which would result in such Purchaser beneficially owning (as
determined in accordance with Section 13(d) of the Exchange Act and the rules
thereunder) in excess of 4.99% of the then issued and outstanding shares of
Common Stock; provided, however, that upon a
Purchaser providing us with sixty-one (61) days notice that such Purchaser
wishes to waive the cap, then the cap will be of no force or effect with regard
to all or a portion of the preferred shares referenced in the waiver
notice.
  (3)
                On
      October 3, 2007, we acquired Faith Winner (BVI) in a share exchange
      transaction with Winner State (BVI), Fang Chen, Yang Miao and Ying Zhang.
      Winner State (BVI), Fang Chen, Yang Miao and Ying Zhang are collectively
      the owners of 100% of the shares of Faith Winner
      (BVI).
  In the
Share Exchange, we received the shares of Faith Winner (BVI) from Winner State
(BVI), Fang Chen, Yang Miao and Ying Zhang and in exchange we issued and
delivered to them 18,500,000 of our newly -issued shares of Common Stock. Winner
State (BVI) received 18,200,000 shares of Common Stock.
  (4)
                Winner
      State (BVI) is jointly owned in equal shares by Mr. Shulin Liu, our Chief
      Executive Officer and his wife, Ms. Huanqin Ding. Accordingly, shares of
      Common Stock issued to Winner State (BVI) as a result of the consummation
      of the Share Exchange Agreement are beneficially attributed to Mr. Shulin
      Liu and Ms. Huanqin Ding based on their respective shareholder percentage
      ownership in Winner State (BVI) immediately prior to the Share Exchange.
      Mr Shulin Liu was appointed our director and Chief Executive Officer on
      October 3, 2007.
  (5)
                As
      of April 12, 2010, below is a breakdown of the current holdings
      of:
  Name
                  
                  Amount and Nature of Beneficial OwnershipPreferred Stock
                  
                  
                  Common
                    Stock
                  
                  
                  WarrantsSeries
      A
                  
                  
                  Series
      B
                  
                  
                  
                  
                  A
                  
                  
                  BVision
      Opportunity Master Fund Ltd
                  
                  
                  2,872,073
                  
                  
                  
                  —
                  
                  
                  
                  405,232
                  
                  
                  
                  2,872,073
                  
                  
                  
                  1,436,036Vision
      Capital Advantage Fund L.P.
                  
                  
                  848,857
                  
                  
                  
                  —
                  
                  
                  
                  119,768
                  
                  
                  
                  848,857
                  
                  
                  
                  424,429Sansar
      Capital Special Opportunity
                    Master
      Fund, LP (Cayman Master)
                  
                  
                  2,767,442
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  2,767,442
                  
                  
                  
                  1,383,721Vicis
      Capital Master Fund
                  
                  
                  2,093,023
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  2,093,023
                  
                  
                  
                  1,046,512
  (6)
                On
      November 21, 2008, Vision Opportunity Master Fund Ltd. transferred 848,857
      shares of Series A Preferred Stock, 119,768 shares of Common Stock,
      848,857 Series A Warrants and 424,429 Series B Warrants to Vision Capital
      Advantage Fund L.P., its
affiliate.
  49




Each of
Series A, B, E and F Warrants shall expire on October 3, 2012.


Item 12. Certain Relationships and Related
Transactions





None.





Item
13. Principal Accounting Fees And Services





For the
years ended December 31, 2008 and 2007, Albert Wong & Co. was the
independent registered public accountant and its reports did not contain
any adverse opinion or disclaimer of opinion, nor were they qualified or
modified as to any uncertainty, audit scope or accounting
principles.





On June
29, 2009, we dismissed Albert Wong & Co. as our independent registered
public accountant.





On
June 29, 2009, the Company engaged UHY LLP as the Company’s new independent
registered public accounting firm to audit the Company’s consolidated financial
statements for the year ended December 31, 2009. The Company’s Audit Committee
and Board of Directors recommended, authorized, and approved the decision to
engage UHY LLP to serve as the Company’s independent registered public
accounting firm. UHY LLP leases all its personnel, who work under the
control of UHY LLP Partners, from wholly-owned subsidiaries of UHY Advisors,
Inc., in an alternative practice structure.





All of
the services described below were approved by our board prior to performance.
Our board has determined that the payments made to its independent accountant
for these services are compatible with maintaining such auditor's
independence.





Audit Fees.Please see the
following table for the details of audit fees.


Firm
                    
                    For
      the year ended December 31, 2008
                    
                    
                    For
      the year ended December 31, 2009Albert
      Wong & Company, LLP
                    
                    $
                    86,000
                    
                    
                    $
                    16,250UHY
      LLP
                    
                    $
                    -
                    
                    
                    $
                    230,000





Audit-Related Fees. There were
no fees for assurance and related services by Albert Wong & Company, LLP or
by UHY LLPfor years 2008 or 2009.





Tax Fees. Please see the
following table for the details of fees for services for the income tax returns
in US.


Firm
                        
                        For
      the year ended December 31, 2008
                        
                        
                        For
      the year ended December 31, 2009UHY
      Advisors, Inc.
                        
                        $
                        5,500
                        
                        
                        $
                        6,000





All Other Fees. There was no
other fees for either audit-related or non-audit services billed by Albert Wong
& Company, LLP, UHY LLP or UHY Advisors, Inc. for years 2008 or
2009.


50





PART
IV





Item
14. Exhibits And Financial Statement Schedules





(a) (1)
Financial Statements





(2)
Financial Statement Schedules





None





YANGLIN
SOYBEAN, INC.





CONTENTS
                
                PAGESREPORTS
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS
                
                F-1-2CONSOLIDATED
      BALANCE SHEETS
                
                F-3CONSOLIDATED
      STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
                
                F-4CONSOLIDATED
      STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
                
                F-5CONSOLIDATED
      STATEMENTS OF CASH FLOWS
                
                F-6NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS
                
                F-7–
      44




51




REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
    To the
Board of Directors and
 Stockholders
of Yanglin Soybean, Inc.
  We
have audited the accompanying consolidated balance sheet of Yanglin Soybean,
Inc. and subsidiaries (the “Company”) as of December 31, 2009 and the related
consolidated statements of operations and comprehensive income, changes in
stockholders’ equity, and cash flows for the year ended December 31, 2009. The
Company’s management is responsible for these consolidated financial statements.
Our responsibility is to express an opinion on these consolidated financial
statements based on our audit.
  We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
  In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Yanglin Soybean, Inc. and
subsidiaries as of December 31, 2009 and the results of their operations and
their cash flows for  the year then ended in conformity with
accounting principles generally accepted in the United States of
America.
  As
discussed in Note 15 to the consolidated financial statements, the Company
adopted ASC Topic 815-40, “Derivatives and Hedging: Contracts in Entity’s Own
Equity” (effective January 1, 2009) as it related to the Company’s
warrants.
   /s/
      UHY LLPNew
      York, New YorkApril
      14, 2010




F-1




ALBERT
      WONG & CO.
                    CERTIFIED
      PUBLIC ACCOUNTANTS
                    7th
      Floor, Nan Dao Commercial Building
                    359-361
      Queen’s Road Central
                    Hong
      Kong
                    Tel
      : 2851 7954
                    Fax:
      2545 4086
                    
                    ALBERT
      WONG
                    B.Soc.,
      Sc., ACA., LL.B.,
                    CPA(Practising)
 
  To:
                The
      board of directors and stockholders of
                  Yanglin
      Soybean Inc.
   Report of Independent
Registered Public Accounting Firm
 
 We
have audited the accompanying consolidated balance sheet of Yanglin Soybean Inc.
and subsidiaries as of December 31, 2008, and the related consolidated
statements of income and comprehensive income, stockholders' equity and cash
flows for the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audit.
 
 We
conducted our audit in accordance with standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
 
 In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Yanglin Soybean
Inc. as of December 31, 2008 and the results of its operations and its cash
flows for the year then ended in conformity with accounting principles generally
accepted in the United States of America.
 
 As
discussed in Note 2(a) to the financial statements, certain errors resulting in
an understatement of previously reported Additional paid-in capital, and an
overstatement of previously reported Net income for 2008, were discovered by
management of the Company during the current year. Accordingly, an adjustment
has been made to retained earnings as of December 31, 2008 to correct the
error.
  
 
 Hong
      Kong, ChinaApril
      6, 2009,
                Albert
      Wong & Co.except
      for note 2(a), as to which the date is April 14, 2010
                Certified
      Public Accountants
 F-2


YANGLIN
SOYBEAN INC.





