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 June 30,
      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 International,
Inc.


(Exact
name of registrant as specified in its charter)





Nevada(State
      or other jurisdiction of
                incorporation
      or organization)
              20-8051010
                (I.R.S.
      Employer
                Identification
      No.)6
      th
      Floor, Suite 608,
Xue Yuan International Tower,
                No. 1 Zhichun Road, Haidian District Beijing,
      PRC
                (Address
      of principal executive offices)Yongye
      Biotechnology International, Inc.(Former
      name, former address and former fiscal year, if changed since last
      report)


+86 10 8232
8866


(Registrant’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 Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes x No o





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Date File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). * Yes o No o *The registrant has not
yet been phased into the interactive data requirements.




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 is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes   o No x




As of
August 18, 2009, there were 32,781,065 shares of common stock, par value $.001
per share, issued and outstanding.









PagePart
      I: Financial Information:Item
      1 -Financial Statements
                        
                        3Consolidated
      Balance Sheets
                        
                        3Consolidated
      Statements of Income and Comprehensive Income
                        
                        4Statements
      of Changes in Equity
                        
                        5Consolidated
      Statements of Cash Flows
                        
                        6Notes
      to Consolidated Financial Statements
                        
                        7Item
      2 - Management’s Discussion and Analysis of Financial Condition and
      Results of Operations
                        
                        16Item
      3 – Quantitative and Qualitative Disclosures about Market
      Risk
                        
                        25Item
      4 - Controls and Procedures
                        
                        25Item
      4T – Controls and Procedures
                        
                        26Part
      II. Other InformationItem
      1 - Legal Proceedings
                        
                        27Item
      1A – Risk Factors
                        
                        27Item
      2 - Unregistered Sales of Equity Securities and Use of
      Proceeds
                        
                        27Item
      3 - Defaults Upon Senior Securities
                        
                        27Item
      4 - Submission of Matters to a Vote of Security
Holders
                        
                        27Item
      5 - Other Information
                        
                        28Item
      6 – Exhibits
                        
                        28Signatures
                        
                        29





2


﻿


Item
1- Financial Statements





YONGYE
INTERNATIONAL, INC. AND SUBSIDIARIES




UNAUDITED
CONSOLIDATED BALANCE SHEETS




June
      30, 2009
                                  
                                  
                                  December
      31, 2008CURRENT
      ASSETSCash
                                  
                                  $
                                  4,860,814
                                  
                                  
                                  $
                                  4,477,477Accounts
      receivable, net - third parties
                                  
                                  
                                  36,562,325
                                  
                                  
                                  
                                  2,748,042Accounts
      receivable, net - related party
                                  
                                  
                                  29,219
                                  
                                  
                                  
                                  -Inventories
                                  
                                  
                                  26,760,401
                                  
                                  
                                  
                                  20,708,193Advance
      payments
                                  
                                  
                                  188,808
                                  
                                  
                                  
                                  44,051Due
      from a related party
                                  
                                  
                                  193,046
                                  
                                  
                                  
                                  192,741Prepaid
      expenses
                                  
                                  
                                  129,590
                                  
                                  
                                  
                                  189,478Other
      receivables
                                  
                                  
                                  418,335
                                  
                                  
                                  
                                  680,752Total
      Current Assets
                                  
                                  
                                  69,142,538
                                  
                                  
                                  
                                  29,040,734PROPERTY
      AND EQUIPMENT, NET
                                  
                                  
                                  7,091,521
                                  
                                  
                                  
                                  5,368,074INTANGIBLE
      ASSETS, NET
                                  
                                  
                                  90,274
                                  
                                  
                                  
                                  95,453TOTAL
      ASSETS
                                  
                                  $
                                  76,324,333
                                  
                                  
                                  $
                                  34,504,261CURRENT
      LIABILITIESLong-term
      loans - current portion
                                  
                                  $
                                  183,723
                                  
                                  
                                  $
                                  167,652Accounts
      payable - related party
                                  
                                  
                                  11,414,741
                                  
                                  
                                  
                                  46,739Accounts
      payable - third parties
                                  
                                  
                                  41,158
                                  
                                  
                                  
                                  -Income
      tax payable
                                  
                                  
                                  4,771,415
                                  
                                  
                                  
                                  219,366Advance
      from customers
                                  
                                  
                                  171,847
                                  
                                  
                                  
                                  1,869,400Accrued
      expenses
                                  
                                  
                                  5,324,376
                                  
                                  
                                  
                                  583,880Other
      payables
                                  
                                  
                                  869,387
                                  
                                  
                                  
                                  774,526Total
      Current Liabilities
                                  
                                  
                                  22,776,647
                                  
                                  
                                  
                                  3,661,563LONG-TERM
      LOANS
                                  
                                  
                                  273,615
                                  
                                  
                                  
                                  230,121EQUITYCommon
      stock: par value $.001;75,000,000
      shares authorized; 32,594,341 shares issued and outstanding at June 30,
      2009 and 26,760,258 shares issued and outstanding December 31,
      2008
                                  
                                  
                                  32,594
                                  
                                  
                                  
                                  26,760Additional
      paid-in capital - Common stock
                                  
                                  
                                  21,799,562
                                  
                                  
                                  
                                  13,976,900Additional
      paid-in capital - Warrants
                                  
                                  
                                  4,203,075
                                  
                                  
                                  
                                  3,883,432Retained
      earnings
                                  
                                  
                                  25,611,901
                                  
                                  
                                  
                                  11,191,997Accumulated
      other comprehensive income
                                  
                                  
                                  342,232
                                  
                                  
                                  
                                  331,100Total
      Equity of the Company’s Shareholders
                                  
                                  
                                  51,989,364
                                  
                                  
                                  
                                  29,410,189Noncontrolling
      interest
                                  
                                  
                                  1,284,707
                                  
                                  
                                  
                                  1,202,388Total
      Equity
                                  
                                  
                                  53,274,071
                                  
                                  
                                  
                                  30,612,577TOTAL
      LIABILITIES AND EQUITY
                                  
                                  $
                                  76,324,333
                                  
                                  
                                  $
                                  34,504,261




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




3




YONGYE
INTERNATIONAL, INC. AND SUBSIDIARIES


UNAUDITED
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME





For
      the Three Months Ended
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    For
      the Six Months EndedJune
      30, 2009
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    June
      30,2008
                                                                                                                                      (Restated - Note 1(c))
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    June
      30, 2009
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    June
      30, 2008
                                                                                                                                      (Restated - Note
    1(c))SALESExternal
      customers
                                                                                                                                    
                                                                                                                                    $
                                                                                                                                    46,271,544
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    $
                                                                                                                                    17,598,671
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    $
                                                                                                                                    56,487,236
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    $
                                                                                                                                    26,896,639Related
      party
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    -
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    -
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    2,220,083
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    -TOTAL
      SALES
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    46,271,544
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    17,598,671
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    58,707,319
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    26,896,639COST
      OF SALES
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    21,936,877
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    7,996,521
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    27,839,484
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    12,419,020GROSS
      PROFIT
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    24,334,667
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    9,602,150
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    30,867,835
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    14,567,619SELLING
      EXPENSES
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    6,450,694
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    777,012
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    9,070,992
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    3,997,477RESEARCH
      & DEVELOPMENT EXPENSES
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    1,124,445
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    -
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    1,413,017
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    -GENERAL
      AND ADMINISTRATIVE EXPENSES
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    785,565
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    454,697
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    1,130,722
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    812,125INCOME
      FROM OPERATIONS
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    15,973,963
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    8,370,441
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    19,253,104
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    9,758,017OTHER
      EXPENSES/(INCOME)Interest
      Expense/(Income), net
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    10,500
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    (789
                                                                                                                                    )
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    16,458
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    (778
                                                                                                                                    )Other
      Expenses /(Income), net
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    (13,178
                                                                                                                                    )
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    387,198
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    (12,737
                                                                                                                                    )
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    386,840TOTAL
      OTHER EXPENSES/(INCOME), NET
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    (2,678
                                                                                                                                    )
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    386,409
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    3,721
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    386,062INCOME
      BEFORE PROVISION FOR INCOME TAXES
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    15,976,641
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    7,984,032
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    19,249,383
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    9,371,955PROVISION
      FOR INCOME TAXES
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    4,591,776
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    219,983
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    4,747,223
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    594,765NET
      INCOME
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    11,384,865
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    7,764,049
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    14,502,160
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    8,777,190LESS:
      NET INCOME ATTRIBUTABLE TO THE NONCONTROLLING INTEREST
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    63,734
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    603,194
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    82,256
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    1,035,005NET
      INCOME ATTRIBUTABLE TO YONGYE INTERNATIONAL, INC.
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    11,321,131
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    7,160,855
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    14,419,904
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    7,742,185OTHER
      COMPREHENSIVE INCOME/(LOSS)Foreign
      Currency Translation Adjustment
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    (36,750
                                                                                                                                    )
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    277,101
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    11,195
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    414,771COMPREHENSIVE
      INCOME
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    11,348,115
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    8,041,150
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    14,513,355
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    9,191,961LESS:
      COMPREHENSIVE INCOME ATTRIBUTABLE TO THE NONCONTROLLING
      INTEREST
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    63,528
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    603,194
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    82,319
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    1,035,005COMPREHENSIVE
      INCOME ATTRIBUTABLE TO YONGYE INTERNATIONAL, INC.
                                                                                                                                    
                                                                                                                                    $
                                                                                                                                    11,284,587
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    $
                                                                                                                                    7,437,956
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    $
                                                                                                                                    14,431,036
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    $
                                                                                                                                    8,156,956Net
      income per share:Basic
                                                                                                                                    
                                                                                                                                    $
                                                                                                                                    0.37
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    $
                                                                                                                                    0.39
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    $
                                                                                                                                    0.51
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    $
                                                                                                                                    0.52Diluted
                                                                                                                                    
                                                                                                                                    $
                                                                                                                                    0.37
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    $
                                                                                                                                    0.38
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    $
                                                                                                                                    0.50
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    $
                                                                                                                                    0.51Weighted
      average shares used in computation:Basic
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    30,222,243
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    18,496,093
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    28,500,814
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    14,970,434Diluted
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    30,946,016
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    19,084,248
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    28,653,708
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    
                                                                                                                                    15,089,375




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




4




YONGYE
INTERNATIONAL, INC. AND SUBSIDIARIES


UNAUDITED
STATEMENTS OF CHANGES IN EQUITY


FOR THE
SIX MONTHS ENDED JUNE 30, 2009





Yongye
      International, Inc. ShareholdersCommon
      Stock
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                Comprehensive
      IncomeNumber
      of
                                                                                  Shares
                                                                                
                                                                                
                                                                                Amount
                                                                                
                                                                                
                                                                                Additional
                                                                                  Paid-in
                                                                                  Capital
      –
                                                                                  Common
                                                                                  Stock
                                                                                
                                                                                
                                                                                Additional
                                                                                  Paid-in
                                                                                  Capital
      –
                                                                                  Warrants
                                                                                
                                                                                
                                                                                Accumulated
                                                                                  Other
                                                                                  Comprehensive
                                                                                  Income
                                                                                
                                                                                
                                                                                Retained
                                                                                  Earnings
                                                                                
                                                                                
                                                                                Noncontrolling
                                                                                  Interest
                                                                                
                                                                                
                                                                                Total
                                                                                
                                                                                
                                                                                Attributable
                                                                                  to
      Yongye
                                                                                  International,
                                                                                  Inc.
                                                                                  Shareholders
                                                                                
                                                                                
                                                                                Attributable
      to
                                                                                  Noncontrolling
                                                                                  Interests
                                                                                
                                                                                
                                                                                TotalNote
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                $
                                                                                
                                                                                
                                                                                $
                                                                                
                                                                                
                                                                                $
                                                                                
                                                                                
                                                                                $
                                                                                
                                                                                
                                                                                $
                                                                                
                                                                                
                                                                                $
                                                                                
                                                                                
                                                                                $
                                                                                
                                                                                
                                                                                $
                                                                                
                                                                                
                                                                                $
                                                                                
                                                                                
                                                                                $Balance
      as of December 31, 2008
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                26,760,258
                                                                                
