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 1934
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



For the quarterly period ended June 30,
2012

or



| | o | Transition report pursuant
                                                                                                     to Section 13 or 15(d) of
                                                                                                     the Securities Exchange Act
                                                                                                     of 1934
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



For the transition period from to



Commission File Number 001-34444



Yongye International, Inc.

(Exact name of registrant as specified
in its charter)



|Nevada                          | 20-8051010         
|------------------------------- | -------------------
|(State or other jurisdiction of | (I.R.S. Employer   
|incorporation or organization)  | Identification No.)



6th Floor, Suite 608, Xue Yuan International
Tower,

No. 1 Zhichun Road, Haidian District
Beijing, PRC

(Address of principal executive offices)



(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 x     No
o



Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See 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 x        
|------------------------------------------------------------------------- | ---------------------------
|Non-accelerated filer o (Do not check if a smaller
    reporting company) | Smaller reporting company o



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 6, 2012, there were 50,537,044
shares of common stock, par value $.001 per share, issued and outstanding.











TABLE OF CONTENTS



|                                 |                                                                              | Page
|-------------------------------- | ---------------------------------------------------------------------------- | ----
|                                 |                                                                              |     
|PART
    I.Financial Information | 1                                                                           
|ITEM 1.                          | FINANCIAL STATEMENTS                                                         | 1   
|ITEM 2.                          | MANAGEMENT’S DISCUSSION AND ANALYSIS OF OPERATIONS AND FINANCIAL CONDITIONS. | 23  
|ITEM 3.                          | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                   | 39  
|ITEM 4.                          | CONTROLS AND PROCEDURES                                                      | 40  
|                                 |                                                                              |     
|PART
    II.OTHER INFORMATION    | 40                                                                          
|ITEM 1.                          | LEGAL PROCEEDINGS                                                            | 40  
|ITEM 1A.                         | RISK FACTORS                                                                 | 41  
|ITEM 2.                          | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS                  | 63  
|ITEM 3.                          | DEFAULTS UPON SENIOR SECURITIES                                              | 63  
|ITEM 4.                          | MINING SAFETY DISCLOSURE                                                     | 63  
|ITEM 5.                          | OTHER INFORMATION                                                            | 63  
|ITEM 6.                          | EXHIBITS                                                                     | 63  



i









PART
I.Financial Information





| | ITEM 1. | FINANCIAL STATEMENTS
| | ------- | --------------------













YONGYE INTERNATIONAL, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED BALANCE SHEETS



|                                                                                                                                                                                                                                         |  | Note |  | June 30, 2012 |             |  | December 31, 2011 |    
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- |  | ------------- | ----------- |  | ----------------- | ---
|Current assets                                                                                                                                                                                                                           |  |      |  |               |             |  |                   |    
|Cash                                                                                                                                                                                                                                     |  |      |  | US$           | 81,952,040  |  |                   | US$
|Restricted cash                                                                                                                                                                                                                          |  |      |  |               | 40,000      |  |                   |    
|Accounts receivable, net of allowance for doubtful accounts                                                                                                                                                                              |  | 3    |  |               | 188,359,652 |  |                   |    
|Inventories                                                                                                                                                                                                                              |  | 4    |  |               | 103,720,614 |  |                   |    
|Deposits to suppliers                                                                                                                                                                                                                    |  | 5    |  |               | 25,240,430  |  |                   |    
|Prepaid expenses                                                                                                                                                                                                                         |  |      |  |               | 774,372     |  |                   |    
|Other receivables                                                                                                                                                                                                                        |  |      |  |               | 253,299     |  |                   |    
|Deferred tax assets                                                                                                                                                                                                                      |  |      |  |               | 1,349,974   |  |                   |    
|Total Current Assets                                                                                                                                                                                                                     |  |      |  |               | 401,690,381 |  |                   |    
|                                                                                                                                                                                                                                         |  |      |  |               |             |  |                   |    
|Property, plant and equipment, net                                                                                                                                                                                                       |  | 6    |  |               | 21,787,890  |  |                   |    
|Intangible asset, net                                                                                                                                                                                                                    |  | 7    |  |               | 20,346,860  |  |                   |    
|Land use right, net                                                                                                                                                                                                                      |  | 8    |  |               | 6,111,971   |  |                   |    
|Prepayment for mining project                                                                                                                                                                                                            |  | 9    |  |               | 35,760,100  |  |                   |    
|Other assets                                                                                                                                                                                                                             |  | 10   |  |               | 44,682,486  |  |                   |    
|Goodwill                                                                                                                                                                                                                                 |  |      |  |               | 10,769,499  |  |                   |    
|Total Assets                                                                                                                                                                                                                             |  |      |  | US$           | 541,149,187 |  |                   | US$
|                                                                                                                                                                                                                                         |  |      |  |               |             |  |                   |    
|Current liabilities                                                                                                                                                                                                                      |  |      |  |               |             |  |                   |    
|                                                                                                                                                                                                                                         |  |      |  |               |             |  |                   |    
|Short-term bank loans                                                                                                                                                                                                                    |  | 11   |  | US$           | 25,339,309  |  |                   | US$
|Long-term loans and payables - current portion                                                                                                                                                                                           |  | 12   |  |               | 7,518,593   |  |                   |    
|Accounts payable                                                                                                                                                                                                                         |  |      |  |               | 12,175,256  |  |                   |    
|Income tax payable                                                                                                                                                                                                                       |  |      |  |               | 8,802,549   |  |                   |    
|Advance from customers                                                                                                                                                                                                                   |  |      |  |               | 138,951     |  |                   |    
|Accrued expenses                                                                                                                                                                                                                         |  | 13   |  |               | 14,888,397  |  |                   |    
|Other payables                                                                                                                                                                                                                           |  | 14   |  |               | 2,956,623   |  |                   |    
|Derivative liabilities - fair value of warrants                                                                                                                                                                                          |  | 15   |  |               | 247,896     |  |                   |    
|Total Current Liabilities                                                                                                                                                                                                                |  |      |  |               | 72,067,574  |  |                   |    
|                                                                                                                                                                                                                                         |  |      |  |               |             |  |                   |    
|Long-term loans and payables                                                                                                                                                                                                             |  | 12   |  |               | 11,036,284  |  |                   |    
|Other non-current liability                                                                                                                                                                                                              |  |      |  |               | 4,327,927   |  |                   |    
|Deferred tax liabilities                                                                                                                                                                                                                 |  | 10   |  |               | 6,831,827   |  |                   |    
|Total Liabilities                                                                                                                                                                                                                        |  |      |  | US$           | 94,263,612  |  |                   | US$
|                                                                                                                                                                                                                                         |  |      |  |               |             |  |                   |    
|Redeemable Series A convertible preferred shares: par
    value $.001; 7,969,044 shares authorized; 6,079,545 shares and 5,681,818 shares issued and outstanding as of June 30, 2012
    and     December 31,     2011,     respectively |  | 15   |  | US$           | 51,208,657  |  |                   | US$
|                                                                                                                                                                                                                                         |  |      |  |               |             |  |                   |    
|Equity                                                                                                                                                                                                                                   |  |      |  |               |             |  |                   |    
|Common stock: par value $.001; 75,000,000 shares authorized;
    49,370,711 shares issued and outstanding at June 30, 2012 and December 31, 2011, respectively                                                                           |  | 15   |  | US$           | 49,371      |  |                   | US$
|Additional paid-in capital                                                                                                                                                                                                               |  |      |  |               | 153,079,165 |  |                   |    
|Retained earnings                                                                                                                                                                                                                        |  |      |  |               | 204,488,483 |  |                   |    
|Accumulated other comprehensive income                                                                                                                                                                                                   |  |      |  |               | 19,594,212  |  |                   |    
|Total equity attributable to Yongye International, Inc.                                                                                                                                                                                  |  |      |  |               | 377,211,231 |  |                   |    
|Noncontrolling interest                                                                                                                                                                                                                  |  |      |  |               | 18,465,687  |  |                   |    
|Total Equity                                                                                                                                                                                                                             |  |      |  | US$           | 395,676,918 |  |                   | US$
|Commitments and Contingencies                                                                                                                                                                                                            |  | 19   |  |               | -           |  |                   |    
|                                                                                                                                                                                                                                         |  |      |  |               |             |  |                   |    
|Total Liabilities, Redeemable Series A Convertible Preferred Shares and
    Equity                                                                                                                                                       |  |      |  | US$           | 541,149,187 |  |                   | US$



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



2







YONGYE INTERNATIONAL, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME



|                                                                                                                                                                                        |  |      |    |  | For the Three Months Ended |   |             | For the Six Months Ended | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | -- |  | -------------------------- | - | ----------- | ------------------------ | 
|                                                                                                                                                                                        |  | Note |    |  | June 30, 2012              |   |             | June 30, 2011            | 
|                                                                                                                                                                                        |  |      |    |  |                            |   |             |                          | 
|Sales                                                                                                                                                                                   |  |      |    |  |                            | $ | 177,625,986 |                          | 
|                                                                                                                                                                                        |  |      |    |  |                            |   |             |                          | 
|Cost of sales                                                                                                                                                                           |  |      |    |  |                            |   | 69,535,733  |                          | 
|                                                                                                                                                                                        |  |      |    |  |                            |   |             |                          | 
|Gross profit                                                                                                                                                                            |  |      |    |  |                            |   | 108,090,253 |                          | 
|                                                                                                                                                                                        |  |      |    |  |                            |   |             |                          | 
|Selling expenses                                                                                                                                                                        |  |      |    |  |                            |   | 38,554,590  |                          | 
|                                                                                                                                                                                        |  |      |    |  |                            |   |             |                          | 
|Research and development expenses                                                                                                                                                       |  |      |    |  |                            |   | 7,384,804   |                          | 
|                                                                                                                                                                                        |  |      |    |  |                            |   |             |                          | 
|General and administrative expenses (including a reversal of allowance for doubtful accounts
    of US$6,334,832 and nil for the six months ended June 30, 2012 and 2011, respectively) |  |      |    |  |                            |   | 8,646,763   |                          | 
|                                                                                                                                                                                        |  |      |    |  |                            |   |             |                          | 
|Income from operations                                                                                                                                                                  |  |      |    |  |                            |   | 53,504,096  |                          | 
|                                                                                                                                                                                        |  |      |    |  |                            |   |             |                          | 
|Other income/(expenses)                                                                                                                                                                 |  |      |    |  |                            |   |             |                          | 
|                                                                                                                                                                                        |  |      |    |  |                            |   |             |                          | 
|Interest expense                                                                                                                                                                        |  |      |    |  |                            |   | (1,102,126  | )                        | 
|Interest income                                                                                                                                                                         |  |      |    |  |                            |   | 75,336      |                          | 
|Subsidy income                                                                                                                                                                          |  |      |    |  |                            |   | -           |                          | 
|Other income, net                                                                                                                                                                       |  |      |    |  |                            |   | 2,662       |                          | 
|Change in fair value of derivative liabilities                                                                                                                                          |  |      | 15 |  |                            |   | 9,889       |                          | 
|                                                                                                                                                                                        |  |      |    |  |                            |   |             |                          | 
|Total other (expenses)/income, net                                                                                                                                                      |  |      |    |  |                            |   | (1,014,239  | )                        | 
|                                                                                                                                                                                        |  |      |    |  |                            |   |             |                          | 
|Earnings before income tax expense                                                                                                                                                      |  |      |    |  |                            |   | 52,489,857  |                          | 
|                                                                                                                                                                                        |  |      |    |  |                            |   |             |                          | 
|Income tax expense                                                                                                                                                                      |  |      | 17 |  |                            |   | 9,272,206   |                          | 
|                                                                                                                                                                                        |  |      |    |  |                            |   |             |                          | 
|Net income                                                                                                                                                                              |  |      |    |  |                            |   | 43,217,651  |                          | 
|Less: Net income attributable to the noncontrolling interest                                                                                                                            |  |      |    |  |                            |   | 2,107,788   |                          | 
|                                                                                                                                                                                        |  |      |    |  |                            |   |             |                          | 
|Net income attributable to Yongye International, Inc.                                                                                                                                   |  |      |    |  |                            | $ | 41,109,863  |                          | 
|                                                                                                                                                                                        |  |      |    |  |                            |   |             |                          | 
|Net income per share of common stock:                                                                                                                                                   |  |      |    |  |                            |   |             |                          | 
|Basic                                                                                                                                                                                   |  |      | 21 |  |                            | $ | 0.75        |                          | 
|Diluted                                                                                                                                                                                 |  |      | 21 |  |                            | $ | 0.74        |                          | 
|                                                                                                                                                                                        |  |      |    |  |                            |   |             |                          | 
|Weighted average shares used in computation:                                                                                                                                            |  |      |    |  |                            |   |             |                          | 
|Basic                                                                                                                                                                                   |  |      | 21 |  |                            |   | 49,370,711  |                          | 
|Diluted                                                                                                                                                                                 |  |      | 21 |  |                            |   | 49,445,176  |                          | 
|                                                                                                                                                                                        |  |      |    |  |                            |   |             |                          | 
|Net income                                                                                                                                                                              |  |      |    |  |                            |   | 43,217,651  |                          | 
|Other comprehensive income                                                                                                                                                              |  |      |    |  |                            |   |             |                          | 
|Foreign currency translation adjustment, net of nil income taxes                                                                                                                        |  |      |    |  |                            |   | 297,059     |                          | 
|                                                                                                                                                                                        |  |      |    |  |                            |   |             |                          | 
|Comprehensive income                                                                                                                                                                    |  |      |    |  |                            |   | 43,514,710  |                          | 
|Less: Comprehensive income attributable to the noncontrolling interest                                                                                                                  |  |      |    |  |                            |   | 2,121,775   |                          | 
|Comprehensive income attributable to Yongye International, Inc.                                                                                                                         |  |      |    |  |                            |   | 41,392,935  |                          | 





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



3







YONGYE INTERNATIONAL, INC. AND SUBSIDIARIES



UNAUDITED CONSOLIDATED STATEMENT OF CHANGES
IN EQUITY









|                                                                               |  |      |    |  | Redeemable series A Convertible
    Preferred Shares |  |           | Common Stock |  |     |            |  |  |        |            |  |            |     |        | Equity   |  |     |               |  |  |                 |            
|------------------------------------------------------------------------------ |  | ---- | -- |  | ---------------------------------------------------- |  | --------- | ------------ |  | --- | ---------- |  |  | ------ | ---------- |  | ---------- | --- | ------ | -------- |  | --- | ------------- |  |  | --------------- | -----------
|                                                                               |  |      |    |  |                                                      |  |           |              |  |     |            |  |  |        |            |  |            |     |        |          |  |     | Accumulated   |  |  | attributable to |            
|                                                                               |  |      |    |  |                                                      |  |           |              |  |     |            |  |  |        |            |  | Additional |     |        |          |  |     | Other         |  |  | Yongye          |            
|                                                                               |  |      |    |  |                                                      |  |           |              |  |     |            |  |  |        |            |  | Paid-in    |     |        | Retained |  |     | Comprehensive |  |  | International,  |            
|                                                                               |  | Note |    |  | Shares                                               |  |           | Amount       |  |     | Shares     |  |  | Amount |            |  | Capital    |     |        | Earnings |  |     | Income        |  |  | Inc.            |            
|Balance as of December 31, 2011                                                |  |      |    |  |                                                      |  | 5,681,818 |              |  | US$ | 49,399,990 |  |  |        | 49,370,711 |  |            | US$ | 49,371 |          |  | US$ | 150,654,849   |  |  | US$             | 148,804,997
|Comprehensive income                                                           |  |      |    |  |                                                      |  |           |              |  |     |            |  |  |        |            |  |            |     |        |          |  |     |               |  |  |                 |            
|Net income                                                                     |  |      |    |  |                                                      |  | -         |              |  |     | -          |  |  |        | -          |  |            |     | -      |          |  |     | -             |  |  |                 | 57,492,153 
|Other comprehensive
    income                                                 |  |      |    |  |                                                      |  | -         |              |  |     | -          |  |  |        | -          |  |            |     | -      |          |  |     | -             |  |  |                 | -          
|Stock compensation to management and independent
    directors                 |  |      | 15 |  |                                                      |  | -         |              |  |     | -          |  |  |        | -          |  |            |     | -      |          |  |     | 2,424,316     |  |  |                 | -          
|Paid-in-kind dividends on redeemable Series
    A convertible preferred shares |  |      | 15 |  |                                                      |  | 397,727   |              |  |     | 1,808,667  |  |  |        | -          |  |            |     | -      |          |  |     | -             |  |  |                 | (1,808,667 
|Balance as of June
    30, 2012                                                |  |      |    |  |                                                      |  | 6,079,545 |              |  | US$ | 51,208,657 |  |  |        | 49,370,711 |  |            | US$ | 49,371 |          |  | US$ | 153,079,165   |  |  | US$             | 204,488,483



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



4







YONGYE INTERNATIONAL, INC.
AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH
FLOWS



|                                                                                                |  | For the Six Months Ended |            
|----------------------------------------------------------------------------------------------- |  | ------------------------ | -----------
|                                                                                                |  | June 30, 2012            |            
|CASH FLOWS FROM OPERATING ACTIVITIES                                                            |  |                          |            
|Net income                                                                                      |  | US$                      | 60,534,967 
|Adjustments to reconcile net income to net cash provided by/(used in) operating
    activities: |  |                          |            
|Depreciation and amortization                                                                   |  |                          | 7,072,522  
|Reversal of allowance for doubtful accounts                                                     |  |                          | (6,334,832 
|Change in fair value of derivative liabilities                                                  |  |                          | (69,287    
|Stock compensation expense                                                                      |  |                          | 2,424,316  
|Deferred tax expense                                                                            |  |                          | 300,108    
|Changes in operating assets and liabilities:                                                    |  |                          |            
|Accounts receivable                                                                             |  |                          | (27,170,173
|Inventories                                                                                     |  |                          | (17,028,433
|Deposits to suppliers                                                                           |  |                          | (22,118,726
|Prepaid expenses                                                                                |  |                          | 4,212,958  
|Other receivables                                                                               |  |                          | 134,726    
|Other assets                                                                                    |  |                          | (5,099,274 
|Accounts payable                                                                                |  |                          | (1,002,120 
|Income tax payable                                                                              |  |                          | 5,610,204  
|Advance from customers                                                                          |  |                          | (3,988,722 
|Accrued expenses                                                                                |  |                          | 10,413,691 
|Other payables                                                                                  |  |                          | 193,633    
|                                                                                                |  |                          |            
|Net Cash Provided by/(Used in) Operating Activities                                             |  |                          | 8,085,558  
|                                                                                                |  |                          |            
|CASH FLOWS FROM INVESTING ACTIVITIES                                                            |  |                          |            
|Payment for intangible asset                                                                    |  |                          | -          
|Purchase of property, plant and equipment                                                       |  |                          | (1,449,852 
|Net Cash Used in Investing Activities                                                           |  |                          | (1,449,852 

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



5







|                                                                           |  | For the Six Months Ended |            
|-------------------------------------------------------------------------- |  | ------------------------ | -----------
|                                                                           |  | June 30, 2012            |            
|CASH FLOWS FROM FINANCING ACTIVITIES                                       |  |                          |            
|Proceeds from short-term bank loans                                        |  |                          | 25,318,859 
|Repayment of long-term loans and payables                                  |  |                          | (3,091,865 
|Repayment of short-term bank loans                                         |  |                          | (28,483,717
|Proceeds from preferred shares, net of issuance cost of $600,010           |  |                          | -          
|Net Cash (Used in)/Provided by Financing
    Activities                    |  |                          | (6,256,723 
|                                                                           |  |                          |            
|EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON CASH                            |  |                          | 418,177    
|NET INCREASE IN CASH                                                       |  |                          | 797,160    
|Cash at beginning of period                                                |  |                          | 81,154,880 
|Cash at end of period                                                      |  | US$                      | 81,952,040 
|                                                                           |  |                          |            
|Supplemental cash flow information:                                        |  |                          |            
|                                                                           |  |                          |            
|Cash paid for income taxes                                                 |  | US$                      | 7,128,066  
|Cash paid for interest expense                                             |  |                          | 2,069,219  
|                                                                           |  |                          |            
|Noncash investing and financing activities:                                |  |                          |            
|Acquisition of property, plant and equipment included in other payables    |  |                          | 422,754    
|Acquisition of other assets by assuming long-term loans and payables       |  |                          | 9,820,930  
|Paid-in-kind dividends on redeemable Series A convertible preferred shares |  |                          | 1,808,667  



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



6







YONGYE INTERNATIONAL, INC. AND SUBSIDIARIES



NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS



JUNE 30, 2012 AND 2011



NOTE 1 -ORGANIZATION AND DESCRIPTION OF BUSINESS



Yongye International, Inc. (the “Company”)
was incorporated in the State of Nevada on December 12, 2006. On April 17, 2008, the Company and the Company’s then principal
shareholder entered into a share exchange agreement (the “Exchange Agreement”) with Fullmax Pacific Limited (“Fullmax”),
a privately held investment holding company organized on May 23, 2007 under the laws of the British Virgin Islands and all the
shareholders of Fullmax (the “Fullmax Shareholders”). 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 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 held a nominal
amount of cash and, Fullmax, through its wholly-owned subsidiary, Asia Standard Oil Limited (“ASO”) and indirect subsidiary,
Yongye Nongfeng Biotechnology Co., Ltd. (“Yongye Nongfeng”), was engaged in the sale of fulvic acid based liquid and
powder nutrient compounds. 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 entered into a Sino-Foreign
cooperative joint venture contract with Inner Mongolia Yongye Biotechnology Co., Ltd. (“Inner Mongolia Yongye”) to
form Yongye Nongfeng, pursuant to which, Inner Mongolia Yongye and ASO were 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 equity interest in Inner Mongolia
Yongye.



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 research and development, manufacturing, distribution
and sale of fulvic acid based liquid and powder nutrient compounds used in the agriculture industry. 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 connection with the September
Offering (See Note 15), the Company entered into agreements to acquire the productive assets of Shengmingsu manufacturing
business from Inner Mongolia Yongye (the “Acquisition”). In October, 2009, the Company completed the
Acquisition. The consideration paid for the Acquisition consisted of cash of US$4.7 million and 4.5% equity interests in
Yongye Nongfeng. After the Acquisition, Inner Mongolia Yongye and ASO became 5% and 95% equity interest owner of Yongye
Nongfeng, respectively.



During the year ended December 31, 2009,
ASO made a capital contribution of US$55,999,965 into Yongye Nongfeng. During the year ended December 31, 2011, ASO made a capital
contribution of US$42,541,199 into Yongye Nongfeng. These contributions resulted in an increase in ASO’s registered capital
interest in Yongye Nongfeng to 98.8%.



7







On July 20, 2010, Yongye Nongfeng set
up a wholly-owned subsidiary, Inner Mongolia Yongye Fumin Biotechnology Co., Ltd. (“Yongye Fumin”), with registered
capital of US$14,731,880 (equivalent to RMB100 million). Yongye Fumin is engaged in the manufacturing and sale of fulvic acid based
liquid and powder nutrient compounds. Yongye Fumin was established to expand the production capacity for fulvic acid based
liquid and powder nutrient compounds, and to produce humic acid using lignite coal (See Note 9). The construction of the production
plant of Yongye Fumin, which is located in Wuchuan County, was completed in the fourth quarter of 2010.



In May 2011, the Company entered into
a securities purchase agreement with MSPEA Agriculture Holding Limited (“MSPEA”), an affiliate of Morgan Stanley,
and Full Alliance International Limited (“Full Alliance”), the Company’s largest shareholder. According to the
agreement, the Company issued 5,681,818 shares of redeemable Series A convertible preferred shares to MSPEA on June 9, 2011 (“Issuance
Date”) for total gross proceeds of US$50 million. The redeemable Series A convertible preferred shares are convertible into
common stock of the Company at an initial conversion price of US$8.80 subject to certain adjustments as specified
in the agreement (See Note 15).



During the six months ended June
30, 2012, the Company began to sell two new products, a crop seed nutrient product and a crop root nutrient product
named “Zhongbaosheng” and “Qianggenbao”, respectively. During the three and six months ended June 30,
2012, revenue  from the two new products were US$21 million and US$69 million,
respectively.



NOTE 2 -SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES



PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION



The accompanying unaudited condensed consolidated
financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America
(“U.S. GAAP”). Certain information and footnote disclosures normally included in financial statements prepared in
accordance with U.S. GAAP have been condensed or omitted as permitted by rules and regulations of the U.S. Securities and Exchange
Commission (“SEC”). The December 31, 2011 consolidated balance sheet was derived from the audited consolidated financial
statements of the Company. The accompanying unaudited consolidated financial statements should be read in conjunction with the
December 31, 2011 audited consolidated financial statements of the Company included in the Company’s annual report on Form
10-K for the year ended December 31, 2011.



In the opinion of management, all adjustments
(which include normal recurring adjustments) necessary to present a fair statement of the financial position as of June 30, 2012,
the results of operations for the three and six months ended June 30, 2012 and 2011 and cash flows for six months ended June 30,
2012 and 2011, have been made.



The Company’s business is subject
to seasonal variations; thus, the results of operations for the three months ended June 30, 2012 are not necessarily indicative
of the results for the full fiscal year ending December 31, 2012. Generally, the second and third quarters are peak sales periods,
and first and fourth quarters are low sales periods for the Company.



All significant intercompany transactions
and balances are eliminated on consolidation.



USE OF ESTIMATES



The preparation of consolidated financial
statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements
and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Significant items subject to such estimates and assumptions include the useful lives of fixed assets; the allowance for doubtful
accounts; the fair value determination of financial and equity instruments and stock compensation awards, the realizability of
deferred tax assets and inventories; the recoverability of goodwill, intangible asset, prepayment for mining project, land use
right and property, plant and equipment; and accruals for income tax uncertainties and other contingencies. The current economic
environment has increased the degree of uncertainty inherent in those estimates and assumptions.



8







NOTE 3 - ACCOUNTS RECEIVABLE



Accounts receivable at June 30, 2012 and December 31, 2011
consisted of the following:



|                                      |  | June 30, 2012 |             |   | December 31, 2011 |    
|------------------------------------- |  | ------------- | ----------- | - | ----------------- | ---
|                                      |  |               |             |   |                   |    
|Accounts receivable                   |  | US$           | 197,359,480 |   |                   | US$
|Less: allowance for doubtful accounts |  |               | (8,999,828  | ) |                   |    
|Total                                 |  | US$           | 188,359,652 |   |                   | US$



The activities in the allowance for doubtful
accounts for the six months ended June 30, 2012 and 2011 are as follows:



|                                                       |  | June 30, 2012 |            |   | June 30, 2011 |    
|------------------------------------------------------ |  | ------------- | ---------- | - | ------------- | ---
|                                                       |  |               |            |   |               |    
|Allowance for doubtful accounts at beginning of period |  | US$           | 15,222,584 |   |               | US$
|Charged to bad debt expense                            |  |               | -          |   |               |    
|Reversal of allowance for doubtful accounts, net       |  |               | (6,334,832 | ) |               |    
|Foreign currency translation adjustment                |  |               | 112,076    |   |               |    
|Allowance for doubtful accounts at end of period       |  | US$           | 8,999,828  |   |               | US$



Past due balances are reviewed individually for collectability.
During the six months ended June 30, 2012, the entire accounts receivable as of December 31, 2011, including all the past due
accounts were collected by the Company. Accordingly, the Company reassessed its allowance for doubtful accounts and recorded a
reversal of the allowance for doubtful accounts in the amount of US$6.3 million, which was included in general and administrative
expenses. The reversal of the allowance for doubtful accounts primarily related to successful settlement of past due accounts
receivable from certain distributors that management had assessed collection to be doubtful due to historical collection pattern,
the size of the distributors’ businesses, and length of the relationship with the distributors. Although the Company continues
to deliver products to these distributors, revenues from sale of products to these distributors are not recognized until collectability
is reasonably assured, and this is generally evidenced by receipt of cash until sufficient period of historical collection experience
can be demonstrated. The Company determines the adequacy of the allowance for doubtful accounts by considering the amount
of historical losses adjusted to take into account current market conditions and the customers’ financial condition, the
amount of receivables in dispute and past due, the accounts receivables aging and customers’ repayment
patterns.