CONSOLIDATED
BALANCE SHEETS


AS
AT DECEMBER 31, 2009, AND 2008


(Stated
in US Dollars)





2009
                                                
                                                
                                                2008(As
      restated)ASSETSCurrent
      assetsCash
                                                
                                                $
                                                34,811,611
                                                
                                                
                                                $
                                                30,365,413Cash-restricted
                                                
                                                
                                                1,740,605
                                                
                                                
                                                
                                                484,000Trade
      receivables, net
                                                
                                                
                                                332
                                                
                                                
                                                
                                                8,043Inventories
                                                
                                                
                                                8,356,345
                                                
                                                
                                                
                                                3,896,334Advances
      to suppliers
                                                
                                                
                                                12,451
                                                
                                                
                                                
                                                10,597,701Prepaid
      VAT and other taxes
                                                
                                                
                                                4,917,250
                                                
                                                
                                                
                                                920,083Other
      receivables and prepaid expenses
                                                
                                                
                                                108,200
                                                
                                                
                                                
                                                114,990Total
      current assets
                                                
                                                
                                                49,946,794
                                                
                                                
                                                
                                                46,386,564Property,
      plant and equipment, net
                                                
                                                
                                                27,297,365
                                                
                                                
                                                
                                                31,529,936Assets
      held for sale
                                                
                                                
                                                570,409
                                                
                                                
                                                
                                                -Intangible
      assets, net
                                                
                                                
                                                4,415,908
                                                
                                                
                                                
                                                4,619,716Prepaid
      deposits for equipment and construction
                                                
                                                
                                                -
                                                
                                                
                                                
                                                13,021TOTAL
      ASSETS
                                                
                                                $
                                                82,230,476
                                                
                                                
                                                $
                                                82,549,237LIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrent
      liabilitiesShort-term
      bank loans
                                                
                                                $
                                                20,476,218
                                                
                                                
                                                $
                                                6,711,214Loans
      from related parties – current
                                                
                                                
                                                53,676
                                                
                                                
                                                
                                                55,149Accounts
      payable
                                                
                                                
                                                20,866
                                                
                                                
                                                
                                                13,753Other
      payables
                                                
                                                
                                                824,424
                                                
                                                
                                                
                                                683,403Customers
      deposits
                                                
                                                
                                                1,395,524
                                                
                                                
                                                
                                                1,187,582Accrued
      liabilities
                                                
                                                
                                                635,474
                                                
                                                
                                                
                                                591,979Total
      current liabilities
                                                
                                                
                                                23,406,182
                                                
                                                
                                                
                                                9,243,080Long-term
      liabilitiesLoan
      from related parties – non-current
                                                
                                                
                                                314,191
                                                
                                                
                                                
                                                434,678Warrant
      liability
                                                
                                                
                                                27,573,698
                                                
                                                
                                                
                                                -TOTAL
      LIABILITIES
                                                
                                                
                                                51,294,071
                                                
                                                
                                                
                                                9,677,758


STOCKHOLDERS'
      EQUITYConvertible
      preferred stock:Series
      A $0.001 par value, 50,000,000 shares authorized; 9,534,883 and 9,999,999
      shares issued and outstanding as of December 31, 2009 and 2008,
      respectively
                          
                          
                          9,535
                          
                          
                          
                          10,000Series
      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 and 20,000,003 shares
      issued and outstanding as of December 31, 2009 and 2008,
      respectively
                          
                          
                          20,465
                          
                          
                          
                          20,000Additional
      paid-in capital
                          
                          
                          27,899,749
                          
                          
                          
                          42,869,635Statutory
      reserves
                          
                          
                          5,628,636
                          
                          
                          
                          5,628,636(Accumulated
      deficit) retained earnings
                          
                          
                          (9,953,046
                          )
                          
                          
                          17,184,524Accumulated
      other comprehensive income
                          
                          
                          7,331,066
                          
                          
                          
                          7,158,684Total
      stockholders’ equity
                          
                          
                          30,936,405
                          
                          
                          
                          72,871,479TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY
                          
                          $
                          82,230,476
                          
                          
                          $
                          82,549,237





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


F-3


YANGLIN
SOYBEAN INC.





CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME


FOR
THE YEARS ENDED DECEMBER 31, 2009, AND 2008


(Stated
in US Dollars)





2009
                        
                        
                        2008(As
      restated)Net
      sales
                        
                        $
                        161,633,950
                        
                        
                        $
                        250,728,674Cost
      of sales
                        
                        
                        (171,588,089
                        )
                        
                        
                        (229,838,842
                        )Gross
      (loss) profit
                        
                        
                        (9,954,139
                        )
                        
                        
                        20,889,832Operating
      ExpensesSelling
      expenses
                        
                        
                        (247,301
                        )
                        
                        
                        (249,812
                        )General
      and administrative expenses
                        
                        
                        (3,314,592
                        )
                        
                        
                        (5,552,223
                        )Impairment
      loss of long-lived assets
                        
                        
                        (584,718
                        )
                        
                        
                        -Loss
      on disposal of property, plant and equipment
                        
                        
                        (230,104
                        )
                        
                        
                        (31,113
                        )Total
      operating expenses
                        
                        
                        (4,376,715
                        )
                        
                        
                        (5,833,148
                        )(Loss)
      income from operations
                        
                        
                        (14,330,854
                        )
                        
                        
                        15,056,684Stock
      exchange listing expense
                        
                        
                        -
                        
                        
                        
                        (4,480,000
                        )Interest
      expenses
                        
                        
                        (481,626
                        )
                        
                        
                        (822,355
                        )Interest
      income
                        
                        
                        233,110
                        
                        
                        
                        145,340Other
      income
                        
                        
                        11,557
                        
                        
                        
                        797Changes
      in fair value of warrants
                        
                        
                        59,477,401
                        
                        
                        
                        -Income
      before income taxes
                        
                        
                        44,909,588
                        
                        
                        
                        9,900,466Income
      tax
                        
                        
                        -
                        
                        
                        
                        -Net
      income
                        
                        
                        44,909,588
                        
                        
                        
                        9,900,466Foreign
      currency translation adjustment
                        
                        
                        172,382
                        
                        
                        
                        3,803,214Comprehensive
      income
                        
                        $
                        45,081,970
                        
                        
                        $
                        13,703,680Earnings
      per shareBasic
                        
                        $
                        2.23
                        
                        
                        $
                        0.50Diluted
                        
                        $
                        1.42
                        
                        
                        $
                        0.26Weighted
      average shares outstandingBasic
                        
                        
                        20,178,404
                        
                        
                        
                        20,000,003Diluted
                        
                        
                        31,642,380
                        
                        
                        
                        37,757,827





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


F-4


YANGLIN
SOYBEAN INC.





CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY


FOR
THE YEARS ENDED DECEMBER 31, 2009, AND 2008


(Stated
in US Dollars)





Preferred
      stock
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          (Accumulated
                          
                          
                          AccumulatedSeries
      A
                          
                          
                          Common
      stock
                          
                          
                          Additional
                          
                          
                          
                          
                          
                          deficit)
                          
                          
                          otherNumber
      of
                            shares
                          
                          
                          Amount
                          
                          
                          Number
      of
                            shares
                          
                          
                          Amount
                          
                          
                          paid-in
                            capital
                          
                          
                          Statutory
                            reserves
                          
                          
                          retained
                            earnings
                          
                          
                          comprehensive
                            income
                          
                          
                          TotalBalance,
      January 1, 2008
                          
                          
                          9,999,999
                          
                          
                          $
                          10,000
                          
                          
                          
                          20,000,003
                          
                          
                          $
                          20,000
                          
                          
                          $
                          38,389,635
                          
                          
                          $
                          3,490,834
                          
                          
                          $
                          9,421,860
                          
                          
                          $
                          3,355,470
                          
                          
                          $
                          54,687,799Net
      income
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          9,900,466
                          
                          
                          
                          
                          
                          
                          
                          9,900,466Stock
      exchange listing shares contributed by majority
      shareholder
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          4,480,000
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          4,480,000Appropriations
      to surplus reserves
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          2,137,802
                          
                          
                          
                          (2,137,802
                          )
                          
                          
                          
                          
                          
                          
                          -Foreign
      currency translation adjustment
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          3,803,214
                          
                          
                          
                          3,803,214Balance,
      December 31, 2008 (As restated)
                          
                          
                          9,999,999
                          
                          
                          
                          10,000
                          
                          
                          
                          20,000,003
                          
                          
                          
                          20,000
                          
                          
                          
                          42,869,635
                          
                          
                          
                          5,628,636
                          
                          
                          
                          17,184,524
                          
                          
                          
                          7,158,684
                          
                          
                          
                          72,871,479Net
      income
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          44,909,588
                          
                          
                          
                          
                          
                          
                          
                          44,909,588Reclassification
      of warrants from equity to derivative liabilities
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          (15,003,941
                          )
                          
                          
                          
                          
                          
                          
                          (72,047,158
                          )
                          
                          
                          
                          
                          
                          
                          (87,051,099
                          )Share-based
      compensation expense
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          34,055
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          34,055Conversion
      of preferred stocks
                          
                          
                          (465,116
                          )
                          
                          
                          (465
                          )
                          
                          
                          465,116
                          
                          
                          
                          465
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          -Foreign
      currency translation adjustment
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          172,382
                          
                          
                          
                          172,382Balance,
      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





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


F-5


YANGLIN
SOYBEAN INC.





