UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 WASHINGTON,
D.C. 20549
  FORM
10-Q
  (Mark
One)
  x
                  Quarterly
      report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934For
      the quarterly period ended March 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 000-51200
  Yongye Biotechnology
International, Inc..
 (Exact
Name of Small Business Issuer as Specified in Its Charter)
  
 Nevada(State
      or other Jurisdiction of
                          Incorporation
      or Organization)
                        20-8051010
                          (I.R.S.
      Employer
                          Identification
      No.)6th
      Floor, Suite 608,
Xue Yuan International Tower,
                          No. 1 Zhichun Road, Haidan District Beijing,
      PRC
                          (Address
      of Principal Executive Office)(Former
      address of Principal Executive Office, if changed since last
      report)
 +86 10 8231
8626
 (Issuer’s
Telephone Number, Including Area Code)
  Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes x No

  Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
   Large
      accelerated filer o
                  Accelerated
      filer oNon-accelerated
      filer o 
      (Do not check if a smaller reporting company)
                  Smaller
      reporting company x
 Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files).*  Yes   No   *The
registrant has not yet been phased into the interactive data
requirements.
  
 
  Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes  oNo x
  As of May
7, 2009, 28,058,960 shares of common stock, par value $.001 per share, were
issued and outstanding.
  
 PagePart
      I: Financial Information:Item
      1 -Financial StatementsConsolidated
      Balance Sheets
                      1Consolidated
      Statements of Income and Comprehensive Income
                      2Consolidated
      Statements of Cash Flows
                      3Notes
      to Consolidated Financial Statements
                      4Item
      2 - Management’s Discussion and Analysis of Financial Condition and
      Results of Operations
                      14Item
      3 – Quantitative and Qualitative Disclosures about Market
    Risk
                      21Item
      4 - Controls and Procedures
                      21Item
      4T – Controls and Procedures
                      21Part
      II. Other InformationItem
      1 - Legal Proceedings
                      22Item
      1A – Risk Factors
                      22Item
      2 - Unregistered Sales of Equity Securities and Use of
      Proceeds
                      22Item
      3 - Defaults Upon Senior Securities
                      22Item
      4 - Submission of Matters to a Vote of Security Holders
                      22Item
      5 - Other Information
                      22Item
      6 – Exhibits
                      22Signatures
                      23
 
 
 
 Item
1- Financial Statements
 
 ﻿ YONGYE
BIOTECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARIES
  CONSOLIDATED
BALANCE SHEETS
  March
      31, 2009
                                            
                                            
                                            December
      31, 2008(Unaudited)CURRENT
      ASSETSCash
      and cash equivalents
                                            
                                            $
                                            1,424,268
                                            
                                            
                                            $
                                            4,477,477Accounts
      receivable, net
                                            
                                            
                                            6,128,346
                                            
                                            
                                            
                                            2,748,042Inventories
                                            
                                            
                                            22,201,250
                                            
                                            
                                            
                                            20,708,193Advance
      payments
                                            
                                            
                                            62,937
                                            
                                            
                                            
                                            44,051Due
      from related party
                                            
                                            
                                            274,758
                                            
                                            
                                            
                                            192,741Prepaid
      expenses
                                            
                                            
                                            91,968
                                            
                                            
                                            
                                            189,478Other
      receivables
                                            
                                            
                                            256,554
                                            
                                            
                                            
                                            680,752Total
      Current Assets
                                            
                                            
                                            30,440,081
                                            
                                            
                                            
                                            29,040,734PROPERTY
      AND EQUIPMENT, NET
                                            
                                            
                                            6,717,213
                                            
                                            
                                            
                                            5,368,074INTANGIBLE
      ASSETS, NET
                                            
                                            
                                            92,918
                                            
                                            
                                            
                                            95,453TOTAL
      ASSETS
                                            
                                            $
                                            37,250,212
                                            
                                            
                                            $
                                            34,504,261CURRENT
      LIABILITIESLong-term
      loans- current portion
                                            
                                            $
                                            166,448
                                            
                                            
                                            $
                                            167,652Accounts
      payable- related party
                                            
                                            
                                            90,169
                                            
                                            
                                            
                                            46,739Taxes
      payable
                                            
                                            
                                            508,262
                                            
                                            
                                            
                                            366,981Advance
      from customers
                                            
                                            
                                            82,037
                                            
                                            
                                            
                                            1,869,400Accrued
      expenses
                                            
                                            
                                            1,636,175
                                            
                                            
                                            
                                            583,880Other
      payables
                                            
                                            
                                            697,806
                                            
                                            
                                            
                                            626,911Total
      Current Liabilities
                                            
                                            
                                            3,180,897
                                            
                                            
                                            
                                            3,661,563LONG-TERM
      LOANS
                                            
                                            
                                            291,498
                                            
                                            
                                            
                                            230,121STOCKHOLDERS'
      EQUITYCapital
      stock: par value $.001;
                                              75,000,000
      shares authorized; 26,760,258 shares issued and outstanding at March 31,
      2009 and December 31, 2008
                                            
                                            
                                            26,760
                                            
                                            
                                            
                                            26,760Additional
      paid-in capital- Common stock
                                            
                                            
                                            13,976,900
                                            
                                            
                                            
                                            13,976,900Additional
      paid-in capital- Warrants
                                            
                                            
                                            3,883,432
                                            
                                            
                                            
                                            3,883,432Retained
      earnings
                                            
                                            
                                            12,801,489
                                            
                                            
                                            
                                            9,984,085Statutory
      reserve
                                            
                                            
                                            1,489,281
                                            
                                            
                                            
                                            1,207,912Accumulated
      other comprehensive income
                                            
                                            
                                            379,045
                                            
                                            
                                            
                                            331,100Total
      Stockholders' Equity
                                            
                                            
                                            32,556,907
                                            
                                            
                                            
                                            29,410,189Noncontrolling
      interest
                                            
                                            
                                            1,220,910
                                            
                                            
                                            
                                            1,202,388Total
      Equity
                                            
                                            
                                            33,777,817
                                            
                                            
                                            
                                            30,612,577TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY
                                            
                                            $
                                            37,250,212
                                            
                                            
                                            $
                                            34,504,261
 The
accompanying notes are an integral part of these consolidated financial
statements.
  1
  YONGYE
BIOTECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
  Yongye
      Biotechnology
                                                    International,
      Inc.
                                                    and
      Subsidiaries
                                                    For
      the Three Months Ended
                                                    March
      31, 2009
                                                  
                                                  
                                                  Yongye
                                                    Nongfeng
                                                    For
      the Three Months Ended
                                                    March
      31, 2008(Unaudited)
                                                  
                                                  
                                                  (Unaudited)SALES
                                                  
                                                  $
                                                  12,435,775
                                                  
                                                  
                                                  $
                                                  9,528,055COST
      OF SALES
                                                  
                                                  
                                                  5,902,607
                                                  
                                                  
                                                  
                                                  4,484,261GROSS
      PROFIT
                                                  
                                                  
                                                  6,533,168
                                                  
                                                  
                                                  
                                                  5,043,794SELLING
      EXPENSES
                                                  
                                                  
                                                  2,620,298
                                                  
                                                  
                                                  
                                                  3,192,797RESEARCH
      & DEVELOPMENT EXPENSES
                                                  
                                                  
                                                  288,572
                                                  
                                                  
                                                  
                                                  -GENERAL
      AND ADMINISTRATIVE EXPENSES
                                                  
                                                  
                                                  345,157
                                                  
                                                  
                                                  
                                                  357,192INCOME
      FROM OPERATIONS
                                                  
                                                  
                                                  3,279,141
                                                  
                                                  
                                                  
                                                  1,493,805OTHER
      EXPENSESInterest
      expenses
                                                  
                                                  
                                                  5,958
                                                  
                                                  
                                                  
                                                  -Other
      expenses
                                                  
                                                  
                                                  441
                                                  
                                                  
                                                  
                                                  97TOTAL
      OTHER EXPENSES
                                                  
                                                  
                                                  6,399
                                                  
                                                  
                                                  
                                                  97INCOME
      BEFORE PROVISION FOR INCOME TAXES AND NONCONTROLLING
    INTEREST
                                                  
                                                  
                                                  3,272,742
                                                  
                                                  
                                                  
                                                  1,493,708PROVISION
      FOR INCOME TAXES
                                                  
                                                  
                                                  155,447
                                                  
                                                  
                                                  
                                                  373,427NET
      INCOME
                                                  
                                                  
                                                  3,117,295
                                                  
                                                  
                                                  
                                                  1,120,281LESS:
      NET INCOME ATTRIBUTABLE TO THE NONCONTROLLING INTERST
                                                  
                                                  
                                                  18,522
                                                  
                                                  
                                                  
                                                  -NET
      INCOME ATTRIBUTABLE TO YONGYE BIOTECHNOLOGY INTERNATIONAL,
      INC.
                                                  
                                                  
                                                  3,098,773
                                                  
                                                  
                                                  
                                                  1,120,281OTHER
      COMPREHENSIVE INCOME
                                                    Foreign
      Currency Translation Adjustment
                                                  
                                                  
                                                  47,945
                                                  
                                                  
                                                  
                                                  30,531COMPREHENSIVE
      INCOME
                                                  
                                                  $
                                                  3,146,718
                                                  
                                                  
                                                  $
                                                  1,150,812Net
      income per share:Basic
                                                  
                                                  $
                                                  0.14
                                                  
                                                  
                                                  $
                                                  0.10Diluted
                                                  
                                                  $
                                                  0.14
                                                  
                                                  
                                                  $
                                                  0.10Weighted
      average shares used in computation:Basic
                                                  
                                                  
                                                  22,760,258
                                                  
                                                  
                                                  
                                                  11,444,755Diluted
                                                  
                                                  
                                                  22,760,258
                                                  
                                                  
                                                  
                                                  11,444,755
  The
accompanying notes are an integral part of these consolidated financial
statements.﻿
  2
  YONGYE
BIOTECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
  Yongye
      BiotechnologyInternational, Inc.And
      SubsidiariesFor the Three Months Ended
                                      