NOTE 4 - INVENTORIES



Inventories at June 30, 2012 and December 31, 2011 consisted
of the following:



|                                 |  | June 30, 2012 |             |  | December 31, 2011 |    
|-------------------------------- |  | ------------- | ----------- |  | ----------------- | ---
|                                 |  |               |             |  |                   |    
|Finished goods                   |  | US$           | 71,966,332  |  |                   | US$
|Work in progress                 |  |               | 27,931,646  |  |                   |    
|Raw materials                    |  |               | 3,387,607   |  |                   |    
|Consumables and packing supplies |  |               | 435,029     |  |                   |    
|Total                            |  | US$           | 103,720,614 |  |                   | US$



As of December 31, 2011, certain finished
goods of US$18,991,849 were pledged as security for short-term bank loans (See Note 11). In addition, as of June 30, 2012 and December
31, 2011, finished goods included US$23,251,377 and US$6,340,411, respectively, of products that were sold to customers for which
the related revenue was not recognized in accordance with the Company’s accounting policy on revenue recognition.



9













NOTE 5 - DEPOSITS TO SUPPLIERS



The Company is required to pay
deposits to the suppliers for the full amount of certain raw materials ordered. These raw materials primarily consist of
lignite coal, chemical component materials and packing materials. The lignite coal and chemical component materials will be
consumed in the production process at Yongye Nongfeng and Yongye Fumin. As of June 30, 2012 and December 31, 2011, the
deposits to suppliers for raw materials amounted to US$24,696,228 and US$2,616,231, respectively. As of August 2, 2012, raw
materials amounting to approximately US$12 million were subsequently received.



The Company’s decision to make advanced
orders of raw materials is mainly based upon (1) the current and projected future market price of raw materials, (2) the demand
and supply situation in the raw materials market, and (3) the forecasted demand of products.



NOTE 6 - PROPERTY, PLANT AND EQUIPMENT



Property, plant and equipment at June 30, 2012 and December
31, 2011 consisted of the following:



|                                                |  | June 30, 2012 |            |   | December 31, 2011 |    
|----------------------------------------------- |  | ------------- | ---------- | - | ----------------- | ---
|                                                |  |               |            |   |                   |    
|Buildings                                       |  | US$           | 14,891,527 |   |                   | US$
|Machinery and equipment                         |  |               | 7,127,252  |   |                   |    
|Office equipment and furniture                  |  |               | 521,852    |   |                   |    
|Vehicles                                        |  |               | 2,423,122  |   |                   |    
|Software                                        |  |               | 26,067     |   |                   |    
|Leasehold improvements                          |  |               | 972,631    |   |                   |    
|Construction in progress                        |  |               | 1,658      |   |                   |    
|                                                |  |               | 25,964,109 |   |                   |    
|Less: Accumulated depreciation and amortization |  |               | (4,176,219 | ) |                   |    
|                                                |  |               |            |   |                   |    
|Property, plant and equipment, net              |  | US$           | 21,787,890 |   |                   | US$



Depreciation and amortization expense
related to property, plant and equipment for the three months ended June 30, 2012 and 2011 was US$440,318 and US$453,803, respectively.
Depreciation and amortization expense related to property, plant and equipment for the six months ended June 30, 2012 and 2011
was US$909,504 and US$833,473, respectively.



As of June 30, 2012 and December 31, 2011,
seven and sixteen vehicles with initial carrying amount of US$468,426 and US$794,984 were pledged as security for the long-term
bank loans of US$129,423 and US$189,229, respectively. The bank loans were provided for the purchases of the vehicles (See Note
12).



As of June 30, 2012 and December 31, 2011,
the Company pledged its building with an original carrying amount of approximately US$6.1 million as security for the short-term
bank loan (See Note 11).



NOTE 7 - INTANGIBLE ASSET



Intangible asset at June 30, 2012 and December 31, 2011 consisted
of the following:



10







|                              |  | June 30, 2012 |         
|----------------------------- |  | ------------- | --------
|                              |  | Weighted      |         
|                              |  | average       |         
|                              |  | amortization  |         
|                              |  | period        |         
|Amortizing intangible assets: |  |               |         
|Customer List                 |  |               | 9 years 
|Patent                        |  |               | 10 years
|Total                         |  |               |         



|                              |  | December 31, 2011 |         
|----------------------------- |  | ----------------- | --------
|                              |  | Weighted          |         
|                              |  | average           |         
|                              |  | amortization      |         
|                              |  | period            |         
|Amortizing intangible assets: |  |                   |         
|Customer List                 |  |                   | 9 years 
|Patent                        |  |                   | 10 years
|Total                         |  |                   |         



Amortization expense for the three months
ended June 30, 2012 and 2011 was US$730,693 and US$755,628, respectively. Amortization expense for the six months ended June 30,
2012 and 2011 was US$1,485,114 and US$1,453,508, respectively. The estimated annual amortization expense for intangible asset
in each of the next five years is US$2,909,161.



On July 1, 2010, Yongye Nongfeng entered
into an agreement with its provincial level distributor in Hebei Province, the PRC (“Seller”) to purchase the customer
list, including the customer relationships, from Seller (“Customer List”). The acquisition of the Customer List allows
Yongye Nongfeng to sell its products to sub-provincial level or regional distributors in Hebei Province directly. The consideration
of the Customer List was 3,600,000 shares of common stock of the Company which was issued in July 2010 and US$3 million cash.
The US$3 million cash consideration was paid in March 2011.



The Company determined that a nine-year
period to amortize the customer list was appropriate, following the pattern in which the expected benefits of the acquired asset
will be consumed or otherwise used up. The Company’s contract period with the provincial distributors (including sub-provincial
level distributors after the acquisition) generally is for a period of three-years. The Company believes that it has historical
experience in renewing or extending similar distributor contracts, which is consistent with the intended use of the Customer List.
There are no legal or regulatory provisions that limit the useful life of the Customer List or that cause the cash flows and useful
life of the Customer List to be constrained. In addition, the Company expects the effect of obsolescence, demand, competition,
and other economic factors to be minimal.



The Company engaged an independent third
party valuation firm in determining the fair value of the Customer List. The fair value of the Customer List was determined using
an income approach and considered assumptions (including turnover rate) that a market participant would make consistent with the
highest and best use of the asset by market participants. The period of expected cash flows used to measure the fair value of
the Customer List was nine years. Without evidence to the contrary, the Company expects that the Customer List will be renewed
or extended at the same rate as a market participant would expect, and no other factors would indicate a different useful life
is more appropriate. Accordingly, in light of the absence of any other entity-specific factors, the useful life of the Customer
List was determined to be nine years.



A straight-line method of amortization
has been adopted as the pattern in which the economic benefits of the Customer List are used up cannot be reliably determined.



NOTE 8 - LAND USE RIGHT



As of June 30, 2012 and December 31, 2011, land use right represented:



11







|                               |  | June 30, 2012 |           |   | December 31, 2011 |    
|------------------------------ |  | ------------- | --------- | - | ----------------- | ---
|                               |  |               |           |   |                   |    
|Land use right                 |  | US$           | 6,386,536 |   |                   | US$
|Less: Accumulated amortization |  |               | (274,565  | ) |                   |    
|Total                          |  | US$           | 6,111,971 |   |                   | US$



As of June 30, 2012 and December 31,
2011, the Company had pledged its land use right with an original carrying amount of approximately US$4.5 million as security
for certain short-term bank loans (See Note 11).



NOTE 9 - PREPAYMENT FOR MINING PROJECT



On March 1, 2010, the Company entered
into an agreement with its then major humic acid supplier, Wuchuan Shuntong Humic Acid Company Ltd. (“Vendor”), to
acquire the permit for the rights to explore, develop and produce lignite coal resources (the “Mineral Right”) in
a certain area of Wuchuan County (the “Project Site”) for cash consideration of approximately RMB 240 million or US$
35 million. The permit allows the Company to complete all necessary administrative procedures and obtaining government approvals
to acquire the Mineral Right. Pursuant to the agreement, Vendor is to assist the Company in completing all necessary administrative
procedures and obtaining government approvals.



In August 2011, Inner
Mongolia’s Ministry of Land and Resources granted the Company a Mineral Resource Exploration Permit which gives it
exclusive exploration rights for the 29.74 square kilometer Project Site for an initial period of three years effective
August 2, 2011 (the “Exploration Right”). As of June 30, 2012, the Company had not obtained all other government
approvals, including the Geological Report and Geological Exploration Report, for it to acquire the Mineral Right. During the six
months ended June 30, 2012, the Company engaged a third party mineral institute to assist the Company in obtaining Geological
Exploration Report. The Company believes the cost to be incurred in completing the remaining administrative procedures and
obtaining government approvals are not significant. The Project Site in Wuchuan is located near Yongye Fumin’s
production plant which manufactures the majority of the Company’s products. The Company believes the acquisition of the
Mineral Right will allow it to secure a long term supply of humic acid, which is a major raw material used in the manufacture
of fulvic acid based liquid and powder nutrient compounds, and which is sourced from lignite coals.



NOTE 10 - OTHER ASSETS



The Company entered into agreements with
certain distributors, including sub-distributors pursuant to which the Company provided the distributor a free vehicle in exchange
for the distributor agreeing to comply with certain sale conditions during the term of the agreement of five years.  The
sales conditions included (1) meeting the annual sales target set by the Company; (2) not selling the products at a price lower
than the price stipulated by the Company; and (3) selling the products only in Company’s approved territories.  To
the extent the distributor fails any one of these conditions during the term of the agreement, the Company has the right to have
the vehicles return back to the Company.



The cost of these vehicles has been recorded
as “Other asset” which is expensed over a five-year period in “Cost of Sales”. In addition, as of June
30, 2012 and December 31, 2011, other assets included an amount of US$6,831,827 and US$4,857,800 respectively, representing the
tax effect of the difference between the amount paid for the vehicles and the tax basis of the assets.



NOTE 11 - SHORT-TERM BANK LOANS



In December 2011, Yongye Nongfeng obtained
two short-term bank loans of RMB 60,000,000 (equivalent to US$9,436,188) and RMB 120,000,000 (equivalent to US$18,872,375) from
China Citic Bank. These two short-term bank loans carry a fixed annual interest rate of 7.93% and are pledged by the inventory,
land use right and buildings of Yongye Nongfeng. Yongye Nongfeng repaid the short-term loans in May and June 2012.



In April 2012, Yongye Nongfeng obtained
a short-term bank loan of RMB 100,000,000 (equivalent to US$15,837,068) with fixed annual interest rate of 8.528% from China
Everbright Bank. The short-term bank loan is guaranteed by the Company’s Chairman and his wife, and is due on April 28,
2013. In June 2012, Yongye Nongfeng obtained a short-term bank loan of RMB 60,000,000 (equivalent to US$9,502,241) with fixed
annual interest rate of 8.203% from China Citic Bank. The short-term bank loan is pledged by the land use right and building of
Yongye Nongfeng, and is due on June 20, 2013.



12







NOTE 12 - LONG-TERM LOANS AND PAYABLES



As of June 30, 2012 and December 31, 2011, the long-term loans
consisted of the following:



|                           |  | June, 2012 |            |  | December 31, 2011 |    
|-------------------------- |  | ---------- | ---------- |  | ----------------- | ---
|                           |  |            |            |  |                   |    
|Vehicle loans-employees    |  | US$        | 129,423    |  |                   | US$
|Vehicle loans-distributors |  |            | 18,425,454 |  |                   |    
|Total                      |  | US$        | 18,554,877 |  |                   | US$



As of June 30, 2012 and December 31, 2011,
vehicle loans-employees of US$129,423 and US$189,229, respectively, were secured by seven and sixteen vehicles with initial carrying
amount of US$468,426 and US$794,984, respectively. The vehicle loans-employees are payable in monthly installments over three
to five years. Interest rates on the loans range from 5.40% to 14.54% annually and are subject to the change of the base interest
rate prescribed by People’s Bank of China. The vehicle loans were obtained by individual employees of the Company
after the Company made the initial down payment of the purchase price of the vehicles. The Company and the individual employees entered
into trust agreements that stipulate that (i) the vehicles are legally registered under the individuals’ name, (ii) the
Company has the rights of official use, (iii) the Company has the rights to the legal title of the vehicles at all times and is
entitled to change the registered owner to the Company or designated third party at any time, (iv) the Company assumes the risk
of loss, damage, penalty and other obligations related to the operation and ownership of the vehicle to the extent that the loss
or damages were not caused by the individuals’ improper use of the vehicle, (v) the individuals have no right to sell, lease,
lend or pledge the vehicles to any other person or entity, and (vi) the Company is obligated to repay the loans in full,
and to bear the costs of the related repairs, maintenance, insurance and taxes. Consequently, the Company has recognized
the cost of the vehicles as other assets and the loans as liabilities in its consolidated balance sheet.



Vehicle loans-distributors represented
loans that were initially obtained by the distributors from banks and financial institutions. The Company and the distributors
entered into agreements, pursuant to which the Company would assume the full repayment of the loans on behalf of these distributors
in exchange for the distributors agreeing to comply with certain sales conditions (See Note 10). The loans have two or three year
terms and are payable in monthly installments. Interest rates on the loans range from 5.40% to 18.24% annually, subject to the
change of the base interest rate prescribed by People’s Bank of China.



The aggregate maturities of the long-term
loans and payables for each of the five years subsequent to June 30, 2012 are: US$7,518,593, US$7,822,378, US$3,213,906, US$0,
and US$0, respectively.



NOTE 13- ACCRUED EXPENSES



As of June 30, 2012 and December 31, 2011, the accrued expenses
primarily consisted of accrued research and development expenses that amounted to US$6,617,430
and US$667,266, respectively, accrued advertising and promotion expenses that amounted to US$5,232,410 and
US$2,388,238, respectively, and accrued freight charges amounted to US$1,194,538 and US$7,920, respectively.





NOTE 14- OTHER PAYABLES



Other payable as of June 30, 2012 mainly
represented payables of US$422,754 for the construction of the production plant in Yongye Fumin and non income tax payable of
US$1,939,346. Other payable as of December 31, 2011 mainly represented payable of US$980,169 for the construction of the production
plant in Yongye Fumin and non income tax payable of US$1,834,577.



NOTE 15- EQUITY FINANCING



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 US$0.001
per share (the “April Investor Shares”) and 1,623,905 warrants (See below) for aggregate gross proceeds equal to US$10,000,651
(the “April Offering”).



13







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 US$0.001 per share (the “September
Investor Shares”) and 1,518,253 warrants (See below) for aggregate gross proceeds equal to approximately US$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’s common stock, par value US$0.001 per share (the “May Shares”)
for aggregate gross proceeds equal to US$8,984,595 (the “May Offering”).



On December 17, 2009, the Company entered
into an underwriting agreement with Roth Capital Partners, LLC (“Roth”) and Oppenheimer and Company Inc. (the “Underwriters”),
pursuant to which the Company agreed to issue and sell 8,000,000 shares of common stock (the “Firm Stock”), par value
US$0.001 per share, to the Underwriters at a price per share of US$7.50 (the “December Offering”). The sale of the
Firm Stock was priced on December 17, 2009 and closed on December 22, 2009. The aggregate proceeds from the offering were US$60,000,000.
Underwriting discounts and commissions and offering expenses were US$3,692,000 and were recorded as a reduction of additional
paid-in capital.



The Company also granted the Underwriters
an option to purchase up to an additional 1,200,000 shares to cover over-allotments, if any, at the same price as the Firm Stock.
On December 31, 2009, the Underwriters agreed to purchase the over-allotment for gross proceeds of US$9,000,000, which, after
net of commissions and discounts of US$450,000, was received on January 4, 2010.



In connection with the acquisition of
Customer List (See Note 7) in July 2010, the Company issued 3,600,000 shares of its common stock to the Seller as part of the
consideration.



In October 2010, the Company granted
1,183,667 restricted shares to management and independent directors of the Company in accordance with Yongye International,
Inc. 2010 Omnibus Securities and Incentive Plan, as an incentive to such individuals to promote the success of the
Company’s business. Management was granted 1,137,000 shares on October 8, 2010, and the independent directors were
granted 46,667 shares on October 15, 2010 (See below). As of June 30, 2011, all shares have been vested.



On October 10, 2011, the Company granted
1,166,333 restricted shares to management and independent directors of the Company in accordance with Yongye International, Inc.
2010 Omnibus Securities and Incentive Plan, as an incentive to such individuals to promote the success of the Company’s
business. As of June 30, 2012, the shares have not yet vested.



Redeemable Series A convertible preferred
shares



In May 2011, the Company entered into
a securities purchase agreement with MSPEA, an affiliate of Morgan Stanley, and Full Alliance, the Company’s largest shareholder.
Pursuant to the terms of the agreement, on June 9, 2011 the Company issued 5,681,818 shares of redeemable Series A convertible
preferred shares to MSPEA for gross proceeds of US$50 million. The redeemable Series A convertible preferred shares are convertible
into common stock of the Company at an initial conversion price of US$8.80, subject to further adjustments as discussed below.



In June 2012, 397,727 shares redeemable
Series A convertible preferred shares were issuedto MSPEA as paid-in-kind dividends.
Total fair value of the paid-in-kind dividends as of the declaration and issuance date was US$1,808,667. The estimated fair
values of the paid-in-kind dividends were determined using Monte Carlo Simulation Model.



The significant terms of the redeemable Series A convertible
preferred shares are as follows:



14







Liquidation Preference



In the event of liquidation, whether voluntary
or involuntary, the holders of the redeemable Series A convertible preferred shares then outstanding shall be entitled to receive,
out of the assets of the Company available for distribution to its stockholders before any payment shall be made to the holders
of the common stock, with respect to each outstanding share of redeemable Series A convertible preferred shares, an amount equal
to the greater of (i) the original issue price, representing US$8.80 per share of redeemable Series A convertible preferred shares,
plus (a) all accrued but unpaid preferred dividends and (b) other declared but unpaid dividends on redeemable Series A convertible
preferred shares, and (ii) such amount per share as would have been payable had all shares of redeemable Series A convertible
preferred shares been converted into common stock immediately prior to such liquidation.



If upon liquidation, the assets of the
Company available for distribution to its stockholders shall be insufficient to pay the holders of the redeemable Series A convertible
preferred shares the full liquidation preference to which they shall be entitled in accordance with the above, the holders of
the redeemable Series A convertible preferred shares shall share ratably in any distribution of the assets available for distribution
in proportion to the respective amounts which would otherwise be payable in respect of the shares held by them upon such distribution
if all amounts payable on or with respect to such shares were paid in full.



Dividends



The holders of the redeemable
Series A convertible preferred shares shall be entitled to receive paid-in-kind dividends in additional shares of redeemable
Series A convertible preferred shares, on each anniversary of the Issuance Date. The calculation of paid-in kind dividends is
based on the number of shares of redeemable Series A convertible preferred shares held by such holders on such anniversary
multiplied by an annual dividend rate determined on such anniversary in accordance with the formula set forth below
(the “Preferred Dividend Rate”), compounded annually:



Preferred Dividend Rate is defined as
7% - [(VWAP - 8.8) x 2 / 310], where VWAP means one-year volume weighted average share price of the Company during the 365-day
period immediately prior to the applicable anniversary of Issuance Date, provided that the preferred dividend rate should not
exceed 7% per annum and shall not fall below 3% per annum.



In addition, the holders of redeemable
Series A convertible preferred shares should also receive, on an as-converted basis, any dividends or distributions that the Company
declares to the holders of common stock.



Conversion



At any time after issuance, each holder
of any shares of redeemable Series A convertible preferred shares then outstanding may, at such holder’s option, elect to
convert all or any portion of the shares of redeemable Series A convertible preferred shares held by such holder into a number
of fully paid and non-assessable shares of common stock. The initial conversion price is US$8.80 per share and is subject to customary
anti-dilution adjustments for issuances of shares of common stock as a dividend or distribution on shares of the common stock,
or mergers or reorganizations or future issuances of other Company’s securities at a price lower than the then applicable
conversion price. Additionally, the conversion price is subject to upward or downward adjustments, depending upon the Actual Net
Income (as defined below) being greater than or lower than the Cumulative Net Income Guarantee (as defined below) of the corresponding
period, provided that (i) the conversion price, as adjusted, shall not exceed US$15.00 per share, and (ii) the sum of all shares
of common stock issuable to the holders of redeemable Series A convertible preferred shares as a result of conversions, dividends,
or distributions, or common stock acquired shall not exceed 9,869,205, or 19.99% of the total number of shares of common stock
outstanding on May 29, 2011, which is the date the Company entered into the securities purchase agreement for the issuance of
redeemable Series A convertible preferred shares.



The Actual Net Income means, in respect
of any fiscal year or quarter, the consolidated net income of the Company for such fiscal year or quarter (as applicable), after
all charges and provisions for taxes and minority interests and adjusted to exclude certain items, as audited (for fiscal years)
or reviewed (for fiscal quarters) in accordance with U.S. GAAP.



The Cumulative Net Income Guarantee is
defined as: US$84 million for fiscal 2011, US$210 million for the cumulative period of fiscal 2011 through fiscal 2012, US$399
million for the cumulative period of fiscal 2011 through fiscal 2013, and US$682.5 million for the cumulative period of fiscal
2011 through fiscal 2014.



15







Automatic Conversion



On the fifth anniversary of the Issuance
Date of the redeemable Series A convertible preferred shares, all redeemable Series A convertible preferred shares will automatically
convert into common stock at the then applicable conversion price.



Voting Rights



The holders of the redeemable Series A
convertible preferred shares are entitled to vote upon all matters upon which the holders of common stocks have the right to vote,
such votes to be counted together with all other shares of stock having general voting powers and not separately as a class. Each
holder of the outstanding redeemable Series A convertible preferred shares shall be entitled to cast the number of votes, which
is equal to the number of votes that would be attributable to the shares of common stock issuable upon conversion of the redeemable
Series A convertible preferred shares.



Redemption



The holders of the redeemable Series
A convertible preferred shares have the right to require the Company to redeem all or a portion of the outstanding redeemable
Series A convertible preferred shares upon the occurrence of any of the following conditions: (i) a material breach by any of
the Company and Full Alliance of any of the key obligations under the securities purchase agreement and related transaction
documents, (ii) the failure to remain current in the Company’s securities filings, (iii) the failure to obtain the
Exploration Right (See Note 9) and recover amounts paid for such rights, on or prior to June 30, 2012, and (iv) the
discontinuation of Mr. Zishen Wu as CEO of the Company prior to December 31, 2014, unless his cessation of duties results
from his death, disability or incapacity. In such cases, the redemption price for the redeemable Series A
convertible preferred shares would be equal to an amount that would yield a total internal rate of return of 30% on the
purchase price of the redeemable Series A convertible preferred shares.



The holders of the redeemable Series A
convertible preferred shares also have the right to redeem all or a portion of their redeemable Series A convertible preferred
shares if (i) the quotient of the Company’s aggregate earnings per share in any six rolling consecutive quarters from the
first quarter of 2010 onwards divided by the aggregate amount of the earnings per share of the corresponding periods in the prior
year is less than 120%, and (ii) net income of any fiscal year between 2011 and 2014 is less than the relevant Income Threshold
for such year. In such cases, the redemption price for the redeemable Series A convertible preferred shares would be equal to
an amount that would yield a total internal rate of return of 20% on the purchase price of the redeemable Series A convertible
preferred shares. The “Income Threshold” is defined as: US$75 million for the fiscal year 2011, US$101 million for
the fiscal year 2012, US$121 million for the fiscal year 2013 and US$145 million for the fiscal year 2014, subject to certain
adjustments caused by future issuances of the Company’s securities that have a dilutive effect on the holders of the redeemable
Series A convertible preferred shares.



Based on the historical income
level, year to date income and projected net income and earnings per share for the next three years, management believes it
is not probable that the Series A convertible preferred shares are redeemable as at December 31, 2011 and June 30, 2012. The
Company assesses the probability of whether the redeemable Series A convertible preferred shares are redeemable at each
reporting period end.



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 as an inducement to the April Offering. The warrants issued have a five-year exercise period with an initial
exercise price of US$1.848. In addition, 649,562 warrants were issued to 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 as an inducement to the September Offering. The warrants issued have a five-year
exercise period with an initial exercise price of US$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.



16







On September 12, 2008, Roth executed
an irrevocable cashless exercise of its warrants and was issued 686,878 shares of common stock of the Company. 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 the “May
Shares”, the Company issued to Roth as the placement agent, 246,224 warrants (“May Warrants”). The warrants
have a five-year exercise period and an initial exercise price of US$1.848. On November 9, 2009, Roth executed an irrevocable
cashless exercise of all the “May Warrants”. The Company issued 198,247 shares of common stock of the Company in exchange
for the surrender of all the May Warrants.



During the three and six months ended
June 30, 2012 and 2011, no “April Warrants” and “September Warrants” were exercised by April Investors
and September Investors.



According to the terms of these warrants,
the Company could be required to pay cash to the warrant holders under certain events that are not within the control of the Company.  Specifically,
upon the occurrence of certain “fundamental transactions” as defined, the warrant holders (but not the shareholders
of the Company’s common stock) are entitled to receive cash equal to the value of the warrants to be determined based on
an option pricing model and certain specified assumptions set forth in the warrant agreement.  In addition, the terms
of the warrants include a “down-round” provision under which the exercise price could be affected by future equity
offerings undertaken by the Company.  If the Company issues any common stock or common stock equivalents, as defined,
at any time the warrants are outstanding, at an effective price less than the then warrant exercise price, the exercise price
of warrants will be reduced to the effective price of newly issued common stock or common stock equivalents.  In the
“May Offering”, the Company issued new common stock at a price of US$1.54 per share and accordingly, the exercise
price of the April Warrants and the September Warrants was reduced to US$1.54 per share.  The exercise price of the
May Warrants (US$1.848) was not affected but is also subject to potential down-round adjustments in future periods. As of June
30, 2012 and December 31, 2011, there were 148,172 warrants outstanding, of which 48,714 and 99,458 warrants will expire
if unexercised by April 2013 and September 2013, respectively.



The potential cash payments and the down-round
provision preclude the classification of these warrants as equity. Accordingly, the warrants are accounted for as a liability
and adjusted to fair value through earnings at each reporting date. The gain resulting from the decrease in fair value of warrants
was US$9,889 and US$83,435 for the three months ended June 30, 2012 and 2011, respectively. The gain resulting from the decrease
in fair value of warrants was US$69,287 and US$413,587 for the six months ended June 30, 2012 and 2011, respectively.