CONSOLIDATED
STATEMENTS OF CASH FLOWS


FOR
THE YEARS ENDED DECEMBER 31, 2009, AND 2008


(Stated
in US Dollars)


For
      The Years EndedDecember
      312009
                                    
                                    
                                    2008(As
      restated)Cash
      flows from operating activitiesNet
      income
                                    
                                    $
                                    44,909,588
                                    
                                    
                                    $
                                    9,900,466Adjustments
      to reconcile net income to net cash provided by (used in) operating
      activities:Depreciation
                                    
                                    
                                    3,176,462
                                    
                                    
                                    
                                    1,860,076Amortization
                                    
                                    
                                    215,178
                                    
                                    
                                    
                                    203,374Share-based
      compensation expense
                                    
                                    
                                    34,055
                                    
                                    
                                    
                                    -Bad
      debt recovery
                                    
                                    
                                    (296
                                    )
                                    
                                    
                                    -Impairment
      loss of long-lived assets
                                    
                                    
                                    584,718
                                    
                                    
                                    
                                    -Loss
      on disposal of property, plant and equipment
                                    
                                    
                                    230,104
                                    
                                    
                                    
                                    3,185,544Stock
      exchange listing expense
                                    
                                    
                                    -
                                    
                                    
                                    
                                    4,480,000Change
      in fair value of warrants
                                    
                                    
                                    (59,477,401
                                    )
                                    
                                    
                                    -Changes
      in operating assets and liabilities:Trade
      receivable
                                    
                                    
                                    7,726
                                    
                                    
                                    
                                    6,636Inventories
                                    
                                    
                                    (4,447,929
                                    )
                                    
                                    
                                    14,951,570Advances
      to suppliers
                                    
                                    
                                    10,605,892
                                    
                                    
                                    
                                    (4,407,071
                                    )Prepaid
      VAT and other taxes
                                    
                                    
                                    (3,992,730
                                    )
                                    
                                    
                                    1,675,509Other
      receivables
                                    
                                    
                                    7,369
                                    
                                    
                                    
                                    (62,451
                                    )Accounts
      payable
                                    
                                    
                                    7,077
                                    
                                    
                                    
                                    (12
                                    )Other
      payables
                                    
                                    
                                    (12,996
                                    )
                                    
                                    
                                    627,034Customers
      deposits
                                    
                                    
                                    204,879
                                    
                                    
                                    
                                    (1,621,890
                                    )Accrued
      liabilities
                                    
                                    
                                    42,112
                                    
                                    
                                    
                                    35,698Net
      cash (used in) provided by operating activities
                                    
                                    
                                    (7,906,192
                                    )
                                    
                                    
                                    30,834,483Cash
      flows from investing activitiesPurchase
      of property, plant and equipment
                                    
                                    
                                    (87,420
                                    )
                                    
                                    
                                    (135,534
                                    )Proceeds
      from sale of property, plant and equipment
                                    
                                    
                                    -
                                    
                                    
                                    
                                    129,556Payment
      for construction in progress
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (4,176,943
                                    )Net
      cash used in investing activities
                                    
                                    
                                    (87,420
                                    )
                                    
                                    
                                    (4,182,921
                                    )Cash
      flows from financing activitiesProceeds
      from short-term bank loans
                                    
                                    
                                    27,043,304
                                    
                                    
                                    
                                    -Cash-restricted
                                    
                                    
                                    (1,255,818
                                    )
                                    
                                    
                                    16,000Principal
      payments for short-term bank loans
                                    
                                    
                                    (13,302,382
                                    )
                                    
                                    
                                    (12,974,669
                                    )Principal
      payments for loans from related parties
                                    
                                    
                                    (123,112
                                    )
                                    
                                    
                                    6,607,059Net
      cash flows provided by (used in) financing activities
                                    
                                    
                                    12,361,992
                                    
                                    
                                    
                                    (6,351,610
                                    )Net
      increase in cash
                                    
                                    
                                    4,368,380
                                    
                                    
                                    
                                    20,299,952Effect
      of foreign currency translation on cash
                                    
                                    
                                    77,818
                                    
                                    
                                    
                                    855,340Cash-
      beginning of year
                                    
                                    
                                    30,365,413
                                    
                                    
                                    
                                    9,210,121Cash-
      end of year
                                    
                                    $
                                    34,811,611
                                    
                                    
                                    $
                                    30,365,413Supplementary
      cash flow information:Interest
      paid
                                    
                                    $
                                    481,626
                                    
                                    
                                    $
                                    822,355Supplemental
      disclosure of non-cash investing activities:Reclassify
      impaired assets from fixed assets to assets held for
    sale
                                    
                                    $
                                    570,409
                                    
                                    
                                    $
                                    -Contribution
      from majority shareholder to settle stock exchange listing
      expense
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    4,480,000




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




F-6


YANGLIN
SOYBEAN INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008


(Stated
in US Dollars)





1.
            ORGANIZATION
      AND PRINCIPAL ACTIVITIES





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 shares 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, distribution, 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.


F-7




YANGLIN
SOYBEAN INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008


(Stated
in US Dollars)





1.
            ORGANIZATION
      AND PRINCIPAL ACTIVITIES
(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.


F-8


YANGLIN
SOYBEAN INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008


(Stated
in US Dollars)





1.
            ORGANIZATION
      AND PRINCIPAL ACTIVITIES
(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.


F-9


YANGLIN
SOYBEAN INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008


(Stated
in US Dollars)





2.
            GENERAL


(a)
              Restatement of
      2008 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 it 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 (Note 15). The Company has now
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 expense,
income before income taxes, net income, comprehensive income, basic earnings per
share, diluted earnings per share, additional paid in capital and retained
earnings as of and for the year ended December 31, 2008.
 
 The
effect of the restatement on specific amounts provided in the consolidated
financial statements is as follows:
 
 As
      of December 31, 2008Consolidated
      Balance Sheet
              
              As
      previously reported
              
              
              As
      restatedAdditional
      paid-in capital
              
              $
              38,389,635
              
              
              $
              42,869,635Retained
      earnings
              
              
              21,664,524
              
              
              
              17,184,524
   For
      the year ended December 31, 2008Consolidated
      Statements of Operations and Comprehensive Income
              
              As
      previously reported
              
              
              As
      restatedStock
      exchange listing expense
              
              $
              -
              
              
              $
              (4,480,000
              )Income
      before income taxes
              
              
              14,380,466
              
              
              
              9,900,466Net
      income
              
              
              14,380,466
              
              
              
              9,900,466Comprehensive
      income
              
              
              18,183,680
              
              
              
              13,703,680Earnings
      per share:
              
              $
              0.72
              
              
              $
              0.50Basic
              
              $
              0.38
              
              
              $
              0.26Diluted
 
 For
      the year ended December 31, 2008Consolidated
      Statements of Cash Flows
                          
                          As
      previously reported
                          
                          
                          As
      restatedCash
      flows from operating activities:Net
      income
                          
                          $
                          14,380,466
                          
                          
                          $
                          9,900,466Adjustments
      to reconcile net income to net cash provided by operating
      activities:Stock
      exchange listing expense
                          
                          
                          -
                          
                          
                          
                          4,480,000Net
      cash provided by operating activities
                          
                          
                          30,834,483
                          
                          
                          
                          30,834,483Supplemental
      disclosure of non-cash investing activities:Contribution
      from majority shareholder to settle stock exchange listing
      expense
                          
                          $
                          -
                          
                          
                          $
                          4,480,000


(b)
            Basis
      of presentation





The
consolidated financial statements are prepared in accordance with generally
accepted accounting principles in the United States of America.





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.


F-10


YANGLIN
SOYBEAN INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008


(Stated
in US Dollars)





2.
            GENERAL
      (Continued)





(c)
            Principles
      of consolidation





The share
exchange transaction 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
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
                        interestFaith
      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


F-11


YANGLIN
SOYBEAN INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008


(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 effect of revisions are reflected in the 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.





(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.


F-12


YANGLIN
SOYBEAN INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008


(Stated
in US Dollars)





2.
            GENERAL
      (Continued)





(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 yearsMachinery
      and equipment
                  
                  3.5
      - 30 yearsOffice
      equipment
                  
                  4 -
      20 yearsMotor
      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 comprehensive (loss) 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.





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.





For the
year ended December 31, 2009, the Group recognized a $584,718 impairment loss on
certain manufacturing facilities which had been reclassified as assets held for
sale.





(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.


F-13


YANGLIN
SOYBEAN INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008


(Stated
in US Dollars)





2.
            GENERAL
      (Continued)





(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 represents 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.





(l)
            Foreign
      currency translation





The
accompanying 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:





2009
                  
                  
                  2008Year
      end RMB : USD exchange rate
                  
                  
                  6.8372
                  
                  
                  
                  6.8542Average
      yearly RMB : USD exchange rate
                  
                  
                  6.8409
                  
                  
                  
                  6.9623




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.


F-14


YANGLIN
SOYBEAN INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008


(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 year ended
December 31, 2009 and 2008, there were no written-down of
inventories.





(o)
            Advertising





The Group
expenses all advertising expenses as incurred.  Advertising expenses
included in selling expenses were $146 and $4,546 for the years ended December
31, 2009 and 2008 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 $80,286 and
$99,650 for the year ended December 31, 2009 and 2008,
respectively.





(q)
            Stock-Based
      Compensation





The
Company awards stock options and other equity-based instruments to its
employees, directors and consultants. and (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.


F-15


YANGLIN
SOYBEAN INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008


(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 $132,290 and $184,006 for the years ended December 31, 2009 and 2008,
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.