                                      
                                      YongyeNongfengFor
      the Three Months EndedMarch
      31, 2009
                                      
                                      
                                      March
      31, 2008(Unaudited)
                                      
                                      
                                      (Unaudited)CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      income
                                      
                                      $
                                      3,098,773
                                      
                                      
                                      $
                                      1,120,281Adjustments
      to reconcile net income to net cash (used in)/provided by operating
      activitiesDepreciation
      and amortization
                                      
                                      
                                      107,236
                                      
                                      
                                      
                                      42,784Reversal
      of bad debt provision
                                      
                                      
                                      (73,701
                                      )
                                      
                                      
                                      -Net
      income attributable to the noncontrolling interest
                                      
                                      
                                      18,522
                                      
                                      
                                      
                                      -Changes
      in assets and liabilities:Accounts
      receivable
                                      
                                      
                                      (3,302,662
                                      )
                                      
                                      
                                      (7,200,057
                                      )Inventories
                                      
                                      
                                      (1,466,830
                                      )
                                      
                                      
                                      (4,556,216
                                      )Advances
      payments
                                      
                                      
                                      (18,828
                                      )
                                      
                                      
                                      -Due
      from related party
                                      
                                      
                                      (72,763
                                      )
                                      
                                      
                                      138,693Prepaid
      expense
                                      
                                      
                                      97,734
                                      
                                      
                                      
                                      -Other
      receivables
                                      
                                      
                                      424,992
                                      
                                      
                                      
                                      (86,738
                                      )Accounts
      payable- related party
                                      
                                      
                                      43,366
                                      
                                      
                                      
                                      6,967,770Taxes
      payable
                                      
                                      
                                      140,799
                                      
                                      
                                      
                                      381,255Advance
      from customers
                                      
                                      
                                      (1,789,453
                                      )
                                      
                                      
                                      80Accrued
      expenses
                                      
                                      
                                      1,051,410
                                      
                                      
                                      
                                      3,371,935Other
      payables
                                      
                                      
                                      70,298
                                      
                                      
                                      
                                      14,853Total
      Adjustments
                                      
                                      
                                      (4,769,880
                                      )
                                      
                                      
                                      (925,641
                                      )Net
      Cash (Used in)/Provided by Operating Activities
                                      
                                      
                                      (1,671,107
                                      )
                                      
                                      
                                      194,640CASH
      FLOWS FROM INVESTING ACTIVITIESAcquisition
      of property and equipment
                                      
                                      
                                      (1,446,782
                                      )
                                      
                                      
                                      (213,919
                                      )Net
      Cash Used in Investing Activities
                                      
                                      
                                      (1,446,782
                                      )
                                      
                                      
                                      (213,919
                                      )CASH
      FLOWS FROM FINANCING ACTIVITIESProceeds
      from bank loans
                                      
                                      
                                      89,534
                                      
                                      
                                      
                                      -Repayment
      of bank loans
                                      
                                      
                                      (29,870
                                      )
                                      
                                      
                                      -Proceeds
      from share capital
                                      
                                      
                                      -
                                      
                                      
                                      
                                      150,000Net
      Cash Provided by Financing Activities
                                      
                                      
                                      59,664
                                      
                                      
                                      
                                      150,000EFFECT
      OF FOREIGN CURRENCY TRANSLATION ON CASH
                                      
                                      
                                      5,016
                                      
                                      
                                      
                                      26,858NET
      (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS
                                      
                                      
                                      (3,053,209
                                      )
                                      
                                      
                                      157,579CASH
      AND CASH EQUIVALENTS – BEGINNING
                                      
                                      
                                      4,477,477
                                      
                                      
                                      
                                      -CASH
      AND CASH EQUIVALENTS - ENDING
                                      
                                      $
                                      1,424,268
                                      
                                      
                                      $
                                      157,579Supplemental
      cash flow information:Cash
      paid for income taxes
                                      
                                      
                                      22,464
                                      
                                      
                                      
                                      -Cash
      paid for interest expense payment
                                      
                                      
                                      9,833
                                      
                                      
                                      
                                      -Noncash
      investing and financing activities:During
      the three months ended March 31, 2008, the minority shareholder of Yongye
      Nongfeng contributed a patent valued at $100,000 to that
      company.
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
  3
  YONGYE
BIOTECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARIES
  NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
  MARCH 31,
2009 AND 2008
  
  NOTE 1
-ORGANIZATION AND DESCRIPTION OF BUSINESS
  Organization
  Yongye
Biotechnology International, Inc. (the “Company”, formerly
known as “Golden Tan, Inc.”) was incorporated in the State of Nevada on December
12, 2006. On April 17, 2008, Yongye Biotechnology International, Inc. entered
into a Share Exchange Agreement (the “Exchange Agreement”) with Fullmax Pacific
Limited, a company organized on May 23, 2007 under the laws of the British
Virgin Islands (“Fullmax”), the shareholders of Fullmax (the “Shareholders”),
who together own shares constituting 100% of the issued and outstanding ordinary
shares of Fullmax (the “Fullmax Shares”), and the Company’s then principal
shareholder. Pursuant to the terms of the Exchange Agreement, the Shareholders
transferred to the Company all of the Fullmax Shares in exchange for the
issuance of 11,444,755 (the “Shares”) shares of our Common Stock (the “Share
Exchange”). As a result of the Share Exchange, Fullmax became our wholly-owned
subsidiary and the Shareholders acquired approximately 84.7% of our issued and
outstanding Common Stock. The transaction is accounted for as a reverse
acquisition with a public shell.
  The
consolidated balance sheet as of March 31, 2009 and the consolidated statements
of income and comprehensive income and cash flows for the three months ended
March 31, 2009 includes Yongye Biotechnology International, Inc., Fullmax
Limited, Asia Standard Oil Limited (“ASO”, subsidiary of
Fullmax) and Yongye Nongfeng Biotechnology Co. Ltd (“Yongye Nongfeng”,
subsidiary of ASO). The historical financial statements prior to April 17, 2008
are solely those of Yongye Nongfeng Biotechnology Co., Ltd.
  Business
  The
Company, through its subsidiary Yongye Nongfeng, is engaged in the sales of
fulvic acid based liquid and powder nutrient compounds used in the agriculture
industry. Based on industry research and government testing, the Company’s
proprietary technology for fulvic acid extraction creates fulvic acid and this
is the base material for the plant and animal nutrients on the market in the
People’s Republic of China (“PRC”). Yongye Nongfeng’s contractual relationship
with the predecessor company Inner Mongolia Yongye Biotechnology Co., Ltd. (the
“Predecessor”,  “Inner Mongolia
Yongye” or “contract
manufacturer”) is established so that the Predecessor conducts the
manufacturing process and provides Yongye Nongfeng fulvic acid final product,
which will allow Yongye Nongfeng to provide product to the
customers.
 
 The
Predecessor Company
 
 The
Predecessor was formed on September 16, 2003, under PRC law. Its primary
business is to research, manufacture, and sell biological products for use in
plants and animal growth. The Company is located in the City of Hohhot, Inner
Mongolia Autonomous Region, PRC. Yongye Nongfeng Biotechnology Co., Ltd. was
incorporated on January 4, 2008, under the corporate laws of the PRC by Inner
Mongolia Yongye and ASO, a Hong Kong based company. Inner Mongolia Yongye was a
10% owner of Yongye Nongfeng and ASO 90% pursuant to a Sino-Foreign Cooperative
Joint Venture Contract (the “Contract”). In May
2008, the Contract was revised that Inner Mongolia Yongye is a 0.5% owner of
Yongye Nongfeng and ASO 99.5%. The terms of the Contract provide that the
purpose of the Company is the promotion and sales of Inner Mongolia Yongye’s
products. All of the Yongye Nongfeng’s products will be purchased from Inner
Mongolia Yongye. The term of the contract is for ten years and may be extended
by written application submitted to the Approval Authority for approval no less
than six (6) months prior to the expiration of the term. However, Asia Standard
Oil, Ltd didn’t fully pay the contractual registered capital into Yongye
Nongfeng. Based upon actual capital injection into the CJV, Inner Mongolia
Yongye is a 0.6% owner of Yongye Nongfeng Biotechnology and Asia Standard Oil,
Ltd. is a 99.4% owner.
 
 4
  NOTE 2
-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
  PRINCIPLES
OF CONSOLIDATION AND BASIS OF PRESENTATION
  The
accompanying consolidated financial statements of the Company have been prepared
in accordance with generally accepted accounting principles in the United States
of America (“GAAP”) and include the financial statements of the Company and its
majority-owned subsidiaries. All significant intercompany transactions and
balances are eliminated on consolidation.
 
 The
accompanying unaudited consolidated financial statements as of March 31,
2009  and for the three months ended March 31, 2009 and 2008 have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 8-03 of
Regulation S-X applicable to smaller reporting companies. In the opinion of
management, these unaudited consolidated interim financial statements include
all adjustments considered necessary to ensure the financial statements are not
misleading. The results of operations for the three months ended March 31, 2009
are not necessarily indicative of the results for the full fiscal year ending
December 31, 2009. The unaudited consolidated interim financial statements
should be read in conjunction with the Company's audited and consolidated
financial statements and notes thereto for the year ended December 31,
2008.
 