The estimated fair values of the warrants
issued to April Investor and September Investor were determined at June 30, 2012 and December 31, 2011 using Binominal Option
Pricing Model with Level 2 inputs. The following table sets forth, by level within the fair value hierarchy, the Company’s
financial liabilities that were measured at fair value on a recurring basis as of June 30, 2012 and December 31, 2011.



|                                |  | Fair Value Measurements Using: |        
|------------------------------- |  | ------------------------------ | -------
|                                |  |                                |        
|June 30, 2012                   |  | Total                          |        
|                                |  |                                |        
|Liabilities at fair value:      |  |                                |        
|Derivative liabilities-warrants |  | US$                            | 247,896



17







|                                |  | Fair Value Measurements Using: |        
|------------------------------- |  | ------------------------------ | -------
|                                |  |                                |        
|December 31, 2011               |  | Total                          |        
|                                |  |                                |        
|Liabilities at fair value:      |  |                                |        
|Derivative liabilities-warrants |  | US$                            | 317,183



The fair values of the warrants are summarized as follows:



|                                          |  | April Warrants |      |  | September Warrants |    
|----------------------------------------- |  | -------------- | ---- |  | ------------------ | ---
|Fair value of warrant per share (US$) at: |  |                |      |  |                    |    
|Date of issuance                          |  | US$            | 1.07 |  |                    | US$
|December 31, 2011                         |  |                | 2.11 |  |                    |    
|June 30, 2012                             |  |                | 1.60 |  |                    |    



The fair values of the warrants outstanding
as of June 30, 2012 and December 31, 2011 were determined based on the Binominal option pricing model, using the following key
assumptions:



|                                                   |  | June 30, 2012   |           |   | December 31, 2011  |    
|-------------------------------------------------- |  | --------------- | --------- | - | ------------------ | ---
|                                                   |  | April  Warrants |           |   | September Warrants |    
|                                                   |  |                 |           |   |                    |    
|Expected volatility                                |  |                 | 57.1      | % |                    |    
|                                                   |  |                 |           |   |                    |    
|Expected dividends yield                           |  |                 | 0         | % |                    |    
|                                                   |  |                 |           |   |                    |    
|Time to maturity                                   |  |                 | 0.8 years |   |                    |    
|                                                   |  |                 |           |   |                    |    
|Risk-free interest rate per annum                  |  |                 | 0.590     | % |                    |    
|                                                   |  |                 |           |   |                    |    
|Fair value of underlying common shares (per share) |  | US$             | 3.09      |   |                    | US$



Stock-based compensation



Pursuant to the 2010 Omnibus Securities
and Incentive Plan (the “Plan”), which was approved by the stockholders of the Company in the annual meeting held
on June 11, 2010, the Company was authorized to issue up to 2,350,000 shares of the Company’s common stock to selected executives,
key employees and directors. The number of shares of the Company’s common stock that can be issued is limited to an aggregate
of 1,500,000 shares in any calendar year. The purpose of the Plan is to provide incentives to such individuals to promote the
success of the Company’s business.



In October 2010, the Company granted 1,183,667
restricted shares to management and independent directors of the Company in accordance with the Plan. Management was granted 1,137,000
shares on October 8, 2010, and the independent directors were granted 46,667 shares on October 15, 2011. The shares vested
in April 2011.



In October 2011, the Company granted 1,166,333
restricted shares to management and independent directors of the Company in accordance with the Plan. Management was granted 1,073,000
shares, and the independent directors were granted 93,333 shares on October 10, 2011. The shares vest in October 2012.



18







At June 30, 2012, there was US$1,345,362
unrecognized compensation cost related to unvested shares granted under the Plan, which is expected to be recognized over a weighted
average period of approximately 3 months. The total stock-based compensation cost recognized in the general and administrative
expenses for the three months ended June 30, 2012 and 2011 were US$1,212,158 and US$370,866, respectively. The total stock-based
compensation cost recognized in the general and administrative expenses for the three months ended June 30, 2012 and 2011 were
US$2,424,316 and US$4,950,600, respectively.



A summary of the Company’s unvested
shares as of June 30, 2012, and changes during the three and six months ended June 30, 2012, is presented below:



|                           |  |        |           |  | Weighted average |    
|-------------------------- |  | ------ | --------- |  | ---------------- | ---
|                           |  |        |           |  | grant-date       |    
|Restricted shares          |  | Shares |           |  | fair value       |    
|Balance at January 1, 2012 |  |        | 1,166,333 |  |                  | US$
|Granted                    |  |        | -         |  |                  |    
|Vested                     |  |        | -         |  |                  |    
|Forfeited                  |  |        | -         |  |                  |    
|Balance at March 31, 2012  |  |        | 1,166,333 |  |                  |    
|Granted                    |  |        | -         |  |                  |    
|Vested                     |  |        | -         |  |                  |    
|Forfeited                  |  |        | -         |  |                  |    
|Balance at June 30, 2012   |  |        | 1,166,333 |  |                  | US$



NOTE 16 - STATUTORY RESERVE



Yongye Nongfeng and Yongye Fumin are 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 its registered capital. For the six months ended June 30, 2012
and 2011, Yongye Nongfeng and Yongye Fumin made appropriations to this statutory reserve of US$5,833,961, and US$5,889,753, respectively.
The accumulated balance of the statutory reserve of Yongye Nongfeng and Yongye Fumin as of June 30, 2012 and December 31, 2011
was US$27,557,130 and US$21,723,169, respectively.



In accordance with the PRC laws and regulations,
Yongye Nongfeng and Yongye Fumin are restricted in its ability to transfer a portion of its net assets to the Company in the form
of dividends, which amounted to US$26,179,274, representing the amount of accumulated balance of statutory reserve of Yongye Nongfeng
and Yongye Fumin attributable to the Company as of June 30, 2012.



NOTE 17 - INCOME TAXES



Effective from January 1, 2008, the PRC’s
statutory income tax rate is 25%. The Company’s PRC subsidiaries are subject to income tax rate of 25%, unless otherwise
specified. During 2010, Yongye Nongfeng was qualified as a High-Tech Enterprise which entitles it to a preferential tax rate of
15% for three years from January 1, 2010 to December 31, 2012.



The Company’s effective income tax
rates for the three months ended June 30, 2012 and 2011 were 17.66% and 19.49%, respectively, and were 17.69% and 20.05% for the
six months ended June 30, 2012 and 2011. The effective income tax rate for the three and six months ended June 30, 2012 differs
from the PRC statutory income tax rate of 25% primarily due to the effect of Yongye Nongfeng’s preferential tax treatment,
which is partly offset by the effect of non-deductible expenses.



There has been no change in unrecognized
tax benefits during the six months ended June 30, 2012. In addition, the Company does not expect that the amount of unrecognized
tax benefits will change significantly within the next 12 months. No interest and penalties related to unrecognized tax benefits
was recorded for the three and six months ended June 30, 2012.



19







NOTE 18 - FAIR VALUE MEASUREMENTS



The fair values of the financial instruments
as of June 30, 2012 and December 31, 2011 represent the estimated amounts that would be received to sell those assets or that
would be paid to transfer those liabilities in an orderly transaction between market participants at that date. The fair value
measurements maximize the use of observable inputs. However, in situations where there is little, if any, market activity for
the asset or liability at the measurement date, the fair value measurement reflects the Company’s own judgments about the
assumptions that market participants would use in pricing the asset or liability. Those judgments are developed by the Company
based on the best information available in the circumstances, including expected cash flows and appropriately risk-adjusted discount
rates, available observable and unobservable inputs.



The following methods and assumptions
were used to estimate the fair value of each class of financial instruments:



Cash, restricted cash, accounts receivable,
other receivables, short-term bank loans, long-term loans and payables - current portion, accounts payable, accrued expenses and
other payables: The carrying amounts approximate fair value because of the short maturity of these instruments.



Derivative liabilities: The method and
assumptions used to estimate the fair value of derivative liabilities are set out in Note 15.



Long-term loans and payables: The fair
value of the Company’s long-term loans and payables is estimated by discounting future cash flows using current market interest
rates offered to the Company and its subsidiaries for debts with substantially the same characteristics and maturities, and which
approximated to its carrying amount as of June 30, 2012 and December 31, 2011.



NOTE 19 - COMMITMENTS AND CONTINGENCIES



In December 2010, the Company
entered into an operating lease for an office space in Beijing, PRC for the period from January 1, 2011 to December 31, 2013.
The lease expense for the Beijing office was US$66,005 and US$64,172 for the three months ended June 30, 2012 and 2011,
respectively, and US$132,121 and US$127,559 for the six months ended June 30, 2012 and 2011, respectively. As of June 30,
2012, the minimum lease payment for each of the twelve month periods ending June 30, 2013 and 2014 under a non-cancellable
operating lease agreement was US$264,234 and US$132,117 respectively, or an aggregate amount of US$396,351. There is no
minimum lease payment in the next third, fourth and fifth twelve month periods.



On May 26, 2011 and June 3, 2011, the
Company and three of its officers and directors were named in putative class action lawsuits filed in the US Federal District
Court for the Southern District of New York alleging, among other things, that the Company and such officers and directors issued
false and misleading information to investors about the Company’s financial and business condition. These securities class
action complaints generally alleged that the Company’s business was not growing at the rate it represented and that the
Company’s financial results as reported to the Securities and Exchange Commission were inconsistent with its production
capabilities. On March 5, 2012, the plaintiffs voluntarily dismissed this action with prejudice as to themselves as named plaintiffs.



On July 19, 2011, the Company and certain
of its officers and directors were named in a derivative suit filed in the First Judicial District Court of the State of Nevada
and Carson City alleging, among other things, that such directors and officers breached their fiduciary duties to the Company,
misrepresented the Company’s earnings, wasted corporate assets and unjustly enriched themselves at the expense of the Company.
The derivative complaint also alleges that the Company, at the direction of or with the approval of its directors, failed to implement
an adequate system of internal and financial controls. This lawsuit is in its early stages. The Company believes the claims contained
in the lawsuit to be without merit and intends to defend itself vigorously.



20







NOTE 20 - RELATED PARTY TRANSACTIONS AND BALANCES



On January 4, 2011, the Company entered
into an operating lease with Inner Mongolia Yongye for a research and development activity facility in Beijing, PRC for the
period from January 4, 2011 to December 31, 2011. The operating lease was renewed on January 4, 2012 for the period from January
4, 2012 to December 31, 2012 and covered larger leasing area. The lease expense for the research and development facility
paid to Inner Mongolia Yongye was US$63,297 and US$39,898 for the three months ended June 30, 2012 and 2011, respectively, and
was US$126,700 and US$79,308 for the six months ended June 30, 2012 and 2011. Total minimum lease payment is US$126,697 for the
next twelve month period.



In April 2012, Yongye Nongfeng obtained
the short-term bank loan of RMB 100,000,000 (equivalent to US$15,837,068) with fixed annual interest rate of 8.528% from China
Everbright Bank. The short-term bank loan is guaranteed by the Company’s Chairman and his wife, and is due on April 28,
2013.



NOTE 21 - EARNINGS PER SHARE



The following table sets forth the computation
of basic earnings per share for the periods indicated:



|                                                                                                                                      |  | For the Three Months Ended |           
|------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------- | ----------
|                                                                                                                                      |  | June 30,2012               |           
|Numerator:                                                                                                                            |  |                            |           
|Net income attributable to Yongye International,
    Inc.                                                                             |  | US$                        | 41,109,863
|                                                                                                                                      |  |                            |           
|Paid-in-kind dividends on redeemable Series A convertible
    preferred shares, net of amounts accumulated in prior reporting periods |  |                            | 913,042   
|Earnings allocated to participating nonvested shares                                                                                  |  |                            | (870,331  
|Earnings allocated to participating redeemable Series
    A convertible preferred shares                                              |  |                            | (4,311,588
|Net income for basic earnings
    per share                                                                                           |  |                            | 36,840,986
|Denominator:                                                                                                                          |  |                            |           
|Weighted average shares of common stock                                                                                               |  |                            | 49,370,711
|Basic earnings per common stock                                                                                                       |  |                            | 0.75      





|                                                                                                                                      |  | For the Six Months Ended |           
|------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------ | ----------
|                                                                                                                                      |  | June 30,
2012            |           
|Numerator:                                                                                                                            |  |                          |           
|Net income attributable to Yongye International, Inc.                                                                                 |  | US$                      | 57,492,153
|                                                                                                                                      |  |                          |           
|Paid-in-kind dividends on redeemable Series A
    convertible preferred shares, net of amounts accumulated in prior reporting periods |  |                          | 40,439    
|Earnings allocated to participating nonvested shares                                                                                  |  |                          | (1,192,568
|Earnings allocated to participating redeemable Series A convertible preferred shares                                                  |  |                          | (5,858,782
|Net income for basic earnings per share                                                                                               |  |                          | 50,481,242
|Denominator:                                                                                                                          |  |                          |           
|Weighted average shares of common stock                                                                                               |  |                          | 49,370,711
|Basic earnings per common stock                                                                                                       |  |                          | 1.02      



The holders of the redeemable Series A
convertible preferred shares are  entitled to receive cumulative paid-in-kind dividends in additional shares of redeemable
Series A convertible preferred shares, on each anniversary of the Issuance Date (See Note 15) (“Cumulative Dividends”),
and therefore net income attributable to Yongye International, Inc is reduced by dividends accumulated for each reporting period
in the computation of basic earnings per share. At each reporting period prior to the dividends declaration date, the fair value
of the dividends accumulated is measured based on what it would be if the end of the reporting period was the dividend determination
date.  In June 2012, 397,727 shares of paid-in-kind dividends with a total fair value of the US$1,808,667 were issued to
MPSEA. The paid-in kind dividends for the three and six month periods ended June 30, 2012 represent the fair value of the dividends
on the declaration date, net of the amount accumulated in prior reporting periods within the anniversary of the Issuance Date.





The following table sets forth the computation
of diluted earnings per share for the periods indicated:



|                                                                         |  | For the Three Months Ended |           
|------------------------------------------------------------------------ |  | -------------------------- | ----------
|                                                                         |  | June 30,2012               |           
|Numerator:                                                               |  |                            |           
|                                                                         |  |                            |           
|Net income allocated to common stockholders as reported in
    basic EPS |  | US$                        | 36,840,986
|Change in fair value of derivative liabilities                           |  |                            | (9,889    
|Net income for diluted earnings per share                                |  |                            | 36,831,097
|Denominator:                                                             |  |                            |           
|Weighted average shares of common stock as reported in basic EPS         |  |                            | 49,370,711
|Dilutive effect of warrants                                              |  |                            | 74,465    
|                                                                         |  |                            | 49,445,176
|                                                                         |  |                            |           
|Diluted earnings per common stock                                        |  |                            | 0.74      



21







|                                                                         |  | For the Six Months Ended |           
|------------------------------------------------------------------------ |  | ------------------------ | ----------
|                                                                         |  | June 30, 2012            |           
|Numerator:                                                               |  |                          |           
|                                                                         |  |                          |           
|Net income allocated to common stockholders as reported in
    basic EPS |  | US$                      | 50,481,242
|Change in fair value of derivative liabilities                           |  |                          | (69,287   
|Net income for diluted earnings per share                                |  |                          | 50,411,955
|Denominator:                                                             |  |                          |           
|Weighted average shares of common stock as reported in basic EPS         |  |                          | 49,370,711
|Dilutive effect of warrants                                              |  |                          | 82,861    
|                                                                         |  |                          | 49,453,572
|                                                                         |  |                          |           
|Diluted earnings per common stock                                        |  |                          | 1.02      



NOTE 22 - CONCENTRATIONS AND CREDIT RISKS



At June 30, 2012, the Company held cash
in banks of approximately US$81,863,373 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 46% of the
Company’s total revenue for the three months ended June 30, 2012, and 47% of the Company’s total revenue for the
six months ended June 30, 2012. Five major customers accounted for 33% of the Company’s total revenue for the three
months ended June 30, 2011, and 34% of the Company’s total revenue for the six months ended June 30, 2011. The
Company’s total revenue to five major customers were US$81,605,811 and US$114,681,108 for the three and six months
ended June 30, 2012, respectively. The Company’s total revenue to five major customers were US$51,775,780 and
US$69,258,378 for the three and six months ended June 30, 2011, respectively. All these major customers are distributors in
the PRC agriculture industry.



|For the three months ended June 30, 2012 |  |                               | For the six months ended June 30, 2012 |                
|---------------------------------------- |  | ----------------------------- | -------------------------------------- | ---------------
|Largest
        Customers                |  | Primary
        Provinces     |                                        | Amount of Sales
|Customer A                               |  | Shandong                      |                                        | US$            
|                                         |  |                               |                                        |                
|Customer B                               |  | Guangdong                     |                                        |                
|                                         |  |                               |                                        |                
|Customer C                               |  | Henan                         |                                        |                
|                                         |  |                               |                                        |                
|Customer D                               |  | Liaoning; Heilongjiang; Jilin |                                        |                
|                                         |  |                               |                                        |                
|Customer E                               |  | Inner Mongolia                |                                        |                
|                                         |  |                               |                                        |                
|Total                                    |  |                               |                                        | US$            



|For the three months ended June 30, 2011 |  |                               | For the six months ended June 30, 2011 |                
|---------------------------------------- |  | ----------------------------- | -------------------------------------- | ---------------
|Largest
        Customers                |  | Primary
        Provinces     |                                        | Amount of Sales
|Customer D                               |  | Liaoning; Heilongjiang; Jilin |                                        | US$            
|Customer A                               |  | Shandong                      |                                        |                
|Customer B                               |  | Guangdong                     |                                        |                
|Customer F                               |  | Jiangsu                       |                                        |                
|Customer C                               |  | Henan                         |                                        |                
|Total                                    |  |                               |                                        | US$            



22







Three major suppliers accounted for 77%
(US$44,725,788), of which one major supplier accounted for 32% (US$18,255,847) of the Company’s inventory purchase for the
three months ended June 30, 2012. Three major suppliers accounted for 70% (US$75,077,488), of which one major supplier accounted
for 27% (US$29,338,145) of the Company’s inventory purchase for the six months ended June 30, 2012. Three major suppliers
accounted for 83% (US$22,790,351), of which one major supplier accounted for 31% (US$8,539,793) of the Company’s inventory
purchase for the three months ended June 30, 2011. Three major suppliers accounted for 87% (US$50,562,626), of which one major
supplier accounted for 36% (US$20,794,408) of the Company’s inventory purchase for the six months ended June 30, 2011. If
these suppliers terminate their supply relationship with the Company, the Company may be unable to purchase sufficient raw materials
on acceptable terms, which may adversely affect the Company’s results of operations.



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. In addition,
the Company’s business may be influenced by changes in governmental policies with respect to laws and regulations,
anti-inflationary measures, currency conversion and remittance abroad, rates and methods of taxation, and the extraction of mining
resources, among other factors.



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 to Yongye International, Inc. (formerly known as Yongye Biotechnology
International, Inc.) and its consolidated subsidiaries. The following discussion contains forward-looking statements. The words
or phrases “would be,” “will allow,” “expect to”, “intends to,” “will likely
result,” “are expected to,” “will continue,” “is anticipated,” “estimate,”
or similar expressions are intended to identify forward-looking statements. Such statements include those concerning our expected
financial performance, our corporate strategy and operational plans. Actual results could differ materially from those projected
in the forward-looking statements as a result of a number of risks and uncertainties, including: (a) those risks and uncertainties
related to general economic conditions in China, including regulatory factors that may affect such economic conditions; (b) whether
we are able to manage our planned growth efficiently and operate profitable operations, including whether our management will
be able to identify, hire, train, retain, motivate and manage required personnel or that management will be able to successfully
manage and exploit existing and potential market opportunities; (c) whether we are able to generate sufficient revenues or obtain
financing to sustain and grow our operations; and (d) whether we are able to successfully fulfill our primary requirements for
cash which are explained below under “Liquidity and Capital Resources”. Unless otherwise required by applicable law,
we do not undertake, and we specifically disclaim any obligation, to update any forward-looking statements to reflect occurrences,
developments, unanticipated events or circumstances after the date of such statement.



Company Overview



We are a leading crop nutrient
company in China in term of total sales in 2011. We are primarily engaged in the research, development,
manufacturing and sales of fulvic acid based crop and animal nutrient products for the agriculture and stock farming
industry. We are headquartered in Beijing with production facilities in Hohhot, Inner Mongolia Autonomous Region of China
(“Inner Mongolia”). Our products are sold nationwide in 30 provinces, autonomous regions and
centrally-administered municipalities across China.



23







Products



Currently, our principal product is
our liquid crop nutrient products, from which we derived substantially all of our sales for the six months ended June 30,
2012. We also produce powder animal nutrient product which is mainly used for dairy cows. In the first quarter of 2012, we
launched two new crop nutrient products, a crop seed nutrient product and a crop root nutrient product. The crop seed
nutrient product helps crop seeds sprout and improves the growth of roots, and the crop root nutrient product improves crop
roots’ ability to absorb water and fertilizers and enhance crop resistance against drought, freezing, diseases,
and stalk leaning. We believe, by using our regular crop nutrient together with our new products at different stages of
crop growth, the combined effectiveness of our products will further enhance crop yield. We market our regular crop
and animal products under the trade name “Shengmingsu” (“生命素”
in Chinese means “Life Essential”). Our new products for crop seeds and roots are named
“Zhongbaosheng” and “Qianggenbao” respectively. We produce our liquid crop nutrient products,
including the newly launched crop seed product and crop root product, based on our proprietary formulae utilizing fulvic acid
as the primary compound base and combining with various micro nutrients such as zinc and boron, macro nutrients like
nitrogen, phosphorous and potassium (“NPK”) and other nutrients that are essential for the crop health. Our crop
nutrient’s core fulvic acid compound improves crop yield by enhancing the absorption of fertilizers and micro
nutrients. In addition, the micro nutrients and NPK included in our crop nutrient formula serve as
supplements during key growth stages of crops. We believe that our crop nutrient products are particularly well-suited
for use in China, which generally has highly degraded farming soil as a result of over-farming, decades of over-use of
chemical fertilizers and less advanced farming practices compared with more developed nations. Our regular crop nutrient
product is most commonly applied through directly spraying onto leaves of crops after dilution with water, and typically used
at certain critical growth stages of crops in addition to normal fertilizer application. Our crop seed nutrient product is
used by soaking the seeds in our product after water dilution. Soaking time and proportions of water to product vary among
different crops and users should follow our product specifications. At the time of transplant of seeding crop, our crop root
nutrient is used by applying the product onto the crop roots after water dilution and blending with soil. After the
transplant, the water-diluted crop root product is used to irrigate the crops at the roots. Soaking time and water-product
proportions during and after transplanting varies and users should follow our product specifications.



The efficacy of fulvic acid for enhancing
crop yield is well-documented by over 20 global research reports published by universities and institutions in the United States,
China, Europe and other countries. The Inner Mongolia Autonomous Region Scientific and Technology Bureau (“IMARSTB”)
conducted an official assessment of our liquid crop nutrient product in 2008 and concluded that our product increases agricultural
output, improves the utilization rate of fertilizer, enhances crop resistance to diseases and droughts.  In addition,
the IMARSTB concluded that large scale experimentation in China has proven that our product can increase overall yields of staple
crops, such as wheat and rice by 10-20%, and vegetables and fruits by 15-30%, while also improving product quality. Many other
third parties also conducted tests on our product’s efficacy on different crops and geographical locations in China, and
they have drawn similar conclusions as documented in the IMARSTB assessment.



Our powder animal nutrient product consists
of our fulvic acid compound base and additional nutrients and Chinese herbs. Our animal products are currently targeted at and
administered to dairy cows through mixture with cow feed.



Sales and Distribution



We employ a multi-tiered distribution
model whereby we primarily sell our products to provincial-level distributors who in turn sell to our end-customers either directly
or indirectly through county-level distributors and independently owned Yongye branded stores (village-level distributors) (“Branded
Retailers”). We currently have 25 provincial-level distributors, most of which covers a single province, while the
rest of them cover either multiple provinces or a portion of one province (in the case of Hebei, Inner Mongolia and Xinjiang).
We select our provincial-level distributors based on criteria including experience, reputation, network coverage and
financial strength, and we usually enter into multi-year distribution contracts with them. All of our contracts with provincial-level
distributors include mutual exclusivity provisions whereby the provincial-level distributors are not allowed to distribute competing
products, and we grant the distributor exclusive sales rights in the designated territory. We are careful to ensure that the sales
territories of our provincial-level distributors do not overlap.



24













Our provincial-level distributors sell
our products directly to county-level distributors, to key accounts, such as large farms, and farmers through promotional
events. County-level distributors sell our products to independently owned Branded Retailers, large farms, and farmers through
promotional events. Branded Retailers distribute our products directly to farmers in rural villages and towns. Most of the Branded
Retailers are privately owned individual agriculture stores while some have common ownership or belong to store chains. None
of these Branded Retailers are owned or controlled by us. They are typically small in size and distribute a variety of agriculture-related
products, including fertilizer, seeds and pesticides to farmers in the surrounding areas.





The following chart illustrates our multi-tiered distribution
model:







To ensure consistent pricing and channel
margins nationwide, Branded Retailers are typically granted exclusive sales rights for our products in their authorized territory
at the village or town level. We also provide the Branded Retailers with our distinct signage with the “Yongye Shengmingsu”
logo which typically comprises the entire exterior storefront of Branded Retailers. Branded Retailers normally display our products
in prominent shelf spaces and they are responsible for providing technical support to farmers and setting up demonstration
sites for our products.



As of June 30, 2012, our products were
sold in 30 provinces, autonomous regions and centrally-administered municipalities across China. We sell our products to 25 provincial-level
distributors, who then sell our products to 810 county-level distributors and 32,015 Branded Retailers. Our multi-tiered distribution
model allows us to penetrate the vast and highly fragmented rural area of China by utilizing our internal sales team to manage
and leverage thousands of sales personnel at our provincial-level distributors, county-level distributors and Branded Retailers.
Our internal sales team actively manages our multi-tier distribution network by participating in major distributor sales activities
and providing training presentations and seminars.



25







Raw Materials and Production



Our product’s core compound,
fulvic acid, is extracted from humic acid. Humic acid is formed by the biodegradation of dead organic matter which is
buried and compressed under soil, and humic acid is mostly contained in peat, lignite coal, leonardite coal, etc. Our
production process primarily involves the extraction of fulvic acid and then blending it with macro and micro nutrients based
on our patented formulae. The molecular structure of fulvic acid is smaller than humic acid, which enables fulvic acid to be
more easily absorbed by crop leaves.



Currently, our key raw materials for fulvic
acid are lignite coal and humic acid purchased from third party suppliers, and the prices of lignite coal and humic acid are affected
by factors such as market demand, quality and transportation cost. The humic acid we use comes from top grade lignite coal which
is mined in Inner Mongolia and is typically sold on a per ton basis. We currently procure lignite coal from independent third
party suppliers in Inner Mongolia for our manufacturing needs. Prior to 2011, the key raw material for our products was humic
acid which was procured from third party suppliers. Upon the completion of our Wuchuan Facility at the end of 2010, we have been
able to produce the majority of our products by extracting fulvic acid in-house from lignite coal and no longer completely rely
on humic acid from intermediaries. Other raw materials used in our products include chemicals used in our extraction and blending
processes as well as macro and micro nutrients. Fluctuations in raw material costs will affect our cost of sales and gross profit
margin, and we may not be able to pass such increased costs on to our distributors and then to our end customers.



We have two production facilities in Hohhot
City, Inner Mongolia, with one located in Jinshan Industrial Park (the “Jinshan Facility”) and one in Wuchuan County
(the “Wuchuan Facility”).  Prior to the fourth quarter of 2010, the Jinshan Facility was our sole manufacturing
facility and the Jinshan Facility uses purchased humic acid as the key raw material to produce our products.  Our Wuchuan
Facility was completed in the fourth quarter of 2010 and directly utilizes lignite coal as the key raw material to produce fulvic
acid and bypasses intermediaries from whom we used to purchase humic acid.