F-16


YANGLIN
SOYBEAN INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008


(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 December 31, 2009 and
2008.


F-17


YANGLIN
SOYBEAN INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008


(Stated
in US Dollars)





2.
            GENERAL
      (Continued)





(u)
            Comprehensive
      income





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.
  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.


F-18


YANGLIN
SOYBEAN INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008


(Stated
in US Dollars)





2.
            GENERAL
      (Continued)





(y)
            Recent
      accounting pronouncements





In April
2009, the FASB issued ASC 820.10, Determining Fair Value When the Volume and
Level of Activity for the Asset or Liability Have Significantly Decreased and
Identifying Transactions That Are Not Orderly. ASC 820.10 provides additional
guidance for estimating fair value when the volume and level of activity for the
asset or liability have significantly decreased and also includes guidance on
identifying circumstances that indicate a transaction is not orderly for fair
value measurements. ASC 820.10 shall be applied prospectively with retrospective
application not permitted. This ASC shall be effective for interim and
annual periods ending after June 15, 2009, with early adoption permitted
for periods ending after March 15, 2009. An entity early adopting this ASC
820.10 must also early adopt ASC 320.10, Recognition and Presentation of
Other-Than-Temporary Impairments. Additionally, if an entity elects to early
adopt either ASC 825.10, Interim Disclosures about Fair Value of Financial
Instruments or ASC 320.10, it must also elect to early adopt ASC 820.10. The
adoption of ASC 820.10 did not have a material impact on the Company’s
consolidated financial statements.





In April
2009, the FASB issued ASC 805, Accounting for Assets Acquired and Liabilities
Assumed in a Business Combination That Arise from Contingencies. ASC 805
addresses the initial recognition, measurement and subsequent accounting for
assets and liabilities arising from contingencies in a business combination, and
requires that such assets acquired or liabilities assumed be initially
recognized at fair value at the acquisition date if fair value can be determined
during the measurement period. If the acquisition-date fair value cannot be
determined, the asset acquired or liability assumed arising from a contingency
is recognized only if certain criteria are met. This FASB Staff Positions
(“FSP”) also requires that a systematic and rational basis for subsequently
measuring and accounting for the assets or liabilities be developed depending on
their nature. This ASC is effective for assets or liabilities arising from
contingencies in business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period beginning on or after
December 15, 2008. The Company does not anticipate that the adoption of this
statement will have a material impact on its consolidated financial statements,
absent any material business combinations.


F-19


YANGLIN
SOYBEAN INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008


(Stated
in US Dollars)





2.
            GENERAL
      (Continued)





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 Company does not anticipate that the adoption of this
statement will have a material impact on its consolidated financial
statement.





In August
2009, the FASB issued ASU No. 2009-05, Measuring Liabilities at Fair Value. ASU
2009-05 amended ASC 820, Fair Value Measurements. Specifically, ASU 2009-05
provides clarification that in circumstances in which a quoted price in an
active market for the identical liability is not available, a reporting entity
is required to measure fair value using one or more of the following methods: 1)
a valuation technique that uses a) the quoted price of the identical liability
when traded as an asset or b) quoted prices for similar liabilities or similar
liabilities when traded as assets and/or 2) a valuation technique that is
consistent with the principles of ASC 820 (e.g. an income approach or market
approach). ASU 2009-05 also clarifies that when estimating the fair value of a
liability, a reporting entity is not required to adjust to include inputs
relating to the existence of transfer restrictions on that liability. The
Company does not anticipate that the adoption of this statement will have a
material impact on its 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.


F-20


YANGLIN
SOYBEAN INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008


(Stated
in US Dollars)





3.
            FAIR
      VALUE





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





The
levels of fair value hierarchy are as follows:





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





l
            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.





l
            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
December 31, 2009, 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.


F-21


YANGLIN
SOYBEAN INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008


(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 December 31, 2009 and 2008. 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
December 31, 2009 and 2008, respectively, the Group’s restricted cash of
$278,018 and $ 484,000 was kept in bank account 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
December 31, 2009 and 2008, 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 VENDORCONCENTRATIONS





For
the years ended December 31, 2009 and 2008, respectively, all of the Group’s
sales were generated within the PRC. In addition, all accounts receivable as of
December 31, 2009 and 2008 are from entities within the PRC.





For
the years ended December 31, 2009 and 2008, no customer accounted for 10% or
more of the Group’s revenue.





For
the years ended December 31, 2009 and 2008, no vendor accounted for 10% or more
of the Group’s purchases.


F-22


YANGLIN
SOYBEAN INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008


(Stated
in US Dollars)





5.
            CASH-RESTRICTED





Cash-restricted
consists of the following at December 31:


2009
                      
                      
                      2008(As
      restated)Bank
      deposits held as collateral for bank loan – PRC
                      
                      $
                      1,462,587
                      
                      
                      $
                      -Bank
      deposits held in trust account – U.S.
                      
                      
                      278,018
                      
                      
                      
                      484,000$
                      1,740,605
                      
                      
                      $
                      484,000





Cash-restricted
represents $278,018 and $484,000 as of December 31, 2009 and 2008, respectively,
maintained in a trust account in the United States for the purpose of payment
for investor and public relations costs. In 2009, $1,462,587 was requested
by Agricultural Development Bank of China as collateral to guarantee the
repayment of the loan of $7,312,935 (RMB50,000,000)
from Yanglin.


F-23


YANGLIN
SOYBEAN INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008


(Stated
in US Dollars)





6.
            TRADE
      RECEIVABLES, NET





Details
of trade receivables consist of the following at December 31:





2009
                      
                      
                      2008(As
      restated)Trade
      receivables, gross
                      
                      $
                      334
                      
                      
                      $
                      9,352Allowance
      for doubtful accounts
                      
                      
                      (2
                      )
                      
                      
                      (1,309
                      )Net
      balance at end of year
                      
                      $
                      332
                      
                      
                      $
                      8,043





An
analysis of the allowance for doubtful accounts for the years ended December 31,
2009 and 2008 is as follows:





2009
                      
                      
                      2008(As
      restated)Balance
      at beginning of year
                      
                      $
                      1,309
                      
                      
                      $
                      1,213(Reduction)
      / Addition of bad debt expense
                      
                      
                      (1,307
                      )
                      
                      
                      14Foreign
      exchange adjustment
                      
                      
                      -
                      
                      
                      
                      82Balance
      at end of year
                      
                      $
                      2
                      
                      
                      $
                      1,309





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.


F-24


YANGLIN
SOYBEAN INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008


(Stated
in US Dollars)





7.
            INVENTORIES





Inventories
consist of the following at December 31:





2009
                      
                      
                      2008(As
      restated)Finished
      goods
                      
                      $
                      2,560,585
                      
                      
                      $
                      904,375Raw
      materials
                      
                      
                      5,795,760
                      
                      
                      
                      2,991,959Balance
      at end of year
                      
                      $
                      8,356,345
                      
                      
                      $
                      3,896,334




8.
            OTHER
      RECEIVABLES AND PREPAID EXPENSES





Details
of other receivables and prepaid expenses consist of the following at December
31:





2009
                        
                        
                        2008(As
      restated)Advances
      for materials
                        
                        $
                        3,101
                        
                        
                        $
                        32,271Prepayment
      for customers’ transportation costs
                        
                        
                        56,229
                        
                        
                        
                        8,259Advances
      for travel
                        
                        
                        28,152
                        
                        
                        
                        11,417Loans
      to employees
                        
                        
                        -
                        
                        
                        
                        57,902Prepaid
      service fee
                        
                        
                        14,626
                        
                        
                        
                        -Other
                        
                        
                        6,092
                        
                        
                        
                        5,141Balance
      at end of year
                        
                        $
                        108,200
                        
                        
                        $
                        114,990





Loans to
employees are unsecured, interest-free, and repayable on
demand.


F-25


YANGLIN
SOYBEAN INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008


(Stated
in US Dollars)





9.
            PROPERTY,
      PLANT AND EQUIPMENT, NET





Property,
plant and equipment consist of the following at December 31:





2009
                        
                        
                        2008(As
      restated)Building
                        
                        $
                        9,169,080
                        
                        
                        $
                        5,908,205Machinery
      and equipment
                        
                        
                        25,710,890
                        
                        
                        
                        15,826,005Office
      equipment
                        
                        
                        128,192
                        
                        
                        
                        130,512Motor
      vehicles
                        
                        
                        1,168,308
                        
                        
                        
                        1,165,41036,176,470
                        
                        
                        
                        23,030,132Less:
      accumulated depreciation
                        
                        
                        (8,879,105
                        )
                        
                        
                        (7,725,246
                        )27,297,365
                        
                        
                        
                        15,304,886Construction
      in progress
                        
                        
                        -
                        
                        
                        
                        16,225,050Balance
      at end of year
                        
                        $
                        27,297,365
                        
                        
                        $
                        31,529,936





Construction
in progress mainly comprised of capital expenditures for construction of the
Group’s corporate campus, including offices, factories and staff dormitories.
Depreciation expense commenced during year 2009, which is when the facilities
were put into service.  There is no further capital commitment on
these projects as of December 31, 2009.