                                                                                
                                                                                
                                                                                26,760
                                                                                
                                                                                
                                                                                
                                                                                13,976,900
                                                                                
                                                                                
                                                                                
                                                                                3,883,432
                                                                                
                                                                                
                                                                                
                                                                                331,100
                                                                                
                                                                                
                                                                                
                                                                                11,191,997
                                                                                
                                                                                
                                                                                
                                                                                1,202,388
                                                                                
                                                                                
                                                                                
                                                                                30,612,577Net
      income
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                
                                                                                14,419,904
                                                                                
                                                                                
                                                                                
                                                                                82,256
                                                                                
                                                                                
                                                                                
                                                                                14,502,160
                                                                                
                                                                                
                                                                                
                                                                                14,419,904
                                                                                
                                                                                
                                                                                
                                                                                82,256
                                                                                
                                                                                
                                                                                
                                                                                14,502,160Foreign
      currency exchange translation adjustment, net of nil income
      taxes
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                
                                                                                11,132
                                                                                
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                
                                                                                63
                                                                                
                                                                                
                                                                                
                                                                                11,195
                                                                                
                                                                                
                                                                                
                                                                                11,132
                                                                                
                                                                                
                                                                                
                                                                                63
                                                                                
                                                                                
                                                                                
                                                                                11,195Comprehensive
      income
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                14,431,036
                                                                                
                                                                                
                                                                                
                                                                                82,319
                                                                                
                                                                                
                                                                                
                                                                                14,513,355Common
      stock and warrant issued for cash May 8, 2009 (NOTE 7)
                                                                                
                                                                                7
                                                                                
                                                                                
                                                                                
                                                                                5,834,083
                                                                                
                                                                                
                                                                                
                                                                                5,834
                                                                                
                                                                                
                                                                                
                                                                                7,822,662
                                                                                
                                                                                
                                                                                
                                                                                319,643
                                                                                
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                
                                                                                8,148,139Balance
      as of June 30, 2009
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                32,594,341
                                                                                
                                                                                
                                                                                
                                                                                32,594
                                                                                
                                                                                
                                                                                
                                                                                21,799,562
                                                                                
                                                                                
                                                                                
                                                                                4,203,075
                                                                                
                                                                                
                                                                                
                                                                                342,232
                                                                                
                                                                                
                                                                                
                                                                                25,611,901
                                                                                
                                                                                
                                                                                
                                                                                1,284,707
                                                                                
                                                                                
                                                                                
                                                                                53,274,071





5





YONGYE
INTERNATIONAL, INC. AND SUBSIDIARIES


UNAUDITED
CONSOLIDATED STATEMENTS OF CASH FLOWS




For
      the Six Months Ended
                                  
                                  
                                  For
      the Six Months EndedJune
      30, 2009
                                  
                                  
                                  June
      30, 2008CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      income
                                  
                                  $
                                  14,502,160
                                  
                                  
                                  $
                                  8,777,190Adjustments
      to reconcile net income to net cash used in operating
      activitiesDepreciation
      and amortization
                                  
                                  
                                  244,805
                                  
                                  
                                  
                                  93,263Reversal
      of bad debt provision
                                  
                                  
                                  (305,338
                                  )
                                  
                                  
                                  -Changes
      in assets and liabilities:Accounts
      receivable - third parties
                                  
                                  
                                  (33,525,463
                                  )
                                  
                                  
                                  (20,613,347
                                  )Accounts
      receivable - related party
                                  
                                  
                                  (29,212
                                  )
                                  
                                  
                                  -Inventories
                                  
                                  
                                  (6,026,638
                                  )
                                  
                                  
                                  (5,196,266
                                  )Advance
      payments
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (65,453
                                  )Due
      from a related party
                                  
                                  
                                  33
                                  
                                  
                                  
                                  2,397,465Prepaid
      expenses
                                  
                                  
                                  60,096
                                  
                                  
                                  
                                  -Other
      receivables
                                  
                                  
                                  263,126
                                  
                                  
                                  
                                  (216,795
                                  )Accounts
      payable- related party
                                  
                                  
                                  11,376,007
                                  
                                  
                                  
                                  4,889,694Accounts
      payable- third parties
                                  
                                  
                                  41,187
                                  
                                  
                                  
                                  -Income
      tax payable
                                  
                                  
                                  4,562,992
                                  
                                  
                                  
                                  243,007Advance
      from customers
                                  
                                  
                                  (1,699,588
                                  )
                                  
                                  
                                  -Accrued
      expenses
                                  
                                  
                                  4,742,049
                                  
                                  
                                  
                                  1,882,643Other
      payables
                                  
                                  
                                  85,887
                                  
                                  
                                  
                                  203,947Net
      Cash Used in Operating Activities
                                  
                                  
                                  (5,707,897
                                  )
                                  
                                  
                                  (7,604,652
                                  )CASH
      FLOWS FROM INVESTING ACTIVITIESAcquisition
      of property and equipment
                                  
                                  
                                  (2,100,266
                                  )
                                  
                                  
                                  (639,519
                                  )Addition
      to intangible assets
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (122,899
                                  )Net
      Cash Used in Investing Activities
                                  
                                  
                                  (2,100,266
                                  )
                                  
                                  
                                  (762,418
                                  )CASH
      FLOWS FROM FINANCING ACTIVITIESProceeds
      from bank loans
                                  
                                  
                                  129,593
                                  
                                  
                                  
                                  -Repayment
      of bank loans
                                  
                                  
                                  (70,591
                                  )
                                  
                                  
                                  -Proceeds
      from common stock and warrants issued
                                  
                                  
                                  8,984,595
                                  
                                  
                                  
                                  10,100,651Payment
      for common stock issuance costs
                                  
                                  
                                  (836,456
                                  )
                                  
                                  
                                  (806,159
                                  )Net
      Cash Provided by Financing Activities
                                  
                                  
                                  8,207,141
                                  
                                  
                                  
                                  9,294,492EFFECT
      OF FOREIGN CURRENCY TRANSLATION ON CASH
                                  
                                  
                                  (15,641
                                  )
                                  
                                  
                                  414,771NET
      INCREASE IN CASH
                                  
                                  
                                  383,337
                                  
                                  
                                  
                                  1,342,193CASH–
      BEGINNING
                                  
                                  
                                  4,477,477
                                  
                                  
                                  
                                  8,137CASH
      - ENDING
                                  
                                  $
                                  4,860,814
                                  
                                  
                                  $
                                  1,350,330
  Supplemental
      cash flow information:Cash
      paid for income taxes
                                  
                                  
                                  192,357
                                  
                                  
                                  
                                  417,744Cash
      paid for interest expense
                                  
                                  
                                  21,384
                                  
                                  
                                  
                                  -Noncash
      investing and financing activities:


During
      the six months ended June 30, 2008, the non-controlling shareholder of
      Yongye Nongfeng contributed a patent valued at $100,000 to Yongye
      Nongfeng.





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




6




YONGYE
INTERNATIONAL, INC. AND SUBSIDIARIES




NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS




FOR THE
SIX MONTHS ENDED JUNE 30, 2009




NOTE 1
-ORGANIZATION AND DESCRIPTION OF BUSINESS




A. Organization




Yongye
International, Inc. (the “Company”, formerly known as “Golden Tan, Inc.” or
“Yongye Biotechnology International, Inc.”)was incorporated in the State
of Nevada on December 12, 2006. On April 17, 2008, the Company entered into a
share exchange agreement (the “Exchange Agreement”) with Fullmax Pacific
Limited, a privately held investment holding company organized on May 23, 2007
under the laws of the British Virgin Islands (“Fullmax”) and the shareholders of
Fullmax (the “ Fullmax Shareholders”), who collectively owned all the issued and
outstanding ordinary shares of Fullmax. Pursuant to the terms of the Exchange
Agreement, the Fullmax Shareholders transferred to the Company all of their
shares in exchange for 11,444,755 (the “Shares”) shares of the Company’s common
shares (the “Share Exchange”). As a result of the Share Exchange, Fullmax became
a wholly-owned subsidiary of the Company and the Fullmax Shareholders received
approximately 84.7% of the Company’s issued and outstanding common shares.
Immediately prior to the date of the Share Exchange, the Company was a publicly
listed shell entity with no operations and had a nominal amount of cash and,
Fullmax, through its wholly-owned subsidiary, Asia Standard Oil Limited (“ASO”)
and indirect subsidiary, Yongye Nongfeng Biotechnology (“Yongye Nongfeng”), was
engaged in the sale of fulvic acid based liquid and powder nutrient compounds
for plant and animal feed used in the agriculture industry. The Share Exchange
was accounted for as a reverse recapitalization, equivalent to the issuance of
stock by Fullmax for the net monetary assets of the Company accompanied by a
recapitalization.




In
November 2007, ASO a Hong Kong investment holding company, entered into a
Sino-Foreign cooperative joint venture contract (“Contract”) with Inner Mongolia
Yongye Biotechnology Co., Ltd. (“Inner Mongolia Yongye”) to form a cooperative
joint venture, Yongye Nongfeng Biotechnology Co. Ltd (“Yongye Nongfeng”),
pursuant to which, Inner Mongolia Yongye and ASO is to own 10% and 90% of the
equity interests in Yongye Nongfeng, respectively. Inner Mongolia Yongye was
formed on September 16, 2003 in the People’s Republic of China (the “PRC”). Mr.
Zishen Wu, Chief Executive Officer, President and Chairman of the Company, owns
a controlling 91.67% of the equity interest in Inner Mongolia Yongye. Inner
Mongolia Yongye’s primary business is the research, manufacturing, and sale of
biochemical products for use in plants and animal growth.  Inner
Mongolia Yongye is located in the City of Hohhot, Inner Mongolia Autonomous
Region PRC.




On
January 4, 2008, the incorporation and establishment of Yongye Nongfeng was
approved by the Inner Mongolia Department of Commerce and the Inner Mongolia
Administration for Industry and Commerce. The scope of business of Yongye
Nongfeng is the distribution and sale of products of Inner Mongolia
Yongye.  The period of the cooperative joint venture is ten years and
may be extended by a written application submitted to the relevant government
authority for approval no less than six months prior to the expiration of the
cooperative joint venture. Prior to the legal establishment of Yongye Nongfeng,
both Fullmax and ASO were non substantive holding companies with no assets and
operations and were primarily designed and used as legal vehicles to facilitate
foreign participation in the business conducted by Inner Mongolia
Yongye.




In May
2008, upon the agreement among Inner Mongolia Yongye, ASO and Yongye Nongfeng,
the ownership of Yongye Nongfeng was revised, pursuant to which Inner Mongolia
Yongye and ASO became 0.5% and 99.5% equity interests owner of Yongye Nongfeng,
respectively. ASO did not fully inject its share of the capital into Yongye
Nongfeng until May 31, 2009. Based upon actual capital injection into Yongye
Nongfeng, Inner Mongolia Yongye and ASO were 0.6% and 99.4% owner of Yongye
Nongfeng as of December 31, 2008.




B. Nature of
Business




The
Company, through its primary operating subsidiary, Yongye Nongfeng, is engaged
in the sale of fulvic acid based liquid and powder nutrient compounds used in
the agriculture industry in the PRC. In January 2008, upon receiving
governmental approval of the establishment of Yongye Nongfeng, the management of
Yongye Nongfeng anticipated that Yongye Nongfeng would not be able to obtain the
fertilizer licensee in the near future, and therefore, Yongye Nongfeng entered
into an agreement ( the “Agreement”) with Inner Mongolia Yongye, pursuant to
which Yongye Nongfeng agreed to purchase finished goods products that are to be
manufactured by Inner Mongolia Yongye at a fixed price of RMB 350 per case for
fulvic acid plant based products and RMB 120 per case for fulvic acid animal
based products .  The term of the Agreement is for the period from
January 15, 2008 to January 14, 2013. Pursuant to the Agreement, the Company can
terminate this by giving one month notice to Inner Mongolia Yongye. The Company
is in the process of terminating the Agreement after obtaining the fertilizer
license referred to in the following paragraph.