Currently, we procure lignite
coal from independent third party suppliers in Inner Mongolia.  In March 2010, in order to secure a long-term
supply of humic acid, we entered into an agreement to acquire a mineral resource project in Wuchuan County,
Inner Mongolia.  In August 2011, Yongye Fumin, our wholly-owned subsidiary, obtained a Mineral Resource
Exploration Permit for this project site in Wuchuan County, Inner Mongolia, which was issued by the Inner Mongolia Ministry
of Land and Resources. Such approval granted us exclusive exploration rights for this project site for an initial period of
three years beginning August 2, 2011.  We are in the process of applying for the governmental approval for the
Mineral Right and are preparing for the relevant reports, including but not limited to a Geological Report and a Geological
Exploration Report. In June 2012, we commenced detailed exploration process to obtain a Geological Exploration Report. Upon the
granting of the Mineral Right, we will be able to further vertically integrate our operations.



Currently we have a total of
46,000 tons of combined annual design production capacity at the Wuchuan Facility and the Jinshan Facility.  The
major production processes for our crop and animal nutrient products are identical, and therefore production capacities
for the two lines of products to a large extent are inter-changeable.



Because of the proprietary nature of our
products and manufacturing processes, we customized the core production components of our manufacturing facilities to enable
capacity flexibility.  Our design capacity is calculated by us based on key assumptions, including 300 days of operation
in a year and normal manufacturing conditions.  Under actual manufacturing conditions and based on the seasonality in
our business, our production facilities have the flexibility to adjust actual production to levels higher than our stated theoretical
design capacities.  For instance, during the past several years, our production outputs during the peak second and third
quarters have consistently exceeded the design capacity.



For the six months ended June 30, 2012,
our actual production output for liquid crop nutrient product was 19,364 tons and the actual output for powder animal nutrient
was 684 tons.  We may continue to invest in production capacity expansion as required to respond to increasing demand
for our products in the future.



26







Research and Development



Our research and development process begins
with an internal evaluation of market demand for new types of products. After we initially identify market opportunities for new
products, we will, either alone or in cooperation with our research partners, conduct research activities and develop new products.
Once our research and development activities are complete, we make a final judgment regarding whether and when to bring the new
product to market based upon a second evaluation of market demand, an estimate of the time and expense that will be required to
obtain any necessary governmental approvals, the desirability for obtaining patents or feasibility of protecting our intellectual
property by other means, and the results of market testing. The entire process normally takes anywhere from one to five years,
depending on the product.



We are currently researching and
market testing various customized products for crop and animals. We have already officially introduced two new products to
the market in the first quarter of 2012. One new product is to help crop seeds to sprout and grow, and the other is to
improve crop roots’ ability to absorb water and fertilizers and to enhance crop resistance against drought, freezing,
diseases, and stalk leaning. We are also examining market opportunities for introducing crop products specifically targeted
at corn, peppers, wheat, rice, cucumbers, tomatoes, cotton, potatoes, sunflowers, grapes, tropical fruits and flowers, though
no assurance can be given that we will ultimately bring to market the products that we are currently researching or market
testing on. As to animal products, we are market testing the products used for pig, chickens and sheep.



Intellectual Property



Our products are based on patented formulae
that combine a fulvic acid base with other macro, micro nutrients and other nutrients. Our formula for crop nutrient product was
designed to enhance crop yield by increasing absorption of fertilizer and micro nutrients and providing key micro nutrients and
NPK in key growth stages of crops.  In addition, our engineers designed our manufacturing process to overcome technical
barriers associated with the extraction of fulvic acid and the blending of our products on an industrial scale so that micro and
macro nutrients in our products are water soluble and can be easily absorbed by crops after being sprayed on the leaves. We were
granted two 20-year invention patents by the State Intellectual Property Office in the PRC, effective from October 12, 2006 and
October 21, 2005 respectively, that cover formulae for our liquid crop nutrient product and powder animal nutrient product, as
well as the manufacturing processes for extraction and blending of our products. In addition to seeking patent protection, we
maintain proprietary know-how related to extraction and blending processes as trade secrets.



Marketing and Branding



Our end-customers make their purchase
decisions primarily based on actual demonstrations of the efficacy of our product, typically over an entire growing season. 
Accordingly, our sales and marketing strategies primarily focus on local demonstration sites at which locally-grown crops are
planted side-by-side with and without our liquid crop nutrient applied.  In executing our marketing strategy, Branded
Retailers play a key role in setting up these demonstration sites, marketing our products and providing technical support to farmers.  Branded
Retailers are typically trained by our distributors who receive regular and ongoing guidance from our sales and marketing and
research and development teams.  In addition, we hold large-scale training programs in various locations annually where
we invite Branded Retailers from around China to directly receive product, sales and marketing training.



In addition, our internal sales team frequently
organizes presentations and seminars targeted at provincial-level and county-level distributors in order to convey our sales strategy
effectively to them.  We also designed a series of incentive programs to motivate our distributors to drive performance
and enhance their loyalty to our Company, including sending selected distributors to a Yongye-sponsored executive training program
at Tsinghua University, one of China’s most prestigious academic institutions.



At the national level, we have been conducting
a variety of marketing and branding campaigns to enhance our brand recognition among not only our end-customers but also our existing
and potential distributors and Branded Retailers. We are amongst the very few companies in our industry that actively sponsor
CCTV (China national TV channel) agricultural programs. We also use local TV stations, agricultural publications and newspapers
to carry our advertisements. In addition, we are currently working with a national celebrity, Wang Baoqiang, as our spokesperson,
to enhance our product image.



27







Recent Developments



On May 26, 2011 and June 3, 2011, we and
three of our officers and directors were named in putative class action lawsuits filed in the US Federal District Court for the
Southern District of New York alleging, among other things, that we and such officers and directors issued false and misleading
information to investors about our financial and business condition. These securities class action complaints generally allege
that our business was not growing at the rate we represented and that our financial results as reported to the Securities and
Exchange Commission were inconsistent with our production capabilities. On March 5, 2012, the plaintiffs voluntarily dismissed
this action with prejudice as to themselves as named plaintiffs.



On July 19, 2011 we and certain of
our officers and directors were named in a derivative suit filed in the First Judicial District Court of the State of Nevada
and Carson City alleging, among other things, that such directors and officers breached their fiduciary duties to us,
misrepresented our earnings, wasted corporate assets and unjustly enriched themselves at the expense of us. The derivative
complaint also alleges that we, at the direction of or with the approval of our directors, failed to implement an adequate
system of internal and financial controls. This lawsuit is in its early stages.  We believe that the claims contained in
the lawsuit to be without merit and intend to defend ourselves vigorously.



In April 2012, Yongye Nongfeng obtained
a short-term bank loan of RMB 100,000,000 (equivalent to US$15,837,068) with fixed annual interest rate of 8.528% from China Everbright
Bank. The short-term bank loan is guaranteed by our Chairman and his wife, and is due on April 28, 2013. In June
2012, Yongye Nongfeng obtained a short-term bank loan of RMB 60,000,000 (equivalent to US$9,502,241) with fixed annual interest
rate of 8.203% from China Citic Bank. The short-term bank loan is pledged by the land use right and building of Yongye Nongfeng,
and is due on June 20, 2013.



Factors affecting our operating results



Market Potential for Crop Nutrient
Products in China



The long-term market growth of crop nutrient
products in China is primarily driven by the need to improve crop yield to ensure sufficient food supply in view of limited and
shrinking per capita arable land in China. Currently, with only approximately 9% of the world’s arable land, China needs
to feed 1.3 billion people, or approximately 21% of the world’s population. According to the National Population and Family
Planning Commission of China, China’s population will reach 1.5 billion by 2030. Therefore, the country faces the challenge
of producing additional food to feed the additional 200 million people within the next 20 years. This puts great pressure on China’s
agricultural system to increase production output.







Over-farming, decades of overuse of chemical
fertilizers and less advanced farming practices have led to degraded soil quality in China. Although, according to FAO (Food and
Agriculture Organization), China leads the world in fertilizer consumption, applying more fertilizers than the world average
on a per hectare basis, nevertheless, the crop yield lags behind most developed countries. This creates a huge demand for crop
nutrient products that can help improve fertilizer utilization and increase crop yield. Fulvic acid based crop nutrients are particularly
well suited for the market, as it can allow crops to more effectively absorb fertilizers and minerals from the degraded soils.



28











The market for our crop nutrient product
is large and has attractive long-term growth prospects. China has 1.8 billion mu (each mu is equivalent to approximately 667 square
meters) of arable land in total. Typically, each mu of arable land requires at least 300 ml of our liquid crop nutrient product
for one growing season. For the year of 2011, our crop nutrient product is estimated to have been used in only less than 5% of
the arable land in China, assuming there is one and half growing season per annum on average for all the arable land across China.



Agriculture Sector



The agriculture industry in China
enjoys favorable government policies. In 2012, the government plans to spend RMB1.2 trillion (US$194 billion) on agriculture,
rural areas and farmers, 15.5% higher than the amount in 2011. According to the 12th
Five-Year National Economic and Social Plan (2011-2015) of China, the Chinese government will continue to support the
agriculture industry. Increasing the agriculture production capacity and developing high-yield, high-quality and
high-efficiency agriculture are the focus of the Chinese government. Given our product’s ability to improve fertilizer
utilization, increase crop yield, improve product quality, and enhance crop’s drought-resistance, we expect that we
will further benefit from the Chinese government’s agricultural policy.



In addition, agriculture continues to
be a heavily invested sector in China. Brand name investors continue to invest into China’s agriculture industry because
they have confidence in China’s long term outlook. The market volume for agriculture products is large, both for domestic
sales and export. 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% a year to ensure the country has enough food to feed its 1.3 billion people, according to the former Minister
of Agriculture, Sun Zhengcai (China Economic Net, July 21, 2008). Additional policy changes are expected to include protecting
farmland and increasing rural incomes to retain farming interest.



The goal of government policies 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. To ensure next
year’s crops production, officials must stabilize area planted with winter wheat and use idle land in the off season to
grow rapeseed”, Sun said.



Distribution Network



The agricultural goods market is very
fragmented and spans over 600,000 villages in over 2,000 counties in over 30 provincial regions in China. As farmers
in China tend to be less mobile, it is vital to distribute at the village-level in order to address this market. However, due
to the scattered nature of China’s villages, it is necessary to work through county-level distributors in order to overcome
barriers related to geography, local cultures and business networks. To sell to farmers through village retail stores, crop nutrient
manufacturers typically work with provincial-level distributors to manage county-level distributors or work directly with county-level
distributors.



In order to more rapidly achieve nationwide
coverage, we have adopted a strategy to work with provincial-level distributors which in turn sell our products to county-level
distributors, Branded Retailers and end-customers. We invest significantly in branding, training and technical support to motivate
and maintain the long-term loyalty of our distributors and Branded Retailers, which is critical to successfully selling product
through a multi-tier distribution network. Since we enter and expand into provincial regions at different times, our sales in
different provincial markets vary due to different market penetration rates.



29







Our end-customers are comprised of
large farms which purchase directly from distributors, and individual farmers who purchase either through Branded Retailers
or promotional events held by local distributors. Our Branded Retailer network has been a key driver of our sales.
The number of Branded Retailers increased from 30,086 as of December 31, 2011 to 32,015 as of June 30, 2012. Hebei, Shanxi,
Jiangsu, Henan and Xinjiang provinces accounted for the majority of newly recruited Branded Retailers.



Below is a table setting forth the expansion
of our Branded Retailer network.



|Branded Retailer by Region  |  | Year End 2010 |        |  | Q2 End 2011 |  |        | Year End 2011 |  |  | Q2 End 2012 | 
|--------------------------- |  | ------------- | ------ |  | ----------- |  | ------ | ------------- |  |  | ----------- | 
|                            |  |               |        |  |             |  |        |               |  |  |             | 
|Hebei/Beijing/Tianjin       |  |               | 3,532  |  |             |  | 3,795  |               |  |  | 3,935       | 
|Inner Mongolia              |  |               | 501    |  |             |  | 567    |               |  |  | 765         | 
|Shandong                    |  |               | 3,198  |  |             |  | 3,325  |               |  |  | 3,358       | 
|Guangdong/Hainan            |  |               | 641    |  |             |  | 845    |               |  |  | 941         | 
|Henan                       |  |               | 1,920  |  |             |  | 2,208  |               |  |  | 2,456       | 
|Heilongjiang/Jilin/Liaoning |  |               | 1,231  |  |             |  | 2,066  |               |  |  | 2,180       | 
|Xinjiang                    |  |               | 1,395  |  |             |  | 1,946  |               |  |  | 2,097       | 
|Hubei/Hunan                 |  |               | 3,040  |  |             |  | 2,949  |               |  |  | 2,978       | 
|Gansu/Qinghai               |  |               | 887    |  |             |  | 915    |               |  |  | 920         | 
|Jiangsu                     |  |               | 1,186  |  |             |  | 1,748  |               |  |  | 1,936       | 
|Shanxi                      |  |               | 1,106  |  |             |  | 1,288  |               |  |  | 1,310       | 
|Anhui                       |  |               | 1,222  |  |             |  | 1,390  |               |  |  | 1,420       | 
|Shaanxi                     |  |               | 1,443  |  |             |  | 1,480  |               |  |  | 1,491       | 
|Sichuan/Chongqing           |  |               | 691    |  |             |  | 958    |               |  |  | 1,044       | 
|Jiangxi/Fujian              |  |               | 666    |  |             |  | 937    |               |  |  | 1,006       | 
|Yunnan/Guizhou              |  |               | 620    |  |             |  | 896    |               |  |  | 1,076       | 
|Zhejiang                    |  |               | 138    |  |             |  | 191    |               |  |  | 252         | 
|Guangxi                     |  |               | 184    |  |             |  | 428    |               |  |  | 472         | 
|Ningxia                     |  |               | 427    |  |             |  | 433    |               |  |  | 441         | 
|Shanghai                    |  |               | 8      |  |             |  | 8      |               |  |  | 8           | 
|Total                       |  |               | 24,036 |  |             |  | 28,373 |               |  |  | 30,086      | 



Seasonality



Our regular liquid crop nutrient product
is most commonly applied by directly spraying onto leaves of crops in the second and third quarters, which correspond to the growing
seasons for most crops in most parts of China. Accordingly, the sales during the second and third quarters usually represent 70-80%
of our total annual sales. Therefore, higher volume of finished goods were usually accumulated during the non-peak seasons in
preparation for the subsequent peak sales seasons which will result in higher inventory turnover days during non-peak seasons.
In 2012, we launched two new products which are positioned specifically for crop seeds and roots, the peak sales seasons of which
fall in the first quarter. Although these two new products contributed the majority of our sales in the first quarter and small
portion of our sales in the second quarter of 2012, due to the fact that these two new products were newly introduced to the market,
we expect that these two new products will only account for a small portion of our total sales in 2012 on a full year basis.



Pricing



We principally sell to our provincial-level
distributors at an ex-factory price, and they in turn sell to lower level distributors at distributor prices. Branded Retailers
sell to farmers at our suggested retail prices. Our pricing policy is consistent across the country, and we require our provincial-level
distributors to ensure this policy is followed by county-level distributors and Branded Retailers. Our pricing policy for ex-factory
price, different level of distributor prices and suggested retail prices have generally remained stable for the past several years.
In 2011, we allowed Branded Retailers to charge a higher retail price for an updated version of our crop nutrient product that
was replacing the prior version.



30







In July 2010, we acquired a customer list
and relationship of eight direct customers from our former provincial-level distributor in Hebei.  As a result, we have
been able to directly sell products in Hebei province at a county-level distributor price after bypassing the former provincial-level
distributor. We expect to maintain the higher selling price to those eight distributors in Hebei in the foreseeable future.



The pricing of the two new crop products
launched in 2012 is at the same level of our regular crop nutrient products. We may adjust our selling prices from time to time
in the future based on then market conditions, and any such adjustments may affect our margins, market demand and financial results.



Competition



While we compete with both nationwide
and local manufacturers of humic or fulvic acid crop nutrients, we believe that we are a clear market leader. The Chinese agriculture
industry and the retail market for agricultural goods are highly fragmented. As of the end of July 2012, there were more than
4,000 fertilizer products registered in the PRC Ministry of Agriculture’s registry. We mainly compete directly with producers
of humic or fulvic acid based products, of which there were around 1,000 registered as of the end of July 2012.



In addition to humic or fulvic acid based
crop nutrient products, our nutrient products also compete with other liquid fertilizers applied on crop leaves, such as amino
acid-based nutrients and other liquid fertilizers containing NPK or minerals as many farmers view such liquid fertilizers as a
single product category.



We believe that with our proven product
efficacy, premium brand and nation-wide distribution network, we are well positioned to maintain our leadership
position in this market.



RESULTS OF OPERATIONS



Summary Statement of Comprehensive Income Data



|in US$, except for percentages                                                                                                                                                          |  | For the Three Months
    Ended June 30, |             |   | For the Six Months
    Ended June 30, |  |             | For the Three Months Ended
    June 30, |  |  | For the Six Months
    Ended June 30, |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------- | ----------- | - | ------------------------------------- |  | ----------- | --------------------------------------- |  |  | ------------------------------------- | -
|                                                                                                                                                                                        |  | 2012                                    |             |   | 2011                                  |  |             | 2012                                    |  |  | 2011                                  |  
|Sales                                                                                                                                                                                   |  |                                         | 177,625,986 |   |                                       |  | 154,704,865 |                                         |  |  | 241,991,630                           |  
|                                                                                                                                                                                        |  |                                         |             |   |                                       |  |             |                                         |  |  |                                       |  
|Cost of sales                                                                                                                                                                           |  |                                         | 69,535,733  |   |                                       |  | 62,939,174  |                                         |  |  | 98,488,872                            |  
|                                                                                                                                                                                        |  |                                         |             |   |                                       |  |             |                                         |  |  |                                       |  
|Gross profit                                                                                                                                                                            |  |                                         | 108,090,253 |   |                                       |  | 91,765,691  |                                         |  |  | 143,502,758                           |  
|                                                                                                                                                                                        |  |                                         |             |   |                                       |  |             |                                         |  |  |                                       |  
|Selling expenses                                                                                                                                                                        |  |                                         | 38,554,590  |   |                                       |  | 29,152,923  |                                         |  |  | 52,757,647                            |  
|                                                                                                                                                                                        |  |                                         |             |   |                                       |  |             |                                         |  |  |                                       |  
|Research and development expenses                                                                                                                                                       |  |                                         | 7,384,804   |   |                                       |  | 5,555,634   |                                         |  |  | 8,893,542                             |  
|                                                                                                                                                                                        |  |                                         |             |   |                                       |  |             |                                         |  |  |                                       |  
|General and administrative expenses (including a reversal of allowance
    for doubtful accounts of US$6,334,832 and nil for the six months ended June 30, 2012 and 2011, respectively) |  |                                         | 8,646,763   |   |                                       |  | 5,586,019   |                                         |  |  | 6,437,292                             |  
|                                                                                                                                                                                        |  |                                         |             |   |                                       |  |             |                                         |  |  |                                       |  
|Income from operations                                                                                                                                                                  |  |                                         | 53,504,096  |   |                                       |  | 51,471,115  |                                         |  |  | 75,414,277                            |  
|                                                                                                                                                                                        |  |                                         |             |   |                                       |  |             |                                         |  |  |                                       |  
|Other income/(expenses)                                                                                                                                                                 |  |                                         |             |   |                                       |  |             |                                         |  |  |                                       |  
|Interest expense                                                                                                                                                                        |  |                                         | (1,102,126  | ) |                                       |  | (291,751    | )                                       |  |  | (2,106,295                            | )
|Interest income                                                                                                                                                                         |  |                                         | 75,336      |   |                                       |  | 16,860      |                                         |  |  | 135,410                               |  
|Subsidy income                                                                                                                                                                          |  |                                         | -           |   |                                       |  | 655,071     |                                         |  |  | -                                     |  
|Other income/(expenses), net                                                                                                                                                            |  |                                         | 2,662       |   |                                       |  | 26,560      |                                         |  |  | 34,716                                |  
|Change in fair value of derivative liabilities                                                                                                                                          |  |                                         | 9,889       |   |                                       |  | 83,435      |                                         |  |  | 69,287                                |  
|Total other income/(expenses), net                                                                                                                                                      |  |                                         | (1,014,239  | ) |                                       |  | 490,175     |                                         |  |  | (1,866,882                            | )
|Earnings before income tax expense                                                                                                                                                      |  |                                         | 52,489,857  |   |                                       |  | 51,961,290  |                                         |  |  | 73,547,395                            |  
|Income tax expense                                                                                                                                                                      |  |                                         | 9,272,206   |   |                                       |  | 10,127,255  |                                         |  |  | 13,012,428                            |  
|Net income                                                                                                                                                                              |  |                                         | 43,217,651  |   |                                       |  | 41,834,035  |                                         |  |  | 60,534,967                            |  
|Less: Net income attributable to the noncontrolling
    interest                                                                                                                        |  |                                         | 2,107,788   |   |                                       |  | 2,297,271   |                                         |  |  | 3,042,814                             |  
|                                                                                                                                                                                        |  |                                         |             |   |                                       |  |             |                                         |  |  |                                       |  
|Net income attributable to Yongye International,
    Inc.                                                                                                                               |  |                                         | 41,109,863  |   |                                       |  | 39,536,764  |                                         |  |  | 57,492,153                            |  
|Earnings per share:                                                                                                                                                                     |  |                                         |             |   |                                       |  |             |                                         |  |  |                                       |  
|Basic earnings per common stock                                                                                                                                                         |  |                                         | 0.75        |   |                                       |  | 0.78        |                                         |  |  | 1.02                                  |  
|Diluted earnings per common stock                                                                                                                                                       |  |                                         | 0.74        |   |                                       |  | 0.77        |                                         |  |  | 1.02                                  |  
|                                                                                                                                                                                        |  |                                         |             |   |                                       |  |             |                                         |  |  |                                       |  
|Weighted average shares used in computation:                                                                                                                                            |  |                                         |             |   |                                       |  |             |                                         |  |  |                                       |  
|Basic earnings per common stock                                                                                                                                                         |  |                                         | 49,370,711  |   |                                       |  | 49,276,070  |                                         |  |  | 49,370,711                            |  
|Diluted earnings per common stock                                                                                                                                                       |  |                                         | 49,445,176  |   |                                       |  | 49,378,396  |                                         |  |  | 49,453,572                            |  



31







Review of Results of Operation for the Three and Six Months
Ended June 30, 2012



Our sales increased by 14.8% to US$177.6
million for the three months ended June 30, 2012, from US$154.7 million for the same period of 2011. Our sales increased by 18.1%
to US$242.0 million for the six months ended June 30, 2012, from US$204.9 million for the same period of 2011.



Our gross profit increased by 17.8% to
US$108.1 million for the three months ended June 30, 2012, from US$91.8 million for the same period of 2011. Gross profit margin
was 60.9% for the three months ended June 30, 2012, as compared to 59.3% for the same period of 2011. Gross profit increased by
20.5% to US$143.5 million for the six months ended June 30, 2012, from US$119.1 million for the same period of 2011. Gross profit
margin was 59.3% for the six months ended June 30, 2012, as compared to 58.1% for the same period of 2011.



Our net income attributable to
Yongye International, Inc. increased by 4.0% to US$41.1 million, or US$0.74 diluted earnings per share, for the three months
ended June 30, 2012, from US$39.5 million, or US$0.77 diluted earnings per share, for the same period of 2011. Our net income
attributable to Yongye International, Inc. increased by 20.0% to US$57.5 million, or US$1.02 diluted earnings per share, for
the six months ended June 30, 2012, from US$47.9 million, or US$0.94 diluted earnings per share, for the same period of
2011.



32







Sales



Below is an analysis of our sales for
the three months ended June 30, 2012 and 2011, as well as the six months ended June 30, 2012 and 2011.



Our sales increased by US$22.9 million,
or 14.8%, to US$177.6 million for the three months ended June 30, 2012, from US$154.7 million for the same period of 2011. For
the three months ended June 30, 2012, we derived US$176.3 million, or 99.3% of our total sales, from liquid crop nutrient, and
we derived US$1.3 million, or 0.7% of our total sales, from the powder animal nutrient. For our liquid crop nutrient, the regular
crop nutrient contributed US$155.6 million, or 88.2% of total liquid crop nutrient, while the two new products for crop seeds
and roots contributed US$20.7 million, or 11.8% of our total liquid crop nutrient sales for the three months ended June 30, 2012.



For the three months ended June 30, 2012,
the average selling price (“ASP”) of our liquid crop nutrient product was US$11,808 per ton, as compared to US$11,617
per ton for the same period of 2011. The small increase in our ASP is the result of the effect of currency rate fluctuations.



Our sales increased by US$37.1 million,
or 18.1%, to US$242.0 million for the six months ended June 30, 2012, from US$204.9 million for the same period of 2011. For the
six months ended June 30, 2012, we derived US$238.3 million, or 98.5% of our total sales, from liquid crop nutrient, and we derived
US$3.7 million, or 1.5% of our total sales, from the powder animal nutrient. For our liquid crop nutrient, the regular crop nutrient
contributed US$169.6 million, or 71.2% of total liquid crop nutrient, while the two new products for crop seeds and roots, contributed
US$68.6 million, or 28.8% of our total liquid crop nutrient sales for the six months ended June 30, 2012.