As of
December 31, 2009, building with net book value of $1,516,242 and machinery and
equipment with net book value of $10,279,686 of the Company were pledged as
collateral under certain loan arrangements. These loans were primarily obtained
for general working capital.





As of
December 31, 2008, building with net book value of $1,239,396 and machinery and
equipment with net book value of $6,335,754 of the Company were pledged as
collateral under certain loan arrangements. These loans were primarily obtained
for general working capital.




F-26




YANGLIN
SOYBEAN INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008


(Stated
in US Dollars)





9.
            PROPERTY,
      PLANT AND EQUIPMENT, NET
(Continued)





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





2009Buildings
                    
                    $
                    882,772Machinery
      and equipment
                    
                    
                    3,831,9784,714,750Less:
      accumulated depreciation
                    
                    
                    (393,173
                    )Net
      book value
                    
                    $
                    4,321,577





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





2009
                      
                      
                      2008(As
      restated)Cost
      of sales
                      
                      $
                      2,291,623
                      
                      
                      $
                      1,378,837General
      and administrative expenses
                      
                      
                      884,839
                      
                      
                      
                      481,239Total
      depreciation expenses
                      
                      $
                      3,176,462
                      
                      
                      $
                      1,860,076





F-27




YANGLIN
SOYBEAN INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008


(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:





2009
                      
                      
                      2008(As
      restated)Building
                      
                      $
                      1,339
                      
                      
                      $
                      -Machinery
      and equipment
                      
                      
                      569,070
                      
                      
                      
                      -Balance
      at end of year
                      
                      $
                      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. The impairment charge related to assets held for sales is
$584,718 for the year ended December 31, 2009. There were no impairment charges
recorded during the year ended December 31, 2008.




F-28




YANGLIN
SOYBEAN INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008


(Stated
in US Dollars)





11.
            INTANGIBLE
      ASSETS, NET





Intangible
assets consist of the following at December 31:





2009
                      
                      
                      2008(As
      restated)Land
      use rights, at cost
                      
                      $
                      4,004,529
                      
                      
                      $
                      3,994,597Railway
      use rights, at cost
                      
                      
                      1,199,321
                      
                      
                      
                      1,151,125Less:
      accumulated amortization
                      
                      
                      (787,942
                      )
                      
                      
                      (526,006
                      )Balance
      at end of year
                      
                      $
                      4,415,908
                      
                      
                      $
                      4,619,716





Land use
rights were pledged as collateral for certain loans as of December 31, 2009 and
2008.





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




2009
                      
                      
                      2008(As
      restated)Cost
      of sales
                      
                      $
                      -
                      
                      
                      $
                      85,772Selling
      expenses
                      
                      
                      130,569
                      
                      
                      
                      -General
      and administrative expenses
                      
                      
                      84,609
                      
                      
                      
                      117,602Total
      amortization expense
                      
                      $
                      215,178
                      
                      
                      $
                      203,374





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





December 31,2010
                        
                        $
                        215,2932011
                        
                        
                        215,2932012
                        
                        
                        215,2932013
                        
                        
                        215,2932014
                        
                        
                        215,293thereafter
                        
                        
                        3,339,443$
                        4,415,908




F-29




YANGLIN
SOYBEAN INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008


(Stated
in US Dollars)





12.
            SHORT-TERM
      BANK LOANS





A)
            Short-term
      bank loansconsist
      of the following at December 31:





2009
                                        
                                        
                                        2008
                                        
                                        Collateral(As
      restated)Loans
      from Agricultural Development Bank of China, interest rates at 5.31% per
      annum, due August 30, 2010
                                        
                                        $
                                        7,312,935
                                        
                                        
                                        $
                                        -Loans
      from Agricultural Development Bank of China, interest rates at 5.31% per
      annum, due November 5, 2010
                                        
                                        
                                        5,850,348
                                        
                                        
                                        
                                        -
                                        
                                        Building,
      machinery and equipment and land use rightsLoans
      from Agricultural Development Bank of China, interest rates at 5.31% per
      annum, due July 30, 2010
                                        
                                        
                                        7,312,935
                                        
                                        
                                        
                                        -
                                        
                                        Restricted
      cashLoans
      from Agricultural Development Bank of China, interest rates at 5.31% per
      annum, due October 29, 2009
                                        
                                        
                                        -
                                        
                                        
                                        
                                        6,711,214
                                        
                                        Building,
      machinery and equipment and land use rightsBalance
      at end of period
                                        
                                        $
                                        20,476,218
                                        
                                        
                                        $
                                        6,711,214





These
loans were obtained and used by Yanglin for working capital. Interest expense
for the years ended December 31, 2009 and 2008 were $449,271 and $774,028,
respectively.





B)
            Credit
      lines





The Group
has an additional credit line facility up to $105 million (equivalent to
RMB 718 million), with Agricultural Development Bank of China.





The
term of the credit line is for one year expiring on September 9, 2010. The
borrowing under this credit line can only be used to purchase soybeans. The
interest rate is 6.93% and subject to adjustment depending on the interest rate
of loans by the People’s Bank of China. The loans would be secured by the
Group’s assets, i.e., building, machinery and land use rights. As of December
31, 2009, there were no borrowings.




F-30




YANGLIN
SOYBEAN INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008


(Stated
in US Dollars)





13.
            OTHER
      PAYABLES





Other
payables consist of the following at December 31:





2009
                              
                              
                              2008(As
      restated)Due
      for construction
                              
                              $
                              824,424
                              
                              
                              $
                              670,368Others
                              
                              
                              -
                              
                              
                              
                              13,035Balance
      at end of year
                              
                              $
                              824,424
                              
                              
                              $
                              683,403





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 2010.




F-31




YANGLIN
SOYBEAN INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008


(Stated
in US Dollars)





14.
            RELATED
      PARTIES TRANSACTIONS





A)
            Loans
      from related parties consist of the following at December
      31:





2009
                        
                        
                        2008(As
      restated)Loans
      from certain employees, interest rates at 7.722% and 9.405% per annum
      respectively, with various installments, due October 28,
      2016
                        
                        $
                        367,867
                        
                        
                        $
                        489,827Current
      portion due within one year
                        
                        
                        (53,676
                        )
                        
                        
                        (55,149
                        )$
                        314,191
                        
                        
                        $
                        434,678





These
loans were obtained and used by Yanglin for working capital. All of the
installments due during 2009 were paid on their due dates.  Interest
expense for the years ended December 31, 2009 and 2008 were $32,355 and $48,327,
respectively.





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 year ended December 31,2010
                        
                        $
                        53,6762011
                        
                        
                        55,2772012
                        
                        
                        46,2332013
                        
                        
                        49,8302014
                        
                        
                        53,709Thereafter
                        
                        
                        109,142Total
                        
                        $
                        367,867


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, our 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, 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 in 2008 and
2009.




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.




F-32




YANGLIN
SOYBEAN INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008


(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 warrantsSeries of warrant
                            
                            12/31/2009
                            
                            
                            12/31/2008
                            
                            
                            Exercise price
                            
                            Contractual term
                            
                            Expiration DateSeries
      A
                            
                            
                            10,000,000
                            
                            
                            
                            10,000,000
                            
                            
                            $
                            2.75
                            
                            5
      years
                            
                            October
      2, 2012Series
      B
                            
                            
                            5,000,000
                            
                            
                            
                            5,000,000
                            
                            
                            $
                            3.50
                            
                            5
      years
                            
                            October
      2, 2012Series
      J
                            
                            
                            0
                            
                            
                            
                            7,801,268
                            
                            
                            $
                            2.37
                            
                            1.5
      years
                            
                            April
      3, 2009Series
      C
                            
                            
                            0
                            
                            
                            
                            7,801,268
                            
                            
                            $
                            3.03
                            
                            5
      years
                            
                            April
      3, 2009Series
      D
                            
                            
                            0
                            
                            
                            
                            3,900,634
                            
                            
                            $
                            3.85
                            
                            5
      years
                            
                            April
      3, 2009Series
      E
                            
                            
                            1,000,000
                            
                            
                            
                            1,000,000
                            
                            
                            $
                            2.58
                            
                            5
      years
                            
                            October
      2, 2012Series
      F
                            
                            
                            500,000
                            
                            
                            
                            500,000
                            
                            
                            $
                            3.01
                            
                            5
      years
                            
                            October
      2, 2012Total
                            
                            
                            16,500,000
                            
                            
                            
                            36,003,170





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





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.





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%.




F-33




YANGLIN
SOYBEAN INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008


(Stated
in US Dollars)





15.
            CONVERTIBLE
      PREFERRED STOCK AND WARRANTS
(Continued)





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%.





The
agreement also provides that if the Company doesn’t 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.




F-34




YANGLIN
SOYBEAN INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008


(Stated
in US Dollars)





15.
            CONVERTIBLE
      PREFERRED STOCK AND WARRANTS
(Continued)





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.





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.
 
 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 amounting to $15,003,941 and decreasing beginning retained
earnings amounting to $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. The Company
recognized $59,477,401 as income from the change in fair value of warrants for
the year ended December 31, 2009.
 