7




On June
1, 2009, Yongye Nongfeng obtained the approval from Ministry of Agricultural for
the fertilizer license to producefulvic acid based products
to be held under its name, which was previously held in the name of Inner
Mongolia Yongye. As a result, starting from June 1, 2009, Yongye Nongfeng began
to manufacture and produce its own fulvic acid based products for
sale.  In addition, on June 1, 2009, Yongye Nongfeng purchased all of
the inventories of Inner Mongolia Yongye relating to fulvic acid based products
for $12,258,000 in cash.




In March
2009, in anticipation of commencement of its own production, Yongye Nongfeng
purchased production equipment, vehicle and office equipment from Inner Mongolia
Yongye for approximately US$577,000, US$351,000 and US$12,000, respectively,
which represent the estimated fair value of the assets based on an appraisal by
independent valuers.




Yongye
Nongfeng and Inner Mongolia Yongye also entered into certain lease-exchange
arrangements related to land-use rights, buildings and equipment. (See Note
12)




Restatement of 2008
Financial Statements


In
connection with the preparation of the Company’s interim consolidated financial
statements as of and for the three and six months ended June 30, 2009,
management identified an error in the Company’s basic and diluted net income per
share presented in its previously issued consolidated financial
statements.  The Company has incorrectly accounted for the April
Escrow Shares and September Escrow Shares (See Note 7) as contingently issuable
shares for purposes of calculating earnings per share and excluded such
outstanding shares that were placed in escrow from the calculation of the
weighted average number of common shares outstanding.  It was
determined that since April Escrow Shares and September Escrow Shares are
neither contingently cancellable nor contingently returnable to the Company, the
shares should have been included in the denominator in computing the Company’s
basic and diluted net income per share.
  The
following table presents the effect of correcting this error on the net income
per share for the three and six months ended June 30, 2008.  The
correcting adjustments had no impact on the Company’s previously issued
consolidated balance sheet as of June 30, 2008 and consolidated statement of
cash flows for the six months then ended.
  Three
      months ended June 30, 2008
                                            
                                            
                                            Six
      months ended June 30, 2008As
      Previously
                                              Reported
                                            
                                            
                                            As
      Restated
                                            
                                            
                                            As
      Previously
                                              Reported
                                            
                                            
                                            As
      RestatedWeighted
      average ordinary shares outstanding
                                            
                                            
                                            16,847,741
                                            
                                            
                                            
                                            18,496,093
                                            
                                            
                                            
                                            14,146,258
                                            
                                            
                                            
                                            14,970,434Weighted
      average ordinary shares outstanding used in computing diluted net income
      per ordinary share.
                                            
                                            
                                            17,435,896
                                            
                                            
                                            
                                            19,084,248
                                            
                                            
                                            
                                            14,265,199
                                            
                                            
                                            
                                            15,089,375Net
      income per ordinary share-basic
                                            
                                            $
                                            0.43
                                            
                                            
                                            $
                                            0.39
                                            
                                            
                                            $
                                            0.55
                                            
                                            
                                            $
                                            0.52Net
      income per ordinary share-diluted
                                            
                                            $
                                            0.41
                                            
                                            
                                            $
                                            0.38
                                            
                                            
                                            $
                                            0.54
                                            
                                            
                                            $
                                            0.51
 
  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 (“ U.S. GAAP”) and include the financial statements of the Company
and its subsidiaries. The accompanying unaudited consolidated balance sheet as
of June 30, 2009, unaudited consolidated statements of income and comprehensive
income for the three months and six months ended June 30, 2009 and unaudited
consolidated statements of changes in equity and cash flows for the six months
ended June 30, 2009 include Yongye International, Inc. and its directly and
indirectly owned subsidiaries, Fullmax, ASO and Yongye Nongfeng. The Company’s
unaudited consolidated statements of income and comprehensive income and cash
flows for the three months and six months ended June 30, 2008 consist of the
financial results of Yongye Nongfeng for such periods and the financial results
of Fullmax and ASO from the period April 17, 2008 to June 30,
2008.  For the period from January 1, 2008 to April 17, 2008, the
financial results of Fullmax and ASO are not material.




All
significant intercompany transactions and balances are eliminated on
consolidation.





The
accompanying unaudited consolidated financial statements as of June 30, 2009 and
for the three months and six months ended June 30, 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, the accompanying unaudited consolidated interim financial statements
include all adjustments considered necessary to ensure the financial statements
are not misleading. Management has evaluated subsequent events that have
occurred through August 19, 2009, the date of issuance of the accompanying
interim financial statements as of and for the three months and six months ended
June 30, 2009.





The
Company's business is subject to seasonal variations; thus, the results of
operations for the three and six months ended June 30, 2009 and 2008 are not
necessarily indicative of the results for the full fiscal year ending December
31, 2009. Generally, the second and third quarters are peak sales periods, and
first and fourth quarters are low sales periods for the Company.





The
unaudited consolidated interim financial statements should be read in
conjunction with the Company's audited consolidated financial statements and
notes thereto for the year ended December 31, 2008 that are included in the
Company’s 2008 annual report on 10-K filed with the Securities and Exchange
Commission.





NET
INCOME PER SHARE




Basic net
income per share is computed by dividing net income attributable to common
shareholders of the Company by the weighted average number of common shares
outstanding during the period. Diluted net income per share reflects the
potential dilution that would occur upon the exercise of outstanding warrants.
Common share equivalents are excluded from the computation of the diluted net
income per share in periods when their effect would be
anti-dilutive.




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 fiscal 2008, for fair value measurements of financial assets and
financial liabilities and for fair value measurements of nonfinancial items that
are recognized or disclosed at fair value in the financial statements on a
recurring basis, and is effective beginning in fiscal 2009, for fair value
measurements of nonfinancial assets and nonfinancial liabilities that are
recognized or disclosed at fair value in the financial statements on a
nonrecurring basis. The adoption of FAS 157 has no material impact on the
Company’s financial statement.




8




In
December 2007, the FASB issued FASB Statement No. 141(R), Business Combinations, and
FASB Statement No. 160, Noncontrolling Interests in
Consolidated Financial Statements – an amendment to ARB No. 51. SFAS No.
141(R) and No. 160 require most identifiable assets, liabilities, noncontrolling
interests, and goodwill acquired in a business combination to be recorded at
“full fair value” and require noncontrolling interests (previously referred to
as minority interests) to be reported as a component of equity, which changes
the accounting for transactions with noncontrolling interest holders. Both
Statements are effective for periods beginning on or after December 15, 2008,
and earlier adoption is prohibited. SFAS No. 141(R) will be applied to business
combinations occurring after the effective date. SFAS No. 160 will be applied
prospectively to all noncontrolling interests, including any that arose before
the effective date.  In April 2009, the FASB issued FSP FAS 141(R)-1,
Accounting for Assets Acquired
and Liabilities Assumed in a Business Combination That Arise from
Contingencies, which amends and clarifies FAS141(R) to address
application issues on initial recognition and measurement, subsequent
measurement and disclosure of assets and liabilities arising from contingencies
in a business combination. Other than the change in presentation of
noncontrolling interests, the adoption of FAS 141(R) and FAS 160 has no impact
on the Company’s financial statement.




In May
2009, the FASB issued Statement No. 165, “Subsequent Events” (FAS 165). The
statement established general standards of accounting for and disclosure of
events that occur after the balance sheet date but before financial statements
are issued or are available to be issued. This Statement requires the disclosure
of the date through which an entity has evaluated subsequent events and the
basis for that date, that is, whether that date represents the date the
financial statements were issued or were available to be issued. FAS 165 is
effective for the Company beginning in this second quarter of fiscal
2009.




NOTE
3-ACCOUNTS RECEIVABLE




Net
accounts receivable at June 30, 2009 and December 31, 2008 consisted of the
following:





June
      30, 2009
                        
                        
                        December
      31, 2008Accounts
      receivable-third parties
                        
                        $
                        36,562,325
                        
                        
                        $
                        3,053,380Accounts
      receivable-related party
                        
                        
                        29,219
                        
                        
                        
                        -Less:
      allowance for doubtful accounts
                        
                        
                        -
                        
                        
                        
                        (305,338
                        )Total
                        
                        $
                        36,591,544
                        
                        
                        $
                        2,748,042





A bad
debt provision of $232,010 was reversed for the three months ended June 30,
2009, and $305,338 was reversed for the six months ended June 30, 2009 as the
total amount of the related accounts receivable, which was previously provided
for as of December 31, 2008 was repaid by the customer during the six months
ended June 30, 2009. No bad debt expense provision was required for the three
and six months ended June 30, 2009 as management believes no accounts are
uncollectible as of June 30, 2009.





The
Company’s normal credit terms to customers with well-established trading records
are three months while the Company generally requests other customers to pay
either in advance or upon delivery.





NOTE
4-INVENTORIES




Inventories
at June 30, 2009 and December 31, 2008 consisted of the following:




June
      30, 2009
                          
                          
                          December
      31, 2008Finished
      goods
                          
                          $
                          19,548,221
                          
                          
                          $
                          20,664,930Semi-finished
      goods
                          
                          
                          6,669,587
                          
                          
                          
                          -Packing
      supplies
                          
                          
                          81,103
                          
                          
                          
                          -Raw
      materials
                          
                          
                          401,705
                          
                          
                          
                          -Consumables
                          
                          
                          59,785
                          
                          
                          
                          43,263Total
                          
                          $
                          26,760,401
                          
                          
                          $
                          20,708,193




9




NOTE
5-PROPERTY AND EQUIPMENT




Property
and equipment at June 30, 2009 and December 31, 2008 consisted of the
following:





June30, 2009
                  
                  
                  December 31, 2008Buildings
      and structures
                  
                  $
                  3,662,014
                  
                  
                  $
                  3,656,992Machinery
      and equipment
                  
                  
                  1,508,349
                  
                  
                  
                  673,480Office
      equipment and furniture
                  
                  
                  212,946
                  
                  
                  
                  85,087Vehicles
                  
                  
                  1,409,910
                  
                  
                  
                  824,013Software
                  
                  
                  17,180
                  
                  
                  
                  17,156Leasehold
      improvements
                  
                  
                  219,144
                  
                  
                  
                  218,844Construction-in-process
                  
                  
                  409,049
                  
                  
                  
                  -7,438,592
                  
                  
                  
                  5,475,572Less:
      Accumulated depreciation
                  
                  
                  347,071
                  
                  
                  
                  107,498Total
                  
                  $
                  7,091,521
                  
                  
                  $
                  5,368,074




Depreciation
expense for the three months ended June 30, 2009 and 2008 was $134,912 and
$45,190, respectively. Depreciation
expense for the six months ended June 30, 2009 and 2008 was $239,494 and
$87,974, respectively. Vehicles with an original carrying amount of $996,827
were pledged as security for the long-term banks loans of $571,237 which were
provided by the banks for the purchase of the vehicles (See Note
6).





NOTE 6 –
LONG-TERM LOANS




From
August 2008 to June 2009, the Company financed the purchase of seventeen
vehicles with bank loans of $571,237. The Company pledged the seventeen vehicles
with an initial carrying amount of $996,827 as security for the bank loans. The
loans all have three-year terms and are paid in monthly installments. Interest
rates on the loans range from 5.57% to 14.80% annually. The bank loans were
initially obtained by individual employees of the Company on behalf of the
Company. The Company and the individual employees entered into trust agreements
whereby the Company is entitled to all the risk and ownership of the vehicles
and assumes all the responsibility and obligations for making the monthly
payments on the bank loans. The aggregate amount of such required payments at
June 30, 2009 is as follows:




2009
                      
                      $
                      110,0652010
                      
                      
                      220,1312011
                      
                      
                      174,7082012
                      
                      
                      9,432Total
                      
                      
                      514,336Less:
      Amount representing interest
                      
                      
                      (56,998
                      )Total
      at present value
                      
                      $
                      457,338




At June
30, 2009, the current portion of bank loans was $183,723 which is scheduled to
be repaid on or before June 30, 2010, while the long-term portion of the bank
loans is $273,615. The Company made total payments of $54,414, which
included interest expense of $11,551, during the three months ended June 30,
2009.