 USE OF
ESTIMATES
  The
preparation of financial statements in conformity with GAAP requires management
to make estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues, expenses, and related disclosures at the date of the
financial statements and during the reporting period. Actual results could
differ from those estimates.
  CASH AND
CASH EQUIVALENTS
  In
accordance with Statement of Financial Accounting Standards ("SFAS") No. 95,
“Statement of Cash Flows,” the Company and the Predecessor considers all highly
liquid instruments with original maturities of three months or less to be cash
and cash equivalents.
  ACCOUNTS
RECEIVABLE AND BAD DEBT ALLOWANCE
  The
Company performs certain credit evaluation procedures and does not require
collateral for financial instruments which are subject to credit risk. The
Company believes that credit risk is limited because the Company routinely
assesses the financial strength of its customers and, based upon factors
surrounding their credit risk, establishes an allowance for uncollectible
accounts receivable. As a consequence, the Company believes that its accounts
receivable credit risk exposure beyond such allowances is limited. The Company
recognizes an allowance for doubtful accounts to ensure accounts receivable are
not overstated due to uncollectability and these accounts are maintained for all
customers based on a variety of factors, including the length of time the
receivables are past due, significant one-time events and historical experience.
Based on the age of the receivables, the Company reserves 10% of accounts
receivable balances that have been outstanding for more than 6 months but less
than one year, 20% of accounts receivable balances that have been outstanding
between one year and two years, 50% of receivable balances that have been
outstanding between two year and three years, and 100% of receivable balances
that have been outstanding for more than three years. An additional reserve for
individual accounts is recorded when the Company becomes aware of a customer's
inability to meet its financial obligation, such as in the case of bankruptcy
filings or deterioration in the customer's operating results or financial
position. If circumstances related to customers change, estimates of the
recoverability of receivables will be further adjusted.
  INVENTORY
  Inventory
is stated at the lower of weighted average cost, which takes into account
historical prices on a continuing basis, or market. Cost is determined by the
weighted average method. Provision for diminution in value on inventories is
made using the specific identification method.
  PROPERTY
AND EQUIPMENT
  Property
and equipment other than leasehold improvements are stated at cost and
depreciated using the straight-line method over the estimated useful lives of
the assets. Leasehold improvements are stated at cost and depreciated using the
straight-line method over the estimated useful life or lease period, whichever
is shorter. Estimated useful lives are as follows:
  5
  Estimated Useful LifeBuildings
      and structures
                          30
      yearsOffice
      equipment and furniture
                          5
      yearsMachinery
      and equipment
                          10
      yearsVehicles
                          10
      yearsSoftware
                          10
      yearsLeasehold
      improvements
                          3
      years
 
 REVENUE
RECOGNITION
  Revenue
from product sales is recognized when title has been transferred, which is
generally at the time of the customer’s receipt of product when the risks and
rewards of ownership have been transferred to the customer, the sales price is
fixed and determinable, and the collection of the related receivable is
probable. The Company reports revenue net of value added taxes if
applicable.
  ADVERTISING
COSTS
 
 Advertising
costs are expensed as incurred. Advertising costs for the three months ended
March 31, 2009 and 2008 were $1,902,351 and $ 1,560,835,
respectively.
 
 RESEARCH
AND DEVELOPMENT COSTS
  Research
and development costs are expensed as incurred. Research and development costs
for the three months ended March 31, 2009 and 2008 were $288,572 and $0,
respectively.
 
 IMPAIRMENT
OF LONG-LIVED ASSETS
  The
Company follows SFAS No. 144, “Accounting for the Impairment or Disposal of
Long-Lived Assets” (“SFAS 144”), which addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. Per SFAS 144, the
Company is required to periodically evaluate the carrying value of long-lived
assets and to record an impairment loss when indicators of impairment are
present and the undiscounted cash flows estimated to be generated by those
assets are less than the asset’s carrying amounts.
  In that
event, a loss is recognized based on the amount by which the carrying amount
exceeds the fair market value of the long-lived assets. Loss on long-lived
assets to be disposed of is determined in a similar manner, except that fair
market values are reduced for the cost of disposal. Based on its review, the
Company concluded that as of March 31, 2009 and December 31, 2008 there were no
significant impairments of their long-lived assets.
  INCOME
TAXES
  Deferred
income taxes are computed using the asset and liability method, such that
deferred tax assets and liabilities are recognized for the expected future tax
consequences of temporary differences between financial reporting amounts and
the tax bases of existing assets and liabilities based on currently enacted tax
laws and tax rates in effect in the PRC for the periods in which the differences
are expected to reverse. Income tax expense is the tax payable for the period
plus the change during the period in deferred income taxes.
  A
valuation allowance is provided when it is more likely than not that some
portion or all of the deferred tax assets will not be realized. No material
differences were noted between the book and tax bases of the Company assets and
liabilities, respectively, therefore, there are no deferred tax assets or
liabilities as of March 31, 2009 and December 31, 2008. Yongye Nongfeng is
subject to PRC Enterprise Income Tax at a rate of 25% of net income from its
foundation on January 4, 2008 to March 31, 2008, and 1.25% of gross revenue
since April 1, 2008.
  FOREIGN
CURRENCY TRANSLATION AND TRANSACTIONS
  6
 The
financial position and results of operations of the Company’s Chinese
subsidiaries are determined using the local currency (Chinese Yuan) as the
functional currency, while the reporting currency is the US dollar. Assets and
liabilities of the subsidiaries are translated at the prevailing exchange rate
in effect at each period end. Contributed capital accounts are translated using
the historical rate of exchange when capital is injected. Income statement
accounts are translated at the average rate of exchange during the period.
Translation adjustments arising from the use of different exchange rates from
period to period are included in the cumulative translation adjustment account
in shareholders’ equity. Gains and losses resulting from foreign currency
transactions denominated in other than the functional currency are included in
operations as incurred. Such gains and losses were immaterial for the three
months ended March 31, 2009 and 2008.
  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 Company because it has not engaged in any
significant transactions that are subject to the restrictions.
 
 FAIR
VALUE OF FINANCIAL INSTRUMENTS
  The
carrying amounts of cash and cash equivalents, trade, related party and other
receivables, accounts and other payables approximate their fair value due to the
short-term nature of these instruments.
 
 NET
INCOME PER SHARE
  Basic net
income per share is computed by dividing net income attributable to common
shareholders by the weighted average number of common shares outstanding during
the period, but excludes the 4,000,000 “September Escrow Shares” according to
the “September Escrow Agreement” (see Note 8). The Company attained the 2008
“Net Income Threshold” (see Note 8), therefore the 2,000,000 “April Escrow
Shares” is included in denominator. Diluted net income per share reflects the
potential dilution that would occur upon the exercise of outstanding warrants at
March 31, 2009. The warrants are anti-dilutive for the three months ended March
31, 2009 but they and other potential common share equivalents may be dilutive
in the future.
  RECENTLY
ISSUED ACCOUNTING PRONOUNCEMENTS
  In
September 2006, the Financial Accounting Standards Board (“FASB”) issued
Statement No. 157, “Fair Value Measurement” (FAS 157). While this statement does
not require new fair value measurements, it provides guidance on applying fair
value and expands required disclosures. FAS157 is effective for the Company
beginning in this first quarter of fiscal 2009. This pronouncement does not have
a material impact on the Company’s financial statements.
 
 In
February 2007, the FASB issued Statement No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities” (FAS 159). The statement, which is
expected to expand fair value measurement, permits entities to choose to measure
many financial instruments and certain others items at fair value. FAS 159 is
effective for the Company beginning in this first quarter of 2009. This
pronouncement does not have a material impact on the Company’s financial
statements.
 
 In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities” (FAS 161).  The new standard is intended to
improve financial reporting about derivative instruments and hedging activities
by requiring enhanced disclosures to enable investors to better understand their
effects on an entity’s financial position, financial performance, and cash
flows. It is effective for the Company beginning in this first quarter of 2009.
This pronouncement does not have a material impact on the Company’s financial
statements.
 
 NOTE
3-ACCOUNT RECEIVABLE
  Net
accounts receivable at March 31, 2009 and December 31, 2008 consisted of the
following:
  March
      31, 2009
                    
                    
                    December
      31, 2008Account
      receivable
                    
                    $
                    6,360,356
                    
                    
                    $
                    3,053,380Less:
      allowance for doubtful accounts
                    
                    
                    (232,010
                    )
                    
                    
                    (305,338
                    )Total
                    
                    $
                    6,128,346
                    
                    
                    $
                    2,748,042
 
 7
  Of the
accounts receivable at March 31, 2009, $2,191,189 was paid by a customer on
March 30, 2009, but due to the transfer process between its bank and ours, the
Company was credited for the amount on April 1, 2009.
 
 A bad
debt provision of $73,701 was reversed for the three months ended March 31,
2009. No bad debt expense provision was required for the three months ended
March 31, 2008.
 
 NOTE
4-INVENTORIES
  Inventories
at March 31, 2009 and December 31, 2008 consisted of the following:
  March
      31, 2009
                    
                    
                    December
      31, 2008Finished
      goods
                    
                    
                    22,152,212
                    
                    
                    
                    20,664,930Consumables
                    
                    
                    49,038
                    
                    
                    
                    43,263Total
                    
                    $
                    22,201,250
                    
                    
                    $
                    20,708,193
 
  NOTE
5-PROPERTY AND EQUIPMENT
  Property
and equipment at March 31, 2009 and December 31, 2008 consisted of the
following:
 
 March
      31, 2009
                    
                    
                    December
      31, 2008Buildings
      and structures
                    
                    $
                    3,661,586
                    
                    
                    $
                    3,656,992Machinery
      and equipment
                    
                    
                    1,481,827
                    
                    
                    
                    673,480Office
      equipment and furniture
                    
                    
                    202,272
                    
                    
                    
                    85,087Vehicles
                    
                    
                    1,347,461
                    
                    
                    
                    824,013Software
                    
                    
                    17,178
                    
                    
                    
                    17,156Leasehold
      improvements
                    
                    
                    219,119
                    
                    
                    
                    218,8446,929,443
                    
                    
                    
                    5,475,572Less:
      Accumulated depreciation
                    
                    
                    212,230
                    
                    
                    
                    107,498Total
                    
                    $
                    6,717,213
                    
                    
                    $
                    5,368,074
 
  Depreciation
expense for the three months ended March 31, 2009 and 2008 was $104,582 and
$42,784, respectively.
 Among the
vehicles, 14 cars in the initial amount of $865,514 were pledged for the initial
long-term banks loans of $528,661 which were received for purchasing those cars
(see Note 7).
  NOTE 6-
INTANGIBLE ASSETS
  Net
intangible assets at March 31, 2009 and December 31, 2008 were as
follows:
 
 March
      31, 2009
                    
                    
                    December
      31, 2008Patent
                    
                    $
                    106,192
                    
                    
                    $
                    106,059Less:
      accumulated amortization
                    
                    
                    13,274
                    
                    
                    