The following table set forth the sales breakdown by region
for the three months ended June 30, 2012 and 2011, and the six months ended June 30, 2012 and 2011:



|                              |  | 2012 |       |  | 2011 |  |       | YoY           |  |  | YoY             |   |  | 2012 |        |    | 2011 |  |       | YoY           |  |  | YoY         | 
|----------------------------- |  | ---- | ----- |  | ---- |  | ----- | ------------- |  |  | --------------- | - |  | ---- | ------ | -- | ---- |  | ----- | ------------- |  |  | ----------- | 
|Sales By Region (US$ million) |  | Q2   |       |  | Q2   |  |       | Change in US$ |  |  | Change
    in % |   |  | 1H   |        |    | 1H   |  |       | Change in US$ |  |  | Change in % | 
|Hebei/Beijing/Tianjin         |  |      | 21.1  |  |      |  | 32.5  |               |  |  | (11.4           | ) |  |      | (35.1  | )% |      |  | 28.1  |               |  |  | 38.0        | 
|Inner Mongolia                |  |      | 12.6  |  |      |  | 10.0  |               |  |  | 2.6             |   |  |      | 26.0   | %  |      |  | 35.1  |               |  |  | 12.2        | 
|Shandong                      |  |      | 20.1  |  |      |  | 11.1  |               |  |  | 9.0             |   |  |      | 81.1   | %  |      |  | 24.1  |               |  |  | 15.7        | 
|Guangdong/Hainan              |  |      | 17.6  |  |      |  | 10.7  |               |  |  | 6.9             |   |  |      | 64.5   | %  |      |  | 20.8  |               |  |  | 13.7        | 
|Henan                         |  |      | 16.4  |  |      |  | 9.1   |               |  |  | 7.3             |   |  |      | 80.2   | %  |      |  | 20.9  |               |  |  | 11.9        | 
|Heilongjiang/Jilin/Liaoning   |  |      | 15.1  |  |      |  | 11.7  |               |  |  | 3.4             |   |  |      | 29.1   | %  |      |  | 19.0  |               |  |  | 15.1        | 
|Xinjiang                      |  |      | 3.4   |  |      |  | 4.1   |               |  |  | (0.7            | ) |  |      | (17.1  | )% |      |  | 4.1   |               |  |  | 6.0         | 
|Hubei/Hunan                   |  |      | 2.8   |  |      |  | 6.7   |               |  |  | (3.9            | ) |  |      | (58.2  | )% |      |  | 3.4   |               |  |  | 9.5         | 
|Gansu/Qinghai                 |  |      | 6.4   |  |      |  | 4.7   |               |  |  | 1.7             |   |  |      | 36.2   | %  |      |  | 8.1   |               |  |  | 6.3         | 
|Jiangsu                       |  |      | 11.9  |  |      |  | 9.2   |               |  |  | 2.7             |   |  |      | 29.3   | %  |      |  | 14.6  |               |  |  | 12.0        | 
|Shanxi                        |  |      | 5.6   |  |      |  | 4.9   |               |  |  | 0.7             |   |  |      | 14.3   | %  |      |  | 7.9   |               |  |  | 6.3         | 
|Anhui                         |  |      | 3.2   |  |      |  | 8.5   |               |  |  | (5.3            | ) |  |      | (62.4  | )% |      |  | 3.9   |               |  |  | 11.8        | 
|Shaanxi                       |  |      | 10.1  |  |      |  | 6.5   |               |  |  | 3.6             |   |  |      | 55.4   | %  |      |  | 12.6  |               |  |  | 13.1        | 
|Sichuan/Chongqing             |  |      | 9.8   |  |      |  | 7.9   |               |  |  | 1.9             |   |  |      | 24.1   | %  |      |  | 12.6  |               |  |  | 10.7        | 
|Jiangxi/Fujian                |  |      | 11.0  |  |      |  | 8.0   |               |  |  | 3.0             |   |  |      | 37.5   | %  |      |  | 13.7  |               |  |  | 10.2        | 
|Yunnan/Guizhou                |  |      | 10.5  |  |      |  | 9.0   |               |  |  | 1.5             |   |  |      | 16.7   | %  |      |  | 13.0  |               |  |  | 11.9        | 
|Zhejiang                      |  |      | *     |  |      |  | *     |               |  |  | -               |   |  |      | -      |    |      |  |       |               |  |  | *           | 
|Guangxi                       |  |      | *     |  |      |  | 0.1   |               |  |  | (0.1            | ) |  |      | (100.0 | )% |      |  | 0.1   |               |  |  | 0.3         | 
|Ningxia                       |  |      | *     |  |      |  | *     |               |  |  | -               |   |  |      | -      |    |      |  |       |               |  |  | 0.1         | 
|Shanghai                      |  |      | *     |  |      |  | *     |               |  |  | -               |   |  |      | -      |    |      |  |       |               |  |  | *           | 
|Others                        |  |      | *     |  |      |  | *     |               |  |  | -               |   |  |      | -      |    |      |  |       |               |  |  | 0.1         | 
|Total                         |  |      | 177.6 |  |      |  | 154.7 |               |  |  | 22.9            |   |  |      | 14.8   | %  |      |  | 242.0 |               |  |  | 204.9       | 



* Less than US$50,000



33







Our revenue in Hebei, Anhui, Hubei
and Xinjiang decreased compared to the same period of 2011, primarily due to delayed revenue
recognition. Our shipment to such provinces actually increased or remained stable. In the fourth quarter of 2011, in
consideration of the deteriorating payment ability of certain distributors in the above mentioned provinces, we delayed the
recognition of revenues generated from sales to those distributors until payment collectability can be reasonably assured,
which is generally evidenced by receipt of cash. We will recognize revenues for these distributors upon shipment when
sufficient period of historical collection experience can be demonstrated. In addition, in the first half of 2012, we reduced
shipment to certain provincial distributors which had prolonged payment periods in 2011 to better manage our accounts
receivable. We intend to use this as an incentive for those distributors to pay off the accounts receivable in a timely
manner. None of our distributors has an overdue account receivable at the end of the second quarter of 2012.



Production Output



Our production output for our liquid crop
nutrient product was 8,910 tons for the three months ended June 30, 2012, and 19,364 tons for the six months ended June 30, 2012.
The inventory turnover was 139 days for the three months ended June 30, 2012 as compared to 85 days for the same period of 2011.
The inventory turnover was 173 days for the six months ended June 30, 2012 as compared to 115 days for the same period of 2011.



During the three months ended June 30,
2012, we sold 14,933 tons of liquid crop nutrient products and 206 tons of powder animal nutrient products. During the six months
ended June 30, 2012, we sold 20,147 tons of liquid crop nutrient products and 586 tons of powder animal nutrient products.



Cost of Sales



Our cost of sales increased by US$6.6
million, or 10.5%, to US$69.5 million for the three months ended June 30, 2012, from US$62.9 million for the same period of 2011.
Cost of sales increased by US$12.6 million, or 14.7%, to US$98.5 million for the six months ended June 30, 2012, from US$85.9
million for the same period of 2011.



For the three months ended June 30, 2012,
our cost of sales accounted for 39.1% of our total sales, as compared to 40.7% for the same period of 2011. For the six months
ended June 30, 2012, our cost of sales accounted for 40.7% of our total sales, as compared to 41.9% for the same period of 2011.



Gross Margin



Our gross margin was 60.9% for the three
months ended June 30, 2012, as compared to 59.3% for the same period of 2011. Gross margin was 59.3% for the six months ended
June 30, 2012, as compared to 58.1% for the same period of 2011. The increase in gross margin was mainly due to the decreased
purchase price of certain raw materials.



Selling Expenses



Our selling expenses increased by US$9.4
million, or 32.2%, to US$38.6 million for the three months ended June 30, 2012, from US$29.2 million for the same period of 2011.
As a percentage of sales, selling expenses increased from 18.8% for the three months ended June 30, 2011 to 21.7% for the same
period of 2012. The increase of selling expenses was primarily due to an increase in advertising and promotion expense, and distributors’
seminar expenditure of US$9.3 million relating to marketing and promotional activities in our markets.



Selling expenses increased by
US$16.0 million, or 43.2%, to US$52.8 million for the six months ended June 30, 2012, from US$36.8 million for the same
period of 2011. As a percentage of sales, selling expenses increased from 18.0% for the six months ended June 30, 2011 to
21.8% for the same period of 2012. The increase of selling expenses was primarily due to an increase in advertising and
promotion expense, and distributors’ seminar expenditure of US$15.5 million relating to marketing and promotional
activities for our original and newly launched products in our markets.



34







General and Administrative Expenses



Our general and administrative expenses
increased by US$3.0 million, or 54.8%, to US$8.6 million for the three months ended June 30, 2012, from US$5.6 million for the
same period of 2011. As a percentage of sales, general and administrative expenses increased from 3.6% for the three months ended
June 30, 2011 to 4.9% for the same period of 2012. The increase of general and administrative expenses was mainly due to an increase
in management equity compensation expenses and other administrative related expenditure for the three months ended June 30, 2012.



General and administrative expenses decreased
by US$6.5 million, or 50.0%, to US$6.4 million for the six months ended June 30, 2012, from US$12.9 million for the same period
of 2011. As a percentage of sales, general and administrative expenses decreased from 6.3% for the six months ended June 30, 2011
to 2.7% for the same period of 2012. The decrease of general and administrative expenses was mainly due to the reversal of allowance
for doubtful accounts of US$6.3 million which was provided in the first quarter of 2012, and a decrease in management compensation
expenses by US$2.5 million to US$2.4 million for the six months ended June 30, 2012 from US$4.9 million for the same period of
2011. Except for the reversal of allowance for doubtful accounts, general and administrative expenses amounted to US$12.8 million,
which mainly included management compensation expenses resulted from the granted restricted stock in October 2011, staff salary
expenditure and other administrative related expenditure for the six months ended June 30, 2012.



Research and Development Expenses



We incurred US$7.4 million of research
and development expenses for the three months ended June 30, 2012, as compared to US$5.6 million for the same period of 2011.
The research and development expenses was US$8.9 million for the six months ended June 30, 2012, as compared to US$6.6 million
for the same period of 2011.



Our research and development expenses
mainly consisted of field test expenses for new products, tests on different crops and tests in newly developed markets.



Income Tax Rate



During the three and six months ended June 30, 2012 and the
year ended December 31, 2011, Yongye Nongfeng enjoyed a preferential tax rate of 15% pursuant to the High-Tech Enterprise qualification
it received during 2010 which entitled it the preferential tax rate for three years starting from January 1, 2010.



Our effective income tax rates for the three months ended June
30, 2012 and 2011 were 17.66% and 19.49%, respectively. Effective income tax rates for the six months ended June 30, 2012 and
2011 were 17.69% and 20.05%, respectively. The effective income tax rates for the three and six months ended June 30, 2012 and
2011 differ from the PRC statutory income tax rate of 25% primarily due to the effect of Yongye Nongfeng’s preferential
tax treatment which is partly offset by the effect of non-deductible expenses. The effective income tax rate for the three and
six months ended June 30, 2012 decreased as compared to the same period of 2011 was primarily due to a decrease in non-deductible
management compensation expenses.



Our company’s PRC subsidiaries have
cash balance of US$77.1 million as of June 30, 2012 which is planned to be permanently reinvested in the PRC. The distributions
from our PRC subsidiaries are subject to the U.S. federal income tax at 34%, less any applicable foreign tax credits. Due to our
plan to indefinitely reinvest our earnings in our PRC business, we have not provided for deferred tax liabilities on undistributed
earnings of our PRC subsidiaries.



Net Income



Our net income attributable to Yongye
International, Inc. was US$41.1 million (representing a net profit margin of 23.1%) for the three months ended June 30, 2012 as
compared to US$39.5 million (representing a net profit margin of 25.6%) for the same period of 2011. The decrease in our net profit
margin is primarily due to the increase in selling expenses and general and administrative expenses.



35







Net income attributable to Yongye International,
Inc. was US$57.5 million (representing a net profit margin of 23.8%) for the six months ended June 30, 2012 as compared to US$47.9
million (representing a net profit margin of 23.4%) for the same period of 2011.



Liquidity and capital resources



Selected consolidated balance sheet
data:



|in US$, except for  percentages                                 |  | As of
    June 30, 2012 |             |  | As of
    December 31, 2011 |  |             | Variance |  |  | %          |   |  | Note |    
|--------------------------------------------------------------- |  | ----------------------- | ----------- |  | --------------------------- |  | ----------- | -------- |  |  | ---------- | - |  | ---- | ---
|                                                                |  |                         |             |  |                             |  |             |          |  |  |            |   |  |      |    
|Cash and restricted cash                                        |  |                         | 81,992,040  |  |                             |  | 81,194,880  |          |  |  | 797,160    |   |  |      | 1  
|Accounts receivable, net of allowance for doubtful
    accounts |  |                         | 188,359,652 |  |                             |  | 153,629,522 |          |  |  | 34,730,130 |   |  |      | 23 
|Inventories                                                     |  |                         | 103,720,614 |  |                             |  | 86,117,000  |          |  |  | 17,603,614 |   |  |      | 20 
|Deposits to suppliers                                           |  |                         | 25,240,430  |  |                             |  | 2,664,360   |          |  |  | 22,576,070 |   |  |      | 847
|Property, plant and equipment, net                              |  |                         | 21,787,890  |  |                             |  | 21,929,444  |          |  |  | (141,554   | ) |  |      | (1 
|Prepayment for mining project                                   |  |                         | 35,760,100  |  |                             |  | 35,511,520  |          |  |  | 248,580    |   |  |      | 1  
|Total assets                                                    |  |                         | 541,149,187 |  |                             |  | 458,764,878 |          |  |  | 82,384,309 |   |  |      | 18 
|Long-term loans and payables - current portion                  |  |                         | 7,518,593   |  |                             |  | 4,279,234   |          |  |  | 3,239,359  |   |  |      | 76 
|Short term bank loan                                            |  |                         | 25,339,309  |  |                             |  | 28,308,563  |          |  |  | (2,969,254 | ) |  |      | (10
|Accounts payable                                                |  |                         | 12,175,256  |  |                             |  | 13,098,183  |          |  |  | (922,927   | ) |  |      | (7 
|Income tax payable                                              |  |                         | 8,802,549   |  |                             |  | 3,161,538   |          |  |  | 5,641,011  |   |  |      | 178
|Accrued expenses                                                |  |                         | 14,888,397  |  |                             |  | 4,437,220   |          |  |  | 10,451,177 |   |  |      | 236
|Other payables                                                  |  |                         | 2,956,623   |  |                             |  | 3,159,070   |          |  |  | (202,447   | ) |  |      | (6 
|Total current liabilities                                       |  |                         | 72,067,574  |  |                             |  | 60,856,571  |          |  |  | 11,211,003 |   |  |      | 18 
|Long-term loans and payables                                    |  |                         | 11,036,284  |  |                             |  | 7,464,683   |          |  |  | 3,571,601  |   |  |      | 48 
|Other non-current liability                                     |  |                         | 4,327,927   |  |                             |  | 4,297,842   |          |  |  | 30,085     |   |  |      | 1  
|Total equity attributable to Yongye International,
    Inc.     |  |                         | 377,211,231 |  |                             |  | 316,587,975 |          |  |  | 60,623,256 |   |  |      | 19 
|Total equity                                                    |  |                         | 395,676,918 |  |                             |  | 331,887,992 |          |  |  | 63,788,926 |   |  |      | 19 



|1) | The increase in accounts receivable of US$34.7 million
was consistent with our strong sales growth in the six months ended June 30, 2012.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------



Past due balances
are reviewed individually for collectability. During the six months ended June 30, 2012, the entire accounts receivable as
of December 31, 2011, including all the past due accounts were collected, we reassessed the allowance for doubtful accounts
and recorded a reversal of the allowance for doubtful accounts in the amount of US$6.3 million, which was included in general
and administrative expenses. The reversal of the allowance for doubtful accounts primarily related to successful settlement
of past due accounts receivable from certain distributors that we had assessed collection to be doubtful due to historical
collection pattern, the size of the distributors’ businesses, and length of the relationship with them. Although we
continue to deliver products to these distributors, revenues from sale of products to these distributors are not recognized
until collectability is reasonably assured, which is generally evidenced by receipt of cash until sufficient timely
collection experience can be demonstrated. We determines the adequacy of the allowance for doubtful accounts by considering
the amount of historical losses adjusted to take into account current market conditions and customers’ financial
condition, the amount of receivables in dispute and past due, the accounts receivables aging and customers’
repayment patterns.



36







Accounts receivable as of June
30, 2012 and December 31, 2011 consisted of the following:



|                                      |  | June 30, 2012 |             |   | December 31, 2011 |    
|------------------------------------- |  | ------------- | ----------- | - | ----------------- | ---
|                                      |  |               |             |   |                   |    
|Accounts receivable                   |  | US$           | 197,359,480 |   |                   | US$
|Less: allowance for doubtful accounts |  |               | (8,999,828  | ) |                   |    
|Total                                 |  | US$           | 188,359,652 |   |                   | US$



Of the US$197.4 million of
our gross accounts receivable as of June 30, 2012, none of our accounts receivable were past our six month credit term and we
provided allowance for doubtful accounts in the amount of US$9.0 million, taking into account current market conditions,
customers’ financial condition, the accounts receivable ageing and the customers’ repayment patterns. For
the gross accounts receivable balance as of June 30, 2012, our top three customers accounted for US$66.2 million or 33.5% and
our top five customers accounted for US$102.2 million or 51.8% of the total amount of accounts receivable.



The ageing of gross accounts receivable
as of June 30, 2012 and December 31, 2011 was:



|Receivable Ageing     |  | June 30, 2012 |             |  | % |  |       | December 31, 2011 |  |     | %           | 
|--------------------- |  | ------------- | ----------- |  | - |  | ----- | ----------------- |  | --- | ----------- | 
|                      |  |               |             |  |   |  |       |                   |  |     |             | 
|Current:              |  |               |             |  |   |  |       |                   |  |     |             | 
|0-3 months            |  | US$           | 158,481,506 |  |   |  | 80.3  | %                 |  | US$ | 39,960,713  | 
|3-6 months            |  |               | 38,877,974  |  |   |  | 19.7  | %                 |  |     | 117,318,791 | 
|Subtotal              |  |               | 197,359,480 |  |   |  | 100.0 | %                 |  |     | 157,279,504 | 
|                      |  |               |             |  |   |  |       |                   |  |     |             | 
|Past due:             |  |               |             |  |   |  |       |                   |  |     |             | 
|Past due 0-30 days    |  |               | -           |  |   |  | -     |                   |  |     | 11,572,602  | 
|Past due over 30 days |  |               | -           |  |   |  | -     |                   |  |     | -           | 
|Subtotal              |  |               | -           |  |   |  | -     |                   |  |     | 11,572,602  | 
|                      |  |               |             |  |   |  |       |                   |  |     |             | 
|Total                 |  |               | 197,359,480 |  |   |  | 100   | %                 |  |     | 168,852,106 | 









|   | Days sales outstanding (“DSO”) is defined as average accounts receivable for the period divided by net sales for the period times the days of this period. DSO increased by 24 days from 49 days for the three months ended June 30, 2011 to 73 days for the same period of 2012, mainly due to the significant amount of accounts receivable by the year end of 2011. We currently have no accounts receivable outstanding over six months, which is the normal credit term we provided to our customers.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|2) | The increase in inventory of US$17.6 million was mainly due to the incremental inventory stocking in the six months ended June 30, 2012. To prepare for the peak seasons of our regular crop nutrient products which take place in the second and third quarters, we accumulated higher volumes of finished goods of our regular crop nutrient product and thus resulted in increased inventory and higher inventory turnover days during the three and six months ended June 30, 2012.                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | Inventory turn-over days (“Inventory days”) is defined as average inventory for the period divided by cost of sales for the period times the days of this period. Inventory days increased by 54 days from 85 days for the three months ended June 30, 2011 to 139 days for the same period in 2012.                                                                                                                                                                                                      



|3) | We increased deposit to suppliers by US$22.6 million during the six months ended June 30, 2012 in anticipation of strong production demand in the third quarter. The deposits were paid primarily to suppliers of lignite coal and chemical components to lock in price and secure availability.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|4) | The cash consideration for the resource project is RMB 240 million or approximately US$35 million. According to preliminary third party analysis, the mineral resource of the project we acquired is at surface level and the “open pit” mining method is recommended. Also, our Wuchuan Facility was built near the mineral resource project to minimize future shipping expense.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



37







|5) | Total equity increased by US$63.8 million from US$331.9
million as of December 31, 2011 to US$395.7 million as of June 30, 2012. The increase in our total equity was mainly due to an
increase in retained earnings of US$55.7 million for the net income attributable to Yongye International, Inc. during the period
and an increase in additional paid in capital of US$2.4 million, as a result of the 1,166,333 restricted shares granted to management
and independent directors.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Summary consolidated cash flow data:



|in US$, except for percentages                         |  | For the Six Months Ended June 30, |            |   |      | 
|------------------------------------------------------ |  | --------------------------------- | ---------- | - | ---- | 
|                                                       |  | 2012                              |            |   | 2011 | 
|Net cash provided by/(used in) operating activities    |  |                                   | 8,085,558  |   |      | 
|Net cash used in investing activities                  |  |                                   | (1,449,852 | ) |      | 
|Net cash (used in)/provided by in financing activities |  |                                   | (6,256,723 | ) |      | 
|Effect of exchange rate change on cash                 |  |                                   | 418,177    |   |      | 
|Net increase in cash                                   |  |                                   | 797,160    |   |      | 
|Cash at beginning of period                            |  |                                   | 81,154,880 |   |      | 
|Cash end of period                                     |  |                                   | 81,952,040 |   |      | 



The sources and uses of cash for the six
months ended June 30, 2012 are summarized below:



Cash provided by operating
activities was US$8.1 million for the six months ended June 30, 2012, and cash used in operating activities was US$27.8
million for the six months ended June 30, 2011. The increase in cash provided by operating activities in the six months ended
June 30, 2012 compared to the same period of 2011 was primarily due to the decrease of US$31.7 million in working capital
consumption. That was mainly driven by collection of accounts receivable, yet partially offset by a higher inventory balance.
Other factors include an increase of US$9.6 million in earnings.



Net cash used in investing activities
was US$1.4 million and US$4.6 million for the six months ended June 30, 2012 and 2011, respectively.



Net cash used in financing activities
was US$6.3 million for the six months ended June 30, 2012, and cash provided by financing activities was US$64.4 million for the
six months ended June 30, 2011. The net cash used in financing activities in the six months ended June 30, 2012 was mainly due
to repayment of short-term bank loans.



Foreign Currency Translation Gains



The financial position and results of
operations of our Company’s subsidiaries in the PRC are measured using the Renminbi as the functional currency, while our
Company’s reporting currency is the U.S. dollar. Assets and liabilities of such subsidiaries are translated at the prevailing
exchange rate in effect at each period end. The income statement is translated at the average rate of exchange during the period.
Translation adjustments are included in the cumulative translation adjustment account in the consolidated statements of stockholders’ equity
and comprehensive income.



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, our financial position, results of operations or cash flows at this
time.



Off Balance Sheet Arrangements



We do not have any significant 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.



38











| | ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
                                                                            MARKET RISK
| | ------- | --------------------------------------------------------------------------------------------------------------------------------------



Foreign Exchange Risk



All of our net sales, and majority of
costs and expenses are denominated in RMB. Although the conversion of the RMB is highly regulated in China, the value of the RMB
against the value of the U.S. dollar or any other currency nonetheless may fluctuate and be affected by, among other things,
changes in China’s political and economic conditions. Under current policy, the value of the RMB is permitted to fluctuate
within a narrow band against a basket of certain foreign currencies. China is currently under significant international pressures
to liberalize this government currency policy, and if such liberalization were to occur, the value of the RMB could appreciate
or depreciate against the U.S. dollar.



Because substantially all of our earnings
and majority of our cash assets are denominated in RMB, other than certain cash deposits we keep in a bank in Hong Kong and U.S.,
appreciation or depreciation in the value of the RMB relative to the U.S. dollar would affect our financial results reported
in U.S. dollar terms without giving effect to any underlying change in our business or results of operations. Fluctuations
in the exchange rate will also affect the relative value of any dividend we issue in future that will be exchanged into U.S. dollars
and earnings from, and the value of, any U.S. dollar-denominated investments we make in the future.



Very limited hedging transactions are
available in China to reduce our exposure to exchange rate fluctuations. To date, we have not entered into any hedging transactions
in an effort to reduce our exposure to foreign currency exchange risk. While we may decide to enter into hedging transactions
in the future, the availability and effectiveness of these hedging transactions may be limited and we may not be able to successfully
hedge our exposure at all. In addition, our currency exchange losses may be magnified by PRC exchange control regulations that
restrict our ability to convert RMB into foreign currency.



Interest Rate Risk



We have not
been, nor does it anticipate being, exposed to material risks due to changes in interest rates. Our risk exposure to changes in
interest rates relates primarily to the interest income generated by cash deposited in interest-bearing savings accounts. We have
not used, and do not expect to use in the future, any derivative financial instruments to hedge interest risk exposure. However,
our future interest income may fall short of expectation due to changes in interest rates in the market.



Credit Risk



We are exposed to credit risk from our
cash in bank and accounts receivable. The credit risk on cash in bank and fixed deposits is limited because the counterparties
are recognized financial institutions. Accounts receivable are subjected to credit evaluations. An allowance would be made, if
necessary, for estimated irrecoverable amounts by reference to past default experience, if any, and by reference to the current
economic environment.



Inflation



Inflationary factors, such as increases
in the cost of our products and overhead costs, could impair our operating results. Although we do not believe that inflation
has had a material impact on our financial position or results of operations to date, a high rate of inflation in the future may
have an adverse effect on our ability to maintain current levels of gross margin and selling, general and administrative expenses
as a percentage of sales revenue if the selling prices of our products do not increase with these increased costs.



Our Company’s Operations are
Substantially in Foreign Countries



Substantially all of our operations are
conducted in China and are subject to various political, economic, and other risks and uncertainties inherent in conducting business
in China. Among other risks, our Company and our subsidiaries’ operations are subject to the risks of restrictions on transfer
of funds; export duties, quotas, and embargoes; domestic and international customs and tariffs; changing taxation policies; foreign
exchange restrictions; and political conditions and governmental regulations.



39







| | ITEM 4. | CONTROLS AND PROCEDURES
| | ------- | -----------------------



Evaluation
of 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 Principal 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 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



During the period covered by this quarterly report on Form
10-Q, there was no change in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting.



PART
II.OTHER INFORMATION



| | ITEM 1. | LEGAL PROCEEDINGS
| | ------- | -----------------



On May 26, 2011 and June 3, 2011, we and
certain of our officers and directors were named in putative class action lawsuits filed in the US Federal District Court for
the Southern District of New York alleging, among other things, that we and such officers and directors issued false and misleading
information to investors about our financial and business condition. These securities class action complaints generally alleged
that the Company’s business was not growing at the rate it represented and that the Company’s financial results as
reported to the Securities and Exchange Commission were inconsistent with its production capabilities. On March 5, 2012, the plaintiffs
voluntarily dismissed this action with prejudice as to themselves as named plaintiffs.



On July 19, 2011 we and certain of our
officers and directors were named in a derivative suit filed in the First Judicial District Court of the State of Nevada and for
Carson City alleging, among other things, that such directors and officers breached their fiduciary duties to us, misrepresented
our earnings, wasted corporate assets and unjustly enriched themselves at the expense of us. We believe the claims contained in
these lawsuits to be without merit and intend to defend ourselves vigorously.



40







ITEM
1A.RISK FACTORS



Investing in our securities involves
risk. Before making an investment decision, you should carefully consider the following riskfactors as well as the risks described
in our most recent Annual Report on Form 10-K, or any updates to our riskfactors in our Quarterly Reports on Form 10- Q, together
with all of the other information appearing in or incorporated by reference into this Quarterly Report, in light ofyour particular
investment objectives andfinancial circumstances. Our business, financial condition or results of operations could be materially
adversely affected by any of these risks. The trading price of our securities could decline due to any of these risks, and you
may lose all or part ofyour investment.



Risks Related to Our Business



We rely on a single product for a substantial
portion of our sales and any changes in the market for this product could have a material adverse effect on our business,
financial condition and results of operations.



In 2011, 2010 and 2009, sales of our liquid
crop nutrient product represented 99%, 97% and 93% of our total sales, respectively. If there is any disruption in the demand
for our liquid crop nutrient product, whether as a result of alternative nutrient or fertilizer products being developed,
the entry of significant competitors to the marketplace or otherwise, our business, financial condition and results of operations
could be materially and adversely affected.



The limited operating history and early
stage development of Yongye Nongfeng, and Yongye Fumin may make it difficult to evaluate our business and future prospects.



We established our cooperative joint venture,
Yongye Nongfeng, on January 4, 2008, with the intention of carrying out the business of marketing and distributing, and the ultimate
goal of manufacturing of our fulvic acid based crop and animal nutrient products. In October 2009, we completed the transfer
of manufacturing business of our products from Inner Mongolia Yongye (which is under the control of Mr. Zishen Wu), to Yongye
Nongfeng (Mr. Wu is also the CEO of Yongye Nongfeng), including all assets related to the manufacturing, distribution
and sales as well as all applicable licenses and titles (the “Restructuring”). On October 10, 2009 the cooperative
joint venture contract and Yongye Nongfeng’s articles of association were revised, and the profit distribution
percentage and the post-dissolution remaining asset distribution percentage of Inner Mongolia Yongye in Yongye Nongfeng increased
to 5% from the previous 0.5%. On July 20, 2010, Yongye Nongfeng set up a wholly-owned subsidiary, Yongye Fumin to expand the production
capacity for fulvic acid based liquid and powder nutrient compounds.