According
to the trust agreements, while the vehicles are registered under the
individuals’ name, the Company receives the full risk and ownership of the
vehicles, including the rights of official use of the vehicles and the rights to
retain the legal title of the vehicles at the time of termination of the
employment relationship with the individual. The Company assumes the risk of
loss, damage, penalty and other obligations related to the operation and
ownership of the vehicle, including repairs and maintenance. The Company is also
required to make the initial down payment at the date of purchase and repay the
bank loans. The individuals have no right to sell, lease, lend or pledge the
vehicles to any other person. Consequently, the Company has recognized the cost
of the vehicles as assets and the bank loans as liabilities in its consolidated
balance sheet.


10





NOTE 7 -
CAPITAL STOCK





Capital
stock





Concurrent
with the “Share Exchange”, the Company entered into a securities purchase
agreement on April 17, 2008 with certain investors (the “April Investors”) for
the sale in a private placement of an aggregate of 6,495,619 shares of the
Company’s common stock, par value $0.001 per share (the “April Investor
Shares”) for aggregate gross proceeds equal to $10,000,651 (the “April
Offering”).





On
September 5, 2008, the Company entered into a securities purchase agreement,
with certain investors (the “September
Investors”), for the sale in a private placement of an aggregate
of 6,073,006 shares of the Company’s common stock, par value $0.001 per
share (the “September
Investor Shares”) for aggregate gross proceeds equal to approximately
$9,350,000 (the “September
Offering”).





On May
8, 2009, the Company entered into a securities purchase agreement with certain
investors (the “May
Investors”), for the sale in a private placement of an aggregate of
5,834,083 shares of the Company common stock, par value $0.001 per share
(the“May
Shares”) for a aggregate gross proceeds equal to $8,984,488 (the “May
Offering”).





In
connection with the May Offering, the Company entered into a registration rights
agreement with the investors, in which the Company agreed to file a registration
statement with the SEC to register for resale the shares, including the shares
to be issued under the warrants (see below), within 45 calendar days of the
closing date of the May Offering, and to use its best efforts to have the
registration statement declared effective within 150 calendar days of the
closing date of the May Offering.  The Company is obligated to pay
liquidated damages of 1% of the dollar amount of the shares sold in the May
Offering per month, payable in cash, up to a maximum of 10%, if the registration
statement is not filed and declared effective within the foregoing time periods.
 Offering expenses for the issuance of the shares were $836,456, which were
recorded as a reduction of Additional Paid-in Capital on the June 30, 2009
Consolidated Balance Sheet.





Warrants





Concurrent
with the “April Investor Shares”, the Company issued 1,623,905 warrants to
purchase 1,623,905 shares of the Company’s common stock (the “April Warrants”) to
the “April Investors”. The warrants issued have a 5 years exercise period with
an exercise price of $1.848. In addition, 649,562 warrants were issued to Roth
Capital Partners LLC (“Roth”) as the placement agent with terms and exercise
price identical to the warrants issued to the April Investors.





Concurrent
with the “September Investor Shares”, the Company issued 1,518,253 warrants to
purchase 1,518,253 shares of the Company’s common stock (the “September Warrants”)
to the “September Investors”. The warrants issued have a 5 years exercise period
with an exercise price of $1.848. In addition, 607,301 warrants were issued to
Roth as the placement agent with terms and exercise price identical to the
warrants issued to the September Investors.





On
September 12, 2008 Roth Capital executed an irrevocable cashless exercise of its
warrants and was issued 686,878 shares of common stock of the Company pursuant
to the April 17, 2008 and September 5, 2008 warrants issued to Roth as placement
agent. In exchange for the issuance of 354,987 shares, Roth surrendered 649,562
warrants received in the April Offering; and in exchange for the issuance of
331,891 shares, Roth surrendered 607,301 warrants received in the September
Offering.





Concurrent
with the offering of “May Shares”, the Company issued to Roth as the placement
agent, 246,224 warrants.  The warrants have a 5 years exercise period
and an exercise price of $1.848.





At June
30, 2009, there are 3,388,382 warrants outstanding with a weighted average
exercise price of $1.848.  Of this total, 1,623,905 expire in April
2013, 1,518,253 expire in September 2013 and 246,224 expire in May
2014.





The
Company has accounted for these warrants (issued to Roth and the investors) as
equity instruments. The proceeds received in the respective offerings were
allocated based on the relative fair values of the Company’s common stocks and
the warrants at the time of issuance.





The fair
values of the warrants granted are as follows:





April Offering
                  
                  
                  September
                    Offering
                  
                  
                  May OfferingFair
      value of Warrant per share (US$)
                  
                  
                  1.82
                  
                  
                  
                  3.47
                  
                  
                  
                  1.73





The fair
values of the warrants were determined based on the Black-Scholes option pricing
model, using the following assumptions:


11





April Offering
                          
                          
                          September
                            Offering
                          
                          
                          May OfferingExpected
      volatility
                          
                          
                          103
                          %
                          
                          
                          103
                          %
                          
                          
                          135
                          %Expected
      dividends yield
                          
                          
                          0
                          %
                          
                          
                          0
                          %
                          
                          
                          0
                          %Expected
      term
                          
                          5
      years
                          
                          
                          5
      years
                          
                          
                          5
      yearsRisk-free
      interest rate per annum
                          
                          
                          2.90
                          %
                          
                          
                          2.96
                          %
                          
                          
                          2.15
                          %Fair
      value of underlying Common Shares (per share)
                          
                          
                          2.30
                          
                          
                          
                          4.08
                          
                          
                          
                          1.96





Escrow
shares





In
connection with the April Offering, the Company entered into an escrow agreement
with Roth as a representative of the April Investors, Tri-State Title &
Escrow LLC (the “Escrow Agent”) and
Full Alliance,
one of the Company’s shareholders (the “April Escrow
Agreement”), pursuant to which 2,000,000 shares of the Company held by
Full Alliance (the “April Escrow Shares”)
were delivered to the Escrow Agent. The Escrow Shares were held for the
Company’s achievement of $10,263,919 after tax net income (“ATNI”) for the year
ended December 31, 2008 (the “2008 Net Income
Threshold”). As reported in the Company’s 2008 Form 10-K, the ATNI
threshold has been achieved. The Escrow Shares were released in full back to
Full Alliance as of June 30, 2009.





In
connection with the September Offering, the Company entered into an escrow
agreement with Roth, the Escrow Agent and Full Alliance (the “September Escrow
Agreement”), pursuant to which 4,000,000 shares of the Company 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 for the Company’s achievement of 2008 and 2009
financial targets described below:





If the
Company achieves (i) the 2008 Net Income Threshold, and (ii) fully
diluted earnings per share reported in the Company’s 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
sentence 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. In the event
that (i) the 2009 ATNI is less than $12,649,248, or the fully diluted earnings
per share reported in 2009 Annual Report on Form 10-K filed with the SEC (the
“2009 Annual Report”) is less than $0.42, all of the 2,000,000 Make Good Escrow
Shares shall be distributed to the September Investors on a pro-rata basis, (ii)
the 2009 ATNI equals or exceeds $12,649,248 and is less than $15,811,560, or the
fully diluted earnings per share reported in the 2009 Annual Report, equals or
exceeds $0.42 and is less than $0.53, then the Make Good Shares equal to the
product of  (i)(A) $15,811,560 minus the 2009 ATNI, 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 share shall be
returned to Full Alliance, (iii) the 2009 ATNI exceeds $15,811,560, the
2,000,000 Make Good Escrow Shares will be released back to Full
Alliance.





If the
Company does not achieve (i) the 2008 Net Income Threshold, or (ii) 2008
Guaranteed EPS, the Make Good Escrow Shares will be released pro-rata to the
September Offering investors. As shown in the 2008 Form 10-K, the 2008 Net
Income Threshold and 2008 Guaranteed EPS have been achieved.





The
remaining 2,000,000 escrow shares are being held for the timely approval
obtained from Ministry of Agriculture of Inner Mongolia in relation to the
transfer of fertilizer license to Yongye Nongfeng from Inner Mongolia Yongye and
completion of Yongye Nongfeng’s restructuring (the “Restructuring Make Good
Shares”). The fertilizer license is issued by the Ministry of Agriculture
and provides the holder the right to manufacture and sell fertilizer products in
the PRC.  The Company is undergoing a restructuring process under
which the Company will purchase the land, buildings and equipment which
comprised of the 10,000 tonnes per annum capacity of the fulvic acid based
products (“Yongye Nongfeng Restructuring”).





In the
event that (1) the fertilizer license has not been issued to Yongye Nongfeng by
June 30, 2009, or such later date as agreed to by the Company and the September
Investors holding a majority of the September Investor Shares at such time (the
“License Grant
Date”), or (2) the fertilizer license has been issued by the License
Grant Date, but the Yongye Nongfeng 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. The “Restructuring
Completion Date” shall be the date that is 132 calendar days after the License
Grant Date. The fertilizer license was issued on June 1, 2009 by the Ministry of
Agriculture to Yongye Nongfeng in accordance with the deadline, however Yongye
Nongfeng Restructuring is required to be completed by the Restructuring
Completion Date, if the Restructuring Make Good Shares shall be returned to Full
Alliance. The Company is in the process of completing the legal procedures for
obtaining the land and building from Inner Mongolia Yongye.


12




The
purpose of the April Escrow Arrangement and September Escrow Arrangement was an
inducement made to facilitate the respective offerings, and not part of a
compensatory arrangement to management. The escrow shares will not be released
or cancelled due to the discontinued employment of any management of the
Company.





NOTE 8 –
STATUTORY RESERVE





The
Company’s subsidiary, Yongye Nongfeng, was required to allocate at least 10% of
its after tax profits as determined under generally accepted accounting
principal in the PRC to a statutory surplus reserve until the reserve balance
reaches 50% of their registered capital. For the six months ended June 30, 2009
and 2008, Yongye Nongfeng made appropriations to this statutory reserve of
$1,412,592 and $771,107, respectively. The accumulated balance of the statutory
reserve at Yongye Nongfeng as of June 30, 2009 and December 31, 2008 were
$2,620,504 and $1,207,912, respectively.





In
accordance with the PRC laws and regulations, Yongye Nongfeng is restricted in
its ability to transfer a portion of its net assets to Yongye International,
Inc. in the form of dividends, which amounted to $2,620,504 as of June 30,
2009.





NOTE 9 –
INCOME TAXES





The
Company’s effective income tax rate was 28.74% and 2.76% for the three-month
periods ended June 30, 2009 and 2008, respectively and 24.66% and 6.35% for the
six-month periods ended June 30, 2009 and 2008, respectively. Income tax expense
mainly consists of foreign income tax at statutory rates and the effects of
permanent differences. According to the approval from the tax authority in the
city level of Hohhot in Inner Mongolia Autonomous Region, Yongye Nongfeng was
assessed to use the deemed profit method to determine the amount of income tax
provision for the year ended December 31, 2008 which was based on 1.25% on its
gross revenue. The deemed profit method is not applicable to Yongye Nongfeng for
the year ending December 31, 2009. With effective from January 1, 2009, Yongye
Nongfeng applied the statutory income tax rate of 25% on its assessable income
in accordance with the relevant income tax rules and regulations of the
PRC. The income tax rate applied by Yongye Nongfeng to determine the income
tax provision for the three and six month periods ended June 30, 2009 is
consistent with the tax notice issued by the State Administration of Taxation in
the PRC on July 14, 2009.