                    10,606Total
                    
                    $
                    92,918
                    
                    
                    $
                    95,453
 
  Product
patent was acquired by the Company in March 2008 with an estimated useful life
of 10 years. It is amortized using the straight-line method over its useful life
commencing on April 1, 2008. Amortization expense for the three months ended
March 31, 2009 and 2008 amounted to $2,654 and $0, respectively. The estimated
aggregate amortization expense for each of the five succeeding fiscal years is
$10,606.
  8
 NOTE 7 –
LONG-TERM LOANS
  From
August 2008 to March 2009, the Company financed the purchase of 14 cars with
initial bank loans of $528,661. The Company pledged those 14 cars with an
initial value of $865,541 to the loans. The loans all have 3-year terms and are
paid in monthly installments. Interest on the loans ranges from 5.45% to 14.80%
annually. These loans were obtained by individuals who are employees of the
Company on behalf of the Company. The Company and the individuals entered into
agreements of trust whereby the Company is entitled to the cars and is
responsible for payments on the loans. Under the loan agreements, the Company
must make specified payments monthly. The aggregate amount of such required
payments at March 31, 2009 is as follows:
  2009
                    
                    $
                    152,8562010
                    
                    
                    203,8072011
                    
                    
                    157,2612012
                    
                    
                    5,991Total
                    
                    
                    519,915Less:
      Amount representing interest
                    
                    
                    (61,969
                    )Total
      at present value
                    
                    $
                    457,946
  For the
period ended, March 31, 2009, the current portion of long-term loans was
$166,448 which is scheduled to be repaid on or before March 31, 2010, while the
long-term portion is $291,498. The Company's total payments under the agreements
were $44,955, which included interest expense of $9,833, during the three months
ended March 31, 2009.
  NOTE 8 -
CAPITAL STOCK
 
 Capital
stock
 
 Concurrent
with the “Share Exchange”, the Company entered into a securities purchase
agreement (the “April
Purchase Agreement”) with certain investors (the “April Investors”) for
the sale in a private placement of an aggregate of 6,495,619 shares of our
Common Stock (the “April Investor
Shares”) for aggregate gross proceeds equal to $10,000,651 (the “April
Offering”).
 
 On
September 5, 2008, we entered into a securities purchase agreement (the “September Purchase
Agreement”), with certain Qualified Institutional Buyers (the “September
Investors”), for the sale in a private placement of an aggregate
of 6,073,006 shares of our Common Stock (the “September Investor
Shares”) for aggregate gross proceeds equal to approximately $9,350,000
(the “September
Offering”).
 
 Warrants
 
 Concurrent
with the “April Investor Shares”, the Company issued 1,623,905 warrants to
purchase 1,623,905 shares of Common Stock (the “April Warrants”) to
“April Investors”. The warrants issued have a 5 years exercise period with an
exercise price of $1.848. There were another 649,562 warrants issued to Roth
Capital Partners LLC (“Roth”) as the “Placement Agent” and these were issued
with the same exercise price and term as the April Warrants.
 
 Concurrent
with the “September Investor Shares”, the Company issued 1,518,253 warrants to
purchase 1,518,253 shares of Common Stock (the “September Warrants”).
The warrants issued have a 5 years exercise period with an exercise price of
$1.848. There were another 607,301 warrants issued to Roth as the “Placement
Agent” and these were issued with the same exercise price and term as the
September Warrants.
 
 On
September 12, 2008 Roth Capital executed an irrevocable cashless exercise of its
warrants and purchased 686,878 shares in the aggregate of Common Stock of the
Company pursuant to the April 17, 2008 and September 5, 2008 Placement Agent
Warrants. In exchange for the issuance of 354,987 shares, Roth surrendered
649,562 warrants received in the April Offering; and in exchange for 331,891
shares, Roth surrendered 607,301 warrants received in the September Offering. At
March 31, 2009, there are 3,142,158 warrants outstanding with a weighted average
exercise price of $1.848. Of this total, 1,623,905 expire in April 2013 and
1,518,235 expire in September 2013.
 
 9
 Escrow
shares
 
 In
connection with the April Offering, we also entered into an escrow agreement
with Roth as a representative of the Investors, Tri-State Title & Escrow LLC
(the “Escrow
Agent”) and Full Alliance International Limited (The “Full Alliance”), one
of the Shareholders (the “April Escrow
Agreement”), pursuant to which 2,000,000 of the Shares (the “April Escrow Shares”)
were delivered to the Escrow Agent. The Escrow Shares are being held as security
for the achievement of $10,263,919 after tax net income (“ATNI”) for the year
ended December 31, 2008 (the 2008 “Net Income
Threshold”). As shown in the 2008 Form 10-K, the ATNI threshold has been
achieved. The releasing back of Escrow Shares to Full Alliance was not completed
as of March 31, 2009.
 
 In
connection with the September Offering, we entered into an escrow agreement with
Roth, the Escrow Agent and Full Alliance (the “September Escrow
Agreement”), pursuant to which 4,000,000 of the Shares issued to Full
Alliance in the Share Exchange (the “September Escrow
Shares”) were delivered to the Escrow Agent. Of the September Escrow
Shares, 2,000,000 shares(the “Make Good Escrow
Shares”) are being held as security for the achievement of 2008 and 2009
Make Good ATNI in the following manner. If the Company achieves (i) the 2008 Net
Income Threshold, and (ii) fully diluted earnings per share reported
in the 2008 Annual Report on Form 10-K filed with the SEC (the “2008 Annual
Report”), of no less than $0.42 (the “2008 Guaranteed EPS”), then the provisions
described in the following paragraph apply with respect to the achievement of
2009 net income and fully diluted earnings per share targets and the Make Good
Escrow Shares will be retained in escrow for the achievement of certain net
income and fully diluted earnings per share targets for the year ending December
31, 2009. If the Company does not achieve the Make Good ATNI, the Make Good
Shares will be released pro-rata to the September Offering investors. As shown
in the 2008 Form 10-K, the ATNI and EPS thresholds have been
achieved.
 
 In the
event that (i) the 2009 After Tax Net Income equals or exceeds $12,649,248 and
is less than $15,811,560, or (ii) the fully diluted earnings per share reported
in the 2009 Annual Report on Form 10-K filed with the SEC (the “2009 Annual
Report”), equals or exceeds $0.42 and is less than $0.53, then Make Good Shares
equal to the product of (i)(A) $15,811,560 minus the 2009 After Tax Net Income,
divided by (B) $15,811,560, and (ii) the Make Good Escrow Shares, shall be
transferred to the September Investors on a pro-rata basis, and the remaining
Make Good Shares shall be returned to Full Alliance. If the 2009 ATNI exceeds
$15,811,560, the 2,000,000 Make Good Escrow Shares will be released back to Full
Alliance.
  The
remaining 2,000,000 escrow shares are being held as security for the timely
issuance of Inner Mongolia Yongye’s fertilizer License into the name of Yongye
Nongfeng Biotechnology Co. and completion of the CJV Restructuring as defined
below (the “Restructuring Make Good Shares”). This license is issued by the
Ministry of Agriculture and gives the owner the right to manufacture and sell
fertilizer products domestically. In the event that (1) the License has not been
issued to Yongye Nongfeng Biotechnology by June 30, 2009, or such later date as
agreed to by us and the September Investors holding a majority of the September
Investor Shares at such time (the “License Grant Date”), or (2) the License has
been issued by the License Grant Date, but the CJV Restructuring is not
completed by the Restructuring Completion Date, the Restructuring Make Good
Shares shall be transferred in accordance with the September Escrow Agreement to
the September Investors on a pro-rata basis for no consideration other than
their respective investment amounts paid to us at the closing of September
Offering. The “Restructuring Completion Date” shall be the date that is 132
calendar days after the License Grant Date. If the License is issued by the
License Grant Date and the CJV Restructuring is completed by the Restructuring
Completion Date, the Restructuring Make Good Shares shall be returned to Full
Alliance.
 
 NOTE 9 -
NONCONTROLLING INTEREST
 
 The
Company’s main operating subsidiary was incorporated on January 4, 2008 under
the corporate laws of the PRC by Inner Mongolia Yongye and ASO, a Hong Kong
based company. During the year ended December 31, 2008, the Predecessor invested
$100,000 in Yongye Nongfeng by contributing a patent and ASO made 4 cash
investments totaling $ 16,778,741. No additional investment in CJV was made by
Inner Mongolia Yongye or ASO during the three months ended March 31,
2009.
 
 10
 Inner
Mongolia Yongye was a 0.5% owner of Yongye Nongfeng and ASO 99.5% pursuant to a
Sino-Foreign Cooperative Joint Venture Contract (the “Contract”). However,
ASO didn’t fully pay the contractual registered capital into Yongye Nongfeng.
Based upon actual capital injection into the CJV, Inner Mongolia Yongye is a
0.6% owner of Yongye Nongfeng Biotechnology and ASO is a 99.4% owner. For the
three months ended March 31, 2009, net income attributable to noncontrolling
interest was $18,522.
 
 NOTE 10 -
STATUTORY COMMON WELFARE FUND
 
 As
stipulated by the PRC, 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 income after tax, as
      determined under PRC accounting rules and regulations, until the fund
      amounts to 50% of the Company’s registered
  capital;
 (iii)
                Allocation
      of 5-10% of income after tax, as determined under PRC accounting rules and
      regulations, to the Company’s “Statutory common welfare fund”, which is
      established for the purpose of providing employee facilities and other
      collective benefits to the Company’s employees. Chinese companies invested
      in by companies registered outside mainland China, including joint
      ventures, are exempted from contributing to this
  fund;
 (iv)
                Allocations
      to the discretionary surplus reserve, if approved in the shareholders’
      annual general meeting.
 
 The
Company’s subsidiary, Yongye Nongfeng, provided $281,369 to the statutory
surplus reserve for the three months ended March 31, 2009. Yongye Nongfeng did
not provide a reserve for the welfare fund for the three months ended March 31,
2008.
 