The limited operating history and the
early stage of development of Yongye Nongfeng and Yongye Fumin may make it difficult to evaluate our business and future
prospects. We cannot assure you that Yongye Nongfeng and Yongye Fumin will continue to maintain such profitability or that
they will not incur net losses in the future. We expect that our operating expenses will increase as we pursue our growth strategies.



Failure to manage our recent dramatic
growth could strain our management, operational and other resources, which could materially and adversely affect our business
and prospects.



We have been expanding our operations
dramatically and believe we will continue to do so. To meet the demand of our customers, we expect to expand our distribution
network in terms of numbers and locations. The rapid growth of our business has resulted in, and if we continue to grow at this
rate, will continue to result in, substantial demands on our management, operational and other resources. In particular, the management
of our growth will require, among other things:



| | · | sufficient
                                                                                                               working capital
                                                                                                               and stringent cost
                                                                                                               controls;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | increased sales
                                                                                                               and sales support
                                                                                                               activities;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | improved administrative
                                                                                                               and operational
                                                                                                               systems;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



41







| | · | continued responsibility
                                                                                                               for disclosure
                                                                                                               of material facts
                                                                                                               relating to our
                                                                                                               business;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | strengthening
                                                                                                               of financial and
                                                                                                               management controls;
                                                                                                               and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | hiring and
                                                                                                               training of new
                                                                                                               personnel.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



As we continue this effort, we may incur
substantial costs and expend substantial resources. We may not be able to manage our current or future operations effectively
and efficiently or compete effectively in new markets we enter. If we are not able to manage our growth successfully, our business
and prospects may be materially and adversely affected.



We do not own 100% of the equity interests
in Yongye Nongfeng, which may not be as stable and effective in providing operational control as 100% ownership and we may
have conflicts of interests with our joint venture partner.



We operate our business through Yongye
Nongfeng. If there are disagreements between us and our cooperative joint venture partner, Inner Mongolia Yongye, regarding the
business and operations of Yongye Nongfeng, we cannot assure you that we will be able to resolve them in a manner that will be
in our best interests. In addition, our joint venture partner may (i) have economic or business interests or goals that are inconsistent
with ours; (ii) take actions contrary to our instructions, requests, policies or objectives; (iii) be unable or unwilling to fulfill
their obligations; (iv) have financial difficulties; or (v) have disputes with us as to the scope of their responsibilities and
obligations. Any of these and other factors may materially and adversely affect the performance of Yongye Nongfeng, which may
in turn materially and adversely affect our financial condition and results of operations.



We rely on the cooperative joint
venture contract with Inner Mongolia Yongye to operate our business. If Inner Mongolia Yongye fails to perform its obligations
under the cooperative joint venture contract, we may have to incur substantial costs and resources to enforce such arrangements
and rely on legal remedies under PRC laws, including seeking specific performance or injunctive relief and damages, and we cannot
assure you that such remedies would be effective. Accordingly, it may be difficult for us to change our corporate structure or
to bring claims against Inner Mongolia Yongye if it does not perform its obligations under the cooperative joint venture
contract.



The cooperative joint venture contract is
governed under PRC law. Accordingly, this agreement would be interpreted in accordance with PRC laws and any disputes would be
resolved in accordance with PRC legal procedures. The legal environment in the PRC is not as developed as in other jurisdictions,
such as the United States.  As a result, uncertainties in the PRC legal system could limit our ability to enforce the
cooperative joint venture contract. In the event we are unable to enforce the cooperative joint venture contract, we may not be
able to exert effective control over our operating entities, and our ability to conduct our business may be negatively affected.



Mr Zishen Wu, our president and CEO, owns
a controlling interest in Inner Mongolia Yongye. There could be conflicts of interests between his duties to us and his ownership
interests in Inner Mongolia Yongye. We can provide no assurance that if conflicts of interests arise, these conflicts will not
result in a significant loss in corporate opportunities for us or a diversion of our resources to Inner Mongolia Yongye, which
may not be in our best interest.



We may experience difficulty in collecting
our accounts receivables, which could have a material and adverse effect on our liquidity, financial condition and results of
operations.



We derive our revenues from the sale of
products through our distributors or and are subject to counterparty risks such as our distributors’ inability to pay. We
offer various payment terms to our distributors. The credit period we grant and our credit policies are generally in line with
market practice. Under our payment terms, we typically allow our distributors to pay the total purchase price within six months
after the receipt of our products. Our peak selling seasons are normally the second quarter and the third quarter, accounting
for 70%-80% of our full year sales. Payments for most of our sales made during peak seasons are generally collected in the fourth
quarter and the first quarter of the following year. As of June 30, 2012 and December 31, 2011, our accounts receivable amounted
to US$188.4 million and US$153.6 million, respectively.



42







Past due balances are reviewed individually
for collectability. During the six months ended June 30, 2012, the entire accounts receivable as of December 31, 2011, including
all the past due accounts were collected. Accordingly, we reassessed the allowance for doubtful accounts
and recorded a reversal of the allowance for doubtful accounts in the amount of US$6.3 million, which was included in general
and administrative expenses. The reversal of the allowance for doubtful accounts primarily related to successful settlement of
past due accounts receivable from certain distributors that we had assessed collection to be doubtful due to historical
collection pattern, the size of the distributors’ businesses, and length of the relationship with the distributors. Although
we continue to deliver products to these distributors, revenues from sale of products to these distributors are not
recognized until collectability is reasonably assured, and this is generally evidenced by receipt of cash until sufficient period
of historical collection experience can be demonstrated. We determine the adequacy of the allowance for doubtful
accounts by considering the amount of historical losses adjusted to take into account current market conditions and the distributors’
financial condition, the amount of receivables in dispute and past due, the accounts receivables aging and
distributors’ repayment patterns.



Furthermore, the payment ability of our
distributors, in turn, directly affects our revenue recognition. One of the criteria to recognize revenues is that the collectability
of outstanding accounts receivable is reasonably assured. As such, deteriorating payment ability of our distributors will result
in delay revenue recognition, until collectability can be reasonably assured which is generally upon cash receipt and, thus, have
a material and adverse effect on our financial condition and results of operations.



There can be no assurance that we will
be able to improve our collection of accounts receivable from such distributors. The significant amount of accounts receivable
and the increased accounts receivable turnover days may expose us to increasing risks associated with shortage of working capital,
which may result in delay or difficulty in the delivery of our products and services and, in turn, our liquidity, financial condition
and results of operations could be materially and adversely affected.



One or more of our distributors and
retailers could engage in activities that are harmful to our brand and to our business.



Due to our reliance on a distribution
network that is comprised of provincial-level distributors, country-level distributors and Branded Retailers to sell our products,
we are susceptible to our distributors and Branded Retailers engaging in activities that are harmful to our brand and business.
If our distributors or Branded Retailers do not implement our branding strategy properly, including failure to use appropriate
signage at Branded Retailers, our brand name may be damaged. In addition, if our distributors or Branded Retailers sell
our products under another brand, purchasers will not be aware of our brand name. Moreover, our ability to provide appropriate
customer service to these purchasers will be negatively affected, and we may be unable to develop our local knowledge of the needs
of these customers. Furthermore, if any of our distributors or Branded Retailers sell inferior products produced by
other companies under our brand name, our brand and reputation could be harmed, which could make marketing of our products more
difficult.



If we are not able to obtain the requisite
government approval to complete the mineral resources project or if the project renders fewer resources than expected, our vertical
integration strategy could fail.



In 2010, we entered into an
agreement with Wuchuan Shuntong to acquire the permit for the rights to explore, develop and produce mineral resources in a
certain area of Wuchuan County. The cash consideration of the permit was approximately RMB240 million or US$35 million. The
permit allows us to complete all necessary administrative procedures and obtain government approvals to acquire the permit
for the rights to explore, develop and produce humic acid bearing resources (“Mineral Rights”). We believe that
the Mineral Rights will allow us to secure a long term supply of humic acid, which is a major raw material used in the
manufacture of our products. In August 2011, Yongye Fumin, our wholly-owned subsidiary, obtained a Mineral Resource
Exploration Permit for this project site in Wuchuan County, Inner Mongolia, which was issued by the Inner Mongolia Ministry
of Land and Resources. Such approval granted us exclusive exploration rights for this project site for an initial period of
three years beginning August 2, 2011.  We are in the process of applying
for the governmental approval for the Mineral Rights to develop and produce the mineral resources and are preparing for the
relevant reports, including but not limited to a Geological Report and Geological Exploration Report. During the six months
ended June 30, 2012, we engaged a third party mineral exploration institute to assist us in obtaining the
Geological Exploration Report. However, we cannot assure you that we can obtain the Mineral Rights to develop and produce the
mineral resources in a timely manner, if at all. Furthermore, the nature and amount of the mineral resources in the Wuchuan
project may not be the same as analyzed in the third-party preliminary reports obtained by us in 2009, and our supply of
humic acid will be dependent upon market availability. If we are unable to obtain adequate quantities of raw materials at
economically viable prices which meet our specifications, our financial condition and results of operation could be adversely
affected.



43







If we cannot renew our fertilizer registration
certificate, we will be unable to sell our products which will cause our sales revenues to significantly decrease.



All fertilizers produced in the PRC must
be registered with the PRC Ministry of Agriculture or its local branches at a provincial level. No fertilizer can be manufactured
without such registration. As part of the Restructuring process, Yongye Nongfeng applied for its initial fertilizer registration
certificate in May 2009 and received it on June 1, 2009. On November 4, 2009, the long-term certificate with a five-year term
was issued to Yongye Nongfeng.



However, there is no guarantee that the
PRC Ministry of Agriculture will further renew our fertilizer registration certificate. If we cannot obtain the necessary renewal,
we will not be able to manufacture and sell our fertilizer products in China, which will cause the termination of our commercial
operations.



Our patent protected formulae,
fulvic acid extraction and blending processes may become obsolete which could materially and adversely affect the competitiveness
of our  products.



The production of our crop and animal
nutrient products is based on our patented crop and animal product mixture processes and nutrient formulae. Our future success
will depend upon our ability to address the increasingly sophisticated needs of our customers by supporting existing and emerging
fulvic acid products and by developing and introducing new products and enhancements to our existing products on a timely basis
that keep pace with evolving industry standards and changing customer requirements. If our patented crop and animal nutrient
product mixture processes and formulae become obsolete as our competitors develop better products, our future business and financial
results could be adversely affected. In addition, although we entered into confidentiality agreements with our key employees,
we cannot assure you if there would not be any breach of such agreement in which case our rights over such patented formulae would
be adversely affected.



We may not possess all the licenses
required to operate our business, or may fail to maintain the licenses we currently hold. This could subject us to fines and other
penalties, which could have a material adverse effect on our results of operations.



In addition to a fertilizer registration
certificate, we are required to hold a variety of other permits, licenses and certificates to conduct our business in China, including
relevant construction and environmental permits and certificates in connection with the commencement of operations at Yongye Fumin.
We may not possess or receive all the permits, licenses and certificates required for our business or for which application has
been made. In addition, there may be circumstances under which the approvals, permits, licenses or certificates granted by the
governmental agencies are subject to change without substantial advance notice, and it is possible that we could fail to obtain
the approvals, permits, licenses or certificates that are required to expand our business as we intend. If we fail to obtain or
to maintain such permits, licenses or certificates or renewals are granted with onerous conditions, we could be subject to fines
and other penalties and be limited in the number or the quality of the products that we would be able to offer. As a result, our
business, result of operations and financial condition could be materially and adversely affected.



Zishen Wu, our chairman, chief executive
officer and president, has played an important role in the growth and development of our business since its inception, and a loss
of his services in the future could severely disrupt our business and negatively affect investor confidence in us, which may also
cause the market price of our common stock to go down.



To date, we have relied heavily on Mr.
Wu’s expertise in, and familiarity with, our business operations, his relationships within the industries in which we operate,
his reputation and experience. In addition, Mr. Wu has been primarily responsible for formulating our overall business strategies
and spearheading the growth of our operations. If Mr. Wu were unable or unwilling to continue in his present positions, we may
not be able to easily replace him and may incur additional expenses to identify and train his successor. In addition, if Mr. Wu
were to join a competitor or form a competing business, it could severely disrupt our business and negatively affect our financial
condition and results of operations. Although Mr. Wu is subject to certain noncompetition restrictions during and after termination
of his employment with us, we cannot assure you that such non-competition restrictions will be effective or enforceable under
PRC law. Moreover, even if the departure of Mr. Wu from our Company would not have any actual impact on our operations and the
growth of our business, it could create the perception among investors or the marketplace that his departure could severely damage
our business and operations and could negatively affect investor confidence in us, which may cause the market price of our common
stock to go down. In the event Mr. Wu ceases to be our chief executive officer or ceases to be engaged or to perform his duties
on a full-time basis prior to December 31, 2014 (unless as a result of his death, disability or incapacity or events beyond our
control or is approved by the holders of a majority of the shares of the convertible preferred stock then outstanding), the holders
of our convertible preferred stock will be able to redeem all or a portion of the outstanding shares of convertible preferred
stock at a redemption price equal to the original purchase price thereof, plus a premium designed to generate a 30% internal rate
of return to such holders. We do not maintain key man insurance for Mr. Wu.



44







We depend heavily on our skilled personnel,
and any loss of such personnel or the failure to continue to attract such personnel in the future could harm our business.



Our business is specialized and requires
the employment of personnel with significant scientific and operational experience in the industry. Accordingly, we must attract,
recruit and retain a workforce of technically and scientifically competent employees. Due to the intense market competition for
highly skilled workers and experienced senior management, we have faced difficulties locating personnel that have the necessary
scientific, technical and operational skills and experience with the fertilizer industry. Our ability to effectively implement
our business strategy will depend upon, among other factors, the successful recruitment and retention of qualified management
and our key personnel. These individuals are difficult to find in the PRC and we may not be able to retain such skilled employees
and replace them within a reasonable period of time, or at all. Our business may be severely disrupted, our financial condition
and results of operations may be materially and adversely affected, and we may incur additional expenses in recruiting and training
additional personnel. Although our employees and senior management members are subject to certain non-competition restrictions
during and after termination of their employment, we cannot assure you that such non-competition restrictions will be effective
or enforceable under PRC law. If any of our key personnel joins a competitor or forms a competing business, our business may be
severely disrupted. We have no key man insurance with respect to our key personnel that would provide insurance coverage payable
to us for loss of their employment due to death or other reasons.



The markets in which we operate are
highly competitive and fragmented and we may not be able to maintain market share.



We operate in highly competitive markets
and compete with numerous local PRC humic or fulvic acid crop nutrient manufacturers, as well as other foliar-applied liquid fertilizer
manufacturers and we expect competition to persist and intensify in the future. Our competitors are mainly local fertilizer companies
who may have better access in certain local markets, stronger ability to customize products to a particular region or locality
and more established local distribution channels within a specific region. In the future, we may also compete with large PRC state-owned
enterprise national competitors, and they may have competitive advantages over us in certain areas such as access to capital,
technology, product quality, economies of scale and brand recognition and may also be better positioned than us to develop superior
product features and technological innovations and to exploit and adapt to market trends. Additionally, we may not be able to
conduct in-depth research and analysis on our current or new markets due to the lack of enough public or third-party sources of
information on our industry and competitors. Therefore, we may not have a clear estimate of the current number of our direct competitors
or such competitors' revenues or market share.



In addition, China’s entry into
the World Trade Organization may lead to increased foreign competition for us. If our international competitors are localized
and establish their market recognition in China, we may face additional competition. If we are not successful in our marketing
and advertising efforts to increase awareness of our brands, our revenues could decline, which could have a material adverse effect
on our business, financial condition, results of operations and share price. We cannot assure you that additional competitors
will not enter our existing markets, or that we will be able to compete successfully against existing or new competition.



MSPEA Agriculture Holding Limited (“MSPEA”)
has significant influence over our affairs.



MSPEA currently owns 100% of the outstanding
convertible preferred stock and approximately 10.3% of our common stock on an as converted basis. In addition, pursuant to certain
rights granted to it under the Certificate of Designation, so long as MSPEA and its affiliates continue to own 25% of the convertible
preferred stock initially issued to it, the holders of at least a majority of the shares of the convertible preferred stock have
the right to designate one of the directors on our board of directors and have the ability to veto certain of our corporate actions
or material transactions under some circumstances. As a result, MSPEA has significant influence over our business.



45







If we do not meet performance targets
specified in the securities purchase agreement with MSPEA or if we issue equity securities at a price per share less than
the then-applicable conversion price, the conversion price of the convertible preferred stock would decrease.



Pursuant to the terms of the convertible
preferred stock, if our net income for the period from fiscal year 2011 (inclusive) to the latest fiscal year with respect
to which audited consolidated financial statements are available is below the net income targets of US$84 million for fiscal year
2011, US$210 million for the cumulative period of fiscal year 2011 through fiscal year 2012, US$399 million for the cumulative
period of fiscal year 2011 through fiscal year 2013 and US$682.5 million for the cumulative period of fiscal year 2011 through
fiscal year 2014 (the “Income Targets,” which Income Targets may be adjusted upwards in the event we issue any equity
securities in the future without the prior written approval of the holders of the convertible preferred stock), the conversion
price for the convertible preferred stock will decrease and the holders of our common stock could suffer significant dilution
in the event of a conversion of any shares of convertible preferred stock. In addition, if we have not achieved any such Income
Target and have engaged in certain additional issuances of our equity securities that are not approved in writing by holders of
a majority of the convertible preferred stock then outstanding (subject to certain exceptions) but for which no adjustment was
made to the Income Targets, Full Alliance has agreed to transfer to MSPEA or its affiliates for total consideration of US$1.00
an amount of shares of our common stock held by Full Alliance that MSPEA would otherwise receive upon conversion of the purchased
shares, had the Income Target been so increased. As a result, MSPEA could acquire up to an additional 5,600,000 shares of our
common stock currently held by Full Alliance, which shares have been pledged by Full Alliance to support the foregoing obligation.
Additionally, as a result of a “full ratchet” anti-dilution provision in favor of holders of our convertible preferred
stock, any future issuances of equity securities at a price per share less than the then-applicable conversion price that are
not approved by a majority of such holders (subject to certain exceptions) will result in the conversion price being adjusted
to the price at which such equity securities are issued.



Upon the occurrence of certain events,
we may be required to redeem all or a portion of the convertible preferred stock.



Upon the occurrence of certain events,
including, but not limited to, (i) a breach by us or Full Alliance of certain provisions of the financing documents, which breach
gives rise to a material adverse effect on us or which materially diminishes the value of the convertible preferred stock, (ii)
our failure to timely file our annual and quarterly reports on Forms 10-K and 10-Q, (iii) our failure to obtain certain mineral
exploration rights without any additional material consideration, following which we fail to recover all of the proceeds for the
original purchase of such mining rights on or prior to June 30, 2012 and (iv) Mr. Zishen
Wu ceasing to be our chief executive officer or ceasing to be engaged or to perform his duties on a full time basis in that capacity
prior to December 31, 2014 (unless as a result of his death, disability or incapacity or events beyond our control or is approved
by the holders of a majority of the shares of the convertible preferred stock then outstanding), the holders of the convertible
preferred stock have the right to require us to redeem all or a portion of their convertible preferred stock at a redemption price
equal to the original purchase price, plus a premium designed to generate a 30% internal rate of return to the holders thereof.



In addition, the holders of the convertible
preferred stock have the right to require us to redeem all or a portion of their convertible preferred stock if (i) the quotient
of the aggregate amount of the earnings per share of any six (6) rolling consecutive quarters commencing from the first quarter
of the fiscal year 2010 onwards divided by the aggregate amount of the earnings per share of the corresponding six (6) quarter
period one year preceding thereto is less than one hundred and twenty percent (120%), and (ii) the actual net income of any fiscal
year from 2011 to 2014 (both inclusive) is lower than US$75 million in fiscal year 2011, US$101 million in fiscal year 2012, US$121
million in fiscal year 2013 and US$145 million in fiscal year 2014, in each case at a redemption price equal to the original purchase
price, plus a premium designed to generate a 20% internal rate of return to the holders thereof. The foregoing earnings targets
are subject to adjustment in certain circumstances including if we have engaged in certain additional issuances of our equity
securities that are not approved in writing by holders of a majority of the convertible preferred stock then outstanding (subject
to certain exceptions).



46







If we are required to redeem the convertible
preferred stock, we would need cash available, and to the extent that we do not have sufficient cash available and do not have
access to bank debt, might have to liquidate assets to fund such redemptions. Any such liquidation may yield proceeds lower than
might otherwise be the case.



If we need additional financing, we
may not be able to find such financing on satisfactory terms or at all.



Our capital requirements may be accelerated
as a result of many factors, including the growth and timing of our business development activities, budget shortfalls, unanticipated
expenses or capital expenditures, future product opportunities, future licensing opportunities and future business combinations.
Consequently, we may need to seek additional debt or equity financing, which may not be available on favorable terms, or at all,
and which may be dilutive to our stockholders.



We may seek to raise additional capital
through public or private equity offerings, debt financings or additional corporate collaboration and licensing arrangements.
To the extent we raise additional capital by issuing equity securities, our stockholders may experience dilution and, so long
as MSPEA and its affiliates hold at least 1,420,455 shares of convertible preferred stock, we would need to obtain the approval
of a majority of the shares of convertible preferred stock then outstanding (subject to certain exceptions). To the extent that
we raise additional capital by issuing debt securities, we may incur substantial interest obligations, may be required to pledge
assets as security for the debt and may be constrained by restrictive financial and/or operational covenants. Any provider of
debt financing would also be superior to our stockholders’ interest in bankruptcy or liquidation. To the extent we raise
additional funds through collaboration and licensing arrangements, it may be necessary to relinquish some rights to our technologies
or product candidates, or grant licenses on unfavorable terms.



If we fail to adequately protect or
enforce our intellectual property rights, the value of our intellectual property rights could diminish.



Our success, competitive position and
future revenues will depend in part on our ability to obtain and maintain patent protection for our products, methods, processes
and other technologies, to preserve our trade secrets, to prevent third parties from infringing on our proprietary rights and
to operate without infringing the proprietary rights of third parties.



To date, we have received two patents
for our crop and animal products with the State Intellectual Property Office of the PRC. We have obtained a registered trademark
for “Yongye” from the Trademark Office of the State Administration of Industry and Commerce of the PRC (“CTMO”).
We have not obtained CTMO approval for the trademark “Shengmingsu” yet. Our cooperative joint venture partner, Inner
Mongolia Yongye filed a trademark application for “Shengmingsu” with the CTMO in December 2007, prior to Yongye
Nongfeng’s establishment. Inner Mongolia Yongye will transfer this trademark to Yongye Nongfeng upon procurement of
trademark registration with the CTMO. In addition, we rely on trade secret protection for our proprietary process of extracting
fulvic acid from humic acid and creating the base fulvic acid compound used in both our crop (liquid form) and animal nutrient
(powder form) products. However, we cannot predict the degree and range of protection patents, trademarks and trade secrets will
afford us against competitors. Third parties may find ways to invalidate or otherwise circumvent our patents, proprietary technology
and trademark. Third parties may attempt to obtain patents claiming aspects similar to our patent and trademark applications.
If we need to initiate litigation or administrative proceedings to protect our rights, such actions may be costly and may divert
management attention as well as expend other resources which could otherwise have been devoted to our business. An adverse determination
in any such litigation will impair our intellectual property rights and may harm our business, prospects and reputation. In addition,
historically, implementation of PRC intellectual property-related laws has been lacking, primarily because of ambiguities in the
PRC laws and difficulties in enforcement. Accordingly, intellectual property rights and confidentiality protections in China may
not be as effective as in the United States or other countries, which increases the risk that we may not be able to adequately
protect our intellectual property rights.



47







If we infringe upon the rights of third
parties, we could be subject to disputes or lawsuits and we could be prevented from selling products, forced to pay damages and
compelled to defend against litigation.



If our products, formulae, methods, processes
and other technologies infringe upon proprietary rights of other parties, we could be subject to disputes and lawsuits and could
incur substantial costs, and may have to obtain licenses (which may not be available on commercially reasonable terms, if at all),
redesign our products or processes, stop using the subject matter claimed in the asserted patents, pay damages, or defend litigation
or administrative proceedings, which may be costly whether we win or lose. All of the above could result in a substantial diversion
of valuable management resources.



We have taken reasonable steps, including
comprehensive internal and external prior intellectual property right searches, to ensure we have freedom to operate and that
our development and commercialization efforts can be carried out as planned without infringing others’ proprietary rights.
However, we cannot guarantee that we will infringe upon no third-party intellectual property right, and we may be subject to a
third-party infringement claim. Resolving such issues has traditionally resulted, and could in our case result, in lengthy and
costly legal proceedings, the outcome of which cannot be predicted accurately.



A severe or prolonged downturn in the
global economy could materially and adversely affect our business and results of operations.



The global market and economic conditions
during the years 2008 through 2011 were unprecedented and challenging, with recessions occurring in most major economies. Continued
concerns about the systemic impact of potential long-term and wide-spread recession, energy costs, geopolitical issues, and the
availability and cost of credit have contributed to increased market volatility and diminished expectations for economic growth
around the world. The difficult economic outlook has negatively affected businesses and consumer confidence and contributed to
volatility of unprecedented levels.



The PRC economy also faces challenges.
The PRC government has implemented various measures recently to curb inflation. If economic growth slows or an economic downturn
occurs, our business and results of operations may be materially and adversely affected.



We currently rely upon third-party
suppliers for raw materials.



We currently are dependent upon third
parties for our supply of lignite coal, chemical components and other raw materials. Should any of our suppliers terminate their
supply relationships with us, or if our suppliers have inadequate amounts of lignite coal or any such other raw materials to meet
our needs, we may be unable to procure sufficient amounts of lignite coal or any such other raw materials on acceptable terms
in a timely manner that meet our specifications or that meet the demands of our customers and our profitability may be limited.
In addition, these suppliers may not perform their obligations, and it may not be possible to specifically enforce the relationships
we have formed with such suppliers. If we are unable to obtain adequate quantities of lignite coal or any such other raw materials
at economically viable prices which meet our specifications, our financial condition and results of operations could be adversely
affected.



Any significant fluctuation in our
production costs may have a material adverse effect on our operating results.



The prices for the raw materials and other
inputs to manufacture our products are subject to market factors largely beyond our control, including the price of lignite coal,
chemical components, our energy costs and freight costs. The costs for these inputs may fluctuate significantly based upon changes
in the economy and markets. We may not be able to pass any increase of such costs through to our customers and we could incur
significant losses.



Disruptions in the supply of raw materials
used in our products could cause us to be unable to meet customer demand, which could result in the loss of customers and sales.



Currently, the lignite coal is the primary
raw material that we use to manufacture our products. If there are any business interruptions at our key suppliers and we are
unable to locate alternative supply in a timely manner, we may not be able to meet customer demand, which could result in the
loss of customers and sales.



48







We may be subject to more stringent
governmental regulation on our products.



The manufacture and sale of our products
in the PRC is regulated by the PRC and the provincial government. The legal and regulatory regime governing our industry is evolving,
and we may become subject to different, including more stringent, requirements than those currently applicable to us. While we
believe a more stringent standard will have a bigger impact on those manufacturers with poor quality products, we cannot assure
you any regulatory change will not adversely affect our business.



We have limited insurance coverage
and may incur losses due to business interruptions resulting from natural and man-made disasters, and our insurance may not be
adequate to cover liabilities resulting from accidents or injuries that may occur.