NOTE 10 –
LEASE COMMITMENTS





The
Company entered into an operating lease to secure an office space in Beijing,
PRC. The lease term for the Beijing office is from January 1, 2008 to
December 31, 2010. The lease expense for the Beijing office was $49,677 and
$107,539 for the three and six months ended June 30, 2009, respectively. The
lease expense for the Beijing office was $56,842 and $96,429 for the three and
six months ended June 30, 2008, respectively. Future minimum lease payments
under non-cancellable operating lease agreement at June 30, 2009 are as
follows:





December
      31, 2009
                      
                      $
                      115,756December
      31, 2010
                      
                      
                      231,512Total
                      
                      $
                      347,268




NOTE 11 –
RELATED PARTY TRANSACTIONS AND BALANCES




For the
three months and six months ended June 30, 2009, the Company's subsidiary,
Yongye Nongfeng purchased inventories from Inner Mongolia Yongye amounting to
$30,559,654 and $37,923,422, respectively. For the three months and six months
ended June 30, 2008, the Company's subsidiary, Yongye Nongfeng purchased
inventories from Inner Mongolia Yongye amounting to $8,537,112 and $17,468,749,
respectively.





As of
June 30, 2009 and December 31, 2008, accounts payable related party were
$11,414,741 and $46,739, respectively, and represented the payable for the
purchases of inventories from Inner Mongolia Yongye. Due from related party was
$193,046 and $192,741 as of June 30, 2009 and December 31, 2008 which
represented the payment the Company made on behalf of Inner Mongolia Yongye for
audit fees and research and development fees in the year ended December 31,
2008. As of June 30, 2009, accounts receivable related party was $29,219 and
represented the receivable from Hubei Longshangxing Xinnongcun Fuwu
Youxiangongsi, which is 51% owned by Inner Mongolia Yongye, for the
sale of fulvic acid plant based products. For the six months ended
June 30, 2009, the Company sold products of $2,220,083 to Hubei Longshangxing
Xinnongcun Fuwu Youxiangongsi.





For
the six months ended June 30, 2008, the Company borrowed $1,638,581 from
Yin Ping, the wife of CEO Mr. Zishen Wu, $762,524 from Inner Mongolia Yongye and
$10,000 from Kim McElroy, a director of the Company who resigned in April 2008.
The amounts are unsecured and non-interesting bearing, and were repaid in full
as of December 31, 2008.





In March
2009, Yongye Nongfeng purchased machinery and equipment, vehicles and office
equipment in the amount of $940,531 from Inner Mongolia Yongye (See Note
1).


13


Yongye
Nongfeng and Inner Mongolia Yongye entered a series of lease-exchange
arrangement to lease land, buildings and equipment to and from each other as
follows:





·
            On
      June 1, 2008, a land lease agreement was entered into in which Yongye
      Nongfeng would lease land of 74,153 square meters from Inner Mongolia
      Yongye 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 Inner Mongolia Yongye would lease a
      building occupied area of 3,967 square meters and certain equipment from
      Yongye Nongfeng from September 28, 2008 to September 27,
    2009.





·
            On
      March 15, 2009, an equipment lease agreement was entered into in which
      Inner Mongolia Yongye would lease a set of production equipment from
      Yongye Nongfeng from March 15, 2009 to May 31,
  2009.





·
            On
      June 1, 2009, a land lease agreement and a building lease agreement were
      entered into in which Yongye Nongfeng would lease buildings occupied area
      of 5,767 square meters and land of 79,920 square meters from Inner
      Mongolia Yongye from June 1, 2009 to October 10,
  2009.





Pursuant
to these agreements, both Yongye Nongfeng and Inner Mongolia Yongye did not
charge any rental to each other for the lease.  Additionally, the
estimated rental income to be received and the rental expense to be paid by the
Yongye Nongfeng are not material to the Company’s 2009 and 2008 results of
operations and therefore have not been included.





NOTE 12 -
NET INCOME PER SHARE




The
following table sets forth the computation of basic and diluted income per share
for the periods indicated:





Three months ended
                      
                      
                      Six months endedJune 30, 2009
                      
                      
                      June 30, 2008
                      
                      
                      June 30, 2009
                      
                      
                      June 30, 2008As
      restated - Note 1(c)
                      
                      
                      
                      
                      
                      As
      restated - Note 1(c)Numerator
      used in basic net income per share:Net
      income attributable to Yongye International, Inc.
                      
                      
                      11,321,131
                      
                      
                      
                      7,160,855
                      
                      
                      
                      14,419,904
                      
                      
                      
                      7,742,185Shares
      (denominator):Weighted
      average ordinary shares outstanding
                      
                      
                      30,222,243
                      
                      
                      
                      18,496,093
                      
                      
                      
                      28,500,814
                      
                      
                      
                      14,970,434Plus:
      weighted average incremental shares from assumed exercise of
      warrants
                      
                      
                      723,773
                      
                      
                      
                      588,155
                      
                      
                      
                      152,894
                      
                      
                      
                      118,941Weighted
      average ordinary shares outstanding used in computing diluted net
      income per ordinary share
                      
                      
                      30,946,016
                      
                      
                      
                      19,084,248
                      
                      
                      
                      28,653,708
                      
                      
                      
                      15,089,375Net
      income per ordinary share-basic
                      
                      $
                      0.37
                      
                      
                      $
                      0.39
                      
                      
                      $
                      0.51
                      
                      
                      $
                      0.52Net
      income per ordinary share-diluted
                      
                      $
                      0.37
                      
                      
                      $
                      0.38
                      
                      
                      $
                      0.50
                      
                      
                      $
                      0.51





NOTE 13 -
CONCENTRATIONS AND CREDIT RISKS




At June
30, 2009 and December 31, 2008, the Company had a credit risk exposure of cash
in banks of approximately $4,860,814 and $4,477,477, respectively that is
uninsured by the government authority. To limit exposure to credit risk relating
to deposits, the Company primarily places cash deposits only with large
financial institution in the PRC with acceptable credit rating.





Five
major customers accounted for 94% and one major customer accounted for 40% of
the Company’s net revenue for the three months ended June 30, 2009. Five major
customers accounted for 89% and one major customer accounted for 40% of the
Company’s net revenue for the six months ended June 30, 2009. Five major
customers accounted for 80% and one major customer accounted for 26% of the
Company’s net revenue for the three months ended June 30, 2008. Five major
customers accounted for 89% and one major customer accounted for 26% of the
Company’s net revenue for the six months ended June 30, 2008. The Company’s
total sales to five major customers were $43,700,271 and $52,061,902 for the
three and six months ended June 30, 2009, respectively. The Company’s total
sales to five major customers were $14,062,646 and $24,068,529 for the three and
six months ended June 30, 2008, respectively. In addition, all these major
customers are distributors in the PRC agriculture industry.


14





ThreemonthsendedJune30, 2009
                                
                                
                                SixmonthsendedJune30, 2009Largest
                                  Customers
                                
                                Province
                                
                                Amountof
                                  Sales
                                
                                
                                %Total
                                  Sales
                                
                                
                                Largest
                                  Customers
                                
                                Province
                                
                                Amountof
                                  Sales
                                
                                
                                %Total
                                  SalesCustomer
      A
                                
                                Hebei
                                
                                
                                18,705,448
                                
                                
                                
                                40
                                %
                                
                                Customer
      A
                                
                                Hebei
                                
                                
                                23,557,490
                                
                                
                                
                                40
                                %Customer
      B
                                
                                Inner
      Mongolia
                                
                                
                                9,548,312
                                
                                
                                
                                21
                                %
                                
                                Customer
      B
                                
                                Inner
      Mongolia
                                
                                
                                11,287,969
                                
                                
                                
                                19
                                %Customer
      C
                                
                                Xinjiang
                                
                                
                                8,698,201
                                
                                
                                
                                19
                                %
                                
                                Customer
      C
                                
                                Xinjiang
                                
                                
                                9,775,088
                                
                                
                                
                                17
                                %Customer
      D
                                
                                Xinjiang
                                
                                
                                4,338,428
                                
                                
                                
                                9
                                %
                                
                                Customer
      D
                                
                                Xinjiang
                                
                                
                                4,978,162
                                
                                
                                
                                9
                                %Customer
      E
                                
                                Gansu
                                
                                
                                2,409,882
                                
                                
                                
                                5
                                %
                                
                                Customer
      E
                                
                                Gansu
                                
                                
                                2,463,193
                                
                                
                                
                                4
                                %Total
                                
                                
                                
                                
                                43,700,271
                                
                                
                                
                                94
                                %
                                
                                Total
                                
                                
                                
                                
                                52,061,902
                                
                                
                                
                                89
                                %





ThreemonthsendedJune30, 2008
                                
                                
                                SixmonthsendedJune30, 2008Largest
                                  Customers
                                
                                Provinces
                                
                                Amountof
                                  Sales
                                
                                
                                %Total
                                  Sales
                                
                                
                                Largest
                                  Customers
                                
                                Provinces
                                
                                Amountof
                                  Sales
                                
                                
                                %Total
                                  SalesCustomer
      E
                                
                                Gansu
                                
                                
                                4,643,127
                                
                                
                                
                                26
                                %
                                
                                Customer
      A
                                
                                Hebei
                                
                                
                                7,045,357
                                
                                
                                
                                26
                                %Customer
      C
                                
                                Xinjiang
                                
                                
                                3,980,159
                                
                                
                                
                                23
                                %
                                
                                Customer
      D
                                
                                Xinjiang
                                
                                
                                5,334,140
                                
                                
                                
                                20
                                %Customer
      D
                                
                                Xinjiang
                                
                                
                                2,618,526
                                
                                
                                
                                15
                                %
                                
                                Customer
      E
                                
                                Gansu
                                
                                
                                4,960,050
                                
                                
                                
                                18
                                %Customer
      A
                                
                                Hebei
                                
                                
                                1,780,598
                                
                                
                                
                                10
                                %
                                
                                Customer
      C
                                
                                Xinjiang
                                
                                
                                3,922,162
                                
                                
                                
                                15
                                %Customer
      B
                                
                                Inner
      Mongolia
                                
                                
                                1,040,236
                                
                                
                                
                                6
                                %
                                
                                Customer
      B
                                
                                Inner
      Mongolia
                                
                                
                                2,806,820
                                
                                
                                
                                10
                                %Total
                                
                                
                                
                                
                                14,062,646
                                
                                
                                
                                80
                                %
                                
                                Total
                                
                                
                                
                                
                                24,068,529
                                
                                
                                
                                89
                                %




The
Company’s operations are carried out in the PRC. Accordingly, the Company’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.


15


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. Except as
otherwise indicated or as the context may otherwise require, all references to
“we”, “the Company”, “us” and “our” refer toYongye International, Inc.
(f/k/a Yongye Biotechnology International, Inc.) and its
consolidated subsidiaries.





Restatement of 2008
Financial Statements
  Due
to the complexities of placing the April 2008 Escrow Shares and September 2008
Escrow Shares into escrow and subsequently accounting for the performance
measures and potential transfer of such shares, the company believed and
accounted for such shares as contingently issuable shares for purposes of
calculating earnings per share and excluded such outstanding escrowed shares
from the calculation of the weighted average number of common shares
outstanding.  However, after further examination, it was determined
that since the April 2008 Escrow Shares and September 2008 Escrow Shares are
neither contingently cancellable nor contingently returnable to the Company, the
shares should have been included in the denominator in computing the Company’s
basic and diluted net income per share.
  The
correcting adjustments had no impact on the Company’s previously issued
consolidated balance sheet as of June 30, 2008 and consolidated statement of
cash flows for the six months then ended.




Company Overview





On
April 17, 2008, we entered into a share exchange agreement (the “Exchange
Agreement”) with Fullmax Pacific Limited, a company organized under the laws of
the British Virgin Islands (“Fullmax”), the shareholders of Fullmax (the
“Shareholders”), who together owned shares constituting 100% of the issued and
outstanding ordinary shares of Fullmax (the “Fullmax Shares”), and our principal
shareholder (the “Principal Shareholder”). Pursuant to the terms of the Exchange
Agreement, the Shareholders transferred to us all of the Fullmax Shares in
exchange for the issuance of 11,444,755 (the “Exchange Shares”) shares of our
Common Stock (the “Share Exchange”). As a result of the Share Exchange, Fullmax
became our wholly owned subsidiary and at that time, the Shareholders acquired
approximately 84.7% of our issued and outstanding common stock. As a result
of the Share Exchange, we are now engaged in the sales of fulvic acid based
plant and animal nutrients in China.