 NOTE 11
EMPLOYEE BENEFIT PLANS
 
 The
employees of the Company who are domiciled in the PRC receive coverage under a
comprehensive benefit plan as required by the local social security governing
bureau. The calculation for contribution by eligible employees is based on 20%
of the base salary. The contribution paid by the Company and Yongye Nonfeng on
behalf of their employees for this defined benefit plan was $12,205 and $5,366
for the three months ended March 31, 2009 and 2008, respectively.
  In
addition, the Company is required to contribute a portion of the employees’ base
salary for those employees domiciled in Beijing in the following manner -
approximately 10% for medical benefits, 1.5% for unemployment benefits and 1.3%
for workers compensation. Contributions for the employees located in Inner
Mongolia for these benefits are not required for the three months ended March
31, 2009 and 2008. The PRC government is directly responsible for the payments
of the benefits to these employees. The amounts contributed by the Company and
Yongye Nonfeng were $5,870 and $2,802 for the three months ended March 31, 2009
and 2008, respectively.
 
 NOTE 12 –
INCOME TAXES
 
 A
reconciliation between taxes computed at the United States statutory rate of 34%
and the Company’s and Yongye Nongfeng’s effective tax rates is as
follows:
 
 Yongye
      BiotechnologyInternational, Inc.
      and Subsidiaries
                        
                        YongyeNongfengThree
      months ended March 31, 2009
                        
                        Three
      months ended March 31, 2008Income
      before income taxes
                        
                        $
                        3,272,742
                        
                        
                        $
                        1,493,708Income
      tax on pretax income at statutory rate
                        
                        
                        1,112,732
                        
                        
                        
                        507,861Effect
      of different tax rates of subsidiary operating in other
      jurisdictions
                        
                        
                        (957,285
                        )
                        
                        
                        (134,434
                        )Income
      tax at effective rate
                        
                        $
                        155,447
                        
                        
                        $
                        373,427
 
 11
 NOTE 13 –
LEASE COMMITMENTS
 
 The
Company entered into a building lease to secure the Beijing office. The lease
for the Beijing office spans from January 1, 2008 to December 31, 2010. The
lease expense for the Beijing office was $62,262 and $55,338 for the three
months ended March 31, 2009 and 2008, respectively. Future minimum lease
payments under non-cancellable operating lease agreements at March 31, 2009 are
as follows:
 
 December
      31, 2009
                    
                    $
                    176,147December
      31, 2010
                    
                    
                    231,484Total
                    
                    $
                    407,631
 
 NOTE 14 –
RELATED PARTY TRANSACTIONS AND BALANCES
  As of
March 31, 2009, the Predecessor is a 0.6% shareholder of the Company’s main
operating subsidiary, Yongye Nongfeng, and is Yongye Nongfeng’s only vendor,
providing $7,363,768 (100%) and $8,946,780 (100%) of the Company’s purchased
finished goods for the three months ended March 31, 2009 and 2008, respectively.
According to the contract, the Predecessor sells to Yongye Nongfeng at fixed
prices of RMB 350 per case for plant products and RMB 120 per case for animal
products.
 
 As of
March 31, 2009 and December 31, 2008, due to the contract manufacturer
(Predecessor Company) was $90,169 and $46,739, respectively, and represented the
payable generated in purchasing inventory. Due from related party was $274,758
which represented the payment the Company made for the Predecessor for its
professional fees and research and development fee of $192,983. It also included
$81,775 paid for individual income tax for employees which was subsequently
collected through salary deductions. As of December 31, 2008, due from related
party is $192,741 and represents the payment the Company made for the
Predecessor for its professional fees and research and development fee. The
amounts are unsecured and non-interest bearing, and have no defined payment
terms.
 
 Yongye
Nongfeng and the Predecessor entered a lease-exchange arrangement to lease land,
buildings and equipment to each other. On June 1, 2008, a land lease agreement
was entered into in which Yongye Nongfeng would lease land of 74,153 square
meters from the Predecessor from June 1, 2008 to May 31, 2009. On September 28,
2008, a building lease agreement and an equipment lease agreement were entered
into in which the Predecessor would lease a building of 3,967 square meters and
a set of equipment from Yongye Nongfeng from September 28, 2008 to September 27,
2009. The estimated value of rentals of land lease and the combination of
building and equipment lease are not materially different. Therefore, pursuant
to the agreements, both Yongye Nongfeng and the Predecessor would not charge any
rental to each other for the lease. Additionally, the rental income to be
received by the Company and the rental expense to be paid are not material to
the Company’s 2009 and 2008 results of operations and therefore have not been
included.
 
 In March
2009, Yongye Nongfeng purchased a set of machinery and equipment, vehicles and
office equipment in the amount of $940,531 from Inner Mongolia Yongye (See Note
5 for details of property and equipment).
 
 NOTE
15-NET INCOME PER SHARE
  The
following table sets forth the computation of basic and diluted income per share
for the periods indicated:
 
 Yongye
      Biotechnology
                      
                      YongyeInternational,
      Inc.
                      
                      Nongfengand
      SubsidiariesThree
      months ended
                      
                      Three
      months endedMarch
      31, 2009
                      
                      March
      31, 2008Numerator
      used in basic net income per share:Net
      income
                      
                      $
                      3,098,773
                      
                      
                      $
                      1,120,281Shares
      (denominator):Weighted
      average ordinary shares outstanding
                      
                      
                      22,760,258
                      
                      
                      
                      11,444,755Plus:
      weighted average incremental shares from assumed exercise of
      warrants
                      
                      
                      -
                      
                      
                      
                      -Weighted
      average ordinary shares outstanding used in computing diluted
       net income per ordinary share
                      
                      
                      22,760,258
                      
                      
                      
                      11,444,755Net
      income per ordinary share-basic
                      
                      $
                      0.14
                      
                      
                      $
                      0.10Net
      income per ordinary share-diluted
                      
                      $
                      0.14
                      
                      
                      $
                      0.10
 
 12
 As of
March 31, 2009, the Company had 3,142,156 ordinary shares equivalents
outstanding that could potentially dilute basic income per share in the future,
but which were excluded in the computation of diluted income per share in the
periods presented, as their effect would have been anti-dilutive.
 
 NOTE 16
-CONCENTRATIONS AND CREDIT RISKS
  At March
31, 2009 and December 31, 2008, the Company had a credit risk exposure of
uninsured cash in banks of approximately $1,424,268 and $4,477,477,
respectively. The Company does not require collateral or other securities to
support financial instruments that are subject to credit risk.
 
 Five
major customers accounted for 90% and one major customer accounted for 39% of
the Company’s net revenue for the three months ended March 31, 2009. Five major
customers accounted for 99% and one major customer accounted for 55% of Yongye
Nongfeng’s net revenue for the three months ended March 31, 2008. The Company
and Yongye Nongfeng’s total sales to five major customers were $11,179,457 and
$9,431,953 for the three months ended March 31, 2009 and 2008,
respectively.
  Yongye
      Biotechnology International, Inc. and Subsidiaries
                  Yongye
                    NongfengThree
      months ended March 31, 2009
                  Three
      months ended March 31, 2008Largest
      Customers
                  Amount
      of Sales
                  %
      Total Sales
                  Largest
      Customers
                  Amount
      of Sales
                  %
      Total SalesCustomer
      A
                  $4,852,042
                  39%
                  Customer
      A
                  $5,194,640
                  55%Customer
      B
                  $2,220,083
                  18%
                  Customer
      E
                  $2,720,548
                  29%Customer
      C
                  $1,739,657
                  14%
                  Customer
      C
                  $1,007,885
                  10%Customer
      D
                  $1,290,789
                  10%
                  Customer
      F
                  $379,941
                  4%Customer
      E
                  $1,076,886
                  9%
                  Customer
      D
                  $128,939
                  1%Total
                  $11,179,457
                  90%
                  Total
                  $9,431,953
                  99%
  The
Predecessor is the Company’s only vender who provided 100% of the Company
purchased finished goods for the three months ended March 31, 2009 and 2008 in
the amount of $7,363,768 and $8,946,780, respectively.
  The
company's business is subject to seasonal
variations; thus, the results of operations for the three months ended March 31,
2009 and 2008 are not necessarily indicative of a full year's results.
Generally, the second and third quarters are peak sales periods, and first and
fourth quarters are low sales periods for the Company.
  The
Company’s operations are carried out in the PRC. Accordingly, the Company and
the Predecessor’s business, financial condition and results of operations may be
influenced by the political, economic and legal environments in the PRC as well
as by the general state of the PRC’s economy. The business may be influenced by
changes in governmental policies with respect to laws and regulations,
anti-inflationary measures, currency conversion and remittance abroad, and rates
and methods of taxation, among other things.
  NOTE 17 –
RECLASSIFICATIONS
  Certain
reclassifications have been made to the December 31, 2008 balances in order to
conform to the current period’s presentation.
  13
 
 Item
2. Management’s Discussion and Analysis of Operations and Financial
Conditions.
 
 The
following discussion of the financial condition and results of operations should
be read in conjunction with the consolidated financial statements and related
notes thereto. The following discussion contains forward-looking statements.
Yongye Biotechnology International, Inc. is referred to herein as “we” or “our.”
The words or phrases “would be,” “will allow,” “expect to”, “intends to,” “will
likely result,” “are expected to,” “will continue,” “is anticipated,”
“estimate,” or similar expressions are intended to identify forward-looking
statements. Such statements include those concerning our expected financial
performance, our corporate strategy and operational plans. Actual results could
differ materially from those projected in the forward-looking statements as a
result of a number of risks and uncertainties, including: (a) those risks and
uncertainties related to general economic conditions in China, including
regulatory factors that may affect such economic conditions; (b) whether we are
able to manage our planned growth efficiently and operate profitable operations,
including whether our management will be able to identify, hire, train, retain,
motivate and manage required personnel or that management will be able to
successfully manage and exploit existing and potential market opportunities; (c)
whether we are able to generate sufficient revenues or obtain financing to
sustain and grow our operations; and (d) whether we are able to successfully
fulfill our primary requirements for cash which are explained below under
“Liquidity and Capital Resources. Unless otherwise required by applicable law,
we do not undertake, and we specifically disclaim any obligation, to update any
forward-looking statements to reflect occurrences, developments, unanticipated
events or circumstances after the date of such statement.
 