 The
fair value was calculated using the Black-Scholes option pricing model. The
assumptions that were used to calculate fair value as of December 31, 2009 and
December 31, 2008 were as follows:
 
 Investor
      Warrants:
                                
                                12/31/2009
                                
                                12/31/2008Expected
      volatility
                                
                                105%
                                
                                108.1%Risk
      free rate
                                
                                1.7%
                                
                                0.11%-1%Expected
      terms
                                
                                2.76
                                
                                0.25-3.76Expected
      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.


F-35




YANGLIN
SOYBEAN INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008


(Stated
in US Dollars)





15.
            CONVERTIBLE
      PREFERRED STOCK AND WARRANTS
(Continued)





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.





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 December 31, 2009 and
2008.





The
following table summarizes warrant activity for the years ended December 31,
2009 and 2008:





Warrants
                                
                                
                                Weighted-averageexercise price
                                
                                
                                Aggregate IntrinsicValueOutstanding
      at December 31, 2007
                                
                                
                                36,003,170
                                
                                
                                $
                                2.95
                                
                                
                                $
                                55,784,977Issued
                                
                                
                                -
                                
                                
                                
                                -Exercised
                                
                                
                                -
                                
                                
                                
                                -Expired
                                
                                
                                -
                                
                                
                                
                                -Outstanding
      at December 31, 2008
                                
                                
                                36,003,170
                                
                                
                                
                                2.95
                                
                                
                                $
                                55,064,914Issued
                                
                                
                                -
                                
                                
                                
                                -Exercised
                                
                                
                                -
                                
                                
                                
                                -Expired
                                
                                
                                (19,503,170
                                )
                                
                                
                                2.93
                                
                                
                                
                                12,482,029Outstanding
      at December 31, 2009
                                
                                
                                16,500,000
                                
                                
                                $
                                2.97
                                
                                
                                $
                                2,370,000





The terms
of outstanding warrants as of December 31, 2009 are as follows:





Warrants outstanding
                            
                            
                            Warrants exercisableRange ofexercise prices
                            
                            Numberoutstanding
                            
                            
                            Weightedaverageremainingcontractual life(years)
                            
                            
                            Weightedaverageexercise price
                            
                            
                            Numberexercisable
                            
                            
                            Weightedaverageexercise price$2.58-$3.50
                            
                            
                            16,500,000
                            
                            
                            
                            2.76
                            
                            
                            $
                            2.97
                            
                            
                            
                            16,500,000
                            
                            
                            $
                            2.97




F-36




YANGLIN
SOYBEAN INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008


(Stated
in US Dollars)





16.
            STOCK
      OPTIONS




At the
time the Company appointed Mr. Michael Marks as an independent director, the
Company agreed to grant Mr. Marks, 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 year ended December 31, 2009, the Company granted an aggregate of 15,000
options to an independent director in connection with his service in 2009. The
options have exercise price ranges from $2.95-$3.10 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 ofOptions Issued
                                  
                                  ExpectedTerm
                                  
                                  
                                  ExpectedVolatility
                                  
                                  
                                  DividendYield
                                  
                                  
                                  Risk FreeInterest Rate
                                  
                                  
                                  Grant DateFair Value5,000
                                  
                                  5
                                  
                                  
                                  
                                  105
                                  %
                                  
                                  
                                  0
                                  %
                                  
                                  
                                  2.54
                                  %
                                  
                                  $
                                  11,2925,000
                                  
                                  5
                                  
                                  
                                  
                                  105
                                  %
                                  
                                  
                                  0
                                  %
                                  
                                  
                                  2.31
                                  %
                                  
                                  $
                                  11,6465,000
                                  
                                  5
                                  
                                  
                                  
                                  105
                                  %
                                  
                                  
                                  0
                                  %
                                  
                                  
                                  2.69
                                  %
                                  
                                  $
                                  11,11715,000
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  $
                                  34,055





The
following is a summary of the option activity:





Options
                                
                                
                                Weighted-averageexercise price
                                
                                
                                AggregateIntrinsic ValueOutstanding
      at December 31, 2007
                                
                                
                                -
                                
                                
                                $
                                -
                                
                                
                                $
                                -Issued
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -Exercised
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -Expired
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                -Outstanding
      at December 31, 2008
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                $
                                -Issued
                                
                                
                                15,000
                                
                                
                                
                                3.02
                                
                                
                                
                                -Exercised
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -Expired
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -Outstanding
      at December 31, 2009
                                
                                
                                15,000
                                
                                
                                $
                                3.02
                                
                                
                                $
                                -




F-37




YANGLIN
SOYBEAN INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008


(Stated
in US Dollars)





16.
            STOCK
      OPTIONS (Continued)





Following
is a summary of the status of options outstanding at December 31,
2009:





Options
      outstanding
                    
                    
                    Options
      exercisableRange
      ofexerciseprices
                    
                    Numberoutstanding
                    
                    
                    Weightedaverageremainingcontractual
      life
                      (years)
                    
                    
                    Weightedaverageexercise
      price
                    
                    
                    Numberexercisable
                    
                    
                    Weightedaverage exerciseprice$2.95-$3.10
                    
                    
                    15,000
                    
                    
                    
                    4.75
                    
                    
                    $
                    3.02
                    
                    
                    
                    15,000
                    
                    
                    $
                    3.02





For
the year ended December 31, 2009, the Company recognized $34,055 as compensation
expense for the stock options granted to the independent
director.




F-38




YANGLIN
SOYBEAN INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008


(Stated
in US Dollars)





17.
            EARNINGS
      PER SHARE





The
calculation of the basic and diluted earnings per share attributable to the
common stock holders is based on the following data:





2009
                              
                              
                              2008(As
      restated)NumeratorEarnings:Earnings
      for the purpose of basic earnings per share
                              
                              $
                              44,909,588
                              
                              
                              $
                              9,900,466Effect
      of dilutive potential common stock
                              
                              
                              -
                              
                              
                              
                              -Earnings
      for the purpose of dilutive earnings per share
                              
                              $
                              44,909,588
                              
                              
                              $
                              9,900,466DenominatorNumber
      of shares:Weighted
      average number of common stock for the purpose of basic earnings per
      share
                              
                              
                              20,178,404
                              
                              
                              
                              20,000,003Effect
      of dilutive potential common stock - conversion of convertible preferred
      stock
                              
                              
                              9,534,883
                              
                              
                              
                              9,999,999Effect
      of dilutive potential common stock - conversion of
      warrants
                              
                              
                              1,929,093
                              
                              
                              
                              7,757,825Weighted
      average number of common stock for the purpose of dilutive earnings per
      share
                              
                              
                              31,642,380
                              
                              
                              
                              37,757,827




F-39




YANGLIN
SOYBEAN INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008


(Stated
in US Dollars)





18.
            INCOME
      TAXES





(a)
            Corporate
      Income Tax (“CIT”)




The
Company has not recorded a provision for U.S. federal income tax for the year
ended December 31, 2009 due to the cumulative net operating loss in the United
States.





Faith
Winner (BVI) was incorporated in the British Virgin Islands and is not subject
to income taxes under the current laws of the British Virgin
Islands.





WFOE and
Yanglin





On March
16, 2007, the National People’s Congress of China approved the new Corporate
Income Tax Law of the PRC (New CIT Law), which is effective from January 1,
2008.





Prior
to January 1, 2008, the CIT rates applicable to our subsidiaries in the PRC
ranged from 0% to 33%. After January 1, 2008, under the New CIT Law, the
statutory corporate income tax rate applicable to most companies is 25% instead
of the old tax rate of 33%. The tax rate applicable to WFOE and Yanglin is 25%.
Yanglin has been named as a National Key Leading Enterprise in Agriculture and
awarded a tax exemption through 2009 by the PRC central
government.  For year 2009’s tax exemption, a
review by the local tax authority of the PRC is also required.





In
accordance with the New CIT Law, enterprises established under the laws of
foreign countries or regions and whose “place of effective management” is
located within the PRC territory are considered PRC resident enterprises and
subject to the PRC income tax at the rate of 25% on worldwide income. The
definition of “place of effective management” refers to an establishment that
exercises, in substance, overall management and control over the production and
business, personnel, accounting, properties, etc. of an enterprise. As of
December 31, 2009, no detailed interpretation of guidance has been issued to
define “place of effective management”.  Furthermore, as of December
31, 2009, the administrative practice associated with interpreting and applying
the concept of “place of effective management” is unclear. If the Company’s
non-PRC incorporated entities are deemed PRC tax residents, such entities would
be subject to PRC tax under the New CIT Law. The Company has analyzed the
applicability of this law, as of December 31, 2009, and the Company has not
accrued for PRC tax on such basis. The Company will continue to monitor changes
in the interpretation or guidance of this law.





The New
CIT Law also imposes a 10% withholding income tax, subject to reduction based on
tax treaty where applicable, for dividends distributed by a foreign invested
enterprise to its immediate holding company outside China. Such dividends were
exempted from PRC tax under the previous income tax law and regulations. The
foreign investment enterprises are subject to the withholding tax starting
from January 1, 2008.





F-40


YANGLIN
SOYBEAN INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
 (Stated
in US Dollars)
 
 18.
              INCOME
      TAXES (Continued)
 
 Income
before income taxes:
 2009
                          
                          
                          2008(As
      restated)Non-PRC
                          
                          $
                          59,139,490
                          
                          
                          $
                          (4,519,778
                          )PRC
                          
                          
                          (14,229,902
                          )
                          
                          
                          14,420,244Total
                          
                          $
                          44,909,588
                          
                          
                          $
                          9,900,466
 
 There
is no income tax expense for the years ended December 31, 2009 and
2008.
 