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. Ltd. (“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.





We are
engaged in the research, development and sales of fulvic acid based liquid and
powder nutrient compounds used in the agriculture industry. Our headquarters is
in Beijing, China and additional administrative offices and our manufacturing
unit are located in Hohhot, Inner Mongolia, China. Currently, we sell two lines
of products, both based on our fulvic acid compound base: a plant nutrition
liquid compound and animal nutrition powder which is a food additive. Our
products start with our proprietary fulvic acid base which is extracted from
humic acid, and to which we add other natural substances to customize the base
for use in our plant and animal product lines. Based on industry research and
government testing, we believe our proprietary technology for fulvic acid
extraction creates some of the purest and most effective fulvic acid base on the
market in China today. Our fulvic acid has a very light weight molecular
composition, which improves the overall permeability of cell walls, thus it
allowing more complete transport of nutrients across plant membranes,
effectively strengthening the overall health of plants. We believe our
proprietary process for extracting fulvic acid from humic acid and our patented
process for mixing our plant nutrient and patent pending process for mixing our
animal nutrient are key differentiators in the market and help us ensure that we
have a high quality product that we can control from procurement of raw
materials to final production. This also ensures our products provide reliable
and predictable results from season to season.





We are
headquartered in Beijing, China and Inner Mongolia Yongye’s manufacturing plant
is located in the Inner Mongolia province of 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
then, in addition, we add 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 help to reduce
bacterial inflammation (mastitis) in cows. It also assists most animals digest
food more completely and thus be more healthy.


16


In
2008, we sold approximately 5,100 tons of plant product (427,200 units), which
represented 93% of revenue at USD $44.8M. We also sold approximately 6 tons of
our animal product (approximately 98,000 units). This represented 7% of revenue
at USD $3.25M. In its highly concentrated form, based on internal sales
data and readily available government data, our plant product was sprayed on
approximately 2% of all available arable land in our 10 provinces and in our
largest province, Xinjiang, it was applied to 5% of the land available for
cultivation. Yongye’s top 3 provinces by revenue for 2008 represented 82% of
sales and were Hebei at $20,541,267 (43%), Xinjiang at $13,177,694 (27%) and
Gansu at $ 5,663,011 (12%). By the end of 2008, our manufacturing partner’s
capacity enabled us to produce approximately 10,000 ton per annum of Shengmingsu
product. These facilities run at almost full capacity to meet peak season
demands and store inventory for next year. On average, our Shengmingsu products
sell for approximately $10,000 per ton.





Recent
Developments





On June
11, 2009, we caused to be formed a corporation under the laws of the State of
Nevada called “Yongye International, Inc.” (“Merger Sub”) and Yongye
Biotechnology International, Inc. acquired one hundred of the shares of Merger
Sub’s common stock for nominal cash. On June 23, 2009, Merger Sub was merged
with and into Yongye Biotechnology International, Inc. As a result of the
merger, Merger Sub ceased to exist and our corporate name was changed from
“Yongye Biotechnology International, Inc.” to “Yongye International, Inc.”
Except for the name change provided for in the Agreement and Plan of Merger,
there was no change in our directors, officers, ownership structure or
business.


By
September, 2008, Inner Mongolia Yongye Biotechnology Co., Ltd., a company
controlled by our Principal Shareholder and a noncontrolling shareholder of
Yongye Nongfeng, had completed the transfer of all Shengmingsu related sales
contracts, intellectual property and patents, and non-manufacturing personnel to
Yongye Nongfeng. For further details, please refer to Note 11 to the
accompanying unaudited interim consolidated
financial statements of the Company.




On May
8, 2009, we entered into a securities purchase agreement (the “May Purchase
Agreement”), with certain “accredited investors” (the “May Investors”) as such
term is defined in the Securities Act of 1933, as amended (the “Securities
Act”), for the issuance and sale of an aggregate of 5,834,083 shares of our
Common Stock (the “May Shares”) for aggregate gross proceeds of
approximately $8,984,488 (the “May Offering”). In connection with the May
Offering, we entered into a registration rights agreement with the May
Investors, in which we agreed to file a registration statement with the SEC to
register for resale the May Shares and the Warrant Shares issuable upon the
exercise of warrants issued to Roth as placement agent of the offering to
purchase up to 246,224 shares of Common Stock (the “May Warrant Shares”), within
45 calendar days of the closing date of the May Offering, and to use our best
efforts to have the registration statement declared effective within 150
calendar days of the closing date of the May Offering.  We are
obligated to pay liquidated damages of 1% of the dollar amount of the May Shares
sold in the May Offering per month, payable in cash, up to a maximum of 10%, if
the registration statement is not filed and declared effective within the
foregoing time periods.





The May
Shares and May Warrant Shares were issued in reliance upon the private placement
exemption from registration, Section 4(2) of the  Securities
Act, due to the limited number of offerees and subsequent purchasers, the
nature of activity by our placement agent, the availability and extent of
information available to the offerees and subsequent purchasers, and the
representations obtained by such subsequent purchasers regarding their financial
sophistication and intent with respect to future transfers of such
securities.


17


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 we hope that 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 total
population of 1.3 billion people is comprised of low-income, rural farmers.
According to the 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 (according to a study issued by the Chinese
Academy of Sciences, in April 2009). 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, which has put pressure on the agricultural system to increase
production capacity.




Supply of Finished
Goods




Before
June 1, 2009, we purchased our finished goods from our main supplier, Inner
Mongolia Yongye and then sold them 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. 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
2008, or to date in 2009. Starting from June 1, 2009, we commenced the
manufacturing of our product as part of the restructuring process whereby we are
in the process of purchasing the property and the land use right from Inner
Mongolia Yongye.





Earthquake in
Sichuan





The
earthquake in Sichuan was a devastating event in the recent history of China.
While the impact was felt all the way to Beijing, the disruption of business and
the ensuing relief efforts were largely contained to the province itself and
mainly to the areas nearest the epicenter. Because of this, the impact to our
business was minimal. China’s Agriculture Minister Sun Zhengcai said in an
interview with Xinhua that, “The earthquake will not change the nation-wide
situation of agricultural production this year since local output of the
affected area is quite small compared to that of the whole country,” Sun
acknowledged that, “The damage was mainly to planted crops and livestock,” he
said, adding an urgent harvesting and planting effort has helped minimize the
impact and which had no national implications.” Furthermore, he said that “food
security remains guaranteed.”





Seasonality





We
typically face the seasonal demand patterns similar to other companies in our
sector. In general, the first and fourth quarters are typically our slowest
quarters and in 2008 we brought in approximately 20% and 6% respectively of our
total net sales in these quarters. The second and third quarters drive the
bulk of our overall sales with 36% and 38% respectively of the year’s net 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, it was widely reported that China faced substantial
drought conditions in important agricultural areas (as noted by The Economist in
its “China’s Dry Patch” article dated February 6, 2009). This led many to the
conclusion that this weather condition would have an overall negative impact on
China’s annual agricultural output for 2008 and potentially for 2009 which would
then have an impact on our company’s revenue. At the time, we did not believe
this to be the case and set out to corroborate this with related government
agencies, our sales and support staff, distributors, and branded store network
owners in our provincial locations. We then gathered localized information about
ways the drought might impact our distributors, their customers and our end
users and found that they believed it would not create an impact on their sales
and thus on our revenue for 2008. We also do not believe it will impact our
sales activities in 2009 at this point in time.


18





In the
ensuing months after the initial reports, there were several key events which
occurred to mitigate some of the impact of the drought conditions faced by the
farmers such as additional governmental spending on increased efforts to
irrigate land using other water sources and additional rainfall which fell on
once drought impacted areas in northern China, as reported in Xinhua on February
9, 2008. The State Flood Control and Drought Relief Headquarters reported that
there was a reduction of farmland affected because of these key events (Xinhua
February 9, 2008). The government has also begun their stimulus injections into
the agriculture community to help ward off the affects of any drought induced
financial hardships (as reported in USA Today, February 8, 2009).





Additionally,
we believe that 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 such as wheat, corn and soy bean.
Currently, our distributors concentrate on selling to farmers who grow economic
crops such as tomatoes, celery, turnips, and carrots though in Xinjiang province
our product is used on larger farms where field crops are grown such as Lajiao
peppers. Additionally, in all drought situations, we believe that the drought
resistant nature of our plant product will actually benefit crops because of the
increased water retention characteristics of our product. Internal research has
shown that fulvic acid has the ability to strengthen plant cells and root
systems which then allows plants to retain water more effectively and use it
more efficiently. This, along with other mitigating factors discussed above,
should help us ward off the impacts of the 2008 fall and winter drought on our
sales in our current market area.





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
large, 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 (China Economic Net, July 21,
2008). 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, according to Sun.  “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.  We
believe that 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 planned new licensing and safety procedures
have been put into place.





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 farmland 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. These
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.” (China’s Ongoing Agriculture Modernization, USDA,
April 2009)


19


RESULTS
OF OPERATIONS




Summary
Statement of Income Data


For the Three Months Ended
                            
                            
                            For the Six Months EndedJune 30, 2009
                            
                            
                            June 30,2008
                            
                            
                            June 30, 2009
                            
                            
                            June 30, 2008(As restated -
                              Note 1(c))
                            
                            
                            
                            
                            
                            (As
      restated -
                              Note
      1(c))TOTAL
      SALES
                            
                            $
                            46,271,544
                            
                            
                            $
                            17,598,671
                            
                            
                            $
                            58,707,319
                            
                            
                            $
                            26,896,639COST
      OF SALES
                            
                            
                            21,936,877
                            
                            
                            
                            7,996,521
                            
                            
                            
                            27,839,484
                            
                            
                            
                            12,419,020GROSS
      PROFIT
                            
                            
                            24,334,667
                            
                            
                            
                            9,602,150
                            
                            
                            
                            30,867,835
                            
                            
                            
                            14,567,619SELLING
      EXPENSES
                            
                            
                            6,450,694
                            
                            
                            
                            777,012
                            
                            
                            
                            9,070,992
                            
                            
                            
                            3,997,477RESEARCH
      & DEVELOPMENT EXPENSES
                            
                            
                            1,124,445
                            
                            
                            
                            -
                            
                            
                            
                            1,413,017
                            
                            
                            
                            -GENERAL
      AND ADMINISTRATIVE EXPENSES
                            
                            
                            785,565
                            
                            
                            
                            454,697
                            
                            
                            
                            1,130,722
                            
                            
                            
                            812,125INCOME
      FROM OPERATIONS
                            
                            
                            15,973,963
                            
                            
                            
                            8,370,441
                            
                            
                            
                            19,253,104
                            
                            
                            
                            9,758,017TOTAL
      OTHER EXPENSES/(INCOME), NET
                            
                            
                            (2,678
                            )
                            
                            
                            386,409
                            
                            
                            
                            3,721
                            
                            
                            
                            386,062INCOME
      BEFORE PROVISION FOR INCOME TAXES
                            
                            
                            15,976,641
                            
                            
                            
                            7,984,032
                            
                            
                            
                            19,249,383
                            
                            
                            
                            9,371,955PROVISION
      FOR INCOME TAXES
                            
                            
                            4,591,776
                            
                            
                            
                            219,983
                            
                            
                            
                            4,747,223
                            
                            
                            
                            594,765NET
      INCOME
                            
                            
                            11,384,865
                            
                            
                            
                            7,764,049
                            
                            
                            
                            14,502,160
                            
                            
                            
                            8,777,190LESS:
      NET INCOME ATTRIBUTABLE TO THE NONCONTROLLING INTEREST
                            
                            
                            63,734
                            
                            
                            
                            603,194
                            
                            
                            
                            82,256
                            
                            
                            
                            1,035,005NET
      INCOME ATTRIBUTABLE TO YONGYE INTERNATIONAL, INC.
                            