 Company
Overview
 
 Prior to
the Share Exchange, we were a public “shell” company with nominal assets. We
were incorporated in the State of Nevada on December 12, 2006 and engaged in the
business of offering sunless tanning services and selling tanning lotions. In
2008, we began to pursue an acquisition strategy, whereby we sought to acquire
an undervalued business with a history of operating revenues in markets that
provide room for growth.
 
 As a
result of the Share Exchange, we changed our name to Yongye Biotechnology
International, Inc. and through our Company’s Cooperative Joint Venture
subsidiary, Yongye Nongfeng Biotechnology Co., (“Yongye Nongfeng”), are now
engaged in the research, development, and sales of fulvic acid based liquid and
powder nutrient compounds used in the agriculture industry. Based on industry
research and government testing, we believe our proprietary technology for
fulvic acid extraction creates some of the purest and most bioactive fulvic acid
and thus some of the most effective plant and animal nutrients on the market in
China. Our contractual relationship with our predecessor company, Inner Mongolia
Yongye, is the key to securing our own source of fulvic acid and to control our
manufacturing process from procurement of raw materials to final production,
which will allow us to provide a high quality product to our customers with more
reliable results from season to season.
 
 We
operate our businesses in China primarily through Yongye Nongfeng Biotechnology,
which is 99.4% owned by Asia Standard Oil and 0.6% owned by Inner Mongolia
Yongye. To date, Inner Mongolia Yongye, the primary contract manufacturer for
Yongye Nongfeng, has assigned its management team, customers, sales contracts
and one of its patents to Yongye Nongfeng and became the primary contract
manufacturer for Yongye Nongfeng.
 
 We are
headquartered in Beijing, China and Inner Mongolia. Yongye’s contract
manufacturer is located in the province of Inner Mongolia in China. Currently,
we sell two lines of product based on our fulvic acid base: plant nutrition
liquid compound and animal nutrition food additive. Our products start with our
fulvic acid base, which is added to other natural substances to customize the
base for use in our plant or animal lines of products. Our plant products add
naturally occurring macro and micro nutrients such as nitrogen, phosphorus,
potassium, boron and zinc. Our animal products add natural herbs which provide
antibiotic type properties.
 
 To
understand our business, it is important to understand China’s economy. China is
growing from a largely semi-subsistence economy to an urban economy. Consumers
are demanding more agricultural products with better quality and inflation is
setting in across the country. The agricultural industry in China is growing
tremendously to keep up with this domestic demand, but added to this is a global
demand for China’s agriculture products. This is creating much volatility in its
supply chain and farmers are at the crux of both the problem and the solution
for both crop and animal production and this is where our products match market
need.
 
 14
 Currently,
crop production in China is limited to only 155 million hectares of arable farm
land which is about 10% of all of China’s land source. The high population
density in China requires that each hectare of land feed an average of 10 people
versus the 4.4 world average, which means farm land is being used at close to
capacity levels just for domestic production levels. Exports push this to
maximum capacity levels so further growth in farming capacity must come from new
input technologies.
 
 Also,
with the growth of the economy has come consumers’ demand for a wider choice of
food options and one key area of growth is the demand for dairy products. The
Chinese Government has now attached great importance to the development of this
industry and it is now growing after being dormant for many years. However,
average yield per cow is only about 2,000kg, indicating relatively low
productivity. One major reason for this low production is Mastitis, which is an
inflammation of the teats which slows down milk production. This is an industry
wide problem where 35-40 cows out of 100 have some form of Mastitis and it is
typically treated with antibiotics.
 
 With this
as a backdrop, we began selling our plant and animal nutrient products into the
agriculture industry to help farmers increase their farming outputs. In crop
production, our product assists farmers in generating higher yields from their
crops and our first line of animal product for dairy cows assists with the
reduction of Mastitis to increase milk production.
 
 Recent
Developments
 
 We have
recently begun working with distributors in five new provinces, Yunnan, Hainan,
Liaoning, Jilin and Heilongjiang, and these distributors are beginning to put
our products into a trials process in each province. While we do not expect
these provinces to generate a significant portion of our revenue for 2009, our
plan is for them to begin to generate revenue in the same manner as our other
provinces: strong growth after several growing seasons due to a successful
trials process carried out by our distributors. Two of these provinces are in
regions with less seasonality impacts on farming and this would help mitigate
some or the seasonality on sales which we experience annually. Additionally, we
began packaging our animal product into larger containers for bulk sales into
farming areas.
 
 Factors
affecting our operating results
  Demand for Our
Products
  One major
tenet of the PRC government’s 11th Five-Year National Economic and Social Plan
(the “NESDP”) (2006-2010) is the focus towards developing China’s western
region. This is one of the top-five economic priorities of the nation. The goal
is to increase rural income growth which will in turn increase demand for more
food and agriculture products. Currently, a large majority of our products are
sold in this western region and this government focus will increase our
opportunity to sell more plant and animal nutrients to farmers who have to keep
up with the demand for higher quantity and higher quality of
products.
  According
to the Asian Development Bank statistics, well over 60% of the nation’s 1.3
billion total population is comprised of low-income, rural farmers. According to
the 11th Five-Year NESDP (2006-2010), raising the level of rural income is a top
economic and social goal for the country. Many government initiatives, including
removal of certain agricultural and local product taxes, have been implemented
to spur rural income development. The government expects annual rural income to
grow between 5% and 10% through 2010. Additionally, according to the National
Population and Family Planning Commission, China's population will reach 1.5
billion by 2030. Therefore, the country has the challenge of producing
approximately 100 million more tons of crops needed to feed the additional 200
million people. This put pressure on the agricultural system to increase
production capacity.
  Supply of Finished
Goods
  Currently,
we purchase our finished goods from our main supplier, Inner Mongolia Yongye and
then sell it through our distribution system. In order to generate greater
profit margins, we set out to control our cost of goods sold and have put into
place a fixed rate contract with our main supplier and this will extend over the
next four years. Each quarter we will go through a review process with our
supplier to adjust the fixed rate for the next quarter. We have not received any
rate increases in 2009.
  Seasonality
  15
 We
typically face the seasonal, weather related, demand patterns similar to other
companies in our sector. In general, the first and fourth quarters are typically
our slowest quarters while the second and third quarters drive the bulk of our
overall sales. Our Shengmingsu plant line faces the most seasonality of our two
product lines with our Shengmingsu for animals experiencing less fluctuation
during the year due to seasonal buying patterns.
  Drought
  In
the last half year of 2008 and beginning of 2009, there have been many news
reports of the drought occurring in certain areas of China and the Company has
been concerned about the potential impact this would have on the agriculture
sector and thus on our operations. We have done much to investigate this
important situation through our contact with government agencies, sales and
support staff, our distributors, and the retail focused branded store network.
We feel we have a very good pulse on the overall activity in the farming
communities we serve and our overall assessment is that the impact was not felt
on our year end 2008 results and has not been felt on our revenue for the
quarter ended March 31, 2009 results. Additionally, we do not expect drought
related impacts to curtail any of our sales activities in the near term for the
reasons described below.
 
 The first
quarter of 2009 has seen many improvements in rainfall and the aggressive
irrigation of crops by governmental agencies. These improvements have mitigated
much of the water shortages faced by farmers in many of the drought impacted
areas. The most significant of these interventions are aggressive governmental
interventions including massive spending with the goal of increasing irrigation
from other water sources as well as from additional rainfall through cloud
seeding. Additionally, the government has begun their stimulus package
injections into the agriculture community to help ward off the affects of any
drought induced financial hardships. The USDA reported that by the end of
February, Chinese officials had cancelled the drought emergency and declared
that conditions had returned to normal. According to the Ministry of
Agriculture, as of March 1 the amount of winter wheat affected by drought in the
top eight provinces had dropped by 80 percent to 2.17 million hectares, of which
only 461,330 hectares were rated as seriously affected. The drought continued to
weaken through March with the arrival of additional moderate to heavy rainfall
and cooler temperatures.
 
 Several
market conditions also bode well for us in the sales of our plant product during
this time. Overall, the drought has impacted northern China and primarily large
field crop growers. We are currently focused mostly on economic crops except for
the Xinjiang province. Additionally, we emphasize that the drought resistance
nature of our plant product will actually assist farmers because the water that
is used will be held more effectively. Thus, while the drought will impact
China, we feel there are many factors working for the company to help us ward
off financial impact due to the drought.
  Agriculture
Sector
 
 Agriculture
continues to be a heavily invested sector in China. Brand name investors
continue to invest into China’s agriculture space because they have confidence
in China’s long term outlook. The market volume for agriculture products is
huge, both for domestic sales and export and there is no set threshold for
foreign investment into the sector as opposed to other industries, such as
energy, finance, mining, and telecommunications. This is driven by the growing
demand for higher quality food products domestically and international reliance
on food products from China. Currently, China is the world’s biggest grower and
consumer of grains and yet must boost crop yields by at least 1 percent a year
to ensure the country has enough food to feed its 1.3 billion people, according
to the Minister of Agriculture, Sun Zhengcai. Additional policy changes will
include protecting farmland and working to increase rural incomes to retain
farming interest.
 
 The goal
is to maintain self-sufficiency in food production because no other country can
feed the world’s biggest population, Sun said. “Our strategy must be based on
stable farmland, and seeking ways to improve yields,” Sun said in a speech to
local officials, outlining the government’s near- and long-term agriculture
policy and objectives. China, which harvested more summer crops, aims also to
boost grain and oilseed output this year, Sun said. To ensure next year’s crops,
officials must “stabilize” area planted in winter wheat and use idle land in the
off season to grow rapeseed, Sun said.
 