 A
reconciliation between the income tax expense computed at the U.S. statutory
rate and the Group’s provision for income tax is as follows:
 2009
                          
                          
                          2008(As
      restated)U.S.
      statutory rate
                          
                          
                          34
                          %
                          
                          
                          (34
                          )%PRC
      Enterprise Income Tax
                          
                          
                          (25
                          )%
                          
                          
                          25
                          %Permanent
      differences
                          
                          
                          (34.16
                          )%
                          
                          
                          -Change
      in valuation allowance
                          
                          
                          25.16
                          %
                          
                          
                          34
                          %Tax
      exemption in PRC
                          
                          
                          -
                          
                          
                          
                          (25
                          )%Provision
      for income tax
                          
                          
                          -
                          
                          
                          
                          -
 
 The tax
effects of temporary differences and loss carry forwards that give rise to
significant portions of deferred tax assets at December 31, 2009 and 2008 were
as follows:
 
 2009
                                        
                                        
                                        2008(As
      restated)Deferred
      tax assetsFixed
      assets
                                        
                                        $
                                        199,857
                                        
                                        
                                        $
                                        31,319Intangible
      assets
                                        
                                        
                                        32,907
                                        
                                        
                                        
                                        -Assets
      held for sale
                                        
                                        
                                        146,258
                                        
                                        
                                        
                                        -Net
      operating loss
                                        
                                        
                                        3,506,634
                                        
                                        
                                        
                                        -Other
                                        
                                        
                                        2,263
                                        
                                        
                                        
                                        -Gross
      deferred tax assets
                                        
                                        
                                        3,887,919
                                        
                                        
                                        
                                        31,319Valuation
      allowance
                                        
                                        
                                        (3,887,919
                                        )
                                        
                                        
                                        (31,319
                                        )Total
      deferred tax assets
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        -
  F-41
  YANGLIN
SOYBEAN INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
 (Stated
in US Dollars)
 
 18.
              INCOME
      TAXES (Continued)
 
 As of
December 31, 2009, the Company intends to permanently reinvest the undistributed
earnings from its foreign subsidiaries to fund future operations. The amount of
unrecognized deferred tax liabilities for temporary differences related to
investments in foreign subsidiaries is not determined because such a
determination is not practicable.
 
 In
assessing the realizability of deferred tax assets, the Company has considered
whether it is more likely than not that some portion of all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. The Company records a
valuation allowance to reduce deferred tax assets to a net amount that
management believes is more-likely-than-not realizable based on the weight of
all available evidence. As of December 31, 2009 and 2008, the Company recorded a
full valuation allowance against the deferred tax assets. The valuation
allowance recognized  was $3,856,600 during 2009.
 
 The Group
has open tax years from year 2006 to 2008 with the U.S. and the PRC taxing
authorities.  As of December 31, 2009, the Group had net operating tax
losses carried forward of $13,908,466, which includes $327,971 and $13,580,495
in the US and PRC, respectively. Those losses carried forward in the US and PRC
will expire between years 2013 and 2029.
 
 (b)
              Uncertain
      Tax Provision
 
 For
the year ended December 31, 2009, there is no unrecognized tax benefit.
Management does not anticipate any potential future adjustments in the next
twelve months which would result in a material change to its financial tax
position.  As of December 31, 2009 and 2008, the Group did not accrue
any interest and penalties.
  F-42
  YANGLIN
SOYBEAN INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
 (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 December 31, 2009 and 2008 balance sheets are
consolidated VIE assets of $81.9 and $82 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 intercompany loans, advances
and cash dividends which consist of additional paid in capital, statutory
reserves and retained earnings of $51,548,050 and $65,744,088 respectively as at
December 31, 2009 and 2008.
 
 The
following tables present unconsolidated financial information of the Company
only:
 
 Balance
Sheets as of December 31, 2009 and 2008
  2009
                                      
                                      
                                      2008(As
      restated)Cash
      – restricted
                                      
                                      $
                                      278,018
                                      
                                      
                                      $
                                      484,000Other
      prepayment
                                      
                                      
                                      1,216
                                      
                                      
                                      
                                      -Investments
      in subsidiaries
                                      
                                      
                                      58,363,646
                                      
                                      
                                      
                                      72,421,357Total
      assets
                                      
                                      $
                                      58,642,880
                                      
                                      
                                      $
                                      72,905,357Other
      current liabilities
                                      
                                      $
                                      132,777
                                      
                                      
                                      $
                                      33,878Warrant
      liabilities
                                      
                                      
                                      27,573,698
                                      
                                      
                                      
                                      -Total
      liabilities
                                      
                                      
                                      27,706,475
                                      
                                      
                                      
                                      33,878Total
      shareholders’ equity
                                      
                                      
                                      30,936,405
                                      
                                      
                                      
                                      72,871,479Total
      liabilities and shareholders’ equity
                                      
                                      $
                                      58,642,880
                                      
                                      
                                      $
                                      72,905,357
  F-43
  YANGLIN
SOYBEAN INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
 (Stated
in US Dollars)
 
 20
              PARENT-ONLY
      FINANCIAL
STATEMENTS (Continued)
 
 Statements
of Operations and Comprehensive Income for the years ended December 31, 2009 and
2008
 
 2009
                      
                      
                      2008(As
      restated)Investment
      (loss) income
                      
                      $
                      (14,057,711
                      )
                      
                      $
                      14,431,754General
      and administrative expenses
                      
                      
                      (351,070
                      )
                      
                      
                      (35,816
                      )(Loss)
      income from operations before income taxes
                      
                      
                      (14,408,781
                      )
                      
                      
                      14,395,938Other
      income (expenses)
                      
                      
                      13,350
                      
                      
                      
                      (4,495,472
                      )Change
      in fair value of warrants
                      
                      
                      59,477,401Income
      before income taxes
                      
                      
                      45,081,970
                      
                      
                      
                      9,900,466Income
      taxes
                      
                      
                      -
                      
                      
                      
                      -Net
      income
                      
                      $
                      45,081,970
                      
                      
                      $
                      9,900,466
  (3) Exhibits
 
 The
exhibits listed on the Exhibit Index (following the signatures section of this
report) are included, or incorporated by reference, in this annual
report.
  F-44
 
 SIGNATURES
 
 In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
 
 YANGLIN
      SOYBEAN, INC.(Registrant)Dated: April
      15, 2010
                  
                  /s/Shulin
    LiuShulin
      LiuChief
      Executive Officer,Chairman
      of the Board
 
 In
accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
 
 Signature
                                  
                                  Title
                                  
                                  Date/s/
      Shulin Liu
                                  
                                  
                                  Chief
      Executive Officer,
                                  
                                  April
      15, 2010Shulin
      Liu
                                  
                                  
                                  Chairman
      of the Board/s/
      Shaocheng Xu
                                  
                                  
                                  Chief
      Financial Officer
                                  
                                  April
      15, 2010Shaocheng
      Xu/s/  Xiao
      Feng
                                  
                                  
                                  Director
                                  
                                  April
      15, 2010Xiao
      Feng/s/
      Zongtai Guo
                                  
                                  
                                  Director
                                  
                                  April
      15, 2010Zongtai
      Guo/s/  Michael
      Marks
                                  
                                  
                                  Director
                                  
                                  April
      15, 2010Michael
      Marks/s/
      Albert
      McLelland
                                  
                                  
                                  Director
                                  
                                  April
      15, 2010Albert
      McLelland
  52
  EXHIBIT
INDEX
 
 3.1
                
                Amended
      and Restated Articles of Incorporation incorporated by reference to the
      exhibit of the same number to our registration statement on Form S-1 filed
      with the SEC on June 12, 2009.3.2
                
                Restated
      Articles of Incorporation incorporated by reference to the exhibit of the
      same number to our registration statement on Form S-1 filed with the SEC
      on May 12, 2008.3.3
                
                Specimen
      of Common Stock certificate incorporated by reference to the exhibit of
      the same number to our report on Form 8-k filed with the SEC on October
      10, 2007.3.4
                
                Certificate
      of Designations authorizing the Series A Convertible Preferred Stock
      incorporated by reference to the exhibit of the same number to our report
      on Form 8-k filed with the SEC on October 10, 2007.3.5
                
                Certificate
      of Designations authorizing the Series B Convertible Preferred Stock
      incorporated by reference to the exhibit of the same number to our report
      on Form 8-k filed with the SEC on October 10, 2007.4.1
                
                Form
      of Series A Warrant incorporated by reference to the exhibit of the same
      number to our report on Form 8-k filed with the SEC on October 10,
      2007.4.2
                
                Form
      of Series B Warrant incorporated by reference to the exhibit of the same
      number to our report on Form 8-k filed with the SEC on October 10,
      2007.4.3
                
                Form
      of Series J Warrant incorporated by reference to the exhibit of the same
      number to our report on Form 8-k filed with the SEC on October 10,
      2007.4.4
                