                            $
                            11,321,131
                            
                            
                            $
                            7,160,855
                            
                            
                            $
                            14,419,904
                            
                            
                            $
                            7,742,185NET
      INCOME PER SHARE:BASIC
                            
                            $
                            0.37
                            
                            
                            $
                            0.39
                            
                            
                            $
                            0.51
                            
                            
                            $
                            0.52DILUTED
                            
                            $
                            0.37
                            
                            
                            $
                            0.38
                            
                            
                            $
                            0.50
                            
                            
                            $
                            0.51




20





THREE
MONTHS ENDED JUNE 30, 2009 COMPARED WITH THREE MONTHS ENDED JUNE 30,
2008




Our
business for the three months ended June 30, 2009 remained on track with our May
8, 2009 increased guidance which resulted from the May Offering. On May 8, 2009,
we raised guidance from $66 million to $82 to $84 million, and previously
announced net income guidance from $15.8 million to $23 to $24 million. This
represented growth in revenue for 2009 to be 70-75% over that of fiscal
year 2008 and net income to be a 90-95% increase over that of 2008. Thus far, in
the three months of 2009 we have seen an increase of 163% in net sales over
the same period in 2008 and an overall growth of net income of 58% over the same
period in 2008. The sales in the second quarter of 2009 represents the highest
quarterly sales in the company’s history. This demonstrates that our
efforts to raise additional financing to purchase finished goods were met with
increased orders by our distributors and increased growth in the market overall.
This increase in revenue was primarily due to our fast expanding distribution
network and the availability of additional working capital raised from the
May Offering.
 Net
Sales





Sales of
$46,271,544 in the second quarter of 2009 was an increase of $28,672,873 from
$17,598,671 in the same period in 2008, which was an overall increase of 163% in
revenue. This increase was driven by increased end-user demand throughout our
ten province market area which then pulled a greater volume of plant and animal
nutrient products through our distribution channels and ultimately our direct
customers which are regional level distributors.





Gross
Profit





Gross
profit increased 153% over the prior period, which was an increase to
$24,334,667 from $9,602,150, or $14,732,517, over the period ended June 30,
2008. Gross Margin decreased between the two periods to 53% from 55%, which was
due to an increase in provincial distributors during six months ended June 30,
2009 than the same period in 2008, as our market share significantly increased.
The cost of goods sold as percentage of revenue for the second quarter of 2009
increased because we worked with more provincial level distributors and provided
them preferential pricing during the second quarter of 2009 as opposed to the
same period in 2008. While we significantly increased our sales, the
corresponding discounts offered also increased our costs to a small
degree.
 Cost of Goods
Sold




Three months endedJune 30, 2009
                    
                    
                    June 30, 2008
                    
                    
                    IncreaseCost
      of Goods Sold
                    
                    $
                    21,936,877
                    
                    
                    $
                    7,996,521
                    
                    
                    
                    174
                    %Percentage
      of Sales
                    
                    
                    47
                    %
                    
                    
                    45
                    %




Cost of
goods sold for the three months ended June 30, 2009 was $21,936,877 which is 47%
of revenues. This is an increase of $13,940,356 over the previous period which
represents a 174% increase overall. As a percent of revenue, this represented an
increase of 2% when compared with the corresponding period in 2008, which was
45%. The cost of goods sold as percentage of revenue for the second quarter of
2009 increased because we worked with more provincial level distributors and
provided them preferential pricing during the second quarter of 2009 as opposed
to the same period in 2008. While we significantly increased our sales, the
corresponding discounts offered also increased our costs to a small
degree.
 
 Sales by Product
Line
 
 The
revenue of our plant product increased to $46,178,850 from $17,597,078 or 162%
in the three months ended June 30, 2009 and the revenue of our animal product
increased to $92,694 from $1,593 in the three months ended June 30, 2009
compared to the same period in 2008.
 
 Selling, General and
Administrative Expenses
 
 Selling,
general and administrative (“SG&A”) expenses increased by $6,004,550 to
$7,236,259 in the three months ended June 30, 2009 from $1,231,709 in the
previous period in 2008. As a percentage of sales for the three months ended
June 30, 2009, SG&A increased to 16% as compared to 7% of net sales in the
three months ended June 30, 2008. This increase was due primarily to the
increase in selling expenses of $5,673,682 to $6,450,694 from $777,012. The
majority of the increase in selling expense was due to growth in our costs for
advertising ($3,404,179), salaries ($316,406), freight ($576,898) and business
travel and training ($1,428,272) associated with the increased volume of
sales.
 Research and
Development





Additionally,
we incurred $1,124,445 of research and development fees in the three
months ended June 30, 2009 as compared to $0 in the three months ended June
30, 2008. This is a planned increase in the scope of our business as
contemplated in the cooperation agreement when the Cooperative Joint Venture was
established and will enable the Company to further develop the Shengmingsu brand
of products.


21




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 June 30, 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 effective income tax rate was 28.74% and 2.76% for the three months
ended June 30, 2009 and 2008, respectively. According to the approval from the
local tax authority,
Yongye Nongfeng was assessed to use the deemed profit method to determine the
amount of income tax provision for the year ended December 31, 2008 which was
based on 1.25% on its gross revenue. The deemed profit method is not applicable
to Yongye Nongfeng for the year ending December 31, 2009. With effective from
January 1, 2009, Yongye Nongfeng applied the statutory income tax rate of 25% on
its assessable
income in accordance with the relevant income tax rules and regulations of the
PRC. The income tax rate applied by Yongye Nongfeng to determine the income tax
provision for the three and six months ended June 30, 2009 is consistent with
the tax notice issued by the State Administration of Taxation in the PRC on July
14, 2009. For the three months ended June 30, 2009, the Company’s income tax
expense was $4,591,776 and income tax payable as of June 30, 2009 was $4,771,415
as compared to $219,983 and $406,314 for the three months ended June 30,
2008.
 
 Net
income
 
 Net
income for the three months ended June 30, 2009 increased by $4,160,276 to
$11,321,131 from $7,160,855 in the same period ended June 30, 2008, which was a
58% increase. However, this also represented an overall decrease in net margin
of 17% in the three months ended June 30, 2009 to 24% as compared to 41% in the
same period ended 2008. The decrease in our net margin is due to the increase of
our income tax expenses, the addition of R&D into our business scope and the
increase in selling expenses, as described above.
 
 SIX
MONTHS ENDED JUNE 30, 2009 COMPARED WITH SIX MONTHS ENDED JUNE 30,
2008




Our
business for the six months ended June 30, 2009 remained on track with our
estimates due to the growth in revenue of 118% and the overall growth of net
income of 86% over the same period in 2008. Much of this growth was seen in the
second quarter of 2009 as the period ended March 31, 2009 saw a growth of 31% in
revenue and 177% in net income over the same period in 2008. The second quarter
of 2009 saw more significant growth due to increased end-user demand throughout
our ten province market area which created pull through our distributors of a
higher volume of product.





Net
Sales





Sales
of $58,707,319 in the six months ended June 30, 2009 was an increase of
$31,720,680 from $26,986,639 in the same period in 2008, which was an overall
increase of 118% in revenue. This increase was driven by an increase in end-user
demand throughout our market area which was is in large part created by the
large scale advertising campaign which creates pull from the branded stores
through our distribution channels and through our major distributors who are our
customers.





Gross
Profit





Gross
profit also increased 112% over the prior period, which was an increase from
$14,567,619 to $30,867,835, or $16,300,216, over the six months ended June 30,
2008. Our gross margin stayed relatively flat between the two periods and
decreased slightly to 53% in the six months ended June 30, 2009 from 54% in the
same period ended June 30, 2008.
 Cost of Goods Sold





Six months endedJune 30, 2009
                      
                      
                      June 30, 2008
                      
                      
                      IncreaseCost
      of Goods Sold
                      
                      $
                      27,839,484
                      
                      
                      $
                      12,419,020
                      
                      
                      
                      124
                      %Percentage
      of Sales
                      
                      
                      47%
                      
                      
                      
                      46%





Cost of
goods sold for the six months ended June 30, 2009 was $27,839,484 which is 47%
of revenues. This is an increase of $15,420,464 over the previous period which
represents a 124% increase overall. However, as a percent of revenue, this
represented an increase of 1% when compared with the corresponding period in
2008, which was 46%. This was mainly due to our growing percentage of provincial
level distributors and some preferential pricing they received. Over the six
months ended June 30, 2009, the number of distributors increased at a greater
rate than in the same period of 2008 which increased our market share due to
number of goods sold. This, in conjunction with offering them some preferred
discounts, increased our cost of goods sold by a small amount as compared to the
same period in 2008.


22


Sales by Product
Line
 
 The
revenue of our plant product increased 116% and the revenue of our animal
product increased 23% in the six months ended June 30, 2009 compared to the same
period in 2008.
 
 Selling, General and
Administrative Expenses
 
 SG&A
expenses increased by $5,392,112 to $10,201,714 in the six months ended June 30,
2009 from $4,809,602 in the previous period in 2008, which was a 112% increase.
As a percentage of sales for this six months ended June 30, 2009, SG&A
decreased 1% to 17% of net sales as compared to 18% in the six months ended June
30, 2008. This increase was due primarily to additional costs brought on by
increased expenses in the areas of advertising ($3,916,104), salaries ($590,332)
and freight ($607,813) which can be associated with the increased volume of
sales which resulted from the additional product purchased from the proceeds of
the May Offering.
 
 Research and
Development
 
 Additionally,
we incurred $1,413,017 of research and development fees in the six months ended
June 30, 2009 as compared to $0 in the six months ended June 30, 2008. This is a
planned increase in the scope of our business as contemplated in the cooperation
agreement when the Cooperative Joint Venture 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 six months ended June 30, 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 effective income tax rate was 24.66% and 6.35% for the six months
ended June 30, 2009 and 2008, respectively. According to the approval from the
local tax authority, Yongye Nongfeng was assessed to use the deemed profit
method to determine the amount of income tax provision for the year ended
December 31, 2008 which was based on 1.25% on its gross revenue. The deemed
profit method is not applicable to Yongye Nongfeng for the year ending December
31, 2009. With effective from January 1, 2009, Yongye Nongfeng applied the
statutory income tax rate of 25% on its assessable income in accordance with the
relevant income tax rules and regulations of the PRC. The income tax rate
applied by Yongye Nongfeng to determine the income tax provision for the three
and six months ended June 30, 2009 is consistent with the tax notice issued by
the State Administration of Taxation in the PRC on July 14, 2009. For the six
months ended June 30, 2009, the Company’s income tax expense was $4,747,223 and
income tax payable as of June 30, 2009 was $4,771,415 as compared to $594,765
and $406,314 for the six months ended June 30, 2008.
 
 Net
income
 
 Net
income for the six months ended June 30, 2009 increased by $6,677,719 to
$14,419,904 from $7,742,185 in the same period ended June 30, 2008, which was a
86% increase. However, this also represented a decrease in net margin of 4% in
the six months ended June 30, 2009 to 25% compared to 29% in the same period
ended 2008.  This is due to the increase of our income tax rate to
25%, the addition of R&D into our business scope and incremental costs and
expenses for the high volume of sales, as described above.
  Liquidity
and Capital Resources
 
 The
Company has historically financed its operations and capital expenditures
principally through paid-in capital by common stockholders, shareholder loans
and bank loans. As is customary in the industry, we provide payment terms to
most of our distributors which typically exceed the terms that we receive from
our suppliers. Therefore, the Company’s liquidity needs have generally consisted
of working capital necessary to finance receivables and raw material and
finished goods inventory. We believe that our existing cash, cash equivalents
and from the proceeds of the May 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.