The insurance industry in China is still
at an early stage of development. Insurance companies in China offer limited commercial insurance products. While we carry property
insurance on our office building, production facility, raw materials and inventories in our Hohhot facilities, and carry auto
insurance on our vehicles and maintain workers compensation insurance for our full-time workers, we do not carry any product liability
insurance. We believe that current facilities are adequate for our current and immediately foreseeable operating needs. We have
determined that balancing the risks of disruption or liability from our business, the cost of insuring for these risks on the
one hand, and the difficulties associated with acquiring such insurance on commercially reasonable terms on the other hand, it
is not economically practical for us to have such insurance.



Should any natural catastrophes such as
earthquakes, floods, or any acts of terrorism occur in Inner Mongolia, where our primary operations are located and most of our
employees are based, or elsewhere, we might suffer not only significant property damage, but also loss of revenues due to interruptions
in our business operations.



The occurrence of a significant event
for which we are not fully insured or indemnified, and/or the failure of a party to meet its underwriting or indemnification obligations,
could materially and adversely affect our operations and financial condition. Moreover, no assurance can be given that we will
be able to maintain adequate insurance in the future at rates we consider reasonable.



Any disruption of the operations in
our production facility would damage our business.



All of our crop and animal nutrient products
are currently manufactured in our production facility in Inner Mongolia, China. Our operations could be interrupted by fire, drought,
flood, earthquake and other events beyond our control. In addition, in recent months there has been increasing social unrest in
Inner Mongolia. This social unrest has led to protests, demonstrations and violence. Any disruption of the operations in our production
facility, due to either environmental causes, social unrest or other events beyond our control, would have a significant negative
impact on our ability to manufacture and deliver products. We could be unable to outsource our production on terms favorable to
us, if at all. Failure to replace any lost production capability would cause a potential diminution in sales, the cancellation
of orders, loss of valuable employees, damage to our reputation and potential lawsuits.



The crop and animal nutrient products
that we manufacture pose safety risks and could expose us to product liability claims.



Defects in, or unknown harmful effects
caused by, organic and inorganic chemicals and elements in our products could subject us to potential product liability claims
that our products cause some harm to the human body or the crop and animals. Although we have adopted safety measures, which we
believe meet industry standards, in our research, development and manufacturing processes, accidents may still occur. We do not
carry any product liability insurance and any accident, either at the manufacturing phase or during the use of our products, may
subject us to significant liabilities. Negative publicity about the safety of our products, whether justified or not, could damage
our reputation, involve us in litigation, and damage our brand name and our business. As of the date of this report, no product
liability claim has ever been brought against us. However, if we are involved in litigation in the future, our business, financial
conditions and results of operations could be materially and adversely affected.



49







An outbreak of food scares in China
would materially and adversely affect our business.



Any major outbreak of food scares, such
as the milk contamination scandal in the PRC in 2008, may result in significant disruptions to our business operations. A major
food scare could result in considerable decreases in the demand for the products in which our products are used, which would materially
and adversely affect our business and our profitability. Adverse publicity and concerns resulting from such a food scare may discourage
consumers from purchasing products in which our products are used. Such a reduction in demand would adversely impact our financial
performance and results of operations.



Because we may rely on dividends and
other distributions on equity paid by our current and future Chinese subsidiaries for our cash requirements, restrictions under
Chinese law on their ability to make such payments could materially and adversely affect our ability to grow, make investments
or acquisitions, pay dividends to our investors, and otherwise fund and conduct our businesses.



We have adopted a holding company structure,
and we rely on dividends and other distributions on equity paid by our current and future PRC subsidiaries for their cash requirements,
including the funds necessary to service any debt we may incur or financing we may need for operations other than through our
PRC subsidiaries. PRC legal restrictions permit payments of dividends by our PRC subsidiaries only out of their accumulated after-tax
profits, if any, determined in accordance with PRC GAAP. Our PRC subsidiaries are also required under PRC laws and regulations
to allocate at least 10% of their after-tax profits determined in accordance with PRC GAAP to statutory reserves until such reserves
reach 50% of the company’s registered capital. Allocations to these statutory reserves and funds can only be used for specific
purposes and are not transferable to us in the form of loans, advances or cash dividends. Any limitation on the ability of our
current or future PRC subsidiaries to transfer funds to us could materially and adversely limit our ability to grow, make investments
or acquisitions that could be beneficial to our business, pay dividends and otherwise fund and conduct our business.



If we are unable to establish appropriate
internal financial reporting controls and procedures, it could cause us to fail to meet our reporting obligations, result in the
restatement of our financial statements, harm our operating results, subject us to regulatory scrutiny and sanction, cause investors
to lose confidence in our reported financial information and have a negative effect on the market price for shares of our common
stock.



Effective internal controls are necessary
for us to provide reliable financial reports and effectively prevent fraud. We maintain a system of internal control over financial
reporting, which is defined as a process designed by, or under the supervision of, our principal executive officer and principal
financial officer, or persons performing similar functions, and effected by our board of directors, management and other personnel,
to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles.



As a public company, we have significant
additional requirements for enhanced financial reporting and internal controls. We are required to document and test our internal
control procedures in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, which requires annual
management assessments of the effectiveness of our internal controls over financial reporting. The process of designing and implementing
effective internal controls is a continuous effort that requires us to anticipate and react to changes in our business and the
economic and regulatory environments and to expend significant resources to maintain a system of internal controls that is adequate
to satisfy our reporting obligations as a public company. We cannot assure you that we will not, in the future, identify areas
requiring improvement in our internal control over financial reporting. We cannot assure you that the measures we will take to
remediate any areas in need of improvement will be successful or that we will implement and maintain adequate controls over our
financial processes and reporting in the future as we continue our growth. If we are unable to establish appropriate internal
financial reporting controls and procedures, it could cause us to fail to meet our reporting obligations, result in the restatement
of our financial statements, harm our operating results, subject us to regulatory scrutiny and sanction, cause investors to lose
confidence in our reported financial information and have a negative effect on the market price for shares of our common stock.



50







Lack of experience as officers of publicly
traded companies of our management team may hinder our ability to comply with the Sarbanes-Oxley Act.



It may be time consuming, difficult and
costly for us to develop and implement the appropriate internal controls and reporting procedures required by the Sarbanes-Oxley
Act of 2002. We may need to hire additional financial reporting, internal controls and other finance staff in order to develop
and implement appropriate internal controls and reporting procedures. If we are unable to comply with the Sarbanes-Oxley Act’s
internal controls requirements, our auditor could not issue an unqualified opinion of our internal control over financial reporting.



We have incurred increased costs as
a result of being a public company.



As a public company, we have incurred
significant legal, accounting and other expenses that we did not incur as a private company. In addition, the Sarbanes-Oxley Act
of 2002, as well as the related rules and regulations subsequently implemented by the SEC, has required changes in corporate governance
practices of public companies. These rules and regulations have increased our legal, accounting and financial compliance costs
and made certain corporate activities more time-consuming and costly.



Risks Associated with Doing Business
in China



Adverse changes in PRC economic and
political policies could have a material adverse effect on the overall economic growth of China, which could reduce the demand
for our products and materially and adversely affect our business.



Substantially all of our assets are located
in China. Substantially all of our revenue is derived from our operations in China and we anticipate that sales of our products
in the PRC will continue to represent a substantial proportion of our total sales in the near future. Accordingly, our results
of operations and prospects are subject, to a significant extent, to the economic, political and legal developments in China.
The PRC economy differs from the economies of most developed countries in many aspects, including:



| | · | the level of
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| | · | the level and
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| | · | the control
                                                                                                               of foreign exchange;
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| | · | the allocation
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While the Chinese economy has grown significantly
in the past two decades, the growth has been uneven geographically, among various sectors of the economy and during different
periods. We cannot assure you that the Chinese economy will continue to grow or at the pace that has prevailed in recent years,
or that if there is growth, such growth will be steady and uniform. Any measures taken by the PRC government, even if they benefit
the overall Chinese economy in the long-term, may have a negative effect on us. For example, our financial condition and results
of operations may be materially and adversely affected by government control over capital investments. Although the Chinese economy
has been transitioning from a planned economy to a more market-oriented economy, a substantial portion of the productive assets
in China is still owned by the PRC government. The continued control of these assets and other aspects of the national economy
by the PRC government could materially and adversely affect our business. The PRC government also exercises significant control
over Chinese economic growth through allocating resources, controlling payment of foreign currency denominated obligations, setting
monetary policy and providing preferential treatment to particular industries or companies. Any adverse change in the economic
conditions or government policies in China could have a material adverse effect on the overall economic growth and the level of
investments and expenditures in China, which in turn could lead to a reduction in consumer demand for our products and consequently
have a material adverse effect on our business and financial condition.



51







The PRC legal system embodies uncertainties
that could limit the legal protections available to us.



Unlike common law systems, the PRC legal
system is based on written statutes and decided legal cases have little precedential value. In 1979, the PRC government began
to promulgate a comprehensive system of laws and regulations governing economic matters in general. Our PRC operating subsidiary
is subject to laws and regulations applicable to foreign investment in China. Yongye Nongfeng is subject to laws and regulations
governing the formation and conduct of domestic PRC companies. Relevant PRC laws, regulations and legal requirements may change
frequently, and their interpretation and enforcement involve uncertainties. For example, we may have to resort to administrative
and court proceedings to enforce the legal protection that we enjoy either by law or contract. However, since PRC administrative
and court authorities have significant discretion in interpreting and implementing statutory and contractual terms, it may be
more difficult to evaluate the outcome of administrative and court proceedings. Such uncertainties, including the inability to
enforce our contracts and intellectual property rights, could materially and adversely affect our business and operations. Accordingly,
we cannot predict the effect of future developments in the PRC legal system, particularly with respect to the fertilizer and feed
sector, including the promulgation of new laws, changes to existing laws or the interpretation or enforcement thereof, or the
preemption of local regulations by national laws. These uncertainties could limit the legal protections available to us.



Currency fluctuations may adversely
affect our business.



Our reporting currency is the U.S. dollar
and our operating subsidiaries in China use RMB as their functional currency. Substantially all of our revenue and expenses are
in Renminbi. We are subject to the effects of exchange rate fluctuations with respect to any of these currencies. For example,
the value of the Renminbi depends to a large extent on Chinese government policies and China’s domestic and international
economic and political developments, as well as supply and demand in the local market. From 1994 to 2005, the official exchange
rate for the conversion of Renminbi to the U.S. dollar had generally been stable and the Renminbi had appreciated slightly against
the U.S. dollar. However, on July 21, 2005, the PRC Government changed its policy of pegging the value of the Renminbi to the
U.S. dollar. Under the new policy, the Renminbi may fluctuate within a narrow and managed band against a basket of certain foreign
currencies. This change in policy has resulted in an approximately 31% appreciation of the Renminbi against the U.S. dollar between
July 21, 2005 and December 31, 2011.



It is possible that the PRC Government
could adopt a more flexible currency policy, which could result in more significant fluctuations of the Renminbi against the U.S.
dollar. We can offer no assurance that the Renminbi will be stable against the U.S. dollar or any other foreign currency.



To the extent the U.S. dollar strengthens
against the Renminbi, the translation of foreign currency denominated transactions will result in reduced revenue, operating expenses
and net income for our PRC operations. Similarly, to the extent the U.S. dollar weakens against the Renminbi, the translation
of the foreign currency denominated transactions will result in increased revenue, operating expenses and net income for our PRC
operations. We are also exposed to foreign exchange rate fluctuations as we translate the financial statements of Yongye Nongfeng
and Yongye Fumin into U.S. dollars in consolidation. If there is a change in foreign currency exchange rates, the translation
of our foreign subsidiaries’ financial statements into U.S. dollars will lead to a translation gain or loss which is recorded
as a component of other comprehensive income. In addition, we may have certain monetary assets and liabilities that are denominated
in currencies other than the relevant entity’s functional currency. Changes in the functional currency value of these assets
and liabilities result in foreign exchange gain or loss. We have not entered into agreements or purchased instruments to hedge
our exchange rate risks, although we may do so in the future. The availability and effectiveness of any hedging transaction may
be limited and we may not be able to successfully hedge our exchange rate risks.



We must comply with the Foreign Corrupt
Practices Act.



We are required to comply with the United
States Foreign Corrupt Practices Act, which prohibits U.S. companies from engaging in bribery or other prohibited payments to
foreign officials for the purpose of obtaining or retaining business. Foreign companies, including some of our competitors, are
not subject to these prohibitions. Corruption, extortion, bribery, pay-offs, theft and other fraudulent practices occur from time-to-time
in mainland China. If our competitors engage in these practices, they may receive preferential treatment from personnel of some
companies, giving our competitors an advantage in securing business or from government officials who might give them priority
in obtaining new licenses, which would put us at a disadvantage. Although we inform our personnel and other agents that such practices
are illegal, we cannot assure you that our employees or other agents will not engage in such conduct for which we might be held
responsible. If our employees or other agents are found to have engaged in such practices, we could suffer severe penalties and
other consequences that may have a material adverse effect on our business, financial condition and results of operations.



52







Changes in foreign exchange regulations
in the PRC may affect our ability to pay dividends in foreign currency or conduct other foreign exchange business.



The Renminbi is not currently a freely
convertible currency, and the restrictions on currency exchanges may limit our ability to use revenues generated in Renminbi to
fund our business activities outside the PRC or to make dividends or other payments in U.S. dollars. The PRC government strictly
regulates conversion of Renminbi into foreign currencies. Over the years, foreign exchange regulations in the PRC have significantly
reduced the government’s control over routine foreign exchange transactions under current accounts. In the PRC, the State
Administration for Foreign Exchange, or the SAFE, regulates the conversion of the Renminbi into foreign currencies. Pursuant to
applicable PRC laws and regulations, foreign invested enterprises incorporated in the PRC are required to apply for “Foreign
Exchange Registration Certificates”. Currently, conversion within the scope of the “current account” (e.g. remittance
of foreign currencies for payment of dividends, etc.) can be effected without requiring the approval of SAFE. However, conversion
of currency in the “capital account” (e.g. for capital items such as direct investments, loans, securities, etc.)
still requires the approval of SAFE.



In addition, on October 21, 2005, SAFE
issued the Notice on Issues Relating to the Administration of Foreign Exchange in Fundraising and Reverse Investment Activities
of Domestic Residents Conducted via Offshore Special Purpose Companies (“Notice 75”), which became effective as of
November 1, 2005. Notice 75 replaced the two rules issued by SAFE in January and April 2005. According to Notice 75:



| | · | prior
                                                                                                               to establishing
                                                                                                               or assuming control
                                                                                                               of an offshore
                                                                                                               company for the
                                                                                                               purpose of obtaining
                                                                                                               overseas equity
                                                                                                               financing with
                                                                                                               assets or equity
                                                                                                               interests in an
                                                                                                               onshore enterprise
                                                                                                               in the PRC, each
                                                                                                               PRC resident, whether
                                                                                                               a natural or legal
                                                                                                               person, must complete
                                                                                                               the overseas investment
                                                                                                               foreign exchange
                                                                                                               registration procedures
                                                                                                               with the relevant
                                                                                                               local SAFE branch;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | an
                                                                                                               amendment to the
                                                                                                               registration with
                                                                                                               the local SAFE
                                                                                                               branch is required
                                                                                                               to be filed by
                                                                                                               any PRC resident
                                                                                                               that directly or
                                                                                                               indirectly holds
                                                                                                               interests in that
                                                                                                               offshore company
                                                                                                               upon either (1)
                                                                                                               the injection of
                                                                                                               equity interests
                                                                                                               or assets of an
                                                                                                               onshore enterprise
                                                                                                               to the offshore
                                                                                                               company, or (2)
                                                                                                               the completion
                                                                                                               of any overseas
                                                                                                               fund raising by
                                                                                                               such offshore company;
                                                                                                               and
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | an
                                                                                                               amendment to the
                                                                                                               registration with
                                                                                                               the local SAFE
                                                                                                               branch is also
                                                                                                               required to be
                                                                                                               filed by such PRC
                                                                                                               resident when there
                                                                                                               is any material
                                                                                                               change in the capital
                                                                                                               of the offshore
                                                                                                               company that does
                                                                                                               not involve any
                                                                                                               return investment,
                                                                                                               such as (1) an
                                                                                                               increase or decrease
                                                                                                               in its capital,
                                                                                                               (2) a transfer
                                                                                                               or swap of shares,
                                                                                                               (3) a merger or
                                                                                                               division, (4) a
                                                                                                               long term equity
                                                                                                               or debt investment,
                                                                                                               or (5) the creation
                                                                                                               of any security
                                                                                                               interests.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Moreover, Notice 75 applies retroactively.
As a result, PRC residents who have established or acquired control of offshore companies that have made onshore investments in
the PRC in the past are required to complete the relevant overseas investment foreign exchange registration procedures by March
31, 2006. Under the relevant rules, failure to comply with the registration procedures set forth in Notice 75 may result in restrictions
being imposed on the foreign exchange activities of the relevant onshore company, including the payment of dividends and other
distributions to its offshore parent or affiliate and the capital inflow from the offshore entity, and may also subject relevant
PRC residents to penalties under PRC foreign exchange administration regulations.



In addition, SAFE has, from time to time,
issued updated internal implementing rules, or Implementing Rules, in relation to Notice 75. New Implementing Rules became effective
on July I, 2011. Such Implementing Rules provide more detailed provisions and requirements regarding the overseas investment foreign
exchange registration procedures. However, even with the promulgation of the new Implementing Rules there still exist uncertainties
regarding the SAFE registration for PRC residents’ interests in overseas companies.



53







On December
25, 2006,the People’s Bank of Chinapromulgated the
Administrative Measures for Individual Foreign Exchange. On January 5, 2007, SAFE issued the Implementation Rules of the Administrative
Measures for Individual Foreign Exchange, or the Individual Foreign Exchange Rules, which, among other things, specify approval
requirements for a PRC citizen’s participation in the employee stock ownership plans or stock option plans of an overseas
publicly-listed company. In February 2012, SAFE promulgated the Notice on Issues concerning the Foreign Exchange Administration
for Domestic Individuals Participating in Stock Incentive Plan of Overseas Publicly-Listed Company, or the Stock Option Rules,
which replaced and substituted the Application Procedures of Foreign Exchange Administration for Domestic Individuals Participating
in Employee Stock Ownership Plan or Stock Option Plan of Overseas Publicly-Listed Company issued by SAFE in March 2007. According
to the Stock Option Rules, if a PRC resident participates in any stock incentive plan of an overseas publicly-listed company,
a qualified PRC domestic agent must, among other things, file on behalf of such participant an application with SAFE to conduct
the SAFE registration with respect to such stock incentive plan and obtain approval for an annual allowance with respect to the
purchase of foreign exchange in connection with the exercise or sale of stock options or stock such participant holds. Such participating
PRC resident’s foreign exchange income received from the sale of stock and dividends distributed by the overseas publicly-listed
company must be fully remitted into a specific domestic foreign currency account opened and managed by such PRC agent first, before
distribution to such participants.We are an offshore listed company and, as a result, any Chinese
employee, or foreign employee who resides in PRC more than one year consecutively, of Yongye Nongfeng or Yongye Fumin, including
without limitation, directors, supervisors and other senior management staffs of Yongye Nongfeng or Yongye Fumin, who have been
granted share options or shares under our 2010 Omnibus Securities and Incentive Plan are subject to the Stock Option Rules. If
Yongye Nongfeng, Yongye Fumin or their qualified employees fail to comply with these regulations, they may be subject to fines
or other legal sanctions imposed by SAFE or other Chinese government authorities.



PRC regulations relating to mergers
and acquisitions of domestic enterprises by foreign investors may increase the administrative burden we face and create regulatory
uncertainties.



On August 8, 2006, six PRC regulatory
agencies, namely, the PRC Ministry of Commerce, or MOFCOM, the State Assets Supervision and Administration Commission, or SASAC,
the State Administration for Taxation, the State Administration for Industry and Commerce, the China Securities Regulatory Commission,
or CSRC, and SAFE, jointly adopted the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or
New M&A Rule, which became effective on September 8, 2006 and was amended on June 22, 2009. The New M&A Rule purports,
among other things, to require offshore special purpose vehicles, or SPVs, formed for overseas listing purposes through acquisitions
of PRC domestic companies and controlled by PRC companies or individuals, to obtain the approval of the CSRC prior to publicly
listing their securities on an overseas stock exchange.



On September 21, 2006, pursuant to the
New M&A Rule and other PRC laws and regulations, the CSRC, in its official website, promulgated relevant guidance with respect
to the issues of listing and trading of domestic enterprises’ securities on overseas stock exchanges (the “Related
Clarifications”), including a list of application materials with respect to the listing on overseas stock exchanges by SPVs.



There are substantial uncertainties regarding
the interpretation and application of the above rules, and CSRC has yet to promulgate any written provisions or formally to declare
or state whether the overseas listing of PRC related company similar to the case of us shall be subject to the approval of CSRC.
If CSRC approval is required in connection with our listing, our failure to obtain or delay in obtaining such approval could result
in penalties imposed by CSRC and other PRC regulatory agencies. These penalties could include fines and penalties on our operations
in China, restriction or limitation on remitting dividends outside of China, and other forms of sanctions that may cause a material
and adverse effect to our business, operations and financial conditions.



Notwithstanding those provisions, we are
advised by our PRC counsel, Han Kun Law Offices, that CSRC approval is not required in the context of our listing because (i)
we are not a special purpose vehicle formed or controlled by PRC companies or PRC individuals, (ii) we are owned or substantively
controlled by foreigners, and (iii) establishment of Yongye Nongfeng is not subject to the New M&A rules because its establishment
is through incorporation of a cooperative joint venture with Inner Mongolia Yongye, rather than through merger or acquisition.
However, we cannot assure that the relevant PRC government agencies, including the CSRC, would reach the same conclusion, and
we still cannot rule out the possibility that CSRC may deem our listing structure circumvents the New M&A rules, Related Clarifications
and PRC Securities Law.



54







Though the New M&A rules do not have
express provisions in terms of penalties against non-procurement of CSRC approval, there are some other penalty provisions in
other PRC laws and regulations regulating offshore listing, which can be cited as a reference:



(i) Pursuant to Article 188
of the PRC Securities Law, any entity that issues securities or issues securities in disguised form without verification or examination
and approval by the statutory authority shall be ordered to cease issuance and refund the funds thus raised, together with bank
deposit interest for the same period, and shall also be fined not less than one percent but not more than five percent of the
amount of the proceeds illegally raised. The persons directly in charge and the other persons directly responsible shall be given
a disciplinary warning and also be fined not less than RMB30,000 but not more than RMB300,000.  However, we believe that
this penalty is mainly designed for and targeted at domestic listing because the PRC Securities Law mainly regulate domestic listings,
and listing or de-listing of a company’s stock in the US stock market should be subject to the SEC’s regulation, which
is beyond the CSRC’s jurisdiction.



(ii) Pursuant to the Circular
of the State Council Concerning Further Strengthening the Administration of Overseas Issuance and Listing of Securities, the overseas
listing of securities of a PRC related company which violates this Circular shall be deemed an issuance of shares without authorization
or approval. Persons in charge of the competent departments responsible for approval of such an overseas issuance could be subject
to administrative sanctions if such person in charge is liable for such violation. People heading the issuing entity and other
people directly responsible for issuance shall be penalized, including degraded to a lower lever position and termination of employment
by the upper level department. If the violation constitutes a crime, criminal liability shall be claimed against relevant responsible
persons according to applicable laws. The issuing entity, relevant agencies involved and the responsible people thereof shall
be penalized by the CSRC in accordance with the provisions of the Interim Regulations on the Administration of Issuance and Trading
of Securities and other relevant provisions.



Government regulations on environmental
matters in China may adversely impact on our business.



Our manufacturing operations are subject
to numerous laws, regulations, rules and specifications relating to human health and safety and the environment. These laws and
regulations address and regulate, among other matters, wastewater discharge, air quality and the generation, handling, storage,
treatment, disposal and transportation of solid and hazardous wastes and releases of hazardous substances into the environment.
In addition, third parties and governmental agencies in some cases have the power under such laws and regulations to require remediation
of environmental conditions and, in the case of governmental agencies, to impose fines and penalties. We make capital expenditures
from time to time to stay in compliance with applicable laws and regulations.



We believe that we have obtained all permits
and approvals and filed all registrations required for the conduct of our business, except where the failure to obtain any permit
or approval or file any registration would not have a material adverse effect on our business, financial condition and results
of operations. We believe that we are in compliance in all material respects with the numerous laws, regulations, rules, specifications
and permits, approvals and registrations relating to human health and safety and the environment except where noncompliance would
not have a material adverse effect on our business, financial condition and results of operations.



The PRC governmental authorities have
not revealed any material environmental liability that would have a material adverse effect on us. We have not been notified by
any governmental authority of any continuing noncompliance, liability or other claim in connection with any of our properties
or business operations, nor are we aware of any other material environmental condition with respect to any of our properties or
arising out of our business operations at any other location. However, in connection with the ownership and operation of our properties
(including locations to which we may have sent waste in the past) and the conduct of our business, we potentially may be liable
for damages or cleanup, investigation or remediation costs. In addition, in connection with environmental certification applications
we have filed regarding our existing operations, the PRC governmental authorities could impose significant additional obligations
prior to approving such applications, or could determine not to approve such applications. Any such additional obligation, or
the denial of such applications could have a material adverse effect on our business, financial conditions and results of operations.



55







No assurance can be given that all potential
environmental liabilities have been identified or properly quantified or that any prior owner, operator, or tenant has not created
an environmental condition unknown to us. Moreover, no assurance can be given that (i) future laws, ordinances or regulations
will not impose any material environmental liability or (ii) the current environmental condition of the properties will not be
affected by the condition of land or operations in the vicinity of the properties (such as the presence of underground storage
tanks), or by third parties unrelated to us. State and local environmental regulatory requirements change often.



It is possible that compliance with a
new regulatory requirement could impose significant compliance costs on us. Such costs could have a material adverse effect on
our business, financial condition and results of operations.



We may have difficulty managing the
risk associated with doing business in the Chinese fertilizer and feed sector.



In general, the fertilizer and feed sector
in China is affected by a series of factors, including, but not limited to, natural, economic and social such as climate, market,
technology, regulation, and globalization, which makes risk management difficult. Fertilizer and feed operations in China face
similar risks as present in other countries, however, these can either be mitigated or exacerbated due to governmental intervention
through policy promulgation and implementation either in the fertilizer and feed sector itself or sectors which provide critical
inputs to fertilizer and feed such as energy or outputs such as transportation. While not an exhaustive list, the following factors
could significantly affect our ability to do business:



| | · | food,
                                                                                                               feed, and energy
                                                                                                               demand including
                                                                                                               liquid fuels and
                                                                                                               crude oil;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | agricultural,
                                                                                                               financial, energy
                                                                                                               and renewable energy
                                                                                                               and trade policies;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | input
                                                                                                               and output pricing
                                                                                                               due to market factors
                                                                                                               and regulatory
                                                                                                               policies;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | production
                                                                                                               and crop progress
                                                                                                               due to adverse
                                                                                                               weather conditions,
                                                                                                               equipment deliveries,and water
                                                                                                               and irrigation
                                                                                                               conditions; and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | infrastructure
                                                                                                               conditions and
                                                                                                               policies.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Currently, we do not and do not intend
to carry insurance to protect revenue which could be lost caused by any of the above factors.



We may have difficulty establishing
adequate management, legal and financial controls in the PRC.



The PRC historically has been unaccustomed
to and lacking in management and financial reporting concepts and practices as in the United States and other developed countries,
as well as in modern banking, computer and other control systems. We may have difficulty in hiring and retaining a sufficient
number of qualified employees to work in the PRC. As a result of these factors, we may experience difficulty in establishing management,
legal and financial controls, collecting financial data and preparing financial statements, books of account and corporate records
and instituting business practices that as used in United States and other developed countries. We may have difficulty in establishing
adequate management, legal and financial controls in the PRC.