 This
growth, however, does not come without challenges and China has faced many of
these with regards to the continued concern over the quality of milk and eggs
sold both domestically and internationally in the dairy industry, The government
is making every effort to bring back consumer confidence in these domestically
produced products and overall this will bring about an even stronger industry
once new licensing and safety procedures have been put into place.
 
 16
 New Land Reform
Policy
 
 Farmland
in China is owned by the local government, but given to local farmers under 30
year use contracts. With the allure of higher incomes and better living
conditions in the city, farmers have abandoned the land and no others farmers
have stepped in to bring it back into production. This has created a shortage of
a key raw material in the agricultural supply chain- productive land. The
government has acknowledged this issue and recently enacted a new land use
reform policy which liberalizes the exchange of land among the nation’s farmers.
This creates a new model for China’s 730 million farmers with the idea being to
create more stable farmlands by shifting the country away from the single
household farm plot model to the amalgamation of larger-scale operations which
should be more productive due to technology and economies of scale. Farmers will
be able to transfer their land-use rights to others through a new market system
for rural land-use rights. Chinese authorities commented that, "Without
modernizing agriculture, China cannot modernize; without stability and
prosperity in rural areas, China cannot have stability and prosperity." The
changes are enacted to "ensure national food security and the supply of major
agricultural products, and promote increases in agricultural production, farm
incomes and rural prosperity."
  
 RESULTS
OF OPERATIONS
 
  Financial
Highlights
 
 YONGYE
BIOTECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
  Yongye
      Biotechnology
                                      International,
      Inc.
                                      and
      Subsidiaries
                                      For
      the Three Months Ended
                                      March
      31, 2009
                                    
                                    
                                    Yongye
                                      Nongfeng
                                      For
      the Three Months Ended
                                      March
      31, 2008(Unaudited)
                                    
                                    
                                    (Unaudited)SALES
                                    
                                    $
                                    12,435,775
                                    
                                    
                                    $
                                    9,528,055COST  OF
      SALES
                                    
                                    
                                    5,902,607
                                    
                                    
                                    
                                    4,484,261GROSS
      PROFIT
                                    
                                    
                                    6,533,168
                                    
                                    
                                    
                                    5,043,794SELLING
      EXPENSES
                                    
                                    
                                    2,620,298
                                    
                                    
                                    
                                    3,192,797RESEARCH
      & DEVELOPMENT EXPENSES
                                    
                                    
                                    288,572
                                    
                                    
                                    
                                    -GENERAL
      AND ADMINISTRATIVE EXPENSES
                                    
                                    
                                    345,157
                                    
                                    
                                    
                                    357,192INCOME
      FROM OPERATIONS
                                    
                                    
                                    3,279,141
                                    
                                    
                                    
                                    1,493,805OTHER
      EXPENSESInterest
      expenses
                                    
                                    
                                    5,958
                                    
                                    
                                    
                                    -Other
      expenses
                                    
                                    
                                    441
                                    
                                    
                                    
                                    97TOTAL
      OTHER EXPENSES
                                    
                                    
                                    6,399
                                    
                                    
                                    
                                    97INCOME
      BEFORE PROVISION FOR INCOME TAXES AND NONCONTROLLING
    INTEREST
                                    
                                    
                                    3,272,742
                                    
                                    
                                    
                                    1,493,708PROVISION
      FOR INCOME TAXES
                                    
                                    
                                    155,447
                                    
                                    
                                    
                                    373,427NET
      INCOME
                                    
                                    
                                    3,117,295
                                    
                                    
                                    
                                    1,120,281LESS:
      NET INCOME ATTRIBUTABLE TO THE NONCONTROLLING INTERST
                                    
                                    
                                    18,522
                                    
                                    
                                    
                                    -NET
      INCOME ATTRIBUTABLE TO YONGYE BIOTECHNOLOGY INTERNATIONAL,
      INC.
                                    
                                    
                                    3,098,773
                                    
                                    
                                    
                                    1,120,281OTHER
      COMPREHENSIVE INCOME
                                      Foreign
      Currency Translation Adjustment
                                    
                                    
                                    47,945
                                    
                                    
                                    
                                    30,531COMPREHENSIVE
      INCOME
                                    
                                    $
                                    3,146,718
                                    
                                    
                                    $
                                    1,150,812Net
      income  per share:Basic
                                    
                                    $
                                    0.14
                                    
                                    
                                    $
                                    0.10Diluted
                                    
                                    $
                                    0.14
                                    
                                    
                                    $
                                    0.10Weighted
      average shares used in computation:Basic
                                    
                                    
                                    22,760,258
                                    
                                    
                                    
                                    11,444,755Diluted
                                    
                                    
                                    22,760,258
                                    
                                    
                                    
                                    11,444,755
  17
 
 THREE
MONTHS ENDED MARCH 31, 2009 COMPARED WITH THREE MONTHS ENDED MARCH 31,
2008
  Our
business for the three months ended March 31, 2009 remained on track with our
estimates due to the growth in revenue of 31% and the overall growth of net
income of 177% over the same period in 2008. This demonstrates that while the
first quarter is one of our slower quarters due to seasonality, we were still
able to increase sales to meet our overall growth plans. This is due largely to
the Company selling over 97,465 units of its plant nutrient product in the
quarter ended March 31, 2009, which was a 26% increase over the 75,596 units
sold in the corresponding period in 2008. This increase in units sold was due
primarily to expansion of the distribution network, and a strong performance by
the distributors who develop and maintain the independently owned, branded store
network which sells our plant products.
 
 Net
Sales
 
 Sales of
$12,435,775 in the first quarter of 2009 was an increase of $2,907,720 from
$9,528,055 in the same period in 2008, which was an overall increase of 31% in
revenue. This increase was driven by increased customer demand throughout our
distribution channels including an increase in the number independently owned
stores brought into our network which are now selling our product. Included in
the 31% increase is 6% attributable to appreciation of Chinese Yuan related to
US dollar in three months ended March 31, 2009 compared to three months ended
March 31, 2008.
 
 Sales Revenue and Gross
Profit
 
 Sales
revenue increased by $2,907,720 to $12,435,775 in the period ended March 31,
2009 from $9,528,055 in the same period ended March 31, 2008 which was a 31%
increase overall. Gross Profit also increased 30% over the prior period, which
was an increase from $5,043,794 to $6,533,168, or $1,489,374, over the period
ended March 31, 2008. Gross Margin stayed flat between the two periods and was
primarily due to our fixed rate contract with our finished goods supplier which
has remained constant in price since it was established.
 
 The
number of independently owned stores brought into our branded store network grew
to 2,000 in the period ended March 31, 2009 from 350 in the same period ended
March 31, 2008, which was an increase of 471%. This was due in large part to
continued growth of the network throughout 2008 and the conversion of many
non-branded stores into branded stores. Additionally, another 1,500 of these
stores were brought into our network and either carry our product as a retail
sales point or are on a “trials” basis and will be evaluated by the distributor
as to their qualifications to become a branded store. This brings the total
number of stores selling our Shengmingsu product to 3,500.
 
 18
 Sales
by Product Line
 
 The
revenue of our plant product increased 32% and the revenue of our animal product
increased 22% in the period ended March 31, 2009 compared to the same period in
2008.
 
 Selling, General and
Administrative Expenses
 
 Selling,
general and administrative (“SG&A”) expenses decreased by $295,962 to
$3,254,027 in the period ended March 31, 2009 from $3,549,989 in the previous
period in 2008, which was a 8% decrease. As a percentage of sales for this
period ended March 31, 2008, SG&A decreased 11% to 26% as compared to 37% in
the period ended March 31, 2008. This decrease in overall percentage of sales
was due primarily to one-time going public company expenses incurred by the
Company in the period ended March 31, 2008.
 
 Research
and Development
 
 Additionally,
we incurred $288,572 of research and development fees in the period ended March
31, 2009 as compared to $0 in the period ended March 31, 2008. This is a planned
increase in the scope of our business as contemplated in the cooperation
agreement when the CJV was established and will enable the Company to further
develop the Shenmingsu brand of products .
 
 Income
Tax
 
 The
Company did not carry on any business and did not maintain any branch office in
the United States during the three months ended March 31, 2009 and 2008.
Therefore, no provision for withholding or U.S. federal income taxes or tax
benefits on the undistributed earnings and/or losses of the Company has been
made.
 
 The
Company’s Cooperative Joint Venture subsidiary, Yongye Nongfeng Biotechnology
Co., (“Yongye Nongfeng”), is subject to PRC Enterprise Income Tax at a rate of
25% of net income from its foundation on January 4, 2008 to March 31, 2008, and
1.25% of gross revenue since April 1, 2008.
 
 For the
three months ended March 31, 2009, the Company’s income tax expense was $
155,447 and income tax payable as of March 31, 2009 was $352,644 compared to
$373,427 and $381,255 for the same period in 2008.
 
 
 Net
income
 
 Net
income for the period ended March 31, 2009 increased by $1,978,492 to $3,098,773
from $1,120,281 in the same period ended March 31, 2008, which was a 177%
increase. However, this also represented an increase in net margin of 13% in the
period ended March 31, 2009 to 25% compared to 12% in the same period ended
2008. This is due to a more normal operating cycle of expenses as mentioned
above.
 
 Foreign Currency Translation
and Transactions
 
 The
financial position and results of operations of the Company’s Chinese
subsidiaries are determined using the local currency (Chinese Yuan) as the
functional currency, while the reporting currency is the US dollar. Assets and
liabilities of the subsidiaries are translated at the prevailing exchange rate
in effect at each period end. Contributed capital accounts are translated using
the historical rate of exchange when capital is injected. Income statement
accounts are translated at the average rate of exchange during the period.
Translation adjustments arising from the use of different exchange rates from
period to period are included in the cumulative translation adjustment account
in shareholders’ equity. Gains and losses resulting from foreign currency
transactions denominated in other than the functional currency are included in
operations as incurred. Such gains and losses were immaterial for the three
months ended March 31, 2009 and 2008.
 
 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 Company because it has not engaged in any
significant transactions that are subject to the restrictions.
 