23




In
summary, our cash flows were:




Net
cash used in operating activities decreased in the six months ended June 30,
2009 by $1,896,755 to $5,707,897 from $7,604,652 for the period ended June 30,
2008. These changes were mainly brought by the significant increase of
$31,720,680 in sales resulting in an increase of $5,724,970 in net income; this
was offset by the increase in accounts receivable and inventory by $12,941,328
and $830,372, respectively. In addition, due to the higher sales, the Company
purchased more from its supplier, resulting in a higher accounts payable by
$6,527,500.
 
 The
changes described above were generally due to the fact that our largest
customers typically pay us in 3 months after we ship products to them which is
according to the terms set in the agreement with them.  Because we are
constrained by the seasonal forces and the elongated payment terms of the
agriculture industry, we slowly build up accounts receivable starting in the
first quarter and more rapidly add to this throughout the peak season of the
second and third quarter. As the end of the year approaches, we typically have
had the ability to collect a great deal of our receivables so as to start the
new year with a much lower balance. Additionally, due to the seasonal nature of
the agriculture industry, the peak season for the sale of our product is in the
second and third quarters of the year.  We normally build up inventory
in the first and fourth quarters to prepare for shipments to customers as they
order product for the peak selling season in the second and third
quarters.  The significant increase in the balance of inventory we
typically experience is in line with our business practices.
 
 Net
cash used in investing activity increased by $1,337,848 in the period ended June
30, 2009 compared to the same period ended in 2008 which is due to our
acquisition of machinery and equipment from Inner Mongolia Yongye and capital
expenditures related to self-constructed equipment.
 
 Net cash
provided by financing activities decreased by $1,087,351 to $8,207,141 in the
period ended June 30, 2009 compared to the same period ended in 2008. This was
due to the May Offering which raised $8,984,488 in proceeds, while April
Offering raised $10,100,651 in proceeds.
 
 Working
capital at June 30, 2009 increased by $28,554,096 to $46,365,891, from
$17,811,795 or 160% over the same period ended June 30, 2008.
 
 Summary
consolidated balance sheet data:
  June 30, 2009
              
              
              December 31, 2008Cash
              
              $
              4,860,814
              
              
              $
              4,477,477Accounts
      Receivable, net
              
              $
              36,591,544
              
              
              $
              2,748,042Inventory
              
              $
              26,760,401
              
              
              $
              20,708,193PP&E,
      net
              
              $
              7,091,521
              
              
              $
              5,368,074Total
      assets
              
              $
              76,324,333
              
              
              $
              34,504,261Total
      current liabilities
              
              $
              22,776,647
              
              
              $
              3,661,563Long
      term debt
              
              $
              273,615
              
              
              $
              230,121Total
      equity
              
              $
              53,274,071
              
              
              $
              30,612,577


24


Property,
plant and equipment increased to $7,091,521 at June 30, 2009 from $5,368,074 at
December 31, 2008, which was largely due to the purchase of machinery and
equipment from Inner Mongolia Yongye and expenditures related to
self-constructed equipment.
 
 Total
current liabilities increased by $19,115,084 to $22,776,647 at June 30, 2009
from $3,661,563 at December 31, 2008 or 522% was largely due to the
increase in accounts payable and taxes payable. Both of these increases were due
to the significant increase in sales and subsequent increased purchases of
inventories and increased taxes payable due to the increase in the Company’s
effective tax rate.
 
 Total
equity increased by $22,661,494 to $53,274,071 at the end of June 30, 2009,
compared to $30,612,577 on December 31, 2008. The increase in our total equity
was due primarily to the Company’s net income and the net proceeds from the May
Offering.
 
 Accounts
receivable Days Sales Outstanding here is defined as average accounts receivable
for the period divided by net sales per day and decreased 30 days
($21,475,950/$508,479) to 42 days ($13,906,702/$193,392) for the three months
ended June 30, 2009 from 72 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 here is defined as average
inventory divided by cost of sales per day and increased to 102 days
($24,480,826/$241,065) in the three months ended June 30, 2009 from 55 days
($4,876,241/$87,874) in the same period ended 2008 due to our build up of
inventory to meet the increased demand for our products which we expect will
continue through the third quarter of 2009.
 
 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 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 June
30, 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.
 
 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 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.


25




ITEM 4T. CONTROLS AND
PROCEDURES




Evaluation
of Disclosure Controls and Procedures




Disclosure
Controls and Procedures




The
Company maintains disclosure controls and procedures that are designed to ensure
that information required to be disclosed in reports filed by the Company under
the Securities Exchange Act of 1934, as amended, is recorded, processed,
summarized and reported within the time periods specified in the Securities and
Exchange Commission’s rules and regulations and that such information is
accumulated and communicated to our management, including its Principal
Executive Officer and Principal Financial Officer, as appropriate, to allow for
timely decisions regarding required disclosure. Our Principal Executive Officer
and Principal Financial Officer evaluated, with the participation of other
members of management, the effectiveness of our disclosure controls and
procedures (as defined in Exchange Act Rule 15d-15(e)), as of the end of the
period covered by this Quarterly Report on Form 10-Q. Based on this evaluation,
our Principal Executive Officer and Chief Financial Officer concluded that the
Company’s disclosure controls and procedures were effective.




Although
the management of our Company, including the Principal Executive Officer and the
Interim Principal Financial Officer, believes that our disclosure controls and
internal controls currently provide reasonable assurance that our desired
control objectives have been met, management does not expect that our disclosure
controls or internal controls will prevent all error and all fraud. A control
system, no matter how well conceived and operated, can provide only reasonable,
not absolute, assurance that the objectives of the control system are met.
Further, the design of a control system must reflect the fact that there are
resource constraints, and the benefits of controls must be considered relative
to their costs. Because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all control issues
and instances of fraud, if any, within our Company have been detected. These
inherent limitations include the realities that judgments in decision-making can
be faulty, and that breakdowns can occur because of simple error or mistake.
Additionally, controls can be circumvented by the individual acts of some
persons, by collusion of two or more people, or by management override of the
controls. The design of any system of controls is also based in part upon
certain assumptions about the likelihood of future events, and there can be no
assurance that any design will succeed in achieving its stated goals under all
potential future conditions.




Changes
in Internal Controls over Financial Reporting




There
were no significant changes in our internal controls over financial reporting
identified in connection with this evaluation that occurred during our last
fiscal quarter that have materially affected, or are reasonably likely to
materially affect, the Company’s internal controls over financial
reporting.


26




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 June 30,
2009 that has materially affected, or is reasonably likely to materially affect,
our internal controls over financial reporting.




PART
II.




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




On May 8, 2009, we entered into a
securities purchase agreement (the “May
Purchase Agreement”), with
certain “accredited investors” (the “May
Investors”) as such term
is defined in the Securities Act of 1933, as amended (the “Securities
Act”), for the issuance
and sale of an aggregate of 5,834,083 shares of our common stock, par value
$.001 per share (the “May
Shares”) for aggregate
gross proceeds of approximately $8,984,488 (the “May
Offering”).  In connection with the May Offering, we
entered into a registration rights agreement with the May Investors, in which we
agreed to file a registration statement with the SEC to register for resale the
May Shares and the Warrant Shares issuable upon the exercise of warrants issued
to Roth as placement agent of the offering to purchase up to 246,224 shares of
Common Stock (the “May Warrant
Shares”), within 45
calendar days of the closing date of the May Offering, and to use our best
efforts to have the registration statement declared effective within 150
calendar days of the closing date of the May Offering.  We are
obligated to pay liquidated damages of 1% of the dollar amount of the May Shares
sold in the May Offering per month, payable in cash, up to a maximum of 10%, if
the registration statement is not filed and declared effective within the
foregoing time periods.




The
May Shares and May Warrant Shares were issued in reliance upon an exemption from
registration afforded under Section 4(2) of the Securities Act due to
the limited number of offerees and subsequent purchasers, the nature of
solicitation activity by our placement agent, the availability and extent of
information available to the offerees and subsequent purchasers, and the
representations obtained from such subsequent purchasers regarding their
financial sophistication and intent with respect to future transfers of such
securities.




ITEM 3.
            DEFAULTS UPON SENIOR
      SECURITIES




None.




ITEM 4.
            SUBMISSION OF MATTERS TO A VOTE
      OF SECURITY HOLDERS




On June
5, 2009, an annual meeting of stockholders of the Company was held to vote upon
the following four items:





-
            Proposal 1: To elect
      seven (7) directors to the board of directors of the Company to serve
      until the next annual meeting of stockholders and until their successors
      are duly elected and qualified.





-
            Proposal 2: To ratify
      the appointment of KPMG LLP as the Company’s independent
      auditors.





-
            Proposal
      3:To approve an
      amendment to our Certificate of Incorporation to effect a reverse split of
      our common stock, par value $0.001 per share (“Common Stock”), within a
      range of ratios of 1 for 3 to 1 for
6.





-
            Proposal
      4:To approve the
      adoption of amended and restated by-laws of the
      Company.





There
were 28,058,960 shares of Common Stock outstanding on the record date of May 5,
2009. Two holders of record of issued and outstanding shares of the Company were
present at the meeting and thus represented a quorum.





Summary
of Votes with respect to Proposal 1 at the June 5, 2009 Annual Meeting of
Stockholders





Number of
                    Votes “For”
                  
                  
                  Percentage
                  
                  
                  Votes
                    “Against”
                  
                  
                  “Abstain”
                  
                  ResultZishen
      Wu
                  
                  
                  8,044,670
                  
                  
                  
                  100
                  %
                  
                  
                  0
                  
                  
                  
                  0
                  
                  ApprovedSun
      Taoran
                  
                  
                  8,044,670
                  
                  
                  
                  100
                  %
                  
                  
                  0
                  
                  
                  
                  0
                  
                  ApprovedZhao
      Qiang
                  
                  
                  8,044,670
                  
                  
                  
                  100
                  %
                  
                  
                  0
                  
                  
                  
                  0
                  
                  ApprovedGuo
      Xiaochuan
                  
                  
                  8,044,670
                  
                  
                  
                  100
                  %
                  
                  
                  0
                  
                  
                  
                  0
                  
                  ApprovedSean
      Shao
                  
                  
                  8,044,670
                  
                  
                  
                  100
                  %
                  
                  
                  0
                  
                  
                  
                  0
                  
                  ApprovedLi
      Xindan
                  
                  
                  8,044,670
                  
                  
                  
                  100
                  %
                  
                  
                  0
                  
                  
                  
                  0
                  
                  ApprovedZhang
      Rijun
                  
                  
                  8,044,670
                  
                  
                  
                  100
                  %
                  
                  
                  0
                  
                  
                  
                  0
                  
                  Approved


27





Proxies
for the meeting were solicited pursuant to regulation 14A under the
Act.  There was no solicitation in opposition to the management’s
nominees as listed in Schedule 14A filed with the SEC on May 19, 2009, and all
of such nominees were elected.





Summary
of Votes with respect to Proposals 2, 3 and 4, respectively, at the June 5, 2009
Annual Meeting of Stockholders





Number of
                    Votes “For”
                  
                  
                  Percentage
                  
                  
                  Votes
                    “Against”
                  
                  
                  “Abstain”
                  
                  ResultProposal
      2
                  
                  
                  8,044,670
                  
                  
                  
                  100
                  %
                  
                  
                  0
                  
                  
                  
                  0
                  
                  ApprovedProposal
      3
                  
                  
                  8,044,570
                  
                  
                  
                  28.67
                  %
                  
                  
                  100
                  
                  
                  
                  0
                  
                  DisapprovedProposal
      4
                  
                  
                  8,044,670
                  
                  
                  
                  100
                  %
                  
                  
                  0
                  
                  
                  
                  0
                  
                  Approved





ITEM 5.
            OTHER
      INFORMATION




None.




ITEM 6.
            EXHIBITS





Exhibit No.
                  
                  Description31.1
                  
                  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.


28





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
      International, Inc.Dated:
      August 19, 2009
                  By:
                  /s/
      Zishen WuName:
      Zishen WuTitle:
      Chief Executive Officer and President (Principal
                    Executive
      Officer)By:
                  /s/
      Sam YuName:
      Sam YuTitle:
      Chief Financial Officer (Principal Financial and
                    Accounting
      Officer)


29