We face risks related to health epidemics
and other outbreaks.



Our business could be adversely affected
by the effects of swine flu, avian flu, severe acute respiratory syndrome, or SARS, or other epidemics or outbreaks. From 2005
to 2009, there have been reports on the occurrences of avian flu and swine flu in various parts of China and elsewhere in Asia,
including a few confirmed human cases and deaths. Any prolonged recurrence of swine flu, avian flu, SARS or other adverse public
health developments in China may have a material adverse effect on our business operations. Our operations may be impacted by
a number of health-related factors, including, among other things, quarantines or closures of our factories and the facilities
of our supplier and customers which could severely disrupt our operations. Any of the foregoing events or other unforeseen consequences
of public health problems could adversely affect our business and results of operations. We have not adopted any written preventive
measures or contingency plans to combat any future outbreak of swine flu, avian flu, SARS or any other epidemics.



56







Inflation in the PRC could negatively
affect our profitability and growth.



While the PRC economy has experienced
rapid growth, it has been uneven among various sectors of the economy and in different geographical areas of the country. Rapid
economic growth can lead to growth in the money supply and rising inflation. If prices for our products do not rise at a rate
that is sufficient to fully absorb inflation-driven increases in our costs of supplies, our profitability can be adversely affected.



During the past ten years, the rate of
inflation in China has been fluctuating quite significantly. The Chinese government, from time to time, has adopted various corrective
measures designed to restrict the availability of credit, regulate growth and contain inflation. In order to control inflation,
the PRC government has imposed controls on bank credits, limits on loans for fixed assets and restrictions on state bank lending.
The implementation of these and other similar policies can impede economic growth and thereby harm the market for our products
and our business.



Because our assets and operations are
located in PRC, you may have difficulty enforcing civil liabilities against us under the securities and other laws of the United
States or any state.



We are a holding company, and most of
our assets are located in the PRC. In addition, substantially all of our directors and officers are non-residents of the United
States, and all or a substantial portion of the assets of these non-residents are located outside the United States, As a result,
it may be difficult for investors to effect service of process within the United States upon these non-residents, or to enforce
against them judgments obtained in United States courts, including judgments based upon the civil liability provisions of the
securities laws of the United States or any state. There is uncertainty as to whether courts of the PRC would enforce:



| | · | judgments
                                                                                                               of United States
                                                                                                               courts obtained
                                                                                                               against us or these
                                                                                                               non-residents based
                                                                                                               on the civil liability
                                                                                                               provisions of the
                                                                                                               securities laws
                                                                                                               of the United States
                                                                                                               or any state; or
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | in
                                                                                                               original actions
                                                                                                               brought in the
                                                                                                               PRC, liabilities
                                                                                                               against us or non-residents
                                                                                                               predicated upon
                                                                                                               the securities
                                                                                                               laws of the United
                                                                                                               States or any state.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Enforcement of a foreign judgment in the
PRC also may be limited or otherwise affected by applicable bankruptcy, insolvency, liquidation, arrangement, moratorium or similar
laws relating to or affecting creditors’ rights generally and will be subject to a statutory limitation of time within which
proceedings may be brought.



We may not receive the preferential
tax treatment we previously enjoyed under PRC laws, and our global income and dividends paid to us from our operations in China
may become subject to income tax under PRC law.



The rate of income tax on companies in
China may vary depending on the availability of preferential tax treatment or subsidies based on their industry or location. The
PRC government promulgated on March 16, 2007 the new Enterprise Income Tax Law, (“EIT Law”), and it’s implementing
rules, which became effective January 1, 2008. Pursuant to the new law, the enterprise income tax of 25% shall be applied to any
enterprise. However, Yongye Nongfeng received a High-Tech Enterprise Certificate which entitles it to a preferential tax rate
of 15% for three years starting from January 1, 2010. There is no assurance we can renew our High-Tech Enterprise Certificate after
it expires or if any new law may change the preferential treatment granted to us. Any loss or substantial reduction of the
tax benefits enjoyed by us would reduce our net profit and have a material adverse effect on our financial condition and results
of operations.



57







Notwithstanding the foregoing provision,
the new EIT Law also provides that dividends paid between “qualified resident enterprises” are exempt from enterprise
income tax. Under the new EIT Law and its implementing rules, an enterprise established outside the PRC with its “de facto
management body” within the PRC is considered a “resident enterprise” and will be subject to the enterprise
income tax at the rate of 25% on its worldwide income. The “de facto management body” is defined as the organizational
body that effectively exercises overall management and control over production and business operations, personnel, finance and
accounting, and properties of the enterprise. It remains unclear how the PRC tax authorities will interpret such a broad
definition. Substantially most of our management members or business operations are based in the PRC. If the PRC tax authorities
subsequently determine that we should be classified as a resident enterprise, then it is possible that our worldwide income will
be subject to income tax at a uniform rate of 25%.



In addition, under the new EIT law and
its implementing rules, dividends paid by a foreign invested enterprise in the PRC to its foreign investor who is a non-resident
enterprise will be subject to a 10% PRC withholding income tax (5% for a qualified Hong Kong beneficial owner), unless such tax
is eliminated or reduced under an applicable tax treaty. Asia Standard Oil Limited (“ASO”), the 95% shareholder
of Yongye Nongfeng, is incorporated in Hong Kong. Therefore, if ASO is considered a non-resident enterprise for purposes of the
new EIT law, this new withholding income tax imposed on dividends paid to us by Yongye Nongfeng would reduce our net
income in the event we decide to declare a dividend, which may have an adverse effect on our operating results.



It is unclear whether the dividends we
receive from Yongye Nongfeng will constitute dividends between “qualified resident enterprises” and would therefore
qualify for the tax exemption because it is unclear as to (i) the detailed qualification requirements for such exemption and (ii)
whether dividend payments by our PRC subsidiary and investee company to us will meet such qualification requirements, even if
we are considered a PRC resident enterprise for tax purposes.



Moreover, since ASO, the 95% shareholder
of Yongye Nongfeng, is incorporated in Hong Kong, even if ASO is considered a non-resident enterprise, it is also unclear whether
ASO should be considered as a Hong Kong beneficial owner. The beneficial owner means persons who possess ownership and right of
control on their proceeds or rights or properties generated from such proceeds. The beneficial owner generally engages in substantive
operation activities and may be individuals, companies or any other associations. Agents and companies for tax evasion purposes
are not beneficial owner. If ASO is not considered Hong Kong beneficial owner, it will be subject to a 10% PRC withholding income
tax.



Dividends payable to our non-PRC investors
and any gain on the sale of our shares may be subject to taxes under PRC tax laws.



If our dividends payable to our shareholders
are treated as income derived from sources within China, then those dividends, and any gain on the sale or transfer of our shares,
may be subject to taxes under PRC tax laws.



Under the EIT Law and its implementing
rules, a withholding income tax at the rate of 10% is applicable to dividends paid by us to our investors that are non-resident
enterprises so long as (i) any such non-resident enterprise investor does not have an establishment or place of business in China,
or (ii) despite the existence of an establishment or place of business in China, the relevant income is not effectively connected
with such an establishment or place of business in China and (iii) such dividends are derived from sources within PRC. Similarly,
any gain realized on the transfer of our shares by such investors is also subject to a 10% income tax if such gain is regarded
as income derived from sources within China and we are considered a resident enterprise domiciled in China for tax purposes. If
we are required under the EIT Law to withhold PRC income tax on our dividends paid to our foreign shareholders or investors who
are non-resident enterprises, or if you are required to pay PRC income tax on the transfer of our shares under the circumstances
mentioned above, the value of your investment in our shares may be materially and adversely affected.



In January 2009, the State Administration
of Taxation promulgated the Provisional Measures for the Administration of Withholding of Enterprise Income Tax for Non-resident
Enterprises (“Measures”). Entities which have the direct obligation to make the following types of payments to a non-resident
enterprise will be the relevant tax withholders for such a non-resident enterprise: income from equity investment (including dividends
and other return on investment), interest, rent, royalties, and income from assignment of property as well as other income subject
to enterprise income taxes received by non-resident enterprises in China. Further, the Measures provide that in the case of an
equity transfer of a PRC company’s equity interest between two non-resident enterprises outside of the PRC, the non-resident
enterprise which receives the equity transfer payment shall file a tax declaration with the PRC tax authority located at the place
of the PRC company whose equity has been transferred, and the PRC company whose equity has been transferred shall assist
the tax authorities to collect taxes from the relevant non-resident enterprise.



58







Moreover, the State Administration of
Taxation released Circular Guoshuihan No. 698 (“Circular 698”) on December 10, 2009 that reinforces the taxation of
certain equity transfers by non-resident investors through overseas holding vehicles. Circular 698 is retroactively effective
from January 1, 2008. Circular 698 addresses indirect equity transfers as well as other issues. According to Circular 698, where
a non-resident investor that indirectly holds an equity interest in a PRC resident enterprise through a non-PRC offshore holding
company indirectly transfers an equity interest in the PRC resident enterprise by selling an equity interest in the offshore holding
company, and the latter is located in a country or jurisdiction where the actual tax burden is less than 12.5% or where the offshore
income of its residents is not taxable, the non-resident investor is required to provide the PRC tax authority in charge of that
PRC resident enterprise with certain relevant information within 30 days of the execution of the equity transfer agreement. The
tax authorities in charge will evaluate the offshore transaction for tax purposes. In the event that the tax authorities determine
that such transfer is abusing forms of business organization and a reasonable commercial purpose for the offshore holding company
other than the avoidance of PRC income tax liability is lacking, the PRC tax authorities will have the power to re-assess the
nature of the equity transfer under the doctrine of substance over form. If challenge of a transfer from the State Administration
of Taxation is successful, it may deny the existence of the offshore holding company that is used for tax planning purposes and
subject the non-resident investor to PRC tax on the capital gain from such transfer. Since Circular 698 has a short history, there
is uncertainty as to its application. We may become at risk of being taxed under Circular 698 and may be required to expend valuable
resources to comply with Circular 698 or to establish that we should not be taxed under Circular 698, which could have a material
adverse effect on its financial condition and results of operations. If the PRC tax authority determines that Circular 698 applies
to us (or a non-resident investor), we (or a non-resident investor) will be obligated to make a tax return filing with the relevant
PRC tax authority in accordance with PRC tax laws and regulations.



PRC regulation of direct investment
and loans by offshore holding companies to PRC entities may delay or limit our ability to use the proceeds of any offering of
securities to make additional capital contributions or loans to our PRC operating business.



Any capital contributions or loans that
we, as an offshore company, make to our PRC operating business are subject to PRC regulations. For example, any of our loans to
our PRC operating business cannot exceed the difference between the total amount of investment our PRC operating business are
approved to make under relevant PRC laws and their respective registered capital, and must be registered with the local branch
of SAFE as a procedural matter. In addition, our capital contributions to Yongye Nongfeng must be approved by MOFCOM or its
local counterpart and registered with the SAIC or its local counterpart. We cannot assure you that we will be able to obtain these
approvals on a timely basis, or at all. If we fail to obtain such approvals, our ability to make equity contributions or provide
loans to our PRC operating business or to fund its operations may be negatively affected, which could adversely affect its liquidity
and its ability to fund its working capital and expansion projects and meet its obligations and commitments. Furthermore, SAFE
promulgated a circular in August 2008 with respect to the administration of conversion of foreign exchange capital contribution
of foreign invested enterprises into RMB. Pursuant to that circular, RMB converted from foreign exchange capital contribution
can only be used for the activities within the approved business scope of such foreign invested enterprise and cannot be used
for domestic equity investment unless otherwise allowed by PRC laws or regulations. As a result, we may not be able to convert
Yongye Nongfeng’s newly increased capital contribution into RMB for equity investment in China.



59







PRC labor law restricts our ability
to reduce our workforce in the PRC in the event of an economic downturn and may increase our labor costs.



In June 2007, the National People’s
Congress of the PRC enacted the Labor Contract Law, which became effective on January 1, 2008. To clarify certain details in connection
with the implementation of the Labor Contract Law, the State Council promulgated the Implementing Rules for the Labor Contract
Law, or the implementing Rules, on September 18, 2008 which came into effect immediately. The Labor Contract Law provides various
rules regarding employment contracts that will likely have a substantial impact on employment practices in China. The Labor Contract
Law imposes severe penalties on employers that fail to timely enter into employment contracts with employees. The employer is
required to pay a double salary to the employee if it does not enter into a written contract with the employee within one month
of the employment, and a non-fixed-term contract is assumed if a written contract is not executed after one year of the employment.
Additionally, the Labor Contract Law sets a limit of two fixed-term contracts regardless of the length of each term, after which
the contract must be renewed on a non-fixed-term basis should the parties agree to a further renewal unless otherwise required
by the respective employee. This requirement curtails the common practice of continuously renewing short-term employment contracts.
The Implementing Rules appear to further tighten this rule by suggesting that an employee has the right to demand a non-fixed-term
contract upon the completion of the second fixed term regardless of whether the employer agrees to a contract renewal. A non-fixed-term
contract does not have a termination date and it is generally difficult to terminate such a contract because termination must
be based on limited statutory grounds. The employer can no longer supplement such statutory grounds through an agreement with
the employee. In addition, the Labor Contract Law requires the payment of statutory severance upon the termination of an employment
contract in most circumstances, including the expiration of a fixed-term employment contract.



Under the Labor Contract Law, employers
can only impose a post-termination non-competition provision on employees for a maximum period of two years. If an employer intends
to maintain the enforceability of a post-termination non-competition provision, the employer has to pay the employee compensation
on a monthly basis post-termination of the employment. Under the Labor Contract Law, a “mass layoff” is defined as
termination of more than 20 employees or more than 10% of the workforce. The Labor Contract Law expands the circumstances under
which a mass layoff can be conducted, such as when a company undertakes a restructuring pursuant to the PRC Enterprise Bankruptcy
Law, suffers serious difficulties in business operations, changes its line of business, performs significant technology improvements,
changes operating methods, or where there has been a material change in the objective economic circumstances relied upon by the
parties at the time of the conclusion of the employment contract, thereby making the performance of such employment contract
impractical. The employer must follow specific procedures in conducting a mass layoff. There is little guidance on what penalties
an employer will suffer if it fails to follow the procedural requirements in conducting the mass layoff. Finally, the Labor Contract
Law requires that the employer discuss the company’s internal rules and regulations that directly affect the employees’
material interests (such as employees’ salary, work hours, leave, benefits, and training, etc.) with all employees or employee
representative assemblies and consult with the trade union or employee representatives on such matters before making a final decision.



All of our employees based exclusively
within the PRC are covered by these laws. As there has been little guidance and precedents as to how the Labor Contract Law and
its Implementing Rules shall be enforced by the relevant PRC authorities, there remains uncertainty as to their potential impact
on our business and results of operations. The compliance with the Labor Contract Law and its implementing Rules may increase
our operating expenses, in particular our personnel expenses and labor service expenses. If we want to maintain the enforceability
of any of our employees’ post-termination non-competition provisions, the compensation and procedures required under the
Labor Contract Law may add substantial costs and cause logistical burdens to us. Prior to the Labor Contract Law such compensation
was often structured as part of the employee’s salary during employment, and was not an additional compensation cost. In
the event that we decide to terminate employees or otherwise change our employment or labor practices, the Labor Contract Law
and its Implementing Rules may also limit our ability to effect these changes in a manner that we believe to be cost-effective
or desirable, which could adversely affect our business and results of operations. In particular, our ability to adjust the size
of our operations when necessary in periods of recession or less severe economic downturns such as the recent financial turmoil
may be affected. In addition, during periods of economic decline when mass layoffs become more common, local regulations may tighten
the procedures by, among other things, requiring the employer to obtain approval from the relevant local authority before conducting
any mass layoff. Such regulations can be expected to exacerbate the adverse effect of the economic environment on our results
of operations and financial condition.



60







Failure to fully comply with PRC labor
laws may expose us to potential liability.



Companies operating in China must comply
with a variety of labor laws, including certain social insurance, housing fund and other staff welfare-oriented payment obligations.
While we believe we have complied with such obligations, there exist uncertainties as to the interpretation, implementation and
enforcement of such obligations. If relevant governmental authorities determine that we have not complied fully with such obligations,
we may be in violation of applicable PRC labor laws and we cannot assure you that PRC governmental authorities will not impose
penalties on us for any failure to comply. In addition, in the event that any current or former employee files a complaint with
relevant governmental authorities, we may be subject to making up such staff-welfare oriented obligations as well as paying administrative
fines.



Risks Related to our Securities



Our common stock may be affected by
limited trading volume and may fluctuate significantly.



Our common stock is traded on the Nasdaq
Global Select Market. Although an active trading market has developed for our common stock, there can be no assurance that an
active trading market for our common stock will be sustained. Failure to maintain an active trailing market for our common stock
may adversely affect our shareholders’ ability to sell our common stock in short time periods, or at all. In addition, sales
of substantial amounts of our common stock in the public market could harm the market price of our common stock. Our common stock
has experienced, and may experience in the future, significant price and volume fluctuations. Some of the factors that may materially
affect the market price of our common stock are beyond our control, such as changes in financial estimates by industry and securities
analysts, conditions or trends in the industry in which we operate or sales or our common stock. These factors may materially
adversely affect the market price of our common stock, regardless of our performance. These broad market fluctuations may adversely
affect the market price of our common stock.



Shares eligible for future sale may
adversely affect the market price of our common stock, as the future sale of a substantial amount of our restricted stock in the
public marketplace could reduce the price of our common stock.



From time to time, certain of
our stockholders may be eligible to sell all or some of their shares of common stock by means of ordinary brokerage
transactions in the open market pursuant to Rule 144, promulgated under the Securities Act of 1933, as amended (“Rule
144”), subject to certain limitations. In general, pursuant to Rule 144, a stockholder (or stockholders whose shares
are aggregated) who has satisfied a six-month holding period may, under certain circumstances, sell within any three-month
period a number of securities which does not exceed the greater of 1% of the then outstanding shares of common stock or the
average weekly trading-volume of the class during the four calendar weeks prior to such sale. Rule 144 also permits,
under certain circumstances, the sale of securities, without any limitations, by a non-affiliate of our Company that has
satisfied a one-year holding period. We have granted MSPEA and any other holders of the convertible preferred stock
certain registration rights with respect to the common stock underlying the convertible preferred stock and any other shares
of common stock they may otherwise own or acquire in the future. Any substantial sale of common stock pursuant to Rule 144
or pursuant to any resale prospectus, including a resale prospectus used to register the common stock underlying the
convertible preferred stock, may have an adverse effect on the market price of our securities.



There is a significant number of our
common stock eligible for sale, which could depress the market price of such stock.



Since September 23, 2011, the effective
date of the registration statement that registered the common stock underlying our convertible preferred stock, a large number
of our common stock has become available for sale in the public market, which could harm the market price of the stock. Further,
shares may be offered from time to time in the open market pursuant to Rule 144, and these sales may have a depressive effect
as well. In general, a person who has held restricted shares for a period of six months may, upon filing a notification with the
SEC on Form 144, sell common stock into the market in an amount equal to the greater of one percent of the outstanding shares
or the average weekly trading volume during the last four weeks prior to such sale.



Your percentage ownership in us may
be diluted by future issuances of capital stock and by the conversion of the convertible preferred stock, which could reduce your
influence over matters on which stockholders vote.



Subject only to any applicable stockholder
approval requirements imposed by the Nasdaq Global Select Market, our board of directors has the authority to issue all or any
part of our authorized but unissued shares of common stock. Issuances of common stock would reduce your influence over matters
on which our stockholders vote. The conversion of the convertible preferred stock will dilute your percentage ownership.



61







Stockholders should have no expectation
of any dividends.



To date, we have not declared nor paid
any cash dividends. The Board of Directors does not intend to declare any dividends on our common stock in the near future, but
instead intends to retain all earnings, if any, for use in the operation and expansion of our business. If we decide to pay dividends,
foreign exchange and other regulations in China may restrict our ability to distribute retained earnings from China or convert
those payments from Renminbi into foreign currencies.



Techniques employed by manipulative
short sellers in Chinese small cap stocks may drive down the market price of our common stock.



Short selling is the practice of selling
securities that the seller does not own but rather has, supposedly, borrowed from a third party with the intention of buying identical
securities back at a later date to return to the lender. The short seller hopes to profit from a decline in the value of the securities
between the sale of the borrowed securities and the purchase of the replacement shares, as the short seller expects to pay less
in that purchase than it received in the sale. As it is therefore in the short seller’s best interests for the price of
the stock to decline, many short sellers (sometime known as “disclosed shorts”) publish, or arrange for the publication
of, negative opinions regarding the relevant issuer and its business prospects in order to create negative market momentum and
generate profits for themselves after selling a stock short. While traditionally these disclosed shorts were limited in their
ability to access mainstream business media or to otherwise create negative market rumors, the rise of the Internet and technological
advancements regarding document creation, videotaping and publication by weblog (“blogging”) have allowed many disclosed
shorts to publicly attack a company’s credibility, strategy and veracity by means of so-called research reports that mimic
the type of investment analysis performed by large Wall Street firm and independent research analysts.  These short
attacks have, in the past, led to selling of shares in the market, on occasion in large scale and broad base. Issuers with business
operations based in China and who have limited trading volumes and are susceptible to higher volatility levels than U.S. domestic
large-cap stock, and can be particularly vulnerable to such short attacks.



These short seller publications are not
regulated by any governmental, self-regulatory organization or other official authority in the U.S., are not subject to the certification
requirements imposed by the Securities and Exchange Commission in Regulation AC (Regulation Analyst Certification) and, accordingly,
the opinions they express may be based on distortions of actual facts or, in some cases, fabrications of facts. In light of limited
risks involved in publishing such information, and the enormous profit that can be made from running just one successful short
attack, unless the short sellers become subject to significant penalties, it is more likely than not that disclosed shorts will
continue to issue such reports.



While we intend to strongly defend our
public filings against any such short seller attacks, often times we are constrained, either by principles of freedom of speech,
applicable state law (often called “Anti-SLAPP statutes”), or issues of commercial confidentiality, in the manner
in which we can proceed against the relevant short seller. You should be aware that in light of the relative freedom to operate
that such persons enjoy — oftentimes blogging from outside the U.S. with little or no assets or identity requirements —
should we be targeted for such an attack, our stock will likely suffer from a temporary, or possibly long term, decline in market
price should the rumors created not be dismissed by market participants.



In February, March, May and December of
2011, and January of 2012, there were reports published by the Seeking Alpha website, analysts, and other web-based publishers
that contained misleading statements about us. Although we have responded to each of these reports in press releases dated February
7, 2011, March 24, 2011, May 19, 2011 and December 15, 2011, there are predictions that there will continue to be more short seller
attacks against Chinese companies. As a result, the price of our stock remains vulnerable to any further attacks in this regard.



62







We are the subject of pending class
action lawsuits, which could require us to pay substantial damages or could otherwise have a material adverse effect on us.



Following the publishing of certain reports
on the Seeking Alpha website, analyst reports and other web-based articles, we and certain of our officers and directors were
named in a number of class action lawsuits alleging, among other things, that we and such officers and directors issued false
and misleading information to investors about our financial and business condition. On March 5, 2012, the plaintiffs voluntarily
dismissed this action with prejudice as to themselves as named plaintiffs. We and certain of our officers and directors were named
in a derivative lawsuit alleging that such officers and directors breached their fiduciary duties, wasted corporate assets and
were unjustly enriched at expenses of our Company. While we believe the claims contained in these lawsuits to be without merit
and intend to defend these cases vigorously, these efforts will be both expensive and time consuming and ultimately, due to the
nature of the litigation, there can be no assurance that these efforts will be successful. In addition, our bylaws, our amended
articles of incorporation and an agreement we entered into in favor of MSPEA’s director in connection with the May 2011
financing require us to indemnify our directors for breaches of fiduciary duties, subject to certain limited exceptions. According
to such documents, we are obligated to pay for certain costs and expenses of our directors and may be liable for substantial damages,
costs and expenses if the plaintiffs prevail. Such litigation could also divert the attention of our management and our resources
in general from day-to-day operations.



An SEC investor bulletin regarding
reverse mergers may drive down the market price of our common stock.



On June 9, 2011, the SEC issued an investor
bulletin in which it explained the process by which a company becomes a public company by means of a reverse merger, described
the potential risks of investing in a reverse merger company and detailed recent enforcement actions taken by it against certain
reverse merger companies. In particular the investor bulletin raised specific concerns with respect to foreign companies that
access the U.S. markets through the reverse merger process, as we did. The SEC investor bulletin could cause investors in our
common stock to sell their shares and may cause other investors not to invest in us, thus driving down the market price of our
common stock or making it more difficult for us to raise funds in the future.



If our common stock were delisted and
determined to be a “penny stock,” a broker-dealer may find it more difficult to trade our common stock and an investor
may find it more difficult to acquire or dispose of our common stock in the secondary market.



If our common stock were removed from
listing with the Nasdaq Global Select Market, we may be subject to the so-called “penny stock” rules. The SEC has
adopted regulations that define a “penny stock” to be any equity security that has a market price per share of less
than US$5.00, subject to certain exceptions, such as any securities listed on a national securities exchange. For any transaction
involving a “penny stock,” unless exempt, the rules impose additional sales practice requirements on broker-dealers,
subject to certain exceptions. If our common stock were delisted and determined to be a “penny stock,” a broker-dealer
may find it more difficult to trade our common stock and an investor may find it more difficult to acquire or dispose of our common
stocks on the secondary market. Investors in penny stocks should be prepared for the possibility that they may lose their whole
investment.



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



In June 2012, we issued 397,727
shares of redeemable Series A convertible preferred stock to MSPEA as paid-in-kind dividends. Such issuance was made in
reliance on a safe harbor from registration from the Securities Act of 1933, as amended, pursuant to Regulation S promulgated thereunder.



ITEM
3.DEFAULTS UPON SENIOR SECURITIES



None.



ITEM
4.MINING SAFETY DISCLOSURE



Not applicable.



ITEM
5.OTHER INFORMATION



None.



ITEM
6.EXHIBITS



|Exhibit No. |  | Description                                                                                                                                                                                 
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|31.1        |  | 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 (Principal Financial and Accounting 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.*                                                                    
|10.1        |  | Working Capital Loan Agreement dated April 28, 2012 between Inner Mongolia Yongye Nongfeng Biotech Co., Ltd. and China Everbright Bank, Hohhot Branch.*                                     
|10.2        |  | Maximum Amount Guarantee Contract dated April 28, 2012 between Zishen Wu and China Everbright Bank, Hohhot Branch.*                                                                         
|10.3        |  | Maximum Amount Guarantee Contract dated April 28, 2012 between Ping Yi and China Everbright Bank, Hohhot Branch.*                                                                           
|10.4        |  | Working Capital Loan Contract dated June 20, 2012 between Inner Mongolia Yongye Nongfeng Biotech Co., Ltd. and China International Trust and Investment Corporation (CITIC), Hohhot Branch.*



|101.INS | XBRL Instance Document**                                
|------- | --------------------------------------------------------
|101.SCH | XBRL Taxonomy Extension Schema Document**               
|101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document** 
|101.DEF | XBRL Taxonomy Extension Definition Linkbase Document**  
|101.LAB | XBRL Taxonomy Extension Label Linkbase Document**       
|101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document**








* Filed Herewith

| | ** | To be filed by amendment
| | -- | ------------------------



63







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.
|-------------- | --------------------------
|               | By:                       
|               |                           
|August 9, 2012 |                           
|               |                           
|               |                           
|               | By:                       
|               |                           
|               |                           
|               |                           



64