 19
 Liquidity
and Capital Resources
 
 The
Company has historically financed our operations and capital expenditures
principally through shareholder loans, bank loans, and cash provided by
operations. As is customary in the industry, we provide payment terms to most of
our distributors which typically exceed the terms that we ourselves receive from
our finished goods suppliers. Therefore, the Company’s liquidity needs have
generally consisted of working capital necessary to finance receivables and raw
material inventory. We believe that our existing cash, cash equivalents and cash
flows from operations and from the Offering will be sufficient to meet our
anticipated future cash needs for the remaining growing season. We may, however,
require additional cash resources due to changing business conditions or other
future developments, including any investments or acquisitions we may decide to
pursue. Therefore, there can be no assurance that such additional investment
will be available to us, or if available, that it will be available on terms
acceptable to us.
 
 The
Financial Crisis
 
 While in
many ways imperceptible to the general populace in China, the global credit
crisis has indeed impacted China over the past six to nine months. The consumer
goods and logistics industries have been the hardest hit with increased prices
and decreased demand which has resulted in factory closings primarily in the
south. However, some have said this is a blessing in disguise as China aims to
modify its economic structure after three decades of breakneck growth. "With
such a high reliance on international trade, it's impossible for China to avoid
the impact of the global turbulence, so economic slowdown is inevitable," says
Tang Min, deputy secretary-general of the China Development Research Foundation,
which was initiated by a policy advisory body of the Cabinet. "However, the
crisis is a timely warning that China's growth is unsustainable in the
traditional pattern, relying too much on external demand," says Tang. "It can
force us to change for the better." China's economy has maintained an average
annual growth of about 10 percent for 30 years since the reform and opening-up
policy was adopted, compared with a mere 3.3 percent for the world economy. For
the last five years, it expanded 10.6 percent each year on average.
 
 While
regulators are struggling to fix the world’s troubled financial institutions,
they may take heart from the experience of China’s large state-owned banks. In
the late 1990s, Chinese state lenders were all but insolvent, with nonperforming
loan ratios at many banks exceeding 50 percent. A decade later, China’s state
banks have found their footing—and have managed to keep it amid a global
financial crisis that has their European and US counterparts reeling. The
bad-loan ratio has been reduced, and this year China’s state banks expect solid
profits and continued rapid growth—despite the global downturn. What’s more, top
bank executives express confidence in their capacity to heed government
instructions to boost lending while effectively controlling credit
risk.
 
 In
summary, our cash flows were:
 
 Net cash used in operating activities
decreased in the period ended March 31, 2009 by $1,865,747 to $1,671,107 from
net cash provided by operating activities of $194,640 for the period ended March
31, 2008, which represented a 959% decrease over the prior period. These changes
were mainly brought about by changes as follows: a decrease in cash used for
accounts receivable of $3,897,395, a decrease in cash used for inventories of
$3,089,386 but a decrease in the amount of accounts payable of $9,244,929. This
was off-set by changes in net income of $1,978,492. Net cash used in investing
activities increased by $1,232,863 to $1,446,782 in the period ended March 31,
2009 compared to the same period ended in 2008 due to acquisition of equipment
of $1,446,782.
 
 Working
capital at March 31, 2009 increased by $26,133,180 to $27,259, 184 from
$1,126,004 at March 31, 2008.
 
 Financial
position at quarter ended March 31, 2009 (unaudited) and the year ended December
31, 2008:
 
 Yongye
      Biotechnology
                                  
                                  
                                  Yongye
      BiotechnologyInternational,
      Inc.
                                  
                                  
                                  International,
      Inc.and
      Subsidiaries
                                  
                                  
                                  and
      SubsidiariesMarch
      31, 2009
                                  
                                  
                                  December
      31, 2008Unaudited
                                  
                                  
                                  
                                  
                                  
                                  (Increase/(decrease)Cash
                                  
                                  $
                                  1,424,268
                                  
                                  
                                  $
                                  4,477,477
                                  
                                  
                                  
                                  (68
                                  %)Accounts
      Receivable, net
                                  
                                  $
                                  6,128,346
                                  
                                  
                                  $
                                  2,748,042
                                  
                                  
                                  
                                  123
                                  %PP&E,
      net
                                  
                                  $
                                  6,717,213
                                  
                                  
                                  $
                                  5,368,074
                                  
                                  
                                  
                                  25
                                  %Total
      assets
                                  
                                  $
                                  37,250,212
                                  
                                  
                                  $
                                  34,504,261
                                  
                                  
                                  
                                  8
                                  %Long
      term debt
                                  
                                  $
                                  291,498
                                  
                                  
                                  $
                                  230,121
                                  
                                  
                                  
                                  27
                                  %Total
      stockholders’ equity
                                  
                                  $
                                  32,556,907
                                  
                                  
                                  $
                                  29,410,189
                                  
                                  
                                  
                                  11
                                  %
 
 20
 Cash
decreased to $1,424,268 at the end of March 31, 2009 from $4,477,477 at the end
of December 31, 2008 which was an overall decrease of $3,053,209, or 68%. This
was primarily due to an increase in accounts receivable, and payments for the
increase in property, plant and equipment. Accounts receivables increased by
123% to $6,128,346 as of March 31, 2009 from $2,748,042 as of December 31, 2008,
due to increased growth in sales for the recent period. Of the accounts
receivable outstanding on March 31, 2009, a payment of $2,191,189 was remitted
by one customer on March 30, 2009, but due to an elongated cross bank transfer
process, the Company didn’t receive the payment until April 1,
2009.
 
 Property,
plant and equipment increased to $6,717,213 at March 31, 2009 from $5,368,074 at
December 31, 2008, which was a 25% increase and was largely due to the
restructuring effort put underway as part of the September Financing whereby we
were required to acquire the Predecessor’s 2000TPA equipment after being valued
by an independent valuation company.
 
 Additionally,
shareholders’ equity increased by $3,146,718 to $32,556,907 at the end of March
31, 2009, which was an overall 11% increase compared to $29,410,189 on December
31, 2008 and was due primarily to an increase in retained earnings of $2,817,404
or 28% in March 31, 2009 over the period ending December 31, 2008 and an
increase in statutory reserve of $281,369 or 23% in the period ending March 31,
2009 over the period ending December 31, 2008.
 
 Accounts
receivable Days Sales Outstanding decreased 2 days to 32 days for the period
ended March 31, 2009 from 34 days in the same period ended 2008, which is due to
our increased efforts to collect accounts receivable and gain more advanced
payments from distributors. Days Sales in Inventory increased to 341 days in the
period ended March 31, 2009 from 91 days in the same period ended 2008 due to
our build up of inventory to prepare for the major selling season starting in
the second quarter.
 
 Impact of
inflation
 
 We are
subject to commodity price risks arising from price fluctuations in the market
prices of the raw materials. We have generally been able to pass on cost
increases through price adjustments. However, the ability to pass on these
increases depends on market conditions influenced by the overall economic
conditions in China. We manage our price risks through productivity improvements
and cost-containment measures. We do not believe that inflation risk is material
to our business or our financial position, results of operations or cash flows
at this time.
 
 Off Balance Sheet Arrangements
 
 We do not
have any off-balance sheet arrangements as defined by standards issued by the
Financial Accounting Standards Board, and accordingly, no such arrangements are
likely to have a current or future effect on our financial position, revenues or
expenses, results of operations, liquidity, capital expenditures or capital
resources.
 
 
 ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
 Not
required.
  ITEM
4. CONTROLS
AND PROCEDURES.
  Not
required.


Item 4T. Controls
and Procedures.  We
maintain “disclosure controls and procedures,” as such term is defined under
Exchange Act Rule 13a-15(e), that are designed to ensure that information
required to be disclosed in our Exchange Act reports is recorded, processed,
summarized, and reported within the time periods specified in the SEC’s rules
and forms, 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 disclosures. In
designing and evaluating the disclosure controls and procedures, our management
recognized that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving the desired control
objectives and in reaching a reasonable level of assurance our management
necessarily was required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures. We have carried out an
evaluation as required by Rule 13a-15(d) under the supervision and with the
participation of our management, including our Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures as of March 31, 2009. Based upon their
evaluation and subject to the foregoing, the Chief Executive Officer and Chief
Financial Officer concluded that as of March 31, 2009 our disclosure controls
and procedures were effective in ensuring that material information relating to
us is recorded, processed, summarized and reported within the time periods
specified on SEC rules and forms and  is made known to the Chief
Executive Officer and Chief Financial Officer by others within our company
during the period in which this report was being prepared.
  21
 There
were no changes in our internal controls over financial reporting (as defined on
Rules 13a-15(f) and 15d-15(f) under the Exchange Act identified in
connection with the evaluation that occurred during the quarter ended March 31,
2009 that has materially affected, or is reasonably likely to materially affect,
our internal controls over financial reporting.
 
  PART
I.
  OTHER
      INFORMATION
  ITEM
      1.
              LEGAL
      PROCEEDINGS
  None.
  ITEM
      1A
              RISK
      FACTORS
  As a
smaller reporting company, the Company is not required to make disclosures under
this Item 1A.
  ITEM
      2.
              UNREGISTERED
      SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
  Not
applicable.
  ITEM
      3.
              DEFAULTS
      UPON SENIOR SECURITIES
  None.
  ITEM
      4.
              SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY
HOLDERS
  None.
  ITEM
      5.
              OTHER
      INFORMATION
  None.
  ITEM
      6.
              EXHIBITS
 
 
 Exhibit
      No.
                      
                      Description10.1
                      
                      Employment Agreement
      of Sam Yu dated March 25, 200931.1
                      
                      Certification
      of the Chief Executive Officer (Principal Executive Officer) pursuant to
      Section 302 of the Sarbanes-Oxley Act of 2002.31.2
                      
                      Certification
      of the Chief Financial Officer  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
  
 22
 
  SIGNATURES
  In
accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
  
 Yongye
      Biotechnology International, Inc.Dated:
      May 7, 2009
                  By:
                  /s/
      Zishen WuName:
      Zishen WuTitle:
      Chief Executive Officer and PresidentBy:
                  /s/
      Sam YuName:
      Sam YuTitle:
      Chief Financial Officer
 
  23