                Form
      of Series C Warrant incorporated by reference to the exhibit of the same
      number to our report on Form 8-k filed with the SEC on October 10,
      2007.4.5
                
                Form
      of Series D Warrant incorporated by reference to the exhibit of the same
      number to our report on Form 8-k filed with the SEC on October 10,
      2007.4.6
                
                Form
      of Series E Warrant issued to Kuhns Brothers, Inc. incorporated by
      reference to the exhibit of the same number to our report on Form 8-k
      filed with the SEC on October 10, 2007.4.7
                
                Form
      of Series F Warrant issued to Mass Harmony Asset Management Limited
      incorporated by reference to the exhibit of the same number to our report
      on Form 8-k filed with the SEC on October 10, 2007.4.8
                
                Registration
      Rights Agreement dated October 3, 2007, by and among the Company and the
      Purchasers, incorporated by reference to the exhibit of the same number to
      our report on Form 8-k filed with the SEC on October 10,
    2007.4.9
                
                Series
      J Registration Rights Agreement dated October 3, 2007, by and among the
      Company, Vision Opportunity Master Fund Ltd., Sansar Capital Special
      Opportunity Master Fund, LP (Cayman Master) and Vicis Capital Master Fund,
      incorporated by reference to the exhibit of the same number to our report
      on Form 8-k filed with the SEC on October 10,
  2007.
  53
 
 4.10
                
                Lock-Up
      Agreement, dated as of October 3, 2007, by and among the Company and
      Winner State (BVI), incorporated by reference to the exhibit of the same
      number to our report on Form 8-k filed with the SEC on October 10,
      2007.4.11
                
                Share
      Exchange Agreement, dated as of October 3, 2007 between the Company,
      Winner State (BVI), Fang Chen, Yang Miao and Ying Zhang, incorporated by
      reference to the exhibit of the 10.1 to our report on Form 8-k filed with
      the SEC on October 10, 2007.4.12
                
                Series
      A Convertible Preferred Stock Purchase Agreement, dated as of October 3,
      2007 between the Company and the Purchasers, incorporated by reference to
      the exhibit of 10.2 to our report on Form 8-k filed with the SEC on
      October 10, 2007.4.13
                
                Securities
      Escrow Agreement, dated October 3, 2007, by and between the Company,
      Vision Opportunity Master Fund, Ltd as representative of the Purchasers,
      Winner State (BVI) and Loeb & Loeb LLP, as escrow agent, incorporated
      by reference to the exhibit of 10.3 to our report on Form 8-k filed with
      the SEC on October 10, 2007.4.14
                
                Investor
      and Public Relations Escrow Agreement dated October 3, 2007, by and
      between the Company, Vision Opportunity Master Fund, Ltd. and Loeb &
      Loeb LLP, as escrow agent incorporated by reference to the exhibit of the
      same number to our registration statement on Form S-1 filed with the SEC
      on May 12, 2008.10.1
                
                Consulting
      Agreement, dated as of October 3, 2007, by and among the Company and Glenn
      A. Little, incorporated by reference to the exhibit of 10.4 to our report
      on Form 8-k filed with the SEC on October 10, 2007.10.2
                
                Engagement
      Letter Agreement, dated December 12, 2006, by and between Yanglin and
      Kuhns Brothers, Inc, incorporated by reference to the exhibit of 10.5 to
      our report on Form 8-k filed with the SEC on October 10,
    2007.10.3
                
                Mass
      Harmony Financial Consulting Agreement (MHA Agreement), dated November 2,
      2006 by and between Yanglin and Mass Harmony Asset Management Limited,
      incorporated by reference to the exhibit of 10.6 to our report on Form 8-k
      filed with the SEC on October 10, 2007.10.4
                
                The
      Consignment Agreements, dated as of September 1, 2007, incorporated by
      reference to the exhibit of 10.7 to our report on Form 8-k filed with the
      SEC on October 10, 2007.10.5
                
                Exclusive
      Purchase Option Agreement, dated as of September 24, 2007, incorporated by
      reference to the exhibit of 10.8 to our report on Form 8-k filed with the
      SEC on October 10, 2007.10.6
                
                Registered
      Trademark Transfer Agreement, dated as of September 24, 2007, incorporated
      by reference to the exhibit of 10.9 to our report on Form 8-k filed with
      the SEC on October 10, 2007.10.7
                
                Trademark
      Licensing Agreement, dated as of September 24, 2007, incorporated by
      reference to the exhibit of 10.10 to our report on Form 8-k filed with the
      SEC on October 10, 2007.10.8
                
                Consigned
      Management Agreement, dated as of September 24, 2007, incorporated by
      reference to the exhibit of 10.11 to our report on Form 8-k filed with the
      SEC on October 10, 2007.10.9
                
                Loan
      Agreement, dated as of September 24, 2007, incorporated by reference to
      the exhibit of 10.12 to our report on Form 8-k filed with the SEC on
      October 10, 2007.
  54
 
 10.10
                
                Form
      of soybean purchase contract incorporated by reference to the same number
      to our report on Form 10-k filed with the SEC on March 31,
      200810.11
                
                Form
      of sales contract for soybean product incorporated by reference to the
      same number to our report on Form 10-k filed with the SEC on March 31,
      200810.12
                
                Employment
      Contract-Shulin Liu as of Sept. 24, 2007 incorporated by reference to the
      same number to our report on Form 10-k filed with the SEC on March 31,
      2008.10.13
                
                Employment
      Contract-Shaocheng Xu as of Sept. 24, 2007 incorporated by reference to
      the same number to our report on Form 10-k filed with the SEC on March 31,
      2008.10.14
                
                Employment
      Contract-Zongtai Guo as of Sept. 24, 2007 incorporated by reference to the
      same number to our report on Form 10-k filed with the SEC on March 31,
      2008.10.15
                
                Approval
      of Credit Line from The PRC Agricultural Development Bank  dated
      October 18, 2008 incorporated by reference to exhibit 10.15 to our
      Registration Statement on Form S-1 (Amendment No. 4, file No. 333-150822)
      filed with the SEC on February 17, 2009.10.16
                
                English
      Translation of Consulting Agreement dated Nov. 2, 2006 between the Company
      and Mass Harmony Management Ltd incorporated by reference to the exhibit
      10.15 to our registration statement on Form S-1 filed with the SEC on May
      12, 2008.10.17
                
                Agreement
      dated December 31, 2008 by and among the Company and the Holders
      incorporated by reference to Exhibit 10.1 of our Current Report on Form
      8-K filed with the Securities and Exchange Commission on February 10,
      2009.10.18
                
                English
      Translation of Credit Line Approval Document incorporated by reference to
      the exhibit 10.17 to our registration statement on Form S-1 filed with the
      SEC on May 12, 2008.10.19
                
                Approval
      of Credit Line from China Agricultural Development Bank  dated
      October 18, 2008 incorporated by reference to exhibit 10.15 to our
      Registration Statement on Form S-1 (Amendment No. 4, file No. 333-150822)
      filed with the SEC on February 17, 2009.10.20
                
                Agreement
      among the Company and Vision Opportunity Master Fund, Ltd. and certain
      other investors dated December 31, 2008  incorporated by
      reference to exhibit 10.1 to our report on Form 8-K filed with the SEC on
      February 10, 2009.10.21
                
                Waiver
      and Release among the Company and Vision Opportunity Master Fund, Ltd. and
      certain other investors dated December 31, 2008 incorporated by reference
      to exhibit 10.2 to our report on Form 8-K filed with the SEC on February
      10, 2009.10.22
                
                Amendment
      to Exclusive Purchase Option Agreement, dated as of April 3, 2009
      incorporated by reference to Form 10-K filed with the SEC on April 13,
      2009.10.23
                
                Amendment
      to Consigned Management Agreement, dated as of April 3, 2009 incorporated
      by reference to Form 10-K filed with the SEC on April 13,
      2009.14
                
                Code
      of Business Conduct and Ethics incorporated by reference to the exhibit of
      14.1 to our report on Form 8-k filed with the SEC on March 12,
      2009.16.1
                
                Letter
      from the Company to Hatfield, incorporated by reference to the exhibit of
      the same number to our report on Form 8-k filed with the SEC on October
      10, 2007.16.2
                
                Letter
      from Hatfield to the SEC, incorporated by reference to the exhibit of the
      same number to our report on Form 8-k filed with the SEC on October 10,
      2007.16.3
                
                Letter
      of Samuel H. Wong & Company, LLP, dated February 26, 2008,
      incorporated by reference to the exhibit of 16.1 to our report on Form
      8-k/A filed with the SEC on February 28, 2008.16.4
                
                Letter
      of Samuel H. Wong & Company, LLP, dated March 17, 2008, incorporated
      by reference to the exhibit of 16.1 to our report on Form 8-k/A filed with
      the SEC on March 28, 2008.21.1
                
                List
      of Subsidiaries incorporated by reference to the exhibit of same number to
      our report on Form 8-k filed with the SEC on October 10,
    2007.31.1*
                
                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
  2002.32.1*
                
                Certification
      Pursuant to 18 U.S.C. Section 1350, as Adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002.32.2*
                
                Certification
      Pursuant to 18 U.S.C. Section 1350, as Adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002.*
                
                Filed
      herewith.